Limoneira Co

Greetings and welcome to Lemonera's third quarter fiscal year 2022 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us for Lemonera's third quarter fiscal year 2022 conference call. On the call today are Harold Edwards, President and Chief Executive Officer, and Mark Palamountain, Chief Financial Officer. By now, everyone should have access to the third quarter fiscal year 2022 earnings release, which went out today at approximately 4 p.m. Eastern time. If you've not had a chance to view the release, it's available on the investor relations portion of the company's website at limanera.com. This call is being webcast, and a replay will be available on Limanera's website as well. Before we begin, we'd like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control and could cause its future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences, include risk details in the company's 10 Qs and 10 Ks filed with the SEC and those mentioned in the earnings release. Except as required by law, we undertake no obligation to update any forward-looking or other statements herein, whether a result of new information, future events, or otherwise. Please note that during today's call, we will be discussing non-GAAP financial measures including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limonera's ongoing results of operations, particularly when comparing underlying results from period to period. We have provided as much detail as possible on any items that are discussed on an adjusted basis. Also, within the company's earnings release and in today's prepared remarks, We include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measures is included in the company's 10-Q and press release, which has been posted to our website. And with that, it is my pleasure to turn the call over to the company's president and CEO, Mr. Harold Edwards.

Thanks, John, and good afternoon, everyone. Operating income increased over 200% and our top line grew by 20% driven by record avocado revenues and strong fresh lemon sales in the third quarter of fiscal 2022 compared to the prior year period. Our strategic approach to fresh utilization enabled our sales and marketing team to successfully market our fresh lemons throughout the year. The investments we have made in technology and our supply chain have resulted in superior market timing compared to our peers and brought more grower partners to our company. Even though overall lemon pricing remained challenged in the third quarter, as the domestic and global lemon markets continued to work through a surplus of inventory, we were able to offset many industry-wide inflationary pressures and logistical issues. In addition, our avocado segment has continued to outperform expectations, with pricing almost doubling year over year, resulting in record revenues of $12.6 million in the third quarter of 2022. Our results are even more impressive when you consider the fact that our industry continued to face rising labor costs and higher packing and supplier costs, but our strong top line and efficient marketing and selling plans more than offset these cost increases. Last quarter, we informed you of our plan to unlock the value of our many assets and better leverage our leading global citrus position by expanding our one world of citrus, increasing our avocado plantings, and selling certain assets to dramatically increase our cash flow in the near future. Today, we are updating that plan, and we expect the updated plan to increase our one world of citrus business by focusing on growth of asset lighter sales using more grower partner fruit in order to reduce the impact of pricing volatility and rising farming costs. We will continue to develop best-in-class grower services to recruit additional grower partners. We have over 15,400 acres of rich agricultural lands, real estate properties, and water rights in California, Arizona, Chile, and Argentina, with a fair market value of over $600 million in today's markets, yet a book value on our balance sheet of $220 million because many of these assets were acquired years ago at low-cost basis. We believe selective monetization of certain assets in our portfolio creates a tremendous value creation opportunity for our shareholders. As a reminder, our board's objectives with our new directive include the following. Reduce debt and right-size our balance sheet. We also reiterated today that we expect to receive approximately $95 million over the next five years from harvest at Limonera, beginning this year with $8 million expected in the fourth quarter of fiscal year 2022. In addition to harvest, we have identified assets that we will be monetizing and selling in the coming months to streamline our operations. Our updated strategic plan involves four specific initiatives. First, our transition our One World of Citrus to an asset lighter business model. In order to unlock the value of our many assets and better leverage our leading global citrus position, we will be expanding our One World of Citrus model while also strategically selling certain assets and streamlining our operations to dramatically increase our long-term cash flow. In order to accomplish this, we will be increasing our focus on growth of asset light sales using more grower partner fruit in order to reduce the impact of pricing volatility and rising farming costs. We will continue to develop best-in-class grower services to recruit additional grower partners. We will also be reconfiguring our global lemon packing network to better support our grower partners' fruit. This may include reducing certain orange and lemon acreage globally while still maintaining the packing and marketing of the fruit grown on these locations. In the coming years, we expect 30% of our lemon global supply chain to come from limonera fruit and 70% to come from grower partner fruit while maintaining our overall growth goals. To put this in perspective, today 50% of our lemons sold are produced on limonera properties. Number two, this asset lighter model will enable us to achieve improvements in the following metrics our board is using to measure progress and position us to improve shareholder value. The first is reduced investment risk outside of North America. The second is to generate more stable and higher growth in EBITDA and earnings. And lastly, to improve our annual return on invested capital. During the past 12 years, as we grew our One World of Citrus offering, we also made certain investments in assets that were embedded in this growth and the overall infrastructure of Limonera. Now, we will be focusing on monetizing certain of these assets that have increased in value over the years, and this will dramatically improve our return on invested capital. As an example, today we announced that we expect to generate $8 million in cash in the fiscal fourth quarter of 2022 from the sale of 17 acres to our joint venture with the Lewis Group to potentially develop an additional 200 or more residential units within Harvest. Number three, we expect to also leverage our leading avocado position by increasing our avocado production base in Ventura County and exploring additional ways to participate in the packing, marketing, and selling of avocados as a complement to our one world of citrus. Number four, our fourth strategic objective is enhancing our ESG goals. Limonera has a long history of sustainability practices, and this is one of the reasons our company has enjoyed almost 130 years of giving back to the community. We build housing for farmworkers, sponsor community programs, feed farmworkers, reduce our carbon footprint with seven solar installations, manage green waste with a facility that receives over 200 tons per day of organic green waste. We minimize pesticides and herbicides through integrated pest management programs, and we are a pioneer in water conservation. However, in order to ensure our land is here for future generations, we are redoubling our efforts on environmental, social, and governance standards. We are increasing our focus on regenerative agricultural practices, including expanding our relationship with third-party agronomists to further enhance and properly nurture our soil and water conservation efforts. We continue to use new technology and improve our digital information system to increase efficiencies across our supply chain. This system will work in tandem with our ag practices by monitoring daily tree health and fruit growth, identifying labor and distribution needs, predicting the right time to harvest, and match harvests, fruit grades, and sizes to meet global demand. Lastly, we are evolving our governance structure, and last month we announced enhancements to our board of directors. Scott Slater was appointed chairperson of the board of directors. Scott Slater, who joined the board in 2012, succeeds Gordon Kimball, who has stepped down as the chairperson due to health reasons and will remain a director of the company. In addition, Amy Fukutomi resigned as a director of the company and will now serve as our vice president of compliance and corporate secretary of the company. We believe this updated strategic plan will result in an asset lighter business model, a dramatic debt reduction, reduced volatility and an increase in EBITDA and earnings per share, higher returns on invested capital, an increase in our quarterly dividend, higher ESG scores, expansion of global fruit packaged and marketed by Limonera, and lastly, an increase in the packaging and marketing of avocado productions. We will update you on a regular basis regarding our progress, and we believe we will be in a position to announce additional asset sales and streamlining of our business model in the coming quarters. And with that, I'll now turn the call over to Mark.