Limoneira Co

Greetings and welcome to Lemonera's first quarter fiscal year 2023 financial results conference call. At this time, all participants are in listen-only mode, and the question-answer session will follow the formal presentation. To join the question queue, you may press star and 1 on your telephone keypad. 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.

And thank you for joining us for Lehman Air's first quarter fiscal year 2023 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 first quarter fiscal year 2023 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 the 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 10Qs and 10Ks 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 Lehman Air's ongoing results of operations, particularly when comparing underlying results from period to period. We've 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, adjusted net loss for diluted earnings per share, and diluted net loss per common share, which are non-GAAP financial measures. A reconciliation of adjusted EBITDA, adjusted net loss for diluted EPS, and diluted net loss per common share to the most directly comparable GAAP financial measures are included in the company's press release, which has been posted to its 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. I am pleased with our performance in the first quarter. Despite the heavy rains in California pushing the initial first quarter avocado harvest and a portion of the lemon harvest into the second quarter, we generated over $37 million of revenue in our seasonally softer quarter. We had minimal damage to our crops from the rain and fully expect to recoup the delayed revenue in the second and third quarters, keeping our full year 2023 volume guidance intact. Additionally, we expect pricing for fresh lemon cartons to increase in the second half of the fiscal year. For new investors listening to our call today, I would like to quickly recap our strategic transition plan that is pivoting our business towards an asset lighter model in order to streamline our operations and sell non-strategic assets, improve the consistency of our earnings, increase EBITDA and dividends per share, reduce debt, right-size the balance sheet, and improve the return on invested capital. This plan involved the identification of approximately $150 million of assets for sale, which because of greater value realized in initial monetization efforts, we believe are now worth approximately $180 million and a transition to a more efficient operating plan. We've made significant progress advancing our strategy to monetize certain non-strategic assets with nearly all of those identified assets sold. expanding our One World of Citrus initiative with the recruitment of close to a million additional cartons from new grower partners, and executing on harvest at Limonera, all of which are transforming our balance sheet and positioning us to improve our top and bottom line results. Management will be meeting with our Board of Directors this month for our annual strategic planning session to implement a new strategic capital allocation plan, taking into account our very strong balance sheet. We have successfully closed on the sale of four of the six identified assets over the past six months for a total of $130 million in proceeds. We ended the first quarter with the announced closing of our northern property sale for approximately $99 million in net cash proceeds. The northern property sale is the most transformative as the proceeds were used to significantly reduce our net debt position by 72%. from year end 2022 to $28.9 million, is expected to be accretive on a pro forma EBITDA and earnings basis, will strengthen the balance sheet and enable us to pursue a range of strategic opportunities to maximize shareholder value. When we were looking for a buyer of our northern properties, it was imperative that we find one that allowed us to keep our lemon supply chain intact. The property consists of 3,537 acres made up of 2,700 planted acres, 231 acres of plantable ground, and 606 acres of open space. As we laid out in the announced sale press release, as part of this transaction, Limanera and Prudential Agricultural Investments entered into a farm management services agreement to provide farming services related to the property for an initial term of one year and entered into a grower-packer packing and marketing agreement to provide packing, marketing, and selling services for lemons harvested on the property for a minimum five-year period. This piece of the transaction fits squarely with our strategic plan to expand our One World of Citrus in an asset lighter way as we focus on leveraging our leading global packing, marketing, and selling services using more grower partner fruit. The economics of using grower partners is extremely attractive with Limonera targeting $2 to $2.50 per carton of margin with no additional capital outlay. It also reduces the impact of pricing volatility and rising farming costs on our business and will be additive to EBITDA and earnings per share on a pro forma basis. We have become very attractive to grower partners and continue to develop best-in-class grower services to bolster our appeal through investments in our technology and supply chain. Our strategic approach to fresh utilization enables our sales and marketing team to successfully market fresh lemons throughout the year with one of the best fresh utilization rates in the market. In fiscal year 2022, we sold over 78% of lemons fresh at competitive prices compared to our largest competitor who was at approximately 50%. This is obviously an important draw with grower partners. We are also working to better support our grower partners by reconfiguring our global lemon packing network. This includes reducing certain orange and lemon acreage globally while still maintaining the packing and marketing of the lemons grown on these locations. In the first quarter of fiscal year 2023, roughly 66% of our U.S. packed fresh lemon source volume came from grower partners, and our goal is to have that number closer to 75%. The structure of our northern properties deal with Prudential Agricultural Investments is a great example of the direction we are headed, growing the service part of our business as we focus on packing, marketing, and selling. And in return, you will begin to see meaningful improvement to our returns on invested capital with better margins, cash flow, and earnings that become a lot more stable and predictable over the next 12 to 18 months. As far as remaining assets, we have $50 million of the now $180 million in assets identified that we plan to monetize over the next 12 to 18 months. Even after the Northern Properties transaction, we continue to own approximately 11,800 acres with over 21,000 acre feet of owned water rights, usage rights, and pumping rights. We are finding great monetization opportunities for our water assets by either following acreage, leasing pumping rights, or selling the water rights for significant appreciation over our investments. A near-term water monetization opportunity is the 1,300 acres of farmland we have in Yuma, Arizona that has associated Class III Colorado River water rights. The Department of the Interior has instructed that seven states that derive water from the Colorado River to reduce their intake by a third, and the cuts will first come from Class VIII water rights all the way down. These states will be forced to go to those with senior rights, like Class III water rights, and pay for their water. There is a proposed new following program of which we plan to take advantage with 600 of our 1300 acres, and we expect to receive $2,433 an acre to divert water from farming to urban use. A recent $80 million transaction in the city of Buckeye, Arizona provides a comparable water sales value of $13,500 per acre foot, which would equate to over $150 million for our Class III Colorado River water rights, of which Lima Nera would be entitled 50%. There is no guarantee we could achieve this value, but this is a great example of what is happening in our space for comparable water assets. In addition to these assets, we have our real estate development project, Harvest at Lima Nera. We announced at the end of December that we increased our cash proceeds projection for this project by over 20% to $115 million and updated our timeline to include both the harvest development and the harvest medical pavilion across the highway. We received the first $8 million of proceeds in the fourth quarter of fiscal year 2022 and expect to generate the full $115 million over seven fiscal years. The project is currently approved to develop 1,500 residential units And we are in negotiations with the city of Santa Paula to expand that up to 2,000 units. We believe we will be able to announce the additional 500 units later this year. Finally, we look forward to transacting on $5 million of land sales at the Harvest Medical Pavilion in the fourth quarter of 2023. So what is next for Lima Nera now that we have a very strong balance sheet and a clear path to stronger EBITDA, cash flow, and earnings? Over the next 12 to 18 months, you can expect to see our continued transition to an asset-light business model and focus on the best use of our assets to enhance shareholder value. Our board and management team will continue to evaluate how to best leverage our expertise in packing, marketing, and distributing citrus combined with our valuable portfolio of agricultural lands, real estate properties, and water rights in order to enhance long-term shareholder value. As for longer term, in addition to capital allocation decisions, our upcoming strategic board of directors planning session will also review different areas where we can potentially reinvest that will produce more consistent and more reliable returns. Potential areas of investment could be in our supply chain through investments in the forward distribution, forward warehousing, and increased packing capacity, and expanding our avocado production and potentially adding value to avocados beyond production as a complement to our One World of Citrus product offerings. And with that, I'll now turn the call over to Mark.