Limoneira Co

Greetings and welcome to Lee Moniera's third quarter fiscal year 2023 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 Lehman Air's third 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 third quarter fiscal year 2023 earnings release, which went out at approximately 4 p.m. today, 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 can 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 can cause or contribute to such differences include risk factors 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 statements or other statements herein, whether a result of new information, future events, or otherwise. Please note that during today's call, we'll 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 and adjusted diluted earnings per share, which are non-GAAP financial measures. A reconciliation of adjusted EBITDA and adjusted diluted EPS to the most directly comparable GAAP financial measures are included in the company's press release, which has been posted to the website. And with that, it's my pleasure to turn the call over to the company's president and CEO, Mr. Harold Edwards.

Thanks, John, and good afternoon, everyone. The success of our strategic shift towards an asset-lighter business model is evident in our third quarter results, with brokered lemons and other lemon sales growing 76% year over year to $8.8 million and achieving farm management revenue of $5.4 million over compared to no farm management revenue last year. Additionally, we continue to make headway monetizing water assets with the recently announced water following program in Yuma, Arizona, for expected annual proceeds of $1.3 million. Over the past year, we have worked to identify and eliminate unproductive or unprofitable parts of our business, including the sale of non-strategic assets, exiting farming operations in Cadiz, and terminating our long-term pension plan, all of which we expect to dramatically improve our margins starting in fiscal year 2024. Overall, our third quarter results were impacted by lower lemon pricing and lower fresh utilization rates as a result of the heavy rains in California throughout December until May, which delayed a portion of our lemon harvest by two months and led to an industry-wide pest issue that lowered the grade on certain fruit. As a result, lemon pricing remained pressured throughout the quarter. However, as of the beginning of August, lemon pricing has steadily been increasing for all grades and sizes, with prices up compared to the last few years and at the highest level since 2018. California lemon production traditionally sees a lull during the summer months and picks up around late August to early September, when the desert region starts. However, this year, the start of the desert region is behind schedule, and the region is only expected to have limited picking through mid-September. The size of the fruit is smaller, and picking hours will be limited due to heat and humidity. Altogether, production in the desert region is expected to be down about 15% from last year due to the impact of weather in combination with a portion of the acreage now being fallowed. Once the season has kicked off, lemon production in the desert region is expected to continue through the end of the calendar year. Also, since the beginning of August, the overall lemon market has shown an increase with prices being significantly higher for all grades and sizes. Prices are substantially higher year over year as well as compared to the beginning of summer. This is caused by the supply and demand curve being out of balance. On the supply side, the availability of fruit has been reduced. California and South American supply on the trees in combination with remaining volumes in storage is much less than the same time last year. Weather events like flooding in Chile are having an impact on the quantity and quality of the lemon crop. Closer to the USA, in Mexico, excessive heat in July impacted the grade and size of the fruit. Add to this a situation of good demand and prices will go up. We believe all of these factors position us very well for expected higher lemon pricing in fiscal year 2024. Our avocado revenue in the third quarter of fiscal year 2023 was lower than the prior year period with fewer pounds sold due primarily to the alternate bearing nature of the avocado tree as well as lower prices per pound during this period compared to last year. The overall improvements we are making to our business are well aligned with our strategic asset lighter transition plan that we expect to be completed in the next nine months. We are working to pivot our business towards a model that will 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. Debt less cash on hand as of July 31st, 2023 was $30.2 million compared to $105 million at the end of fiscal year 2022. The benefits of all these improvements will begin to be fully realized in fiscal year 2024. In addition, last quarter, we increased the value of assets for sale to approximately $180 million, and we have already closed on four of the six identified assets over the past 12 months for a total of $130 million in proceeds. We have $50 million of remaining assets identified that we plan to monetize over the next nine months. Even after the recent non-strategic asset sales, We continue to manage approximately 11,100 acres of land with approximately 21,000 acre feet of owned water usage and pumping rights. We recently announced that we entered into a second following program with Yuma Mesa Irrigation and Drainage District and the United States Bureau of Reclamation that supersedes the initial program and will commit to follow own land through at least calendar year 2025. We expect to receive approximately $1.3 million annually paid in quarterly installments for following 581 acres out of our approximately 1,300 acres of farmland in Yuma, Arizona. Yuma Mesa irrigation will refrain from diverting Colorado River water that otherwise would have been used to irrigate fallowed lands so that the saved water may be retained in Lake Mead as Colorado River system conservation water increasing the supply and elevation of Lake Mead and helping to avoid water shortages in Arizona and the lower basin. 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. We believe this water monetization in Yuma, Arizona is just the beginning of additional future opportunities for our abundant water assets. We have spent many years striving to improve our stewardship of water on all of our properties, and this has enabled us to reduce our usage and increase our available water for future monetization opportunities. So what is next for Limonera now that we have a very strong balance sheet and a clear path to stronger EBITDA, cash flow, and earnings in fiscal year 2024? Over the next nine months, you can expect to see our continued transition to an asset-lighter business model and focus on the best use of our assets to enhance shareholder value. We've dramatically decreased interest expense, removed our pension obligation, we'll be receiving quarterly payments from the Yuma Irrigation District for our following program, and we believe lemon pricing will continue to improve from the lows in the third quarter, positioning us very well for very strong improvements in fiscal year 2024. Our board and management team will continue to evaluate how to best leverage our expertise in farming management, 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. And with that, I'll now turn the call over to Mark.