Limoneira Co

Greetings and welcome to the Limonera's second quarter, 2024 Financial Resilience Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow a formal presentation. It is now my pleasure to introduce your host, John Mills with ICR. Thank you, sir. You may begin.

Thank you, Diego. Good afternoon, everyone, and thank you for joining us for Limonera's second quarter, fiscal year 2024 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 second quarter fiscal year 2024 earnings release, which went out today at approximately 4 p.m. Eastern time. If you've not had a chance to review the release, it's available on the investor relations portion of the company's website at lehmanera.com. This call is being webcast, and a replay will be available on Lima Nera's website as well. Before we begin, we would 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 and results, performance, or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risk factors in the company's Form 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 Luminaire'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 and adjusted diluted EPS, which are non-GAAP financial measures. A reconciliation of adjusted EBITDA and adjusted diluted earnings per 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'm very pleased that our overall business generated adjusted EBITDA of $16.6 million for the second quarter, which represents more than double that of the prior year period, highlighting the continued momentum in our Harvest at Lima Nera Real Estate Development Joint Venture Project with the Lewis Group. These overall results were achieved even as we decided to move the majority of harvesting our avocados to the third quarter for higher pricing and better volume. We continue to follow through with our previously discussed transition by expanding our avocado plantings by 1,000 acres over the next three years to 2,000 acres with 223 acres planted in fiscal year 2024. We expect this expansion of our avocado production will dramatically increase our longer-term EBITDA to $45 million to $55 million by fiscal year 2030, compared to the prior target of $30 million. Keep in mind, this does not include our expected increase in cash flow from the Harvest at Limanera project, which I will discuss. We recently achieved two significant milestones for our company. First, in April of 2024, the joint venture closed on lot sales representing 554 residential units, thus completing the sellout of phase two of the development. A total of 1,261 residential units have closed from the project's inception. A few weeks ago, the Santa Paula City Council approved the joint ventures proposal to increase the total number of residential units for the project from 1,500 to 2,050 units. The 550 unit increase will provide 250 additional single family for sale home sites within phase three of harvest. A separate joint venture with Lewis plans to construct 300 multi-family rental homes on a mixed-use portion of the project. This is a 37% increase in residential units, unlocking further value creation opportunities. Based on these events and continued increase in the land value associated with this project, we have increased our cash flow projections by 46% and now expect to receive $180 million in total future proceeds spread out over the next seven fiscal years, with approximately $18 million expected in fiscal year 2024. Now I'd like to provide a quick update on our decision to evaluate strategic alternatives for the overall business. Over the past 18 months, we have developed a strategic roadmap intended to enhance near and long-term shareholder value. Today, we consider ourselves to be in a strong financial position having recently reduced our net debt position, right-sized the balance sheet through our ongoing strategic shift towards an asset lighter business model, and increased our cash flow projections from harvest at Luminara. As part of our exploration of strategic alternatives to maximize value, and given the strong interest we are receiving, we decided it is in the best interest of our stockholders to move away from pursuing a packing house in Chile and instead add value by focusing on expanding our avocado production over the next three years. Long-term debt as of April 30, 2024 was $59.5 million compared to $40.6 million at the end of fiscal year 2023. Debt levels as of April 30, 2024 less $1.4 million of cash on hand resulted in a net debt position of $58.7 million at quarter end. However, it's important to note that our 50-50 joint venture with Lewis held $102.1 million of cash and cash equivalents as of April 30, 2024, of which our share is 50%. Furthermore, with the closure of the additional 554 residential home sites in April, The joint venture is expected to distribute $30 million in June of 2024, with Limonera entitled to $15 million of the proceeds. This additional liquidity source from our joint venture provides further financial flexibility beyond the quarter-end net debt figure. Even after the recent non-strategic asset sales this past year and a half, we continue to manage approximately 10,500 acres of land with 21,000 acre feet of owned water usage and pumping rights. In fiscal year 2024, on the operational side of our business, you will continue to see our transition to an asset lighter business model and focus on the best use of our assets to enhance shareholder value. We have dramatically decreased interest expense, removed our pension obligation, are receiving quarterly payments from Yuma Mesa Irrigation and Drainage District for our following program, and we believe lemon and avocado pricing will be better this year compared to fiscal year 2023, positioning us well for strong improvements in fiscal year 2024. In addition to our operational improvements, our board and management team will continue to evaluate how to best leverage our expertise in farm 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 turn the call over to Mark. Thank you Harold, and good afternoon everyone. Before I begin, I would remind you it is best to view our business on an annual, not quarterly basis due to the seasonal nature of our business. Historically, our first and fourth quarters are the seasonally softer quarters, while our second and third quarters are stronger. For the second quarter of fiscal year 2024, total net revenue decreased 7% to $44.6 million compared to total net revenue of $48.1 million in the second quarter of the previous fiscal year. Agribusiness revenue was $43.3 million compared to $46.7 million in the second quarter last year. Other operations revenue was $1.3 million in the second quarter of fiscal year 2024 compared to $1.4 million in the second quarter last year. Results in the second quarter of fiscal year 2024 were impacted by increased rainfall in California that delayed the picking of lemons and caused fresh utilization in the second quarter to fall to around 70%. Agribusiness revenue for the second quarter of fiscal year 2024 includes $25.8 million in fresh packed lemon sales compared to $26.6 million during the same period of fiscal year 2023. Approximately 1,446,000 cartons of U.S. packed fresh lemons were sold during the second quarter of fiscal year 2024 at a $17.85 average price per carton. compared to 1,547,000 cartons sold at a $17.23 average price per carton during the second quarter of fiscal year 2023. Brokered lemons and other lemon sales were $3.8 million and $2.5 million in the second quarter of fiscal year 2024 and 2023 respectively, representing 52% growth year over year. The company recognized $2.3 million of avocado in the second quarter revenue years fiscal 2024 compared to $3.6 million during the same period of fiscal year 2023. Avocado revenues in the second quarter of fiscal year 2023 included legal settlement proceeds of $2.4 million allocated to avocados. Approximately 1,595,000 of avocados were sold in aggregate during the second quarter of fiscal year 2024 at a $1.47 average price per pound, compared to approximately 941,000 pounds sold at a $1.30 average price per pound during the second quarter of fiscal year 2023. The company strategically postponed a significant proportion of its avocado harvest from the second quarter into the third quarter of fiscal year 2024 in order to capture more favorable anticipated pricing. The company recognized $1.2 million of orange revenue in the second quarter of fiscal year 2024 compared to $1.4 million in the second quarter of fiscal year 2023. Approximately 66,000 cartons of oranges were sold during the second quarter of fiscal year 2024 at a $17.58 average price per carton compared to approximately 88,000 cartons sold at a $15.72 average price per carton during the second quarter of fiscal year 2023. As a reminder, the company opportunistically has buy-sell arrangements for orders with our retail and food service customers to complement our lemon sales. Specialty citrus and other crop revenue was $800,000 in the second quarter of fiscal year 2024 compared to $1 million in the second quarter of fiscal year 2023. During the second quarter of fiscal years 2024 and 2023, approximately 29,000 and 41,000 40-pound carton equivalents were sold at an average price per carton of $29.24 and $24.78 respectively. Farm management revenues were $2 million in the second quarter of fiscal year 2024 compared to $1.4 million in the same period of fiscal year 2023. Total costs and expenses for the second quarter of fiscal year 2024 were $49.3 million compared to $59.1 million in the second quarter of last year. The decrease of $2.7 million was primarily related to the 2023 Cadiz Ranch asset disposal, partially offset by increases in agribusiness costs and expenses and selling general administrative expenses. Operating loss for the second quarter of fiscal year 2024 was $4.7 million compared to operating loss of $3.9 million in the second quarter of the previous fiscal year. Net income applicable to common stock after preferred dividends for the second quarter of fiscal year 2024 was $6.4 million compared to a net loss applicable to common stock of $1.7 million in the second quarter of fiscal year 2023. Net income for diluted share for the second quarter of fiscal year 2024 was 35 cents compared to a net loss for diluted share of 10 cents for the same period of fiscal year 2023. Adjusted net income for diluted EPS for the second quarter of fiscal year 2024 was $8.1 million compared to $3.9 million in the same period of fiscal year 2023. Adjusted net income for diluted share for the second quarter of fiscal year 2024 was 44 cents compared to adjusted net income for diluted share of 21 cents for the second quarter of fiscal year 2023. A reconciliation of net income or loss attributable to Limonera Company to adjusted net income or loss for diluted EPS is provided at the end of our earnings release. Adjusted EBITDA more than doubled in the second quarter of fiscal year 2024 compared to the prior year period and was $16.6 million compared to $6.2 million. The $10.4 million improvement highlights the continued momentum of our harvest real estate development project. A reconciliation of net income or loss attributable to Lehman Air Company to adjusted EBITDA is also provided at the end of our earnings release. Turning now to our balance sheet and liquidity. In the first quarter of last year, we sold our northern properties, which resulted in total net proceeds of $98.4 million. The proceeds were used to pay down all our domestic debt except the Ag West Farm Credit, $40 million non-revolving amount of credit, which has a fixed interest rate of 3.57% until July 1st of 2025. Long-term debt as of April 30, 2024 was $59.5 million compared to $40.6 million at the end of fiscal year 2023. The increase was primarily driven by working capital needs which typically peak in the second quarter. Debt levels as of April 30, 2024, minus $1.4 million of cash on hand, resulted in a net debt position of $58.7 million at quarter end. As Harold mentioned, it is important to note that our 50-50 joint venture with Lewis held $102.1 million of cash in equivalents as of April 30, 2024, of which our share is 50%. Furthermore, with the closure of the additional 554 residential home sites in April, the joint venture distributed $30 million on June 5th, 2024, and Lehman Air received $15 million in cash proceeds. This additional liquidity source from our joint venture partnership provides further financial flexibility beyond the quarter end net debt figure. Now, I'd like to turn the call back over to Harold to discuss our fiscal year 2024 outlook and long-term growth pipeline. Thanks, Mark. We are very pleased with the strategic direction of our company. We continue to expect fresh lemon volumes to be in the range of 5 million to 5.5 million cartons for fiscal year 2024. We are increasing our avocado volume estimates and now expect them to be in the range of 9 million to 10 million pounds for fiscal year 2024, compared to previous guidance of 7 million to 8 million pounds. Longer term, we are raising our outlook for EBITDA accretion of $45 million to $55 million by fiscal year 2030, up from its previous target of $30 million. This increase is underpinned by plans to significantly expand avocado production by planting 1,000 acres of avocados over the next three years to capitalize on robust consumer demand trends. During this transition, the company expects fiscal year 2025 and fiscal year 2026 operational results to be similar to fiscal year 2024. Keep in mind, this does not take into account expected additional earnings from harvest at Limonera. Turning to our real estate, due to additional entitled lots and the increased value of the overall projects, We now expect to receive total future proceeds of $180 million, a 46% increase from previous expectation from harvest at Lima Nera, Lima Nera Lewis Community Builders II, and East Area II spread out over the next seven fiscal years. And with that, I'd like to turn it back to the operator.