Q1 2021 Limoneira Co Earnings Call
Everybody. Thank you for your patience the conference will be starting in one minute. Once again. Thank you for your patience the conference will be starting in one of them.
[music].
Greetings and welcome to the Lehman and Ara first quarter of fiscal year 2021 financial results at this time all participants are in a listen only mode.
And answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder of this conference is being recorded and 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 Lee many of its first quarter fiscal year 2021 conference call on the call today are Harold Edwards, President and Chief Executive Officer, and Mark Bell of Mountain Chief Financial Officer.
By now everyone should have access to the first quarter of fiscal year 2021 earnings release, which went out today at approximately four P M Eastern time.
If you have not had a chance to view the release, it's available on the Investor Relations portion of the company's website at Lima Naira Dot com.
This call is being webcast and a replay will be available and luminaries 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 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 and the company companies 10-Q's, and 10-K's and 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 for other statements herein, whether as all of the new information future events.
Vince or otherwise.
Please note the during today's call, we will be discussing non-GAAP financial measures, including results from the adjusted basis.
We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of luminaries 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 the non-GAAP financial measure a reconciliation of adjusted EBITDA for the most directly comparable GAAP financial measures is included and the company's 10-Q and press release, which have 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.
Yeah.
Thanks, John and good afternoon, everyone I am pleased with our start to fiscal year 2021, as we achieved record first quarter Lemon volume solid specialty citrus revenues and our improved cost structure contributed to improvement in cash flow of compared to last year.
As a reminder, since our first quarter ended January 31 of the pandemic did not have of material effect on our fiscal first quarter last year. So this year over year improvement was due to our ability to dramatically expand our focus on grocery retail and the reason we believe we are very well positioned to achieve.
<unk>, a meaningful increase and domestic foodservice and exports once dining out improves from COVID-19 vaccine distribution.
In addition, even though it is early in the season, we expect strong results for avocado and oranges and fiscal year 2021.
During the first quarter higher and more frequent the normal wins affected our lemon industry growers and district to this.
And this temporarily reduce the quality of the industry's crop coming out of this district, but it also is expected to drive increased pricing for top graded lemons during the springtime.
I'll now discuss each of our business divisions' performance for the first quarter, starting with the agribusiness.
Agribusiness revenue was $37 $1 million compared to $45 million and the first quarter of fiscal year 2020 for.
Fresh lemon revenue was $25 million compared to $27 million. During the same period of fiscal year 2020, even though we achieved record lemon volume in the quarter overall pricing was $18 and 91 average price per carton compared to $21 and 12 <unk>.
Average price per carton.
<unk> pricing was approximately $20 and our pricing and South America, approximately $10, which is expected to rise as we entered their export season.
Orange revenue was lower and the first quarter as higher prices of oranges were partially offset by the timing of harvest. The orange season has had a slower start than anticipated. However, it is our expectation for fiscal year 2021 to have better profitability and fewer cartons and acres dedicated the oranges.
The specialty citrus and other crop revenue was similar to prior fiscal year period of $1 $8 million.
Turning now to our real estate development segment.
Our real estate development project harvest at Lehman and Ara continues to perform very well.
And we have now closed 398 lots since inception, including 44, new lot closings in the first quarter of fiscal year 2021, as each quarter closes we gain confidence and the timing of the expected $80 million of cash distributions from harvest at Lima and ore over the next six years, beginning and <unk>.
Fiscal year 2022.
The expected cash distributions do not include the potential upside from increased density and housing at harvest at Lima, and era as well as the potential opportunity of of medical campus and our east area two development.
We expect to be and are positioned to provide greater transparency on these opportunities in the and the.
Coming quarters.
Our company now has over 15000 acres of Prime agricultural land and 550 acres of residential housing we are selling many additional non agricultural assets, we expect to monetize and the future and over 28000 acre feet of water rights pumping rates and usage rights. We continued to be very good stewards of.
Of these assets and believe our company will continue to reward long term shareholders for many years to come.
As we enter our stronger second and third quarter growing seasons. We are very confident we will achieve improved year over year results due to our expanded footprint in retail as well as the potential for foodservice to begin coming back online as everyone continues to receive their vaccines, allowing restaurants and bars to reopen.
We are encouraged by the record fresh lemon volume during our first quarter and the continued improvement and our cost structure.
We expect positive cash flow towards the end of fiscal year, 2020 two from harvest and Lehman era and look forward to updating you on our agribusiness and reach at real estate progress and the coming months and with that I'll now turn the call over to Mark. Thank you Harold and good afternoon, everyone.
As a reminder to everyone. There are the seasonal nature to our business with our revenue driven by varying harvest periods from year to year. Therefore, we advised that our business be viewed on an annual not quarterly basis historically, our first and fourth quarters are the seasonally softer quarters, while our second and third quarters are stronger.
For the first quarter of fiscal year 2021, total net revenue was $38 3 million compared to total net revenue of $41 7 million and the first quarter of the previous fiscal year.
<unk> business revenue was $37 $1 million compared to $45 million and the first quarter last year. Other operations revenue was similar to the prior fiscal year at $1 $1 million.
Agribusiness revenue for the first quarter of fiscal year, 2021 includes $25 million and fresh lemon sales compared to $27 million of fresh lemon sales during the same period of fiscal year 2020.
Approximately 1.320 million cartons of fresh lemons were sold during the first quarter of fiscal year 2021 at $18 and 91 average price per carton compared to approximately 1.2 million 80000 cartons at $21.12 average price per car.
And during the first quarter of fiscal year, 2020 pricing was lower in the quarter due to COVID-19 pandemic related foodservice closures, reducing the demand for fresh lemons, and the foodservice marketplace and creating an oversupply and the retail marketplace. We also had sales of fruit and South America and the first <unk>.
For lowering the overall weighted average pricing, but if you were to look at just the U S price of fresh lemons and the first quarter of fiscal year 2021, It was $20 <unk> average price per carton.
The company recognized no avocado revenue in the first quarter of fiscal year 2021, compared to $200000 and the same period last fiscal year approximately 125000 pounds of avocados were sold during the first quarter of fiscal year 2020 at a $1 30 for <unk> average price per pound.
And.
The company recognized $1 $1 million of Orange revenue and the first quarter of fiscal year 2021, compared to $2 $3 million and the same period of fiscal year 2020 attributable to higher prices of Orange is partially offset by the timing of the harvest. The orange season has had a slower start than.
Supported however, it is our expectation for fiscal year 2021 to have better profitability and fewer cartons with less acreage dedicated to oranges and specialty citrus and other crop revenues was similar to the prior fiscal year at $1.8 million.
We continue to improve our cost structure and the quarter with decreased total cost and expenses from $51 million and the first quarter of last fiscal year to $43 $9 million and the first quarter of the fiscal year 'twenty 'twenty, one and the decrease in operating expenses was primarily attributable to <unk>.
Greece's and harvest growing and third party grower costs, partially offset by increased packing costs costs associated with the company's agribusiness include packing costs harvest costs growing costs costs related to the fruit procured from third party growers and depreciation and amortization.
<unk> expense.
Operating loss for the first quarter of fiscal year, 2021 was $5 $6 million compared to operating loss of $8 $5 million and the first quarter of the previous fiscal year net loss applicable to common stock after preferred dividends for the first quarter of fiscal year 2021 was for <unk>.
$3 million compared to a net loss of $6 $6 million and the first quarter of fiscal year 2020.
Net loss per diluted share for the first quarter of fiscal year 2021 was 25 cents compared to a net loss per diluted share of 37.
For fiscal year, 2020.
Adjusted net loss applicable to common stock for the first quarter of fiscal year 2021 was for $4 million compared to adjusted net loss of $5 $2 million and the same period of fiscal year, 2020, which excludes the loss on stock and of collateral.
Adjusted net loss per diluted share was 25 cents compared to.
The adjusted net loss per diluted share of <unk> 30.
For the first quarter of fiscal year 2020, based on approximately $17 for and $17 6 million weighted average diluted common shares outstanding respectively.
A reconciliation of adjusted net loss to net loss is provided at the end of our earnings release.
Adjusted EBITDA was the loss of $3 $1 million and the first quarter of fiscal year 2021, compared to a loss of $5 million and the same period of fiscal year 2020, a reconciliation of adjusted EBITDA to net loss is provided at the end of our earnings release.
Turning now to our balance sheet and liquidity long term debt as of January 31, 2021, with $131 $5 million compared to $122 $6 million at the end of fiscal year 2020.
On March 12, 2020, the board of directors approved of share repurchase program authorizing the company to repurchase up to $10 million of its outstanding shares of common stock through March 2021 day.
During the fiscal year 2020, the company repurchased 250977 shares for approximately $3 $5 million as of January 31, 2021, the remaining authorization under this program is approximately $6 $5 million.
In December 2020, we received $5 million of federal tax refunds related to the cares Act and we expect an additional $900000 of California state refunds in fiscal 2021 now.
Now I would like to turn the call back to Harold to discuss our fiscal year, 'twenty 'twenty, one outlook and longer term growth pipeline.
Thank you Mark the COVID-19 pandemic continues to affect our foodservice business on a global basis. The company believes it is prudent to not provide lemon guidance at this time until the COVID-19 vaccine is widely distributed and we begin to see consistent openings of the foodservice market.
The higher and more frequent wins during the first quarter will reduce industry volume for the second quarter, but will also drive higher temporary pricing for top grade lemons.
Offsetting some of this uncertainty we do expect to generate strong orange and avocado revenue in fiscal 2021 based on positive market factors and positive initial crop indicators.
We also expect improving results compared to last year during the second third and fourth quarters of fiscal 2021 due to slowly increasing demand from food service and export markets as well as improving cost control measures.
We also have an additional 1200 acres of non bearing lemons estimated to become full bearing over the next four years, which will enable us to achieve strong organic growth for many years to come.
The company expects 200 of the 1200 acres to become full bearing and fiscal year 2021 beyond. These 1200 acres, we intend to plant and additional 250 acres of lemons and the next two years that we believe will further build our long term pipeline of productive acreage and we anticipate.
This additional acreage will increase domestic supply of lemons from our 2020 level by approximately 50% or about 900000 to one 3 million additional fresh cartons as the non bearing and planned acreage becomes productive. We also expect to have a steady increase in third party grower for.
<unk>.
And also due to continued steady improvement and the development of harvest at Lehman era, We believe we will generate cash distributions from harvest as follows Fiske.
Fiscal 2021 is expected to be neutral fiscal 2020 two is expected to generate $3 million of cash to leave Minera fiscal year 2023 is expected to generate $15 million fiscal year 2024 is expected to generate $27 million fiscal year, 2020 five.
And is expected to generate $25 million and fiscal year 2026, as expected and generate $10 million. This will be $80 million of cash back to Lehman ore in the next six years. These expectations from harvest do not include the potential upside from increased density and housing at harvest as well as the potential.
And you have of medical campus and our East area. Two development, we expect to be and are positioned to provide greater transparency on these opportunities later this year and with that I'd like to open the call up for your questions operator.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue.
You May press Star two if you would like to remove your question from the Q.
For participants using speaker equipment.
And then may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Ben <unk> with Stephens Inc. Please proceed with your question.
Hey, good afternoon guys.
And then.
I wanted to ask you you mentioned this and your guidance and you touched on it last quarter as well and just how youre positioning and the grocery channel has improved in the midst of Covid and.
And I wanted to understand a little bit better how sticky that positioning is as we.
And hopefully return to normal here over the next year or two.
And what if any difference in profitability there is and in that channel versus your traditional foodservice channel. If there was the.
And.
Cartons oscillating from foodservice to grocery and any color you could you could offer there would be helpful.
Sure as it relates to <unk>.
Pricing and margins in the in the retail channel versus and the food.
Service channel, there's a there's there's roughly parity between the two so no no great differentials, so either channel can be equally profitable.
We believe that the.
The the pivot over to the retail for us will be.
Relatively sticky.
And part of part of the challenge that we had win.
When food service markets began to close was we were and unknown commodity or new of newly certified vendor for some of these retailers. So it took us a while to become known but also then proven and ultimately.
John.
All of our value proposition needs to be proven to some of these retailers. So we needed to use price in some instances to actually get in the door with some of these retailers.
As we became proven and our our supply chains, we're proven and our quality was proven.
The price differential between us and our competition.
The diminished and we're really pleased to say that.
We just finished our first quarter and now are in our second quarter, we have great stickiness with our with our retail customers and we're pretty much selling at parity with the competition. So.
Thats all very positive for us the one thing I can tell you Ben is is the.
Premium that we received typically by selling to our export customers can be as much as five to $7 of carton into that channel, which is one of the reasons, we tend to choose to take our fancy fruit into the export markets whenever whenever we can but in terms of the differential between foodservice and re.
Tail channels domestically, they pretty much sell at parity.
Yeah.
Okay. That's helpful. My second question is related to costs and the business and just cost inflation more broadly thinking specifically about.
Labor tightness.
Freight inflation.
Does that traditionally manifest itself and higher lemon prices and the industry and how are you all positioned relative to some of the T cost inflation drivers and the and the industry more broadly as we think about fiscal 'twenty one.
Yeah, So I'll take that Ben So generally I think we were very pleased with our cost controls and relative to the internals of the company and.
We did have some packing costs increase that were attributable to our minimum wage increases and California and in some.
And minor COVID-19 costs of PPE et cetera, but overall I think I'm you know some of the costs and we've seen and start to rise a little bit of a little bit and the paper side into the cart and boxes.
And we were fortunate from the fertilizer side that.
Oil prices and all of that have been and at a low level and we're starting to see that obviously get.
To 52 week high so we anticipate seeing some inflation there.
And from the from the laminate absorption of those costs I think historically, we've seen that kind of go Parry pursue you know when we were starting this adventure and back in 2010 as a public company and the prices were $14 $15 and and you know, there's there's moderate growth and and the demand, but we also saw.
Rice increases with those cost increases sort of be able to carry the industry.
Okay. That's very helpful. Good luck and I'll get back in the queue. Thanks.
Thank you Ben.
Our next question comes from the line of Vincent Anderson with Stifel. Please proceed with your question.
Yes, thanks, good afternoon guys.
And so yes.
Yeah. So I mean, I guess in addition to a little bit of weather and the.
A strict to South America has been having some fun.
Over the last few months, maybe can you just breakdown and <unk>.
South America, how much it has impacted and lemon production overall, and then specifically yourself and then if you had any detail at this stage in terms of what the day two impact as if it's just sizing or if the scarring issues.
Yes, so I'll start with the latter part of that which is the impact of the wins on our California production and and it's really right here on the California coast. So the.
Last few years, we've seen unusually high levels of east wins.
And as as you know from your visit and looking inside of Lemon tree lemon trees have thorns and the when the wind blows the fruit, sometimes rubs up against those storms and it'll scar the fruit and downgrade the quality from a perfect looking fancy grade piece of fruit two of choice great great of greater fruit.
And so in district, two what normally would be forecast at 40% of the total tree crop being harvested of at a fancy grade for.
And for the luminaire of production and that of our affiliated growers, we're estimating that now of closer to 25% fancy grade and and then the choice grade upwards of 40% to 45%.
And where that's typically a little lower than that.
So so so the the challenge will be that debt.
There'll be there'll be there'll be really two which is the overall tree crop size is 20% down in total as an industry.
And the percentage of first grade fruit will be down because of the wins and then the choice grade fruit will be up in terms of the percentage of being up and.
And the choice grade is typically the fruit to find its way into the foodservice market. So.
The I guess, the the potential challenge of risk that we're all looking at out there is that if the foodservice markets or channels are slow and restaurants and bars are slow to reopen the.
The choice grade fruit could buildup and become overcrowded, which will put negative pricing pressure on on us to sell that fruit. So thats sort of of the overview domestically and we will just have to keep reporting on it as we as we go into the the.
The second and third quarters, but.
As it relates to the the.
The.
Production in Chile, and Argentina, I guess the good news is in Argentina, our production is way up north in the northern part of Argentina.
And the middle part of Argentina is going through a pretty severe drought right now and production is significantly off as a result of that drought we.
We believe ultimately that will help us because there'll be a much better balance between the supplies of Argentine fruit and then its ability to find the markets.
And then we also are experiencing drought conditions and parts of Chile. Our production is actually in pretty good shape. So we believe that the production that youll see coming out of our operations and both Chile, and Argentina should be quite favorable.
And we have a we have a a normally.
Excellent percentage of fancy grade fruit that should find its way into the U S market in order to take advantage of the decreased coastal fruit that youll have here of the fancy grade fruit. So we believe this is all sort of part of our one world of Citrus model and and we believe that we will see the benefits of our southern and <unk>.
Hemisphere production in 2021, unlike we've seen and in years past and it should really be a a significant value producer for the company.
Excellent.
And then this one maybe a little bit more of a stretch, but you've had a couple of tough marketing years to try and ramp up for third party recruiting.
As you think about your ability and really the the necessity to keep her pack house filled has the thought process changed at all to where maybe you need a little bit more call. It juice exposure to help retain growers and down years, even of fit sacrifices fresh utilization on the margin or is the sales pitch really still the.
The same and recruiting third party.
Yes. The sales pitch is still the same certainly we took some hits as a result of the challenges that we've had over the last two years and and in 2021 and admittedly our grow our returns for part of the year, we're not at the top of the market and we did have some grow or attrition and the good news about that is that that actually is coming.
Right into a time of the year, where there is general oversupply so and.
And that's in the spring and the summer so even though it will be negative in terms of running less units across our line and by the way that the the total tree crop in all districts is down anywhere from <unk>.
<unk> to 30% and each of the districts. So overall I think the total of tree crop across California, and Arizona is down 20%. So that should help but also not having to handle the buildup of fruit debt, we'd accumulated and district two in the spring and the summer should actually become a much better.
The profit Formula for our company because of our fresh utilization should be better with that being said, though the goal is to fill.
Phil our packing houses up with volume and to sell all of the volume that we that we do that we do handle.
So as bad as it might have been over the last two years, if we're able to maintain higher levels of fresh utilization or grow our returns should be more competitive, which they will be and we will make it our business to make them more competitive which will greatly enhance our ability to attract and recruit and retain out.
<unk> growers. So we fully expect debt in years to come we will be able to continue to recruit outside growers and stay right on our plan of filling our packing houses up and ultimately being able to sell all of their lemons as markets and market demand return to pre pandemic levels and Vince I'll just add.
Ed there that as we saw some of that grow our attrition this year, even though seeing we have that the industry crop down 20% as of total our overall internal crop will be up given the fact of those new acreage that are coming on and some some different techniques that we've been using so we.
We anticipate that to more than offset any of any of that grow or losses.
Alright, great to hear thank you.
I'll turn it over.
Thanks for Ed.
Our next question comes from the line of Mark Smith with Lake Street Capital Markets. Please proceed. Please proceed with your question.
I guess for first of all for me. It's just you know are you guys seen any change yet and in foodservice.
And that's really impacting your business yet.
So its just starting we're just starting to see the it literally is changing on a day to day basis as we're seeing increased orders in different pockets of the country that are opening up and.
And some areas are growing faster and increasing faster than others.
And so so we're cautiously optimistic but certainly everything we've been reading and seeing on the news suggests that in.
In certain parts of the country that are opening up very rapidly and people are going out and eating and enjoying restaurants and bars and that's exactly the area that was the areas, where we're seeing the lift and demand.
Perfect and then as we look back at the the storms that the rolled through the South primarily Texas any you know real damage and crops that you can point to or any changes and fruit pricing that impacts you guys.
Not that really affects us on the fresh side, Texas got clobbered with really cold weather and snow as you know and and then part of the the Mexican production got hit as well I guess, what we would expect to see if there is any impact on our business is would be slightly.
The less production coming out of Mexico, which typically begins in August and we'd see that benefit and are in our fourth quarter. So we do believe there'll be slightly fewer lemons from Mexico coming into the U S market, but as it relates to Texas that really impacted more of the grapefruit and some of.
Some of some orange production, which had less of an impact on our total business.
Okay.
And then any update on export market on what you guys are seeing there Andy.
The impact at the ports are having or of any updates you can give us there would be great.
Yeah, you just touched on it with that that question, which is the very insightful question is as you know containerized shipping lanes are have been significantly compromised in terms of <unk>.
In terms of their service levels due to challenges that the pandemic have caused with longshoreman and the ability for for vessels to berth load unload and and basically.
Enjoy port services and so there's there's huge backups around the ports around the world and we're caught up and and in a lot of that.
Great example of how that's impacting our business is our Japanese market, which still is coming out of.
And that pandemic related demand issues, so they're probably at about I'm going to make it up but maybe 60 or 70% of pre pandemic demand levels, we're seeing.
Rapidly escalating pricing opportunities in Japan, but it's driven more by our inability to service the market with reliable container ship services because of the challenges at the ports.
What we're finding in our Korean shipments, where we've been very fortunate to be able to deliver pretty consistently and of the Korean market.
And and demand in Korea now is at pre pandemic levels.
Different sorts of scenarios and different countries in the Asian markets, but all and all we're seeing improvement and each of those markets and.
And we're just hopeful that as as the vaccine finds its way around the world and as as different markets open up that the the port situation will improve and we'll see we'll begin to see more reliable shipping opportunities again, which should really help.
The the supply chain not only for us but for for everybody as those as those markets improve not only due to the pandemic and the improvement and in the spread of the vaccine, but also in the improvement of their port openings and people going back to work and opening the ports.
Okay, Great and then maybe one more for me and and I'm not sure if mark wants to take it but as we look at SG&A expense you know Andy.
The insights you can give us on cash.
Cost cutting and you know effectiveness of some of the cuts that you guys made.
Maybe the outlook through the remainder of the year as we look at SG&A.
Yeah, no problem, so I'll take that so in general costs have been lower simply there is a lot of COVID-19 costs at that arent and the business travel expenses and those kinds of things and we've really taken a look at the whole organization and really where the efficiencies and inefficiencies are.
If we look last year to this year year over year were about $500000 less.
And the the first quarter of SG&A. So we feel like that's a positive trend for us, but typically I think we run anywhere from about 1 million three 2 million five and any months and.
And so that will probably hold true for from where we go forward and and.
That does include a pickup and travel and expenses for us as we will see.
And the sales groups and and hosting more conventions and whatnot.
Okay, great. Thanks for you guys.
There are no other questions in the queue I'd like to hand, the call back over to Mr. Edwards for closing remarks.
Thank you for your questions and interest and Lehman era have a great day.
Ladies and gentlemen, and this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.