Q4 2023 Limoneira Co Earnings Call
Greetings and welcome to Lehman Erez fourth 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.
Great. Thank you Doug good afternoon, everyone and thank you for joining us preliminary fourth quarter fiscal year 2023 conference call.
On the call today are Harold Edwards, President and Chief Executive Officer, and Mark Heller Mountain Chief Financial Officer.
By now everyone should have access to the fourth quarter of fiscal year 2023 earnings release, which went out today at approximately four 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 <unk> Dot com.
No.
This call is being webcast and a replay will be available on <unk> 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.
Factors that could cause or contribute to such differences include risks detailed in the Companys 10, Qs and 10-Ks filed with the SEC and those mentioned in the earnings release.
Sept as required by law, we undertake no obligation to update any forward looking or other statements herein.
Whether result of new information future events or otherwise.
Please note that during the call today, we will be discussing non-GAAP financial measures, including results on an adjusted basis and sleep. These adjusted financial measures can facilitate a more complete analysis and greater understanding of <unk> ongoing results of operations <unk>.
Particularly when comparing underlying results from period to period.
We have provided as much detail as possible on any items that are discussed on 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 EPS to the most directly comparable GAAP financial measures are included in the company's press release.
<unk>, which has been posted to our website.
And with that it's my pleasure to turn the call company's President and CEO, Mr. Harold Edwards.
Thanks, John and good afternoon, everyone I am pleased with our performance in fiscal year 2023, as we achieved our full year avocado and revised lemon volume guidance, despite harsh weather conditions and softer lemon pricing throughout most of the year.
Additionally, our company's strategic shift towards an asset lighter business model progress. This year and is reflected in our latest results with brokered lemons and other lemon sales growing year over year for the second quarter in a row in the fourth quarter and our farm management revenue, reaching close to $10 million this fee.
Fiscal year compared to no revenue last year.
We made progress monetizing our eliminate or eliminating certain non strategic assets with the sale of our northern properties for $98 million in net cash proceeds entering a water following program in Yuma, Arizona for expected annual proceeds of $1 $3 million.
And exiting our unprofitable farming operations in cities.
All of these actions have positioned our company to be in a stronger financial position with our balance sheet right sized and our net debt position at the lowest level since becoming a publicly traded company.
Heading into fiscal year 2024, we are committed to advancing our strategic shift and believe the actions taken this past year have set us up to improve margins in fiscal year 2024.
We also anticipate selling the remaining two identified nonstrategic assets. This next fiscal year for an expected $50 million in proceeds while rising interest rates. This past year caused a temporary slowdown in our harvest at <unk> project.
We are encouraged to have seen sales pick back up at the end of the year with the remaining 121 residential units in phase one of the project selling out at a 40% premium to lot sales at the inception of the project.
We have adjusted our cash flow projections to account for increased sales prices and now expect a 14% increase in total proceeds to $131 million spread out over nine fiscal years with approximately $8 million received in fiscal year 2022 and three.
Expected in fiscal year 2024.
Also in fiscal fourth quarter. The overall 11 market has showed improvement with prices being higher for all grades and sizes.
This is caused by the supply and demand curve being out of balance on the supply side. The availability of fruit has been reduced Californian and south American supply on the trees in combination with the remaining volume in storage is much lower than at 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 and Mexico excessive heat in July impacted the grade and size of the fruit.
We had good demand in this situation and prices should go up we believe all these factors position us very well for expected higher lemon pricing in fiscal year 2024.
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 this next fiscal year. We are working to pivot our business towards a model that will streamline our operations sell non strategic assets improve the consistency of our earning.
<unk> increased EBITDA and dividends per share reduced debt rightsize, the balance sheet and improve the return on invested capital.
Debt less cash on hand as of October 31, 2023 was 37 $4 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.
Even after the recent non strategic asset sales, we continue to manage approximately 11100 acres of land with approximately 21000 acre feet of owned water usage and pumping rates.
This year, we announced that we entered into a second following program with Yuma Mesa irrigation and drainage district in the United States Bureau of reclamation that supersedes. The initial program and we will commit to fellow owned land through at least calendar year 2025.
We expect to receive approximately $1.3 million annually paid in quarterly installments for following approximately 600 acres out of our 1300 acres of farmland in Yuma, Arizona.
Yuma Mesa irrigation and drainage district, we will refrain from diverting Colorado River water that otherwise would have been used to irrigate followed lance so that the save water may be retained in lake Mead as Colorado River system Conservation water. This will result in increasing the supply in elevation of lake need.
And helping to avoid water shortages in Arizona and the lower basin.
In fiscal year 2024 on the operational side of our business you will continue to see our transition to an asset light business model and focus on the best use of our assets to enhance shareholder value we.
We have dramatically decreased interest expense removed our pension obligation will be receiving quarterly payments from UN Mesa irrigation and drainage district for our following program and we believe lemon better we believe lemon pricing will be better this year compared to fiscal year 2023 positioning us well for strong.
Improvements in fiscal year 2024, and.
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.
This has led our board towards additional process to explore potential strategic alternatives aimed at maximizing value for stockholders, including but not limited to a sale of all or parts of the company merger and other potential strategic transactions.
And with that I'll now turn the call over to Mark. Thanks.
Thank you Harold and good afternoon, everyone. As a reminder, due to the seasonal nature of our business. It is best to view our business on an annual not quarterly basis.
Historically, our first and fourth quarters are seasonally softer quarters, while our second and third quarters are stronger.
For the fourth quarter of fiscal year 2023, total net revenue increased 4% to $41 $4 million compared to total net revenue of $39 $7 million in the fourth quarter of the previous fiscal year.
Agribusiness revenue was $40 $1 million compared to $38 $2 million in the fourth quarter last year.
Other operations revenue was $1 $3 million compared to $1 $4 million in the fourth quarter last year.
Agribusiness revenue for the fourth quarter of fiscal year 2023 includes $11 $3 million in fresh lemon sales compared to $13 $1 million. During the same period of fiscal year 2022.
Approximately 550000 cartons of fresh lemons were sold during the fourth quarter of fiscal year 2023 at a $20, 39% average price per carton compared to 680000 cartons sold at a $19 33 average price per carton during the fourth quarter of fiscal year 2020.
To the.
The industry experienced softer pricing for lemons throughout most of the year because of the heavy rains in California throughout December until May, which delayed a portion of our lemon harvest and an industry wide test issue that lowered the great uncertainty fruit.
Beginning in August we began to see a steady recovery in price for all grades and sizes that continued throughout the fourth quarter, leading us to record the highest fourth quarter lemon pricing since 2019.
Brokered lemons and other lemon sales were $14 $4 million and $12 $7 million in the fourth quarter of fiscal years, 2023, and 2022 respectively, representing 13% growth year over year.
The company recognized no avocado revenue in the fourth quarter of fiscal year 2023, compared to nominal avocado revenue in the fourth quarter of the previous fiscal year due to the seasonal nature of this fruit.
The company recognized $1 $9 million of Orange revenue in the fourth quarter of fiscal year 2023, compared to $2 $7 million in the fourth quarter of fiscal year 2022 Approx.
Approximately 69000 cartons of oranges were sold during the fourth quarter of fiscal year 2023 at a $28.32 average price per carton compared to approximately 86000 cartons sold at a $31 22 said average price per carton during the fourth quarter of fiscal year 'twenty two.
'twenty two.
Specialty citrus and other revenue was $5 $4 million in the fourth quarter of fiscal year 2023, compared to $5 $5 million in the fourth quarter of fiscal year 2022.
As a reminder, we sold them in the majority of our Orange and specialty citrus acreage in the northern properties transaction during the first quarter of fiscal year 2023.
Farm management revenues were $3 $1 million in the fourth quarter of fiscal year 2023, and there were no farm management revenues in the fourth quarter of fiscal year 2022.
Total costs and expenses for the fourth quarter of fiscal year, 2023, or $51.1 million compared to $41 $5 million in the fourth quarter of last year.
The increase of $9 $6 million was primarily due to foreign management cost expensed in fiscal year 2023, but capitalize as cultural cost in fiscal year, 2022 and decreased gain on asset disposals.
Operating loss for the fourth quarter of fiscal year, 2023 was $9 $7 million compared to operating loss of $1 $9 million in the fourth quarter of the previous fiscal year, primarily due to increased costs and expenses as described above.
Net loss applicable to common stock after preferred dividends for the fourth quarter of fiscal year, 2023 was $3 $6 million compared to net loss applicable to common stock of $2 $8 million in the fourth quarter of fiscal year 2022.
Net loss per diluted share for the fourth quarter of fiscal year 2023 was 20.
Compared to net loss per diluted share of <unk> 16 cents for the same period of fiscal year 2022.
Adjusted net loss for diluted EPS for the fourth quarter of fiscal year, 2023 was $2 $6 million compared to $5 $7 million in the same period of fiscal year 2022 adjusted.
Adjusted net loss per diluted share for the fourth quarter of fiscal year 2023 was 15.
Compared to an adjusted net loss per diluted share of 32 cents for the fourth quarter of fiscal year 2022.
A reconciliation of net loss attributable to Lehman Eric company to adjusted net loss for diluted EPS is provided at the end of our earnings release.
Adjusted EBITDA was a loss of $1.3 million in the fourth quarter of fiscal year 2023, compared to a loss of $3 $8 million in the same period of fiscal year 'twenty to 'twenty two.
A reconciliation of net loss attributable to Luminaire company to adjusted EBITDA has also provided at the end of our earnings release.
For the fiscal year ended October 31, 2023 revenue was $179 $9 million compared to $184 $6 million in the same period last year.
Operating income for fiscal year, 2023 was $10 $8 million compared to operating income of $2 $2 million in the same period last year.
Net income applicable to common stock after preferred dividends was $8 9 million for fiscal year, 2023 compared to a net loss applicable to common stock after preferred dividends of $737000 for fiscal year 2022.
Net income per diluted share for fiscal year 2023 was 50 <unk>.
Compared to a net loss per diluted share of <unk> in fiscal year 2022.
For fiscal year 2023, adjusted net loss for diluted EPS was $7 $6 million compared to an adjusted net loss for diluted EPS of $1 $3 million for fiscal year 2022 adjusted.
Adjusted net loss per diluted share was 43 cents compared to adjusted net loss per diluted share of <unk> for.
For fiscal year 2022, based on approximately 17.6 and $17 5 million weighted average diluted common shares outstanding for fiscal years, 2023, and 2022, respectively.
We recorded for fiscal year, 2023, and income tax provision of $4 $2 million on pretax income of $13 $4 million.
The tax provision recorded for fiscal year 2023 differs from the U S. Federal statutory tax rate of 21% due primarily to foreign jurisdictions, which are taxed at different rates state taxes tax impact of stock based compensation non deductible tax items and valuation allowances on <unk>.
Certain deferred tax assets of foreign subsidiaries.
The effective tax rate for fiscal year, 'twenty to 'twenty, three and 2022 was 31, 8% and 234, 8% respectively.
For fiscal year 2023, adjusted EBITDA was a loss of $224000 compared to income of $11 $9 million for fiscal year 2022.
Turning now to our balance sheet and liquidity at the beginning of the year, we sold our northern properties, which resulted in a total net proceeds of $98 $4 million. The proceeds were used to pay down all of our domestic debt, except the AG West farm credit $40 million non revolving line of credit, which has a fixed interest rate of three.
Five 7% and 10 till July one 2025.
Long term debt as of October 31, 2023 was $46 million compared to $104 $1 million at the end of fiscal year 2022.
Debt levels as of October 31, 2023, minus $3 $6 million of cash on hand resulted in a net debt position of $37 $4 million at the end of fiscal year 2023.
As a reminder, we have $50 million of remaining non strategic assets for monetization over the next fiscal year and their sales combining with improved EBITDA may provide an opportunity to further reduce our net debt position by this time next year now I'd like to turn the call back to Harold to discuss our fiscal year 2024.
Our outlook and longer term growth pipeline.
Thanks, Mark for fiscal year, 2024, we expect fresh lemon volumes to be in the range of 5 million to $5 5 million cartons and avocado volumes to be in the range of 7 million to 8 million pounds for fiscal year 2024.
We have 700 acres of non bearing lemons and avocados estimated to become full bearing over the next four to five years, which we expect will enable strong organic growth in the coming years. Additionally, we plan to expand our plantings of avocados over the next three years and also expect to have a steady increase in third party grower fruit.
Turning to our real estate projects harvest at Lehman era Luminary Lewis community builders to an east area too we have increased our expected total proceeds by 14% to $131 million over nine fiscal years. The increase was primarily due to increased lot pricing base.
On our 121 lot sales in October of 2023.
Lastly, as a reminder, based on our asset lighter model transition, we anticipated an additional $50 million of asset sales during the next fiscal year.
Yeah.
And with that I'd like to turn it over to the operator.
Okay.
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.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Ben <unk> with Stephens. Please proceed with your question.
Hey, good evening.
And then I've been.
So I won't ask Harold you talked a little bit about the supply demand set up for lemons.
It looks right now heading into 2024, it looks pretty constructive.
Apply backdrop in particular, it looks constructive and I think the way you put it wasn't the demand is there.
Could be a more favorable environment.
In 2024 and in 2023.
What are you seeing with respect to demand and is there any.
Demand sensitivity to higher prices are we have we not cross that threshold.
Of pricing that starts to trigger.
Demand sense to me.
I think we're really pleased with with.
With the demand structure, and where we are today and what we see for the rest of the fiscal year.
I think it would be fair to say that were back to pre pandemic demand levels.
The one area, where we continue to struggle a little bit is in the export markets, where with the strong foreign exchange rates and the very strong dollar if prices some of our products out of those markets and so we've seen demand drop due to the high pricing related to the foreign exchange rates and the strong.
Dollar, but other than that I think we're we're cautiously optimistic that our.
Heading into the rest of this fiscal year, we will see continued strong pricing, which should give us considerable help with the margins, which we really haven't seen since 2018.
Okay great.
Second question is related to harvest at Lehman era, you've increased the total proceeds do you expect from that program. The timeline has extended.
When we look at.
That program now with the prospect of falling interest rates as well into next year.
How much variability is there yet and that program around both the amount and the timing of the.
Receipt of those proceeds.
That's brand Thats great question. So as you know we had a we'll call. It 18 months hiatus, where interest rates started going up and we're really close to getting a phase two done now.
Now we finish those 121 lots at prices that were exceeding our expectation that over 40% up from where we started this project putting lots out in 2019 now as you know we have really shrewd partners and we make budgets every December and so that cash flow basically reflected an 18 month pushout, but.
Also the increase in the recent lot sales that we saw.
I think we will see opportunities to potentially move quicker with phase II.
Where we are fully attacking that right now in negotiating with all of the large homebuilders now that we closed that and so.
Our goal is to try to get something in 'twenty, four or if not 25, but the numbers you see us as phase II in 2006 so.
So I think we've got plenty of opportunity with that conservatism to try to pull that forward and we're working hard to do that.
Okay very good congratulations and best of luck.
Thanks Brent.
Our next question comes from the line of Ben Kelly with Lake Street Capital Markets. Please proceed with your question.
Good questions.
First a question about kind of your margin expectations going into 'twenty four.
I hear you loud and clear the pricing environment is.
Knock on wood more favorable today than it has been for some time Harold you commented on your in your.
Harold: Prepared remarks about some of the operational changes that you've made.
Being realized in the margin line here in 'twenty, four and so irrespective of pricing can you talk about the level of cost that were included in cost of goods sold or Opex in 'twenty. Three that you expect will not be repeated here in 'twenty four.
Two things to point out Ben Thanks for that question one is we.
We expect higher utilization rates this coming year versus last year, we had a lot of challenges with past and weather influence on the fruit, which lowered for at least a part of the year the fresh utilization rates and when that happens that drives your packing costs, because you still put the same amount of costs into the fruit.
But you sell less of it fresh so that's one negative impact on cost and the other is that we made a lot of progress getting rid of some of the.
The less profitable too not profitable parts of the business specifically in <unk> that we're having hugely negative impacts on our cost structure and we think the benefit of that in 2024 will be not only felt but will be recognized in higher margins.
Just wanted to add so if you noticed in difference between fiscal year, 2022, and 'twenty three fourth quarter and actually full year as we picked up the farm services management business all of those costs used to be on the balance sheet for most of the year, depending on harvest period, because that was where our own properties and now as that transition to prudential.
And outside ownership all of those costs are is expensed as incurred so that $10 million of expense that came this year came quarter to quarter relative to prior years, we had gaps in that until harvest periods and so that youll see going forward and then also as you see us increase our bra.
Harold: Oakridge business the agency, 8% Commission net business Youll see actual percentage margins go down, but overall gross dollars going up so not not a declining margin business, but gross dollars improving.
Okay very good.
Thank you Bob for that and then Harold you talked about.
Your intention to inquiries avocado acreage here over the next few years I'm wondering a couple of things on this one can you comment on the level of acreage you expect to plant in here over the next few years and then the relationship between your.
Intensive plant additional acreage versus potentially adding.
Any kind of avocado processing capabilities as well.
Now I'd be pleased to do that avocado is having a very bright future. We believe here in California there.
Their their seasonality comes out in a window that is a very opportunistic.
In the marketplace and.
Really not very crowded from a foreign competition standpoint.
Avocado start to be harvested typically anywhere around may and carry forward to call. It.
March here in California, and that's a nice little window, where you're not having a lot of pressure from Mexico or from Peru at that time and also California fruit is capturing a nice little niche in the market, where it actually trades at a premium to fruit from other origin. So we're very bullish on that and we believe that.
<unk> provides the ideal opportunity to produce avocados, so with that being said our portfolio historically on our 3000 acres of Ventura County production has been heavily weighted towards lemons 2000 acres of lemons 1000 acres of avocados youll see that begin to invert.
Youll see older lemons that are less productive being pulled and replace with avocados and it won't be exactly this but will invert to being a relationship more closely.
Resembling 1000 acres of lemons in 2000 acres of avocados.
Got it got it very helpful.
Thank you plenty more to talk about but that's probably a good place to leave it. Thanks for taking my questions I'll get back in queue.
Thank you Ben Thanks, Ben.
As a reminder, star one to ask a question.
Okay.
Our next question comes from the line of Raj Sharma with B Riley Securities.
Please proceed with your question.
Hi, Thank you for taking my question I.
Speaker Change: I just want to ask too.
I just wanted to understand the strategic review.
It was announced does does that.
What does that imply in terms of.
The expansion of the one word citrus.
And also you farm management business would you be trying to get new customers.
Could you expand a little bit on that.
Just be happy to Raj.
Yes.
Yes, happy to do that so that so the exploration of strategic alternatives process.
And we've stayed away from estimating a time frame on how long that process will take but.
The board and management will be working on that over the over the next fiscal year.
But as far as the operations go in the company of increasing our or expanding our farm management services business and expanding our grower partner business and also expanding our agency business with.
Outside supplier partners, we'll be full speed ahead, and fully an expansion mode and Opportunistically, we'll be working as hard as we can internally to expand each of those three parts of our business.
We've just established our business plans for this fiscal year end and have the entire luminary management team and the entire team at Lehman area of focused.
With the strategic goals of expansion in each of those three areas.
Alright.
Thank you.
And then just wanted to understand.
Phase one.
On the harvest side.
So if that's is that that's over.
The extra dollars that that you get as a result of it.
Would those.
Would those show up.
As cash flow from the company.
Or would those be rolled into.
As equity in phase two.
So great question so.
The answer is depending on how the phase two deal.
Get structured we had an opportunity to have a homebuilder due to the upfront costs and grading before the interest rate environment changed.
We would certainly seek to try to do that again, but if we have to do the infrastructure ourselves, which was about 30% to $40 million of grading. It's on the hillside and whatnot that that will be what takes us a little longer than that that would be the equity roll. So it's too early to tell really what that is but the first moment that the the the JV gets cash will.
The first moment that you guys hear about it and we'll be putting it out.
I think Louis is conservative in their nature.
We still have a bridge to build out there, which is about $15 million and we're just finishing up a sports park, but that's why he's constantly see these these types of projects back end loaded, but we're still very optimistic and think we're conservative.
Pricing and cash flows going forward.
No. Thank you so I'll take my questions offline. Thank you.
Thank you.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you very much for all of your questions and your interest in Lehman era happy holidays and have a great rest of your day.
Ladies and gentlemen.
This does conclude today's teleconference. Thank you for your participation.
You may disconnect your lines at this time and have a wonderful day.