Q3 2024 Limoneira Co Earnings Call
Speaker Change: and John Mills, Mark Palamountain, Mark Palamountain.
Speaker Change: Greetings.
Speaker Change: and welcome to Lehman Narrows 3rd quarter 2024 Finance Results Conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the former presentation. If not much larger to introduce your host, John Mills with ICR. Thank you, sir. You may be in.
Speaker Change: Great, thank you. Good afternoon, everyone, and thank you for joining us for Lehman Ares 3rd Quarter, fiscal year 2024 conference call.
Speaker Change: and Chief Executive Officer and Mark Palamountain, Executive Vice President and Chief Financial Officer.
Speaker Change: By now everyone shall have access to the third quarter fiscal year 2024 earnings release, which went out today at approximately 4 p.m. Eastern time.
Speaker Change: If you've not had a chance to view the release, it's available on the investor-relation portion of the company's website at leemenera.com
Speaker Change: This calls being web-class and a replay will be available on Lehman Air's website as well. Before we begin, we'd like to remind everyone that prepared remarks containing forward-looking statements and management may make additional forward-looking statements and response to your questions.
Speaker Change: Such statements involve a number of known and an unrest 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.
Speaker Change: Important factors that could cause are contribute to such differences include risk details in the company's form 10Qs and 10Ks, filed with the SEC, and those mentioned in our injuries. Except for required by law, we undertake no obligation to update any forward-looking or other statements herein.
Speaker Change: Whether a result of new information, future events or otherwise.
Speaker Change: Please note that during today's call we will be discussing nine gap financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Lehmanair's ongoing results of operations, particularly when comparing underlying results from period period.
Speaker Change: We've provided as much details possible on any items that are discussed on an adjusted basis.
Speaker Change: Also, within the company's earnings release and in today's Praver Marks, we included just an ebodot in the Justin Deluded EPS, which are nine-gap financial measures.
Speaker Change: A reconciliation of adjusted EBITDA and adjusted deluded EPS to the most directly comparable gap financial measures are included in the company's press release which has been posted to our website.
Speaker Change: And with that, it is my pleasure to turn the call over to the company's president and CEO, Mr. Harold Edwards.
Harold Edwards: Thanks, John, and good afternoon, everyone.
Harold Edwards: You're extremely pleased with the overall performance of our business this quarter, highlighted by 21% net revenue growth and generating $13.8 million in adjusted evit to offer the quarter.
Speaker Change: In addition, we generated $25.5 million of adjusted e-to-dough for the first nine months of this year compared to $1.1 million for the same period last year.
Speaker Change: This growth was driven by pricing improvement in fresh lemons, as well as avocados experiencing robust demand with higher volume and favorable pricing dynamics.
Speaker Change: Positioning has to achieve record avocado revenue this fiscal year, and raising our avocado volume guidance by over 50%.
Speaker Change: In conjunction with this increased avocado guidance, we anticipate our avocado segment will contribute approximately 4 million to 5 million pounds in our season of William softer fourth quarter for the first time in our company's history.
Speaker Change: These results validate our strategic decision to significantly expand our avocado production by 1,000 acres over the next 3 years.
Speaker Change: In addition to our agricultural success, our real estate development joint venture, Harvest at Le Manara, has seen increased momentum in the current lower interest rate environment with steady home sales.
Speaker Change: The expanded avocado production and overall solid diversified agricultural improvements, coupled with the ongoing expected earnings from harvest, reinforces our confidence in achieving strong EBITDA growth.
Speaker Change: The success across multiple segments of our business underscores our commitment to sustainable growth and value creation for our stockholders.
Speaker Change: Turn into a real estate, we achieved two significant milestones during the first nine months of this year.
Speaker Change: First, in April of 2024, our joint venture with the Lewis Group closed on lot sales representing 554 residential units, thus completing the sellout of phase two of the development.
Speaker Change: A total of 1,261 residential units have closed from the project's inception.
Speaker Change: Second, in May of 2024, 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.
Speaker Change: The 550 unit increase will provide 250 additional single-family foresail home sites within phase 3 of harvest.
Speaker Change: a separate joint venture with the Lewis Group plans to construct 300 multifamily rental homes on a mixed use portion of the project. This is a 37% increase in the dwelling units unlocking further value creation opportunities.
Speaker Change: Based on these events and continued increase in the land value associated with this project, we increased our cash flow predictions by 46% in June and expectoracy $180 million in total future proceeds spread out over the next seven fiscal years.
Speaker Change: Mark will provide more color on our dramatically improved balance sheet, but I wanted to highlight that our long-term debt from the second quarter to our third quarter was reduced by 33 percent thanks to our improvement in adjusted EBITDA and real estate transactions.
Speaker Change: Our net debt as of July 31, 2024 was $39.6 million a quarter in.
Speaker Change: However, by closing an additional 554 home sites on our 50-50 real estate development joint venture.
Speaker Change: We had 69.9 million dollars of unauthited cash and cash equivalence on hand as a July 31, 2024 of which 50% or approximately 35 million dollars is our share.
Speaker Change: Now to provide a quick update on our decision to evaluate strategic alternatives for the overall business.
Speaker Change: In October of 2022, we developed a strategic roadmap intended to enhance near and long-term shareholder value.
Speaker Change: Today, we consider ourselves to be in a stronger financial position, having recently reduced our net-depth position and right-side the balance sheet through our ongoing strategic shift towards an asset-lighter business model and stronger cash flow projections from harvest at Lehman Era.
Speaker Change: Cincinnati, our exploration of strategic alternatives in December of 2023. We received significant interest and are diligently working with our advisors at Stevens and corporate to engage with these other parties to evaluate potential opportunities.
Speaker Change: We remain committed to thoroughly exploring all options to maximize stockholder value and will provide updates if the board of directors find that further disclosure is necessary or advisable.
Speaker Change: Even after the recent non-sport teaching asset sales over the past year and a half, we continue to manage approximately 10,500 acres of land with approximately 21,000 acre feet of owned water, usage, and pumping rates representing tremendous long-term value growth opportunities in our assets.
Speaker Change: You can see by our improvement in our operating income during the third quarter, our transition to an asset-lighter business model and focus on the best use of our assets to enhance shareholder value is having a positive effect.
Speaker Change: We are dramatically decreased interest expense, removed our pension obligation, our monetizing water to a following program at the UMA Mason Irrigation and Dranes District, and we are significantly raising our avocado volume guidance for fiscal year 2024.
Speaker Change: and with that, I'll now turn the call over the mark.
Speaker Change: Thank you, Harold, and good afternoon, everyone. Before I begin, I would remind you that it's best to be our business on an annual, not quarterly basis, due to the seasonal nature of our business.
Speaker Change: Historically, our first and fourth quarters are the seasonally softer quarters while our second and third quarters are stronger.
Speaker Change: For the third quarter of fiscal year 2024, total net revenue increased 21% to 63.3 million dollars compared to total net revenue of 52.5 million dollars in the third quarter of the previous fiscal year.
Speaker Change: Agribus revenue was $61.8 million compared to $51.1 million in the third quarter last year.
Speaker Change: Other operations revenue was $1.5 million in the third quarter of fiscal year 2024 compared to $1.4 million in the third quarter last year.
Speaker Change: Agre Business revenue for the third quarter of fiscal year 2024 includes $25.8 million in fresh pack lemon sales compared to $24.2 million during the same period of fiscal year 2023.
Speaker Change: Approximately 1,400,000 cartons of U.S. packed fresh lemons were sold during the third quarter of fiscal year 2024 at an $18.43 average price per carton.
Speaker Change: compared to 1,352,000 cartons sold at a $17.92 average price per carton during the third quarter of fiscal year 2023.
Speaker Change: Brooked lemons and others lemons sales were $9.8 million and $8 million in the third quarter of fiscal years, 2024 and 2023 respectively, representing 23% growth year over year.
Speaker Change: The company recognized $13.9 million of Avocado revenue in the third quarter of fiscal year 2024 compared to $3.5 million during the same period of fiscal year 2023.
Speaker Change: Approximately 8.9 million pounds of avocados were sold in aggregate during the third quarter of fiscal year 2024 at a $1.57 average price per pound compared to approximately 2.8 million pounds sold at a 99 cent average price per pound.
Speaker Change: during the third quarter of fiscal year 2023.
Speaker Change: The company strategically postpone the significant portion of its avocado harvest from the second quarter into the third quarter of fiscal year 2024 in order to capture more favorable anticipated pricing.
Speaker Change: We also expect to have approximately 4 million to 5 million pounds of Abacados remaining to harvest in our seasonally soft Florida.
Speaker Change: The company recognized $1.2 million of orange revenue in the third quarter of fiscal year 2024 compared to $1.3 million in the third quarter of fiscal year 2023.
Speaker Change: Approximately 43,000 cartons of oranges were sold during the third quarter of fiscal year 2024, and a $26.98 average price per cartons.
Speaker Change: Compared to approximately 71,000 cartons sold at an $18.17 average price per carton during the third quarter of fiscal year 2023.
Speaker Change: As a reminder, the company opportunistically has buy cell arrangements for orange orders with a retail and food service customers to complement our lemon sales.
Speaker Change: Specialty Citrus and other crop revenue was $600,000 in the third quarter of fiscal year 2024 compared to $1.9 million in the third quarter of fiscal year 2023.
Speaker Change: During the third quarter of fiscal years 2024 and 2023 approximately 25,000 and 70,000, 40 pound carton equivalents were sold at an average price per carton of $22 and $25.88 respectively.
Speaker Change: Farm Management revenues were 3.2 million dollars in the third quarter of fiscal year 2024 compared to 5.4 million dollars in the same period of fiscal year 2023 on similar acreage.
Speaker Change: The D-Tree's in farm management revenues in the third quarter of fiscal year 2024 was primarily due to farm management decisions based on weather and crop conditions.
Speaker Change: Our profitability is based on total acre's managed, which remains unchanged.
Speaker Change: Total cost and expenses for the third quarter of fiscal year 2024, we're $54.3 million compared to $54 million in the third quarter of last year.
Speaker Change: This year's third quarter total cost in expenses included a $643,000 non-cash impairment of an intangible asset.
Speaker Change: Excluding the non-cash impairment, total cost and expenses decreased year over year.
Speaker Change: operating income for the third quarter of fiscal year 2024 was $9 million, compared to an operating loss of $1.5 million in the third quarter of the previous fiscal year.
Speaker Change: Net income applicable to Common Stock after preferred dividends for the third quarter of fiscal year 2024 was $6.5 million compared to a net loss applicable to Common Stock of $1.3 million in the third quarter of fiscal year 2023.
Speaker Change: Net income for diluted share for the third quarter of fiscal year 2024 was 35 cents compared to a net loss for diluted share of 7 cents for the same period of fiscal year 2023.
Speaker Change: Adjusted Net income for diluted EPS for the third quarter of fiscal year, $20,24, with $7.8 million, compared to $400,000 in the same period of fiscal year, $20,23.
Speaker Change: Adjusted Met Income Preguluted Share for the third quarter of fiscal year 2024 was 42 cents compared to adjusted net income for diluted share of two cents for the third quarter of fiscal year 2023.
Speaker Change: A reconciliation of net income or loss, achievable to the Lehman Air Company, to adjust the net income or loss for diluted EPS, is provided at the end of our earnings release.
Speaker Change: Adjusted EBITDA for the third quarter of fiscal year 2024 was $13.8 million compared to $2.8 million in the same period for fiscal year 2023.
Speaker Change: The $11 million improvement highlights increased pricing and volume of fresh lemons and strong avocado performance.
Speaker Change: A reconciliation of net income or loss attributable to the Lehman era company to adjust it EBITDA is also provided at the end of our earnings release.
Speaker Change: and the first quarter of last year, we told our northern properties which resulted in total net proceeds of $98.4 million.
Speaker Change: 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 3.5% until July 1, 2025.
Speaker Change: Long-term debt as of July 31, 2024 was $40 million compared to $40.6 million at the end of fiscal year 2023.
Speaker Change: debt levels as of July 31, 2024, might as $1.1 million of cash on hand resulted in a net debt position of $39.6 million at the quarter end.
Speaker Change: As Harold mentioned, it is important to note that our 50-50 joint venture with Lewis grew help $69.9 million of cash in equivalents as of July 31, 2024 of which our share is 50% or approximately $35 million.
Speaker Change: 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.
Speaker Change: This additional liquidity source from our joint venture partnerships provides further financial flexibility beyond the quarter-end net debt figure.
Speaker Change: Now, I'd like to turn the call back over to Harold's to discuss our fiscal year 2024 outlook and longer term growth pipeline.
Speaker Change: Thanks, Mark. We are raising our avocado guidance for the second time this year.
Harold's: We now expect avocado volumes to be in the range of 14.5 million to 15.5 million pounds for fiscal year 2024, compared to previous guidance of 9 million to 10 million pounds, a more than 50% increase compared to prior guidance.
Speaker Change: Reef Spectaccomplete the avocado harvest in the fourth quarter with approximately 4 million to 5 million pounds remaining.
Speaker Change: Keep in mind we expect our fourth quarter to represent a record in avocado volume due to our timing and ability to hold the fruit to match a higher price environment.
Speaker Change: We now expect fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2024 compared to previous guidance of 5 million to 5.5 million cartons due to lower fertilization from late-season rains.
Speaker Change: The Lemon Harvest for fiscal year 2024 is approximately 85% complete.
Speaker Change: We continue to expect to receive total future proceeds of $180 million from harvest.
Speaker Change: Leavenour Lewis Community Builders 2 and Leavenour Lewis Community Builders East Area 2 spread out over the next seven fiscal years.
Speaker Change: Looking ahead, we continue to see a strong leave-it-dye outlook, each underpin by plans to expand avocado production by 1,000 acres over the next three years to capitalize on robust consumer demand trends.
Speaker Change: During this transition, the company expects fiscal year 2025 out of Cotto volume to be lower compared to fiscal year 2024 due to the alternate bearing nature of out of Cotto trees.
Speaker Change: and the company believes avocado pricing may be slightly lower compared to the current your pricing environment due to international circumstances.
Speaker Change: These operational results do not take into account expected additional earnings from harvest and leave an error.
Speaker Change: Operator will now open the called questions.
Speaker Change: and Hugh, who will now be conducting a question and answer session.
Speaker Change: If you would like to ask the question.
Speaker Change: If you may press to start to, if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the D star keys. One more one please while we pull for a question.
Speaker Change: and our first question comes from the line of Bend Cleveland Lake Street Capital Market. Please proceed with your question.
Speaker Change: Alright, thanks for taking my questions from Congratulations on a nice quarter here. I'd like to start with a couple related to the current avocado expectations.
Speaker Change: First question here is, you know, just a staggering increase in the expected volume this year. Can you talk about...
Speaker Change: kind of evolved over the last three months that led to such a major increase, that number was just surprising me. So I appreciate any thoughts you have there.
Speaker Change: So two factors are driving this Ben. The first one being a much larger crop year over year, which is always helpful. But also the team's decision to delay harvest.
Speaker Change: from the second quarter into the third quarter. And two things happened when that decision was made. The first was.
Speaker Change: by delaying the harvest that gives the crop size, the ability to continue to grow and to get bigger.
Speaker Change: and has that happen that actually can increase the total volume harvested significantly because as a producer we get paid by the pound and so our pounds were materially impacted for the positive because of the delay.
Speaker Change: and then the other factor that drove it was due to a situation where for 10 days during the season, the U.S. border was closed to Mexican fruit during the Mexican peat Mexican season.
Speaker Change: just, it happened right at the beginning of when the California harvest began and that put tremendous tailwinds behind the pricing environment that we experience into our harvest.
Speaker Change: and that was sort of why we made it.
Speaker Change: The forward-looking comments for next year is we don't anticipate the market to be from a pricing perspective as strong as it was.
Speaker Change: this year because this year we dealt with a significantly underserved market for a period of time which really drove the prices higher.
Speaker Change: I don't know that we can expect that next year but we do anticipate strong consumer demand and strong demand for avocado so we believe that the pricing environment will be good maybe just not as good as this year
Speaker Change: Okay, yeah, I love them clear on pricing and I guess my follow-up question then is I appreciate that the ultimate bearing nature of the crop but I guess I'm curious if the
Speaker Change: You know, what if any lessons you are taking from this year?
Speaker Change: to your outlook for next year. I mean, does this kind of significant volume increase?
Speaker Change: Kind of change how you think about managing this crop even in the, you know, buy annual down year or do you think next year will be very similar to last year from a volume perspective.
Speaker Change: Now, I don't think we'll see any, any, um...
Speaker Change: Significant downward pressure, I think, you know, typical, you know, up to your down year is anywhere from 30 to 50% different in crops.
Speaker Change: I will tell you part of the additional weight or percentage that we've received this year. It's more to spend on over the last few years by the team. We've really started focusing more on avocados as our companies perform better historically in good avocado year, so we had a renewed focus.
Speaker Change: We started this group internally called the Avocado Congress, which at every constituent that is involved from farming, to marketing, to sales, in myself. And so we met weekly, and the prior three years we were aggressive in pruning, we've really changed our fertilization programs.
Speaker Change: and you know we're expecting anywhere from 15 to 20,000 pounds an acre this year on a good year on existing
Speaker Change: and an existing tree crop and trees that have been planted historically for a while. And so as you see going forward, which it gives us our confidence in the EBITDA growth, we're going to have completely new trees, some different root stocks, new tree spacing, which will be more dense.
Speaker Change: and we see opportunity to have really robust poundage per acre going forward when we get finished with this plantings in the next few years.
Speaker Change: Got it. Very good. We'll tell the Converse to keep up the good work over there.
Speaker Change: One more for you, Mark, around the debt. I'm curious how you're thinking about the fixed debt position that you have today.
Speaker Change: in the face of declining interest rates, and a really healthy, kind of operating cash flow plus harvest that we minera cash flow outlook here.
Speaker Change: Are you considering various debt instruments to allow you to have more excess cash on hand, or do you expect to just eliminate that position here over the course of the next 10 or 11 months, whenever that facility is due?
Speaker Change: So, it's it's...
Speaker Change: Actually, physically due on July 1st of 26, it goes veryable for one year.
Speaker Change: So, as we know that we think the interest rates are going to start coming down, we'll probably have some flexibility there. Keep in mind that we have $35 million of cash and equivalent from the Lewis balance sheet. And the reason why that we only distributed $30 million or $15 million for us.
Speaker Change: is because once we do a distribution we have to remove the line of credit.
Speaker Change: As those credit lines loosen up, I can see going forward the potential for extracting more out of that opportunity. So we'll just have to see. I will say that we will have a lower net debt position next year than this year. And we'll just have to figure out where rates are. Right now we're very pleased with the strength of our balance sheet and looking forward.
Speaker Change: Very good. Thanks for taking my questions guys. Again, congratulations on the nice quarter here and I'll get back in line.
Speaker Change: Thanks for your experience.
Speaker Change: Thank you. Our next question comes from the line of rise. Sharma would be rising. Please for see you with your question.
Speaker Change: and John Mills, Mark Palamountain, Mark Palamountain.
Speaker Change: Hello, Raj.
Speaker Change: Sorry, can you hear me?
Speaker Change: Thank you for taking my questions.
Speaker Change: Um...
Speaker Change: and really good quarter congratulations. I'd like to, if you could talk a little bit about, you know, I know you can't talk much about the strategic review, but...
Speaker Change: Just try to understand how this is going to pan out, you know, how does your efforts on one world of citrus and the farm management proceed forward, how does the harvest JV?
Speaker Change: Move forward with any potential possible outcome with the company. Is everything on the table in terms of in parts or the whole? If you could talk about that.
Speaker Change: In some color, please be great.
Speaker Change: Sure, so, you know, we've been coached not to speak extensively about it, but we'll try to add some color just to kind of...
Speaker Change: sort of tell you from our perspective how it's playing out and how we're looking at it. So I think the fair statement is the board of directors is evaluating all opportunities.
Speaker Change: and not taking anything off the table.
Speaker Change: from a value perspective. And so there's the consideration of the ongoing enterprise in its entirety. There's the consideration of a, for lack of a better way to explain it, an operating company, and a property company, so off-code, prop-code.
Speaker Change: with, you know, more than one owner, there's strategic interest across citrus, there's strategic interest across avocados, there's strategic interest from home builders and land developers, and there's also strategic interest from a water perspective.
Speaker Change: So I think we've been very pleased with the amount of interest that we've received.
Speaker Change: but it's still early in the process to really understand the direction that this strategic alternatives will take.
Speaker Change: I'll tell you that Mark and I are having a lot of fun trying it all on and thinking about it all and I know the board is being very diligent as they are considering everything that's being introduced to them but
Speaker Change: I think we've got another period of time, at least another quarter of exploration and deliberation. And as we, as we said in our prepared remarks, is when and if the board is ready to provide additional color or commentary, we look forward to doing that.
Speaker Change: So, I just wanted to get a sense of the timeline, would that be a quarter out of two quarters out, you think it gets for the wrapped up?
Speaker Change: I think it's too early to say there, too. You know, we'd love it to happen very quickly and to be done, but the board is intentionally being extremely deliberate and thoughtful about it. We're experiencing excellent service and support from our banking advisors and our legal advisors.
Speaker Change #100: So to set a time frame on, I'm hesitant to do that because I don't want to miss what whatever I say, but I'd say it is, it's looking favorable that it will happen in the relatively near term.
Speaker Change #101: Got it. Thank you for that. And then just sort of a follow-on question on the farm management revenues and profitability. I know you just made a comment and it was lower than the last year. Can you talk about the reasons for the decline?
Speaker Change #102: What to kind of expect in terms of the next few quarters on farm management and how the profitability works, it works on the acreage not on the revenues.
Speaker Change #103: You've had so this season or this past quarter, decisions were made that there was lower inputs like for press pressures, pesticides, etc. and pruning in prior periods.
Speaker Change #104: and so as you mentioned, our profitability is based on a per acre fee and then so it's basically a cost plus an arreo. So we've made about $288 per acre and then there's some add-on for different machinery and stuff. So if you get to those 3,000 acres, that's where we get to about a million dollars that we've talked about in the past of operating profit.
Speaker Change #105: So really, as the thing about the profitability of that business going forward, we're still continuing to look for new clients. There's lots of slots going around in the citrus industry in general right now, and so we'll look to grow that in fiscal year 25.
Speaker Change #105: Great, thank you, I'll take my questions off, thank you for answering my questions.
Speaker Change #106: Thank you, Raj. Thanks.
Speaker Change #107: Thank you. And just as a reminder, if anyone has any questions, you may first start one on your phone.
Speaker Change #107: Edwards.
Speaker Change #108: Good morning to you.
Speaker Change #108: [inaudible]
Speaker Change #108: And we have a journal for other questions at this time. I would like to turn the floor back to CEO, Harold Edwards, for opposed remarks.
Harold Edwards: Thank you very much, everybody, for all your questions and your interest in leaving there, have a great day.
Speaker Change #109: and different groups today's conference and you may disconnect your lives at this time. Thank you for your participation.
Speaker Change #110: and John Mills, Mark Palamountain, Mark Palamountain, [inaudible]