Q4 2023 Limoneira Co Earnings Call
Participants
Mark Palamountain; Chief Financial Officer, Treasurer, Corporate Secretary; Limoneira Co
Presentation
Operator
Greetings, and welcome to Limoneria's Fourth-Quarter Fiscal Year 2023 financial results conference call. 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 for Limoneria's Fourth-Quarter Fiscal Year 2023 conference call. On the call today are Harold Edwards President and Chief Executive Officer; and Marc Palamountain, Chief Financial Officer.
By now, everyone should have access to the fourth quarter fiscal year 2023 earnings release, which went out today at approximately 4 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 Lehman arrow.com. This call is being webcast and a replay will be available on the minerals 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 risks detailed in the Company's 10-Q's and 10-K's 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 the call today, we will be discussing non-GAAP financial measures, including results on an adjusted basis as 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 it was 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 EPS to the most directly comparable GAAP financial measures are included in the Company's press release, 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 fiscal year compared to no revenue last year.
We made progress monetizing our eliminate or eliminating certain nonstrategic 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 key cities all of these actions have positioned our company to be in a stronger financial position with our balance sheet rightsized 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 non-strategic 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 Limoneira 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 projects 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 $3 million expected in fiscal year 2024. Also in fiscal Q4, the overall lemon market has shown 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.
California and South American supply on the trees in combination with remaining volume and 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. in Mexico. Excessive heat in July impacted the grade and size of the fruit add good demand to 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 earnings, increase, EBITDA and dividends per share, reduce debt, rightsize the balance sheet and improve the return on invested capital. Debt less cash on hand as of October 31st, 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 nonstrategic asset sales, we continue to manage approximately 11,100 acres of land with approximately 21,000 acre feet of owned water usage and pumping rights. This year, we announced that we entered into a second following program with Yuma Mesa irrigation and drainage district and the United States Bureau of Reclamation that supersedes the initial program and will commit to follow 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 1,300 acres of farmland in Yuma, Arizona, Yuma, Mesa irrigation and drainage district will refrain from diverting Colorado River water that otherwise would have been used to irrigate followed lands so that the save water may be retained in Lake Mead as Colorado River system conservation water. This will result in increasing the supply and 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 have dramatically decreased interest expense removed our pension obligation will be receiving quarterly payments from 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.
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 an 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.
Mark Palamountain
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 the 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 550,000 cartons of fresh lemons were sold during the fourth quarter of fiscal year 2023 at a $20.39 average price per carton compared to 680,000 cartons sold at a $19.33 average price per carton during the fourth quarter of fiscal year 2022. 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 grade on certain 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 the 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. Approximately 69,000 cartons of orders were sold during the fourth quarter of fiscal year 2023 at a $28.32 average price per carton compared to approximately 86,000 cartons sold at a $31.22 average price per carton during the fourth quarter of fiscal year 2022. 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 the majority of our Orange and specialty citrus 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 were $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 farm management cost expensed in fiscal fiscal year 2023, but capitalized 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 $0.2 compared to net loss per diluted share of $0.16 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 net loss per diluted share for the fourth quarter of fiscal year 2023 was $0.15 compared to an adjusted net loss per diluted share of $0.32 for the fourth quarter of fiscal year 2022. A reconciliation of net loss attributable to Limoneria 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 2022. A reconciliation of net loss attributable to Limoneria company to adjusted EBITDA is also provided at the end of our earnings release for the fiscal year ended October 31st, 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 $737,000 for fiscal year 2022. Net income per diluted share for fiscal year 2023 was $0.5 compared to net loss per diluted share of $0.04 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 net loss per diluted share was $0.43 compared to adjusted net loss per diluted share of $0.08 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, an 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 US 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 taxation items and valuation allowances on certain deferred tax assets of foreign subsidiaries. The effective tax rate for fiscal year 2023 and 2022 was 31.8% and 234.8%, respectively. For fiscal year 2023 adjusted EBITDA was a loss of $224,000 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 3.57% and till July first, 2025. Long-term debt as of October 31st, 2023 was $40.6 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 nonstrategic 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 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 GBP7 million to GBP8 million for fiscal year 2024, we have 700 acres of nonbearing 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 Limoneira, Limoneira Lewis Community Builders two and East Area two, we have increased our expected total proceeds by 14% to $131 million over nine fiscal years. The increase is primarily due to increased lot pricing based on our 121 lots sales in October of 2023.
Lastly, as a reminder, based on our asset lighter model transition, we anticipated additional $50 million of asset sales during the next fiscal year. And with that, I'd like to turn it over to the operator.
Question and Answer Session
Operator
Thank you. Ladies and gentlemen, at this time we'll be conducting a question and answer session. (Operator Instructions)
Ben Bienvenu, Stephens.
Hey, good evening. And then I mean so I will ask, Harold, you talked a little bit about the supply-demand setup for lemons as it looks right now heading into 2024, it looks pretty constructive. The supply backdrop in particular looks constructive. And I think the way you put it was if the demand is there it could be a more favorable environment in 2024 than 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 since today.
I think we're really pleased 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 we're 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, it 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 cautiously optimistic that heading into the rest of this fiscal year, we'll see continued strong pricing, which should give us considerable help with the margins which are up we really haven't seen since 2018.
Okay. Great. My second question is related to Harvest at Limoneira. You've increased the total proceeds you expect from that program. The time line has extended. When we look at where that program sits now with the prospect of falling interest rates as well into next year. How much variability is there yet in that program around both the amount and the timing of the receipt of those proceeds at Brad?
Mark Palamountain
That's a great question. And so as you know, we had I will call an 18 month hiatus on where interest rates started going up and we're really close to getting a Phase two done now. We finish those 121 lots at prices that were exceeding our expectation at over 40% up from where we started this project to 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 refresh reflected an 18 month push pushout, but also the increase in the recent lot sales that we saw. And I think we'll see opportunities to potentially move quicker with Phase two, where we are fully attacking that right now and negotiating with all of the large homebuilders now that we closed that. And so our goal is to get something in 24, if not 25, but the numbers you see as Phase two and 26. So I think we've got plenty of opportunity with that conservatism too tried to pull that forward, and we're working hard to do that.
Okay. Very good. Congratulations and best.
Mark Palamountain
Thanks, Ben.
Operator
Ben Klieve, Lake Street Capital Markets.
Two questions. First, a question about kind of your margin expectations going into '24. Here. You loud and clear the pricing environment is knock on wood more favorable today than it has been for some time. Harold, you commented, Don, you're on the prepared remarks about some the operational changes that you've made being realized in the margin line here in '24. And so irrespective of pricing, can you talk about the level of costs that were included in cost of goods sold and OpEx in '23 that you expect will not be repeated here in '24.
Two things to point out, Ben, thanks for that question. One is we expect higher utilization rates this coming year versus last year we had a lot of challenges with past and the 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 up because you still put the same amount of costs into the fruit, but just 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 less profitable to not profitable parts of the business, specifically in Candies that were 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.
Mark Palamountain
And also, I just want to add. So if you notice in difference between fiscal year 2022 and 23, 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, those were our own properties and now as that transition to Prudential and an outside ownership, all of those costs are expensed as incurred. So that $10 million of expense that came this year on K and quarter to quarter relative to prior years. We had gaps in that until harvest periods and so that you'll see going forward.
And then also, as you see us increase and our brokerage business, the agency 8% commission net business, you'll 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, Mark, for that. And then, Harold, you talked about your intention to increase 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 here over the next few years and then the relationship between your your intent to plant additional acreage versus potentially adding on any kind of avocado processing capabilities as well.
And I'd be pleased to do that. Avocados have a very bright future. We believe here in California there, their seasonality comes out in a window that is very opportunistic in the marketplace and really not very crowded from a foreign competition standpoint. Our avocado avocados start to be harvested typically anywhere around May and carry forward to call it the 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 origins.
So we're very bullish on that, and we believe that Ventura County provides the ideal opportunity to produce avocados. So with that being said, our portfolio historically on our 3,000 acres of Ventura County production has been heavily weighted towards lemons, 2000 acres of lemons, 1,000 acres of avocados. You'll see that begin to invert.
You'll see older lemons that are less productive, being pulled and replaced with avocados, and it won't be exactly this, but will invert to being a relationship more closely, resembling 1,000 acres of lemons and 20 acres of avocados.
Got it. Very helpful on that, just plenty more to talk about, but that's probably a good place to leave it, I think is taking my questions I'll get back in queue.
Thank you, Ben.
Mark Palamountain
Thank you.
Operator
(Operator Instructions) Rajiv Sharma, B. Riley Securities.
Hi. Thank you for taking my question. I just wanted to I just wanted to understand the strategic review that was announced. Does that term what does that imply in terms of and the expansion of the One World of Citrus and also your farm management business, would you be trying to get new customers? Could you expand a little bit on that. The Seattle you're actually does.
Yes, happy to do that. So that so the of the exploration of strategic alternatives process, and we've stayed away from estimating a timeframe on how long that process will take, but the Board and management will be working on that over the over the next fiscal year. And 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 the outside supplier partners will be full speed ahead and fully on 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 and and have the entire luminary management team and the entire team at luminary focused with the strategic goals have expansion in each of those three areas.
Right. Thank you. And then just wanted to understand Phase one and on the harvest side. So if that's is that that's over and the extra dollars that you get as a result of it, would those would those show up as cash flow for the company or would those be rolled into as equity in Phase two.
Mark Palamountain
So great question. So the answer is, depending on how the Phase two deal gets structured, we had an opportunity to have a homebuilder, do the upfront costs and grading on before the interest rate environment changed. And we would certainly seek to tried to do that again.
But if we have to do the infrastructure ourselves, which is it 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 and that will be the equity roll. So it's too early to tell really what that is.
But the first moment that the of the JV gets cash, we'll be the first moment that you guys hear about it, and we'll be putting it up, but I think Lewis is conservative in their nature. We have a 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 you constantly see these these types of projects back-end loaded. But Tom, we're still very optimistic and think become more conservative on pricing and cash flows going forward.
Thank you. I'll take my questions offline.
Mark Palamountain
Thank you.
Operator
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 Limoneira. Happy holidays and have a great rest of your day.
Operator
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.
