Good day, ladies and gentlemen. And welcome to today's Limoneira Third Quarter 2019 Earnings Call. As a reminder, today's conference is being recorded. And I'd now like to turn the floor over to John Mills of ICR. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining us for Limoneira's third quarter fiscal year 2019 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Chief Financial Officer. By now, everyone should have access to the third quarter fiscal year 2019 earnings release, which went out today at approximately 4:00 pm 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 limoneira.com. This call is being webcast and a replay will be available on Limoneira's website as well. Before we begin, we'd 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 in the Company's 10-K or 10-Q 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 as a result of new information, future events or otherwise. Please note that during today's call, we will be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira's ongoing results of operations, particularly when comparing underlying results from period-to-period. We have provided as much detail as possible on any items that are discussed on an adjusted basis. Also, within the Company's earnings release and in today's prepared remarks, we included adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measures is included in the Company's 10-Q and press release, which has been posted to our website. And with that, it is my pleasure to turn the call over to the Company's President and CEO, Mr. Harold Edwards.

Thanks, John, and good afternoon, everyone. On today's call, I’ll begin with a brief review of our third quarter of 2019 results and provide an update on our progress across all of our business areas. Mark will then review the financial results in more detail, and I'll finish with our outlook for fiscal year 2019 and discuss our initial view of fiscal year 2020. After that, we will open up the call and take your questions. We continue to expect to achieve record domestic and international fresh lemon volume in fiscal year 2019. However, we experienced a drop in fresh lemon pricing during the first nine months of this year due to excessive rains in Southern California, creating an overabundance of larger than normal fresh lemons from us as well as from the overall industry. This drove down the price per carton and lowered our fresh utilization, which we outlined in our pre-release a few weeks ago. We have now returned to a normal manifest of sizes. And as we progress through the fourth quarter, our fresh lemons are selling for an average price of approximately $21.50 per carton, compared to $19 per carton in the third quarter, and our fresh utilization rates have now increased back to the range of 70% to 75% from 50% in the third quarter. For the full year of fiscal year 2019, we continue to expect to grow a tree crop of approximately 7.2 million domestic lemon cartons. Unfortunately, due to the lower fresh utilization rate during the third quarter, our lemons grown for fiscal year 2019 will not translate into our full year goal of fresh cartons sold. It's important to point out that the weather events that affected the overall lemon and orange industry during the first nine months of this year…

Thank you, Harold, and good afternoon, everyone. Turning to our third quarter results. For the third quarter of fiscal year 2019, total net revenue was $50.9 million, compared to total net revenue of $40 million in the third quarter of the previous fiscal year. Agribusiness revenue increased to $49.6 million, compared to $38.7 million in the third quarter last year. Rental operation revenue for the third quarter of fiscal year 2019 was $1.2 million, compared to $1.3 million in the third quarter of the previous fiscal year. And there were no real estate development revenues in the third quarter of fiscal year 2019 or 2018. Agribusiness revenue for the third quarter of fiscal year 2019 includes $46.4 million in lemon sales, compared to $30.7 million of lemon sales during the same period of fiscal year 2018, with the increase the result of higher volume of lemon byproducts partially offset by lower prices of large lemons and lower fresh utilization. As Harold said earlier in the call, the lower pricing was due to excessive rains we experienced during the first and second quarters of fiscal year 2019, which led to a surplus of large, fresh lemons into the market, ultimately driving down the price per carton. Approximately 1,876,000 cartons of fresh lemons were sold during the third quarter of fiscal year 2019 at an average of $19.09 per carton, compared to 992,000 cartons sold at an average of $25.91 per carton during the third quarter fiscal year 2018. As anticipated, we recognized lower avocado revenue of $2.5 million in the third quarter of fiscal year 2019 compared to the same period last year of $5.6 million, due to the excessive heat we experienced late in the third quarter last year. And as we have previously stated, we expect minimal contribution this…

Thank you, Mark. We achieved a number of goals this year, but the weather had an adverse effect on our bottom-line in our three main crops of lemons, avocados and oranges, which hasn't happened to our Company in over 30 years. For the full year of fiscal year 2019, we continue to expect to grow a tree crop of approximately 7.2 million domestic lemon cartons. And we've retained the majority of our third-party growers. Unfortunately, due to the lower fresh utilization rate during the third quarter, our lemons grown for fiscal year 2019 will not translate into our full year goal of fresh cartons sold. Based on the organic lemon carton growth we are projecting for next year as well as the expected rebound in avocado revenue and the fact that all our recent acquisitions will have -- have been online for a full year, we remain excited about the long-term growth of our Company. Turning to fiscal year 2019 guidance. For fiscal year 2019, we expect to sell 7.7 million to 8.3 million cartons of fresh lemons globally. Included in our global cartons estimates are the 4.5 million to 5 million cartons we expect to sell domestically. Through the first nine months of fiscal year 2019, we have sold 3.8 million domestic lemon cartons at an approximate average price of $21 a carton. As we progress through the fourth quarter, the overall pricing is improving as the market supply normalizes. We have sold approximately 1.8 million pounds of avocados at approximately $1.70 per pound. Due to the excessive heat in the summer of 2018, we expected minimal revenue from avocados in fiscal year 2019. Offsetting this temporary event will be the benefit of crop insurance for approximately $2.4 million, calculated on actual avocado harvest in fiscal year 2019. We…

[Operator Instructions] And first from Stephens, we have Tim Perz.

Thanks for the question, guys. Have you seen anything in the forthcoming lemon crop that would suggest that the percentage of fruit going to juice shouldn't come back to historical levels?

At this point, no. The buildup of the big sizes that we experienced in the third quarter, have now worked their way through the system, and we've returned to inventories of a much more what we would call normal distribution of sizes and grades. And as a result, we're seeing much improved utilization rates, somewhere between 70% and 75% currently. But, the other thing that's going on is now we've just begun harvest and begun to bring the fruit from the Arizona desert into our inventories. And that utilization is much higher, north of 80%. So, we believe all this bodes well to bring our costs back down into line, driven by much more normal fresh utilization levels.

Okay. Thanks. That was helpful. And Mark, this one might be more directed for you. Do you think you could walk through the puts and takes from your previous guidance to the Company's actual results during the quarter?

Sure. So, there was -- when we came out with our June guidance, we were just coming off of the Spanish crop that had flooded the market, and just realizing that the whole industry had that overabundance of large sizes. As we went through that and the utilization rates dropped from 70% to 50% over the June and July period, we saw multiple things happen. One, you have all that fruit that has cost in it, i.e. harvest and whatever level of packing goes right out the back door. So, we saw increased packing costs of roughly, we call it about a $1.5 million, or $0.06 that was just directly from having lower utilization rates, i.e. less units against the fixed cost. From that, the cartons that we didn't get to sell fresh that we thought they were going to go fresh, was another call it $2 million, or $0.08 is how we've looked at that. It's just basically missed opportunity from the $4 where we sell it at the juice market versus the 18 to 20 on that. And so, that was another missed opportunity. And then, our plan was originally $22 in budget when reality was 18 on all the cartons that we did sell during that period. So, that's the lemon side of the story. Navels also, the decrease in price over that period in June and July, which was additional from when we had talked to in early June, was another $1.5 million slip, which took navels almost to a $2 million loss for the year, which is about a $5 million swing in the prior year. And basically, those numbers add up to where we were originally in that $0.25 to $0.30 bottom of the range prior to where we brought it down to in the prerelease.

Great. Thanks. That was perfect. I'll pass it along. Thanks.

And next from Roth Capital, we have Gerry Sweeney.

Hey. Could you talk a little bit about the third-party growers? At what point do they make their decisions on for who’s going to pack for them? I know that you want to -- you are several hundred thousand above your target and you're still targeting another 500,000 this year. But, any chance that there could be just some disgruntled third-party growers et cetera that could maybe swing the other way or any challenges they potentially could foresee from that aspect?

Yes. So, typically, the outside third-party growers are just now right now beginning to elect who they're going to market their fruit with next year. And this has just been such a bad year across the industry that no one handler, Limoneira, Sunkist, Paramount, Bee Sweet, any of the handlers and the packers, marketers, shippers really stood out far above anybody else this year because it was such a difficult utilization year this year. So, we do expect some attrition, and we do expect that there will be some growers that most likely choose to make a change just because of the difficult situation. We're unaware of any of those right now. We're in discussions with all of our outside growers. And so, we also believe that we're going to have an opportunity to pick up some growers. So, the delta between what we actually recruit and what we might lose, we still are directionally targeting a net gain of 500,000 new cartons. But, time will tell whether that actually takes place.

Got it. And maybe if you could refresh my memory a little bit. The new packing facility, what's that total capacity? And then, you have the acquisition, which I think was more specialty lemon. Just what total capacity for each, and maybe just curious as to how much more capacity or total cartons you can pack in both areas?

So, the theoretical capacity of the new Santa Paula packing house is 8 million cartons. But that would assume that an equal amount of fruit comes in and is packed and then goes out 12 months of the year. And of course, that never really works that way, given the lumpiness of crop sizes and growers that we work with. So, we believe that somewhere directionally around 7 million cartons is probably theoretical that's kind of where we are in terms of capacity in Santa Paula. And then, the Oxnard facility, again, if you are able to bring equal amounts in and move equal amounts out, and given normal storage levels and inventory levels, is theoretically 4 million cartons. So, it's somewhere between 10 million to 12 million cartons is what our capacity is.

Got it. And looking out to 2020, with just say, you bringing another 500,000 cartons, what's that total for domestic for that region for the…

So, we think directionally, the tree crop, and it's important to think about the size of the crop across the three districts is somewhere between 7.5 million and 8 million cartons. And then, so, if we can achieve a 75% fresh utilization rate on conventional lemons, we ought to be somewhere between 5.5 million to 6 million cartons of conventional lemons, and then put on top of that the specialty lemons, the Meyer lemons, the pink lemons, the chem free lemons, the things that we do in Oxnard, sort of directionally, it's a little too early to provide specific guidance. But, we directionally, it's somewhere around 6 million total cartons, which if could pull that off, I think we're going to come in somewhere, Mark, around 4.5 million cartons this year?

4.5, 4.6, something there.

4.5 million to 4.6 million. So, growth to -- so, I'll call it 5.5 million to 6 million cartons from California and Arizona is our goal or our target for 2020.

So, that’s 4.5 to almost 6 potentially next year?

Yes. That's right.

Got it. Yes. Okay. And then, crop insurance does hit in the fourth quarter, $2.4 million. And I assume that’s sort of in your guidance in terms of positive EPS et cetera?

Yes. That's all in there. We're hopeful we're going to get the check here in the next two weeks, just right around $2.4 million.

And next, we have been Ben Klieve with National Securities.

Thank you. First question here, wondering if you can elaborate a bit more on the headwinds that you're seeing in the import market. It sounds like those headwinds subsided a bit from -- relative to last quarter and what you saw coming out of Spain. If you could comment a bit more and kind of the overall import market and the challenges that you're seeing there today, as opposed to a few months ago, that'd be great.

Sure. I'll take this all the way back to about a little less than a year ago. But, as we were coming out of the fourth quarter into the first quarter, we had an average FOB in the in the U.S. industry of somewhere around $30 a carton. So, it was a super strong high market. Spain had a 50% above normal crop. And Turkey, which is a large producer of lemons, had some sort of hyperinflationary currency impacts that made their fruit very cost competitive. And so, as there was this build-up of big fruit and cheaper fruit, much of that fruit found its way into the East Coast market in the United States. Just given the high FOBs and sales prices that we were experiencing, a lot of that surplus fruit found its way into the East Coast markets. And so that actually had a really negative impact on beginning to bring the price down, which we experienced in the first going into the second quarter. So, when we communicated last June, we were dealing with competitive pricing from the imports of mostly Spain that was really bringing the price down and then also the beginning of the rain influenced build up of the big fruit. As all that was taking place, you had imports from Argentina and Chile that were just coming on line as we came into the third quarter that saw this weaker market. But, as a result of the buildup of the big fruit, there was actually really attractive medium to small fruit pricing opportunities. So, you saw a lot of those imports begin to come in, into that smaller fruit size. As the California industry then began to normalize towards the sort of the back half of the third quarter, you saw the first picks that were coming off of the coastal California production, really attacking that small fruit market. And so, you began to see this pendulum swing the other way where the medium to small sized fruit started get weaker in price, and the big fruit became stronger because all of a sudden there wasn't big fruit in the market. So, the pendulum kind of swing back the other way. Where we are right now is we're seeing sort of normal -- we’re at the tail end of the season from Argentine imports and Chile. We're almost done with Chilean import. So, right now, the crop is -- and the lemons are being supplied predominantly from the Arizona desert from actually Palm Springs in the Coachella Valley through the Imperial Valley and all the way out to the desert now.

And then, also, a question regarding kind of the impact of the soft pricing on the M&A market, are you seeing kind of better opportunities to maybe pick up business at more attractive valuations today than you were maybe a year ago or have valuations on the M&A front not really been impacted at all?

Tag lag period is usually a little longer. So, we haven't necessarily seen the softening of land pricing. But, what we have seen is we are, at least anecdotally hearing of a lot of acreage coming out in the orange side of the business up in the San Joaquin Valley. Whether that's actually going to then translate into reduced land pricing, or create more acquisition opportunities, we do expect it will create more M&A activity but -- and more opportunity, at what values, we're still not sure.

And then, I apologize if you talked about this, and I missed it. But, regarding the 500 additional acres of lemons that you're planning, can you comment on where that acreage is going to be?

Yes. So, a portion of that will be here on the Coast, probably more towards half of it, 250 acres, there'll be a little bit of it in Arizona, and then we're doing 100 acres down in Chile as well, which is on that San Pablo ranch.

Next, we have Eric Larson with Buckingham Research Group.

Could you just give us a quick recap of how your acquisitions have done year-to-date? And then, you're going to be getting continued contribution in F20? Can you help us kind of parcel together what the earnings impact of those would be?

Happy to Eric. So, three main acquisitions to talk about. Maybe to begin with the San Pablo ranch and the additional interest in Rosales packing has performed on plan with our own expectations kind of right on our own internal pro forma expectations, Mark, directionally.

Yes. So, San Pablo will be -- or is about a 400,000 carton ranch right now and growing up, not quite at its full production yet, should contribute about 1.2 million to in EBITDA going forward. Also, for the other ranch in Chile, Pan de Azucar, which is growing up, that will be about the same. So, about probably $2.5 million of EBITDA from the Chilean ranch operations and then another $1.5 million from Rosales of which we own 40%. From the Argentina perspective, it should produce about $1 million to $1.2 million cartons. We're really going to try to get more granular when we come out with guidance for next year on the international cartons, which I think will help everybody. But that directionally should do about $4 million in EBITDA, of which we are a 51% majority owner of that. And then, the way we look at Oxnard Lemon is solely basically on the contribution of the cartons that we retained. So, if you remember, the goal was to retain 80% or about 2 million cartons running through our new house, which effectively has a contribution anywhere between $2 and $2.25 a carton. So, if and if we did 6 million cartons next year, that's a $12 million to $14 million contribution on that.

Got it. Okay. And remind me, how many months of Oxnard do you pick up in F20? I forget the quote on that.

Of Oxnard, it'll be full 12 months.

Yes. It will be the full 12 months that you receive. What's the incremental -- what will be the incremental -- you're going to pick up how much of Oxnard I guess, is the question, in F19? Sorry.

Yes. About 2 million cartons. And so, the issue with Oxnard is -- it performs on plan, in fact, ahead of plan. The issue became the fresh utilization across all of the other lemons. And so, it was really the cost that ended up biting us because of on that increased volume we also had those increased costs because we ended up having to shift much of the inventory to juice.

[Operator Instructions] We'll move on to Chris Krueger with Lake Street Capital Markets.

Hi. Most of my questions have been answered, but I just had a couple of quick ones. I know you guys just sold that convenience store, gas station property. Are there other assets that are non-core that you could be looking to sell over the next year or so?

Yes. So, we've been working diligently on disposing off our remaining two assets in the Santa Maria marketplace. If you recall, we actually had land that was potentially developable, zoned residential, some of it zoned commercially, that we have attracted buyers to with negotiated price. And we're just trying to get through a tenuous escrow period. But we're optimistic that we'll be able to unload those for a combined value mark of $6 million to $7million. And we're hopeful we’ll execute that in 2020.

Okay. And then, at the grape growing properties, like can you refresh our memory on what the longer term plan is for that? I can’t remember if that was a property that was potentially going to be sold as individual vineyards or what's going on there?

Yes. So, it's a 720-acre piece of property. By the end of 2019, we’ll have approximately 430 of what will eventually be 500 acres of wine grapes planted. The oldest planting now is in its fourth leaf. It's been a great crop this year. And so, we believe that directionally that the properties will produce somewhere around 6 to 8 tons an acre on some of these older wine grapes that are planted. And right now because of the productivity that we're experiencing in the vineyard as well as some of the high quality contracts that we've got in place with Coppola, Bogle, Justin, Duckhorn, who am I forgetting?

Wine Group.

And The Wine Group. Right now, our focus is just to continue to build out the property agriculturally. The property does have an underlying parcel map that was perfected in the 1930s that allows that property be to be subdivided into 76, 10-acre or smaller parcels. So, eventually there may be an opportunity to parcel off some of those parcels and monetize their value into potential vineyard estates. But right now, we're really focusing on developing the property agriculturally and receiving the return on invested capital just agriculturally on that property.

[Operator instructions] All right. It looks like with no further questions from the audience that does conclude the question-answer section of today's call. I'd like to turn the floor back to CEO, Harold Edwards, for any additional or closing remarks.

Thank you for your questions and interest in Limoneira. We look forward to updating you again in January on our fourth quarter call and providing full year fiscal 2020 guidance. Thank you again, and have a great day.

And once again ladies and gentlemen, that concludes our call. Thanks again for joining us. You may now disconnect.