Greetings. Welcome to the Limoneira First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only-mode. A brief question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, John Mills with ICR. Thank you, sir. You may begin.

Good afternoon, everyone, and thank you for joining us for Limoneira's first quarter fiscal year 2025 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Palamountain, Executive Vice President and Chief Financial Officer. By now, everyone should have access to the first quarter fiscal year 2025 earnings release, which went out today at approximately 4:00 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 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 risks detailed in the company's Form 10-Qs and 10-Ks 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 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've provided as much detail as possible on any items that are discussed on an adjusted basis. Also within the company's earnings release and in today's prepared remarks, we include adjusted EBITDA and adjusted diluted earnings per share, 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 its 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. Limoneira is unlocking significant shareholder value through transformative land use conversion and water monetization, while growing long-term avocado and citrus returns. The benefits of optimizing our revenue mix and transitioning to an asset-lighter model are evident in our first quarter financial results, where we achieved improved operating expenses efficiency and enhanced bottom line performance despite a temporary oversupplied lemon market impacting our top line. Our multifaceted approach, an asset-lighter business model, land and water monetization, expansion of avocado production and growing our citrus business through multiple channels, including quick-serve restaurants, has enhanced our long-term operational and financial outlook. This quarter's results validate our long-standing commitment to a balanced portfolio that can withstand temporary market volatility in the lemon market. During the first quarter, agribusiness operating loss improved 17%, agribusiness costs and expenses decreased 14%. And lastly, our total operating loss improved over 30% compared to last year. This quarter, we recorded avocado revenue, which we didn't have in the comparable period last year due to the timing of the harvest. The contribution from avocados, along with our sale of water pumping rights for a gain of $1.5 million, partially offset the year-over-year decline we experienced in lemon revenues. This resulted in softer overall top line performance. Despite facing temporary downward pricing pressure in our lemon business, we successfully expanded our market reach by increasing the volume of U.S. packed fresh lemon cartons through new customer acquisitions and deeper penetration into the quick-serve restaurant and foodservice channel. Looking ahead, we anticipate our lemon business will strengthen in the second half of the year as we achieve more substantial market share and benefit from the seasonal pricing improvements typically seen during summer months, as well as a recent freeze in Spain that is expected to shift…

Thank you, Harold, and good afternoon, everyone. Before I begin, I would remind you it is best to view our business on an annual, not quarterly basis due to the seasonal nature of our business. Historically, our first and fourth quarters are the seasonally softer quarters, while our second and third quarters are stronger. For the first quarter of fiscal year 2025, total net revenue was $34.3 million compared to total net revenue of $39.7 million in the first quarter of the previous fiscal year. Agribusiness revenue was $32.9 million compared to $38.3 million in the first quarter last year. Other operations revenue was $1.5 million in the first quarter of fiscal year 2025 compared to $1.4 million in the first quarter last year. The decline in agribusiness revenue year-over-year stems partially from a temporarily oversupplied lemon market, which has placed downward pressure on prices. We anticipate these challenging market conditions to persist through Q2, but with relief expected in the second half of the year due to the reasons Harold outlined. Our strategic investments in growing our citrus business through multiple channels, our expanding avocado market presence and the monetization of our assets have partially offset these challenges this quarter. This market pressure validates our ongoing revenue diversification strategy beyond raw commodity lemons, positioning us to better withstand cyclical market fluctuations. Agribusiness revenue for the first quarter of fiscal year 2025 includes $21.2 million in fresh packed lemon sales compared to $23.9 million during the same period of fiscal year 2024. Approximately 1,147,000 cartons of U.S. packed fresh lemons were sold during the first quarter of fiscal year '25 at an $18.44 average price per carton compared to 1,137,000 cartons sold at a $21.06 average price per carton during the first quarter of fiscal year 2024. Brokered lemons and…

Thanks, Mark. We continue to expect fresh lemon volumes to be in the range of 5 million to 5.5 million cartons for fiscal year 2025 and expect avocado volumes to be in the range of 7 million to 8 million pounds for fiscal year 2025. In addition, we expect to receive $165 million from Harvest, Limoneira, Lewis Community Builders 2 and East Area 2 over the next 6 fiscal years. Looking ahead, we continue to see a strong EBITDA outlook underpinned by plans to expand avocado production by 1,000 acres through fiscal year 2027 to capitalize on robust consumer demand trends. During this transition, the company expects fiscal year 2025 avocado volume to be lower compared to fiscal year 2024 due to the alternate bearing nature of avocado trees. These operational results do not take into account anticipated additional gains from asset monetization. Overall, we're very pleased with our start to fiscal year 2025 and look forward to updating you on our progress during our second quarter earnings call. Operator, we'll now open the call to questions.

Great. Thank you. At this time, we will be conducting a question and answer session. [Operator Instructions] First question here is from Ben Klieve from Lake Street Capital. Please go ahead.

All right. Thanks for taking my questions and apologies in advance for the background noise. I'm on the road today. A couple of questions for you guys. First around this Water right transaction. It was very encouraging to see the per acre foot number. I'm curious about the total volume or total level of acre feet in this agreement. It's back to like 55 acre feet to something like that, barely a rounding error relative to your total asset base. So I'm wondering why was that 55% the right number? Were you guys holding back on a sale, wanting to retain these assets for a longer time? Were those customers not in need of more in this transaction? Can you just kind of give us some context for - around that dynamic?

Hi, Ben. Yeah, happy to. So really, it's more of a function of opportunistic demand that presented itself. The opportunity to find buyers at these values, they come up periodically. The benchmark value levels we used and how we arrived at the $30,000 per acre foot is that's the fee in lieu that developers are paying to adjacent cities where our assets are located and where the water comes from. So we benchmark to those rates as a way to come up with the $30,000 an acre foot. They were three separate transactions, but to two different buyers, different type of buyers. One was for a development buyer in a city and the other was for an agricultural buyer. The opportunities to monetize come around periodically, but this was one of the first opportunities for us to - to actually execute. We thought it was a great opportunity for us to be able to point to the values on these 58 acre feet that we monetize against the approximately 9,500 acre feet that we actually own in the basin. And you'll see more of this kind of activity coming in 2025. We have additional opportunistically driven demand for additional pumping rights that you'll see in two forms. One, in additional actual pumping rights sales, but also in long-term water leases at municipal rates, which if you net present value back these long-term lease opportunities, you'll find that it creates extraordinary value but over a long period of time of sustainable cash flows.

Got it. Very helpful. And then I guess one follow-up to this is the - you seem pretty optimistic that there will be additional transactions of this asset base here within this fiscal year. Is this confidence derived from those existing partners that you had with this transaction? Are these new parties that you are bringing in? Just trying to get a sense of kind of how far down the road you are in this process.

Yeah. So both, actually, a little bit more to some prior buyers, but two other opportunities to monetize water, which will be announced shortly in 2025. The other opportunity that we're exploring right now is actually the development or a creation of a water utility where we're actually aggregating our water asset resources and in an organized regulated way, providing water service to our workforce houses, but also to our agricultural operations, as a way to manage over the long term, the ability to provide wet water to delivery areas that we have the capability of delivering to, but also to our existing farming assets and workforce housing assets.

Got it. Got it. Interesting. We'll look forward to hearing more about that later this year. And then one other one for me on the avocado front. I mean, with each passing quarter, it seems that this initiative that you've had in place just gets more and more attractive. So congratulations on really making a pretty sensible move here in the avocado space. My question is around the kind of opportunity beyond what you already have announced. How much of your acreage that you have in lemons and other crops, would it be agronomically feasible for you to make additional plantings in the avocado space? And then in the context of a market that's pretty challenged with a lot of permanent crops and other citrus or stone fruits or nuts, do you see other growers in California doing this as well? Those are my two questions on the avocado front.

Great. Thanks, Ben. So a couple of answers to those questions. So as far as expanding our production, we probably could expand maybe 250 to 500 additional acres outside of the 2,000 that we've already have designated. The only issues come there is some areas, you get into some colder areas that make it less feasible and you want to have an opportunity not to have to have wind machines and all that. So I would say 2,000 to 2,500 acres will be somewhere within that range. If you think about how avocados grow, so San Diego County used to be a big avocado grower. They have been and are running out of water down there that's affordable at least. And so really, Ventura County and parts of Santa Barbara County are really the only place from a temperature perspective. And avocado likes a warm day and a cool night, but not too many extremes. And so where we are in Ventura County specifically, you've seen a lot of lemons come out and you'll continue to see lemons come out and replanted into avocados just because it's a reliable source of water. We've got really long-term reliable water in our basins and the temperature zones are perfect. And so between here and again, Santa Barbara, you'll see growth. But again, I don't think we'll probably get - right now, California produces anywhere from 300 million to 400 million pounds. And if that goes to 500 million or 600 million at most, that's still only 10% to 15% of the U.S. consumption. So a lot of tailwinds there.

So Ben, I might pile on just to throw a little more color on there. So you can't - as Mark pointed out, you can't grow avocados everywhere. And so in our sort of location in Ventura County, there are areas that are colder and areas that are warmer. The additional expansion where we're expanding are in warmer areas where we have a better chance of surviving future freezes. And freezes are a reality that we all kind of live around. And avocados don't like cold temperature. It's kind of like why we like living around avocado trees. But - so that's one factor. But - so I guess the answer is that as you see lemons coming under pressure and more and more lemon growers getting out of lemon production just because of the challenging economics of lemons, not all of them will go into avocados because they won't be able to grow them just due to the temperature realities of some of their properties. The other interesting limiting factor to growth of avocados right now is nursery stock. There's not a lot of nursery stock out there for growers that are interested in converting to access new trees. There's probably a backed up pipeline demand of 4 to 5 years of avocado trees right now for nurseries. And so even if there were growers that were pushing lemons out and wanting to plant new lemons, it's very difficult to get the nursery stock. And I guess, fortunately or unfortunately, we're probably a contributing factor to that just because of the sheer volume of expansion that we've been managing.

All right. Very interesting stuff. Well, I appreciate you guys taking my questions. I look forward to some more updates here later this year. I'll get back in queue.

Thanks, Ben.

Thanks, Ben.

This concludes the question-and-answer session. I'd like to turn the floor back to Harold Edwards for closing remarks.

Great. I want to thank you all for your questions and your interest in Limoneira. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for participating.