Greetings, and welcome to the Limoneira Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] 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 Second Quarter Fiscal Year 2025 Conference Call. On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Executive Vice President and Chief Financial Officer. By now, everyone should have access to the second quarter fiscal year 2025 earnings release, which went out today at approximately 4 p.m. Eastern Time. If you've not had the chance to review 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 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 [indiscernible] 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 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 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. As we've discussed on previous calls, we've been executing our road map to create stockholder value through multiple strategic avenues. We conducted a lengthy process to explore strategic alternatives, which concluded in March and provided valuable insights leading to today's citrus sales and marketing announcement. I'm pleased to announce that beginning in the first quarter of fiscal year 2026, we're merging our citrus sales and marketing operations with Sunkist Growers as one of their largest lemon growers and as a Sunkist private licensed packer. We expect this to quickly improve the efficiency of our supply chain, significantly reduce cost and provide access to many of the best food service and retail customers in the country. Our sales and marketing personnel will transfer to Sunkist with a significant cost savings to our bottom line. The move will also allow us to cooperatively partner with other Sunkist packers to utilize excess wash and storage capacity within the Sunkist system. These moves will save us approximately $5 million a year in selling and marketing expenses and improve our EBITDA by approximately $5 million a year. This transition directly advances several key objectives, enhances our citrus services business, sharpens our focus on sustainable value drivers and expands our access to food service and regional and national quick-serve restaurants. This citrus sales and marketing announcement reunites organizations built on a shared foundation with a legacy of collaboration, shared values and deep trust. Both companies were founded in 1893 with common founders and worked together for over a century developing a profound understanding of the land, our growers and the market, along with long-standing relationships with customers and partners. Over the years, each entity has evolved and specialized in distinct ways, strengthening our capabilities, insights and regional expertise with learnings…

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 second quarter of fiscal year 2025, total net revenue was $35.1 million compared to total net revenue of $44.6 million in the second quarter of the previous fiscal year. Agribusiness revenue was $33.6 million compared to $43.3 million in the second quarter of last year. Other operations revenue was $1.5 million in the second quarter of fiscal year 2025 compared to $1.3 million in the second quarter last year. The decline in agribusiness revenue year-over-year stems primarily from a temporarily oversupplied lemon market. This oversupply has created significant pricing pressure as competitors are selling below cost to retain customers, forcing overall market prices down. We expect relief from these challenging market conditions 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. Looking beyond this year, the citrus sales and marketing plan we announced with Sunkist will enhance our resilience to market volatility by creating a more efficient cost structure that enables us to maintain profitability during periods of pricing pressure. Agribusiness revenue for the second quarter of fiscal year 2025 includes $19.7 million in fresh packed lemon sales compared to $25.8 million during the same period of fiscal year 2024. Approximately 1.4 million cartons of U.S. packed fresh lemons were sold during the second quarter of fiscal year 2025 at a $14.52 average price per carton compared to 1.4 million cartons sold at a $17.85 average price…

Thanks, Mark. We now expect fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2025, down from our prior expectation of 5 million to 5.5 million cartons and expect avocado volumes to continue to be in the range of 7 million to 8 million pounds for fiscal year 2025. The reduced lemon volume is due to lower fresh utilization in the second quarter, but we believe our third quarter will be stronger than our second quarter. Fiscal year 2025 avocado volume is expected 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. Looking beyond fiscal year 2025, we have strong visibility on multiple value drivers and a strong EBITDA outlook. We expect to receive an additional $155 million from Harvest and East Area II over the next 6 fiscal years. We are expanding avocado production by 2,000 acres by the end of fiscal year 2027 to capitalize on robust consumer demand, which will significantly enhance our EBITDA outlook as these trees mature and reach full production. Our partnership with Sunkist fundamentally strengthens our citrus business model with $5 million in annual cost savings beginning next year. While this partnership will reduce overall revenue by transitioning our brokerage business to Sunkist, it creates a stronger operational foundation. For fiscal year 2026, we're estimating 4 million to 4.5 million cartons. Though it's early for formal guidance, this represents our current best assessment given the structural changes. What makes this partnership particularly exciting is the long-term growth potential it creates. Over time, we could see the cartons processed through our packing house increase significantly as this partnership enhances our ability to recruit growers, and together, we expect to access more food service and retail customers. Importantly, we expect our packing margin per carton will increase, which is very favorable for us given the fluctuations in lemon pricing we've experienced over the past few years. This stable pricing, combined with our enhanced ability to fill our packing house capacity and the operational efficiencies we're gaining, supports sustainable EBITDA growth and creates a strong foundation for long-term value creation. In summary, we're executing a comprehensive strategy that positions us for both near-term resilience and long-term growth. Today's citrus sales and marketing announcements, combined with our other growth initiatives, demonstrates our commitment to creating sustainable shareholder value through multiple avenues. We have the asset base, the strategic partnerships and the operational improvements in place to deliver on these projections while maintaining the flexibility to capitalize on additional opportunities as they arise. Operator, we'll now open the call to questions.

[Operator Instructions] And our first question comes from the line of Ben Klieve with Lake Street Capital Markets.

Congratulations on the Sunkist deal. And first of all, my phone cut out for a minute or 2 here. So I'm quite certain I'm going to ask you some stuff that has already been addressed, and I apologize here for making you guys repeat yourself. I have a couple of questions on the Sunkist deal. First of all, just kind of some basic information. You said that the brokered fruit business is going to be going away. So I want to make sure I understand this right. So the revenue base attributable to brokered fruit, which is about $27 million, $28 million the last couple of years, that will be going away, but third-party cartons are going to continue to run through your facility and be reflected on the top line. Is that correct?

That's all correct, Ben. You got it.

Okay. Perfect. And then can you elaborate a bit on the -- on how we should think about kind of the per box economics on this from day 1? Is this kind of more of a fixed cost model between the 2 of you? Is there a variable element to it depending on market conditions or anything else? How exactly is this structured?

Yes. So there's 3 pieces to it. The first piece is you went right to it. So if you look at our supply chain and the various packing assets that we use to wash, to store and then to pack fresh lemons, you'll recall that we actually -- when we made an acquisition of Oxnard Lemon years ago, we then were very fortunate to be able to divest those assets. But once we divested them, we put ourselves into a required sale leaseback situation where we needed to lease back the wash and storage capability of our Oxnard facilities. And so that's proven to be very expensive, not only because of the logistics of having fruit here in Santa Paula but also in Oxnard, but also just with the pure lease payment. So by rejoining Sunkist, we're now able to take advantage of additional capacities that exist in other Sunkist supply chain, specifically in the wash and storage side, of their assets that have extra capacity, which gives us the opportunity to use those -- use that capability on assets that are closer to us, but also on an as-needed basis with no lease requirements. So that's the first piece of the benefit from it. The second benefit from it is the entire sales and marketing staff that was part of Limoneira transitions now over to Sunkist and becomes part of the Sunkist team. So all of that cost moves out of Limoneira and over to Sunkist. And Sunkist offers their marketing and sales services at a fixed fee which was -- is considerably less than the cost per carton that we were paying to provide sales and marketing service. The aspect that was allowing us to continue to invest into this business was growth. But as you've watched, because…

Perfect. That's very helpful. And apologies again if you went over any of that for a second time. One other question on Sunkist and then I'll move over to the operational questions is around balance sheet. Is there any -- I didn't hear any balance sheet impact one way or another here when the transaction is completed. Is that correct?

Yes. So really, the main effect will be for us is AR and credit. So that will then all go over to the Sunkist system. So really, we're just going to have an inventory and a sales position. And so that will be really helpful from a cost perspective and logistics on our side. And then like we said, we just have that fixed charge per carton of our own grown cartons.

Okay. All right. Very good. Turning to kind of the current state of affairs on the avocado side. Given that you are delaying the harvest with great intention here, it seems to me that you're pretty comfortable with fruit size and quality at this point, but just going into harvest, wondering if there's anything you wanted to call out regarding those.

So Mother Nature has been good to us this year. The weather has been cooperative. We haven't had a lot of heat. We've had warm days, cool nights. We've had pretty good rainfall, less than average rainfall but spread out in a nice way. That gives us comfort that we're going to continue to see the fruit size. And Ben, as you know, from prior years, the longer you can hold the avocados on the tree, the better chance we can get a bigger size. And the bigger size typically create better pricing, but also more weight. And we get paid on the weight. So the strategy of holding fruit into the later months, we believe, because of Mother Nature's cooperation, that it's going to give us a good opportunity for some bigger size, more volume. And we still are confident that the market will remain in a really strong position.

Okay. Perfect. And then one more for me on avocados, and I'll pass it on is the biennial nature of the harvest is something you guys have talked about quite a bit. So I appreciate you flagging it again though here for comparing this year's harvest to last year. But I'm wondering, as you look from, say, fiscal '24 to fiscal '26, do you think that any of the plantings that you've made over the past few years are going to be bearing yet by '26 such that you would expect kind of an increase in yield between '24 and '26? Or is that maturity still kind of a fiscal '27 and beyond type event?

Yes. No, it's a great question. So we are actually very pleased with the progress of our early plantings. They come out of the nursery with about 2 years on them. And so our earliest plantings now have about 3 years on them. And we just did a harvest on a strip block there and got over 10,000 pounds an acre for a 3-year-old tree. So we're trying to get to an average of 17. So we think those are about 1 year to 1.5 years ahead of what we expected. So -- that's why we have the confidence of getting those 2,000 acres and to $50 million of EBITDA by 2030.

And it looks like we have reached the end of the question-and-answer session. Therefore, I would like to turn the floor back over to CEO, Harold Edwards, for closing marks.

Great. I'd like to thank you all for your questions and your interest in Limoneira. And I hope you all have a great day. Thank you.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you, and have a great day.