Limoneira Company (NASDAQ:LMNR) Q3 2023 Earnings Call Transcript

Limoneira Company (NASDAQ:LMNR) Q3 2023 Earnings Call Transcript September 7, 2023

Limoneira Company misses on earnings expectations. Reported EPS is $0.02 EPS, expectations were $0.15.

Operator: Greetings, and welcome to Limoneira’s Third Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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.

John Mills: Good afternoon, everyone, and thank you for joining us for Limoneira’s third quarter fiscal year 2023 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 2023 earnings release, which went out approximately 4.00 PM today 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 limoneira.com. This call is being webcast and a replay will be available on Limoneira’s 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 risk factors in the company’s 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 as a result of new information, future events or otherwise. And 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 provide 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.

Harold Edwards: Thanks, John, and good afternoon, everyone. The success of our strategic shift towards an asset-lighter business model is evident in our third quarter results with brokered lemons and other lemon sales growing 76% year-over-year to $8.8 million and achieving farm management revenue of $5.4 million compared to no farm management revenue last year. Additionally, we continue to make headway monetizing water assets with the recently announced Water Fallowing program in Yuma, Arizona for expected annual proceeds of $1.3 million. Over the past year, we have worked to identify and eliminate unproductive or unprofitable parts of our business, including the sale of nonstrategic assets, exiting farming operations in Cadiz and terminating our long-term pension plan, all of which we expect to dramatically improve our margins starting in fiscal year 2024.

Overall, our third quarter results were impacted by lower lemon pricing and lower fresh utilization rates as a result of the heavy rains in California throughout December until May, which delayed a portion of our lemon harvest by two months and led to an industrywide pest issue that lowered the grade on certain fruit. As a result, lemon pricing remained pressured throughout the quarter. However, as of the beginning of August, lemon pricing has steadily been increasing for all grades and sizes, with prices up compared to the last few years and at the highest level since 2018. California lemon production traditionally sees a lull during the summer months and picks up around late August to early September when the desert region starts. However, this year the start of the desert region is behind schedule, and the region is only expected to have limited picking through mid-September.

The size of the fruit is smaller and picking hours will be limited due to heat and humidity. Altogether, production in the desert region is expected to be down about 15% from last year due to the impact of weather in combination with a portion of the acreage now being fallowed. Once the season has kicked off, lemon production in the desert region is expected to continue through the end of the calendar year. Also, since the beginning of August, the overall lemon market has shown an increase, with prices being significantly higher for all grades and sizes. Prices are substantially higher year-over-year as well as compared to the beginning of summer. 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 volumes in storage, is much less than 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 to this a situation of good demand and prices will go up. We believe all of these factors position us very well for expected higher lemon pricing in fiscal year 2024. Our Avocado revenue in the third quarter of fiscal year 2023 was lower than the prior year period, with fewer pounds sold, due primarily to the alternate bearing nature of the avocado tree as well as lower prices per pound during this period compared to last year.

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 the next nine months. We are working to pivot our business towards a model that will streamline our operations and sell nonstrategic assets, improve the consistency of our earnings, increase EBITDA and dividends per share, reduce debt, right size the balance sheet and improve the return on invested capital. Debt less cash on hand as of July 31, 2023 was $30.2 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. In addition, last quarter, we increased the value of assets for sale to approximately $180 million, and we have already closed on four of the six identified assets over the past 12 months for a total of $130 million in proceeds.

We have $50 million of remaining assets identified that we plan to monetize over the next nine months. Even after the recent non-strategic 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. We recently announced that we entered into a second fallowing program with Yuma Mesa Irrigation and Drainage District and the United States Bureau of Reclamation that supersedes the initial program and will commit to fallow owned land through at least calendar year 2025. We expect to receive approximately $1.3 million annually paid in quarterly installments for fallowing 581 acres out of our approximately 1,300 acres of farmland in Yuma, Arizona. Yuma Mesa Irrigation will refrain from diverting Colorado River water that otherwise would have been used to irrigate fallowed lands so that the saved water may be retained in Lake Mead as Colorado River system conservation water, increasing the supply and elevation of Lake Mead and helping to avoid water shortages in Arizona and the lower basin.

We are finding great monetization opportunities for our water assets by either fallowing acreage, leasing pumping rights, or selling the water rights for significant appreciation over our investments. We believe this water monetization in Yuma, Arizona is just the beginning of additional future opportunities for our abundant water assets. We have spent many years striving to improve our stewardship of water on all of our properties and this has enabled us to reduce our usage and increase our available water for future monetization opportunities. So what is next for Limoneira now that we have a very strong balance sheet and a clear path to stronger EBITDA, cash flow and earnings in fiscal year 2024? Over the next nine months you could expect to see our continued transition to an asset lighter 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 the Yuma Irrigation District for our fallowing program and we believe lemon pricing will continue to improve from the lows in the third quarter, positioning us very well for very strong improvements in fiscal year 2024. Our Board and management team will continue to evaluate how to best leverage our expertise in farming 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. And with that I’ll now turn the call over to Mark.

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Mark Palamountain: Thank you, Harold and good afternoon, everyone. As a reminder, it is best to view our business on an annual not quarterly basis due to the seasonal nature of our business. Historically, our second and third quarters are the seasonally stronger quarters while our first and fourth quarters are softer. For the third quarter of fiscal year 2023, total net revenue was $52.5 million compared to total net revenue of $58.9 million in the third quarter of the previous fiscal year. Agribusiness revenue was $51.1 million compared to $57.6 million in the third quarter last year. Other operations revenue was $1.4 million compared to $1.3 million in the third quarter last year. Agribusiness revenue for the third quarter of fiscal year 2023 includes $24.2 million in fresh lemon sales compared to $27.8 million during the same period of fiscal year 2022.

The year-over-year decline in fresh lemon revenue is a result of the excessive rainfall in California that Harold has mentioned which delayed a portion of our lemon harvest by two months and led to an industry wide pest issue. The rains cause an infestation of snails on the trees industry wide that lowered the grade on certain fruit. Our fresh utilization rate fell by 10% to 60% in the third quarter, with a portion of the downgraded fruit sent to juice and other portion left unsellable. Approximately 1.4 million cartons of fresh lemon were sold during the third quarter of fiscal year 2023 at a $17.92 average price per carton, compared to approximately 1.5 million cartons sold at an $18.39 an average price per carton during the third quarter of fiscal year 2022.

Lemon pricing through the first nine months of fiscal year 2023 remained challenging. However, we were encouraged beginning in August to see a steady recovery in price for all grades and sizes, and prices are now sitting at the highest level since 2018. Brokered lemons and other lemon sales were $8.8 million and $5 million respectively in the third quarter of fiscal years 2023 and 2022, representing 76% growth year-over-year. The company recognized $3.5 million of avocado revenue in the third quarter of fiscal year 2023, compared to $12.6 million in the third quarter of fiscal year 2022. Approximately 2.8 million pounds of avocados were sold in aggregate during the third quarter of fiscal year 2023 at a $0.99 average price per pound, compared to 5.7 million pounds sold at a $2.21 average price per pound during the third quarter of fiscal year 2022.

The California avocado crop typically experiences alternating years of high and low production due to plant physiology. Additionally, we were dealing with an oversupplied avocado market exacerbated by a lot of fruit coming in from Mexico and Peru that put pressure on the price of avocados in the third quarter. The company recognized $1.3 million of orange revenue in the third quarter of fiscal year 2023, compared to $3.7 million in the third quarter of fiscal year 2022. Approximately 71,000 cartons of oranges were sold during the third quarter of fiscal year 2023 at an $18.17 average price per carton, compared to approximately 209,000 cartons sold at a $17.88 average price per carton during the third quarter of fiscal year 2022. Specialty citrus and other revenue was $1.9 million in the third quarter of fiscal year 2023, compared to $1.1 million in the third quarter of fiscal year 2022.

As a reminder, we sold almost all of our orange and specialty citrus acreage in the northern properties transaction during the first quarter of fiscal year 2023. Total costs and expenses for the third quarter of fiscal year 2023 were $54 million, compared to $47.9 million in the third quarter of last year. The increase of $6.1 million was primarily due to increases in growing and packing costs, partially offset by decreases in our third party grower and supplier costs and depreciation and amortization. We faced challenging labor costs in our packing house this past quarter exacerbated by the lower volumes of cartons being processed. Operating loss for the third quarter of fiscal year 2023 was $1.5 million compared to operating income of $11.1 million in the third quarter of the previous fiscal year, primarily due to lower avocado volume and pricing.

Net loss applicable to common stock after preferred dividends for the third quarter of fiscal year 2023 was $1.3 million compared to net income applicable to common stock of $7.3 million in the third quarter of fiscal year 2022. Net loss per diluted share for the third quarter of fiscal year 2023 was $0.07 compared to net income per diluted share of $0.40 for the same period of fiscal year 2022. Adjusted net income for diluted EPS for the third quarter of fiscal year 2023 was $400,000 compared to $7.9 million in the same period of fiscal year 2022. Adjusted net income per diluted share for the third quarter of fiscal year 2023 was $0.02 compared to adjusted net income per diluted share of $0.43 for the third quarter of fiscal year 2022. A reconciliation of net loss or income attributable to Limoneira Company to adjusted net loss or income for diluted EPS is provided at the end of our earnings release.

Adjusted EBITDA was $2.8 million in the third quarter of fiscal year 2023, compared to $14.8 million in the same period of fiscal year 2022. A reconciliation of net loss or income attributable to Limoneira Company to adjusted EBITDA is also provided at the end of our earnings release. Turning now to our balance sheet and liquidity, at the beginning of the year, we sold our Northern properties, which resulted in total net proceeds of $98.4 million. The proceeds were used to pay down all of our domestic debt except the AgWest Farm Credit $40 million nonrevolving line of credit, which has a fixed interest rate of 3.57% until July 1 of 2025. Long term debt as of July 31, 2023 was $40.7 million, compared to $104.1 million at the end of fiscal year 2022.

Debt levels as of July 31, 2023, minus $11 million of cash on hand, resulted in a net debt position of $30.2 million at quarter end. As a reminder, we have $50 million of remaining nonstrategic assets for monetization over nine months and expect their sales combined with approving EBITDA, will result in the opportunity to have no debt and a cash position on our balance sheet by this time next year. Now I’d like to turn the call back over to Harold to discuss our updated fiscal year 2023 outlook and longer term growth pipeline.

Harold Edwards: Based on the comments I made earlier about our lemons in the desert region, we now expect fresh lemon volumes to be in the range of 4.7 million to 5 million cartons for fiscal year 2023, compared to previous guidance of 5 million to 5.4 million cartons. We achieved avocado volume of 3.8 million pounds in fiscal year 2023 compared to previous guidance of 3 million to 4 million pounds. Based on our asset lighter model transition, we expect to generate an additional $50 million of asset sales during the next nine months. We continue to expect to receive total proceeds of $115 million from harvest at Limoneira and East Area II spread out over seven fiscal years, with approximately $8 million received in fiscal year 2022.

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. The company also expects to have a steady increase in third party grower fruit. And with that, I’d like to open up the call to your questions. Operator?

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Q&A Session

Operator: [Operator Instructions] Thank you. Our next question comes from Ben Bienvenu with Stephens.

Ben Bienvenu: Hey, good afternoon. Thanks for taking my questions, guys. So I want to ask you alluded to materially higher margins and profitability in fiscal ‘24 and recognizing that it might be premature to fully flesh out what that means. Can you talk a little bit about as we think about the full year for 2024, are the improvements that you guys are putting in place and the asset monetization and restructuring the business that you’re delivering against, is that going to be something that ramps in contribution through 2024 or what will give us, what should be a full picture of the new margin profile of the business?

Harold Edwards: Yes, so I think, Ben, that there’s a couple of things that we tried to signal that we can point out specifically that should really begin to be felt beginning in the fourth quarter, but with the full annual impact in fiscal year ‘24. So the first obvious one is the significant reduction in interest expense from carrying a much lighter debt load. The second was the payoff of our pension plan, which was costing us running through the P&L approximately a $1 million annually. The fallowing program in Yuma, Arizona has actually turned that sort of area, even with lower priced lemons, into now a profitable situation where, because of the logistics costs and the low pricing environment, we’d been experiencing losses in that part of our production area.

One of the biggest changes that we’ve made which will significantly benefit us will be the elimination of our Cadiz farming operations, which, because of inflation and very high logistics costs in a much lower lemon pricing environment, was costing us a significant amount of cash annually, but also was leading to operational loss, which are now eliminated because we’ve terminated those operations. And finally the growth of our agency business and the growth of our grower partner business. And then the continued growth now of our farm management services business with our Northern California assets. The combination of all of those things put us into great position to create low levels of profitability, but then if you combine those with higher lemon prices and while it’s premature to give specific guidance on avocado volumes, preliminary estimates seem to be significantly higher than this year.

We believe the combination of all of those things put us into a great position to get back to really good levels of profitability in 2024.

Ben Bienvenu: Okay, great. And you noted you’ve made significant headway on asset monetization. You quantified the remaining assets to be sold. Have you seen any impact to the value of potential asset sales as a result of interest rates increasing? And where does that stack rank as either an impediment or risk as you think about completing the asset monetization program?

Harold Edwards: Yes, that’s a great question. We were really worried about that as we’ve watched interest rates increase. But I would say that fortunately, we believe that the remaining assets that we’re focusing on, which specifically our vineyard in Paso Robles and then our production assets in Chile, we have been very pleased that we have not seen any significant deterioration or destruction in values or pricing there. We’ve had good interest in those assets, and we’re optimistic that we believe we can not only complete transactions, but we believe we can complete them within the value ranges that we’ve signaled.

Ben Bienvenu: Okay, great. And one more if I could ask, we asked about this last quarter. Would you characterize in terms of monetizing your water rights, is fallowing still your preferred mechanism? And how should we think about kind of the calculus that you go through as you think about, okay, if we’re signing up for a multiyear program of fallowing versus the potential fundamentals that you might see in a geography, how do you think through that thought process and weigh the cost benefit analysis of engaging in a fallowing program?

Harold Edwards: Yes, that’s a great question. And fundamentally, we believe in that our land and water assets will continue to go up. So owning those long term, I think, is the smart thing for us to do. It really depends on regions, as we’ve always talked about, as water scarcity creates water value. Now, in California, we had a year of rain, and so that’s to be determined. But really, in the desert specifically, it’s fundamental that growing deserts or lemon in the sand in the desert really doesn’t make a lot of sense relative to the other regions around the world, and then California that can do that. So if we can follow half or even all of it, we’re very optimistic to think that acreage that was losing probably a few thousand dollars an acre over the last few years now is basically coupon.

And the remaining acreage that we have is all newer plantings, more dense plantings, which gives us the better ability to achieve profitability and lower cost. But the real impediment there, specific to the desert, is the transportation. And I don’t think any of us see transportation going down. So if we see that opportunity for a long-term fallow program, which would potentially be 25, 30 years at double or more of the current rates, that’s very attractive. And you create an $8 million coupon and then find new sources, whether it’s Coachella or Mexico or the Southern Hemisphere. That’s kind of how we walk through that. And so, just one other comment on where we are here in District 2, it’s similar. This is our homeland and we believe in holding onto our assets and increasing value.

But there will be one-off opportunities to lease water, whether that’s to the communities around us or other farmers, not quite like a fallowing just year-on-year programs in that way.

Operator: Thank you. Our next question comes from Ben Klieve with Lake Street Capital Markets.

Ben Klieve: All right, thanks for taking my question. A few queries, guys. First of all, on lemon pricing, you talked about kind of how optimistic you are about pricing conditions today. If you quantified that, I missed it in your comments. Can you talk about the pricing that you’re seeing in the market today? Seeing that as the highest it’s been since 2018?

Harold Edwards: Sure, you bet. So as we know, this is sort of the slow period for us. Fundamentally in California, the crop is moved away from District 2 and there’s a little bit of gap between now and the desert. And the way that the fruit profile worked at the end of District 2, a lot of that fruit went to juice or was unsellable, as we noted, about 40% of that. So there was a major gap in that supply. So prices, well, they look bad from a mix perspective. The prices were in the low to mid-20s, sort of in July. Now we’re seeing prices as supply even dips further between $35 and $40 for some mix. And so it always has to do with how much do you have of anything, which is nobody has all the supply at the moment, but we’re about to come into supply from the desert in the next month and a half and then the winter crop.

And historically, as we’ve seen a higher base price, we see much less of a dip. And so, for example, this year’s price over last year’s average, if you just put the mix together, is $4 to $5 higher than the last two years or even three years closer to where we were in 2018. So it gives us some optimism that the supply is in balance, that people are going to move through the crops in an efficient way, which will help maintain those elevated prices going forward.

Ben Klieve: Yes, optimism, I’d say so, that’s great to hear. Perfect, like to transition to your comments on your farm management practices. First question is the $5 million that you recognize, is that entirely associated with farm management for the northern properties divestiture that you had, or was a portion of that from farms elsewhere?

Harold Edwards: It’s primarily due to the northern properties’ potential. We have another property here, Del Mar Down, that we’re doing farm management, that we’re the general partner for, but it’s a fraction of that. So primarily just the northern part now. And as we secure that in the next year, we’ll look to get more growers in all those regions.

Ben Klieve: Okay, great. And the magnitude of that was more than I certainly was expecting. Was the magnitude of that surprising to you, or was that about in line with your expectations going into the period?

Harold Edwards: It was actually a little bit above, and so we get 8% to 10% margin on that business, and what that specific situation is, they wanted to do some more improvements, different pruning, fertilization programs, and actually do some planting and planning, so it was just a bit more effort than we had budgeted in there, and so therefore, the more revenue.

Ben Klieve: Got it, very good. And last question for me, given all the various global supply dynamic that you outlined, does that have any impact on your expectations for sourcing third party fruit in 2024?

Harold Edwards: We have laid out relatively, I believe achievable growth targets. We certainly have been pleased with the reception from third party growers and handlers who are willing to let us handle their fruit, so I believe our expected growth is in the, call it 10% to 20% of total volume range, which we think we can manage relatively effectively. So I really don’t see, we’re not concerned about being able to access the fruit, and it seems like our supply chains are absorbing these sales nicely, and so we’re pretty confident in our ability to successfully grow that side of the business.

Operator: Our next question comes from Vincent Anderson with Stifel.

Vincent Anderson: Yes, thanks. Good afternoon, guys. Hey. So I was curious, where did you pick up or have you been picking up the majority of your brokered fruit gains just in terms of origin and destination? Which obviously [inaudible] asked but.

Harold Edwards: Yes, it all primarily comes here, but most of it is from Argentina, Mexico, and Chile.

Vincent Anderson: Okay and all right, well, it’s good to hear on Mexico, because I was going to follow that up with, I know you probably can’t comment on just how the discussions with the board have been going with regard to some of the longer term investments like the South American pack house. But as you’ve ramped up broker fruit and just given the importance of Mexico to the US market, has anything you’ve seen with your activities there, maybe started to shift your view of where you’d want to prioritize.

Harold Edwards: We’ve always sort of plugged part of the season with Mexican fruit because that is sort of the best supply source for a period of the year. I think we mentioned earlier in our comments that Mexico got hit by some severe heat, which compromised some of the quality and the availability of some of that Mexican fruit. In the long term, as we go forward, I think we’ll continue to operate with copackers and source fruit out of Mexico. The situation in Argentina relatively is unchanged. It remains a good source of fruit for us to broker and to manage and we continue to be bullish on our stated transition goal of pivoting from being mostly a producer of Chilean lemons into being more of a packer marketer seller of Chilean fruit.

So I think our long term view is unchanged and we’ll just continue moving down the road of our stated roadmap of asset monetization which will then free up capital, we hope, in Chile, which will allow us to then begin construction on a packing house and put ourselves in a position to become a packer marketer seller out of Chile versus more of a producer in Chile.

Vincent Anderson: Sure. And then as I kind of think about the brokered fruit and the farm management services are obviously pretty new in terms of like a distinct operation within your company. But I would venture to guess as you model that out forward, you don’t have the same operating leverage as the owned asset base. But the margins on that, I would imagine, are probably looking pretty strong right out of the gate.

Harold Edwards: Margins are great. Our primary goal is to do the best job we can and do a good job in the eyes of our primary client right now Prudential and to secure that business for the coming year and coming years. And as we do that, then we’ll begin to spread our wings and seek new farms to provide those services for. We’ve begun the process of identifying potential areas for growth and potential farms and I think we have very pleased with the reception that we’ve received in the marketplace of potential targets to grow. But we’re proceeding cautiously as we’re kind of getting our arms around the true functionality as an operator in the farm management services space and want to just make sure that we walk before we start running. But I think the outlook is good and our ability for margin expansion in that side of the business we believe is excellent.

Vincent Anderson: Got you. And maybe just tying it all together. And this is extremely hypothetical, but just looking at the last couple of years and the disruptions this year again, is there a way to think about kind of the variable cost component of your owned and operated assets versus where you think you can take more of the service based revenue? Whether you want to call brokered fruit service or at the very least farm management service, and you separate those out and you come into another year where you have a weather disruption? Is there a model out there where you could walk away from ranches one year? Keep the trees healthy, but actually limit all of your downside to really just whatever sunk cost was there from the spring or whatever constitutes the spring for that region and just harvest returns on the service revenue and come back next year and actually limit downside in a scenario area like we’ve seen recently.

Harold Edwards: We studied that. It’s a great thought. But I think the reality is, though, that in order to stick with trees and farming, you need to keep farming them. And trees need attention, and they need fertilizer, and they need water, and they need pruning. And that’s what creates the opportunity to have harvestable fruit in the following year. The good news, we think, Vince, is that as we look at the areas where we’ve focused in on our own production and growth, we believe we’ve put ourselves in sort of an optimal position to achieve profitability. Because all of our District 2, our coastal assets are very close to our packing house here. Our logistics costs are lower. And so our cost to put up a packed carton of lemons that we produce on the coast here is much lower than what it had been up in the San Joaquin Valley or out in the desert.

And we believe that gives us probably our best shot at sustained profitability during these years of pressured lemon pricing. We believe that as we are able to realize higher lemon pricing and continue to grow that through grower partner third party fruit that will allow us to continue to drive our cost per cartons down and give us margin expansion opportunities as all that happens.

Operator: Our next question comes from Raj Sharma with B. Riley Securities.

Raj Sharma: Hi. Good afternoon. Thank you for taking my questions. I just wanted to understand, obviously the shortfall in lemons, and you’ve taken the guidance down, and I’m sorry if I missed the earlier part of the remarks. The reason, the core reason for that and can we — when does that sort of correct? And then also on the avocados that those were slightly trending, better than you had guided earlier.

Harold Edwards: Yes, we’re sort of midstream in the fourth quarter now, the reason we brought the total volume of lemons down was because of the low fresh utilization that we achieved in the third quarter. A year ago, we were 75% fresh utilization. Because of the challenges with quality and some of the delays from the rainfall, we actually experienced utilization in the third quarter of about 60%. And so that’s really what basically you had the same amount of fruit that came off the trees, but only 60% made their way into the fresh box. And so that really had the big negative impact on volume for the year, which is why we brought our estimates for the year down. As we look forward into next 2024, we see significantly higher opportunities for growth in terms of total volume on both lemons and avocados.

So I think you’ll see significant growth of our own production, but also the production of our grower partners on the lemon side of the business and then significantly higher avocado volume because as we talk about the alternate bearing nature of avocado production, next year should be an up year. And as we’re out there looking at the trees and how many pieces are hanging on the trees; I think we’re pleased with what we see for next year.

Raj Sharma: Got right. That’s very helpful. And then just your plans on the expansion, a big part, expansion of the one world of citrus. Can you just kind of touch upon, again, your goals around that? I know you stated your goals in that business at the Investor Day, but also how do you measure progress or what does progress look like and how’s it going?

Harold Edwards: Yes, well, this year was a little bit of a setback because of the utilization. I think we’d sort of projected getting to 5.2 million cartons this year and it looks like it’s going to come in closer to 4.8 domestically. I think we’re right on track with our Chilean production and then we’re at or above our projections with the agency fruit. As we look to next year, we’d hope to be in that 5.2 to 5.5 million range of cartons of lemons that we would produce in combination with our grower partners. Chile next year should be about 1.8 to 2 million, somewhere in that range, 1.8 to 2 million cartons. And then the balance of the growth should be the agency fruit. So aside from the utilization setback this year, we’re actually on track with our forecasts and our targets for growing the grower partner side of our business and third party grower fruit.

So that seems to be right on track. So I believe that if we’re able to execute on fresh utilization levels above 70% next year, which our target is 75%, we should be right on track to be right where we had communicated at the Investor Day presentations. And as Mark alluded to earlier, we are optimistic that we’ll see higher pricing, which should then give us much greater opportunity for greater profits and EBITDA creation next year.

Raj Sharma: Thank you, that’s very helpful. Just lastly, you touched upon the progress in Chile, and I think Chile contributes a huge number, a pretty sizable number of your improvement in bottom line EBITDA. How’s that going and how do we make a progress there.

Harold Edwards: Right. Yes. The way to kind of follow progress there will be an announcement at some point of the successful monetization of our production assets and then the utilization of the capital that we’re able to achieve in that monetization process to begin construction and the development of a new packing house. So the next thing that we’ll want — you’ll want to see is us reporting on our successful sale of our production assets as well as then guidance on the timeframe of the construction project of our new packing facility in Chile.

Raj Sharma: Right. And does the production from or volume from Chile, does that get impacted at all by the bottlenecks the Panama Canal or?

Harold Edwards: No, we haven’t had really any issues right now. The ships come up. They usually take a stop in Mexico and come up from the west. So everything from that perspective, we have not had any supply chain issues or shipping issues so far this year.

Raj Sharma: Got it. And then just finally any updates on the two more the asset sales? Is there a time line for that?

Harold Edwards: Right. We’re continuing running a process for both the Chilean assets as well as our Windfall Farms Vineyard. And I would say we’re probably mid process with both of those assets. We’ve been pleased with the interest in all of those assets. And so we’re just at the point now where we’re getting our arms around potential opportunities, which we look forward to taking to our board to discuss. And I think we’re probably six months away from any announcements on the monetization of both those, six to nine months on both those projects.

Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Harold Edwards for closing comments.

Harold Edwards: Thank you for your questions and for your interest in Limoneira. Have a great day.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.