John Mills - IR, ICR Harold Edwards - President and CEO Joe Rumley - CFO.

Brent Rystrom - Feltl and Company Eric Larson - Janney Capital Markets Chris Krueger - Lake Street Capital Markets.

Good day and welcome to the Limoneira First Quarter Fiscal Year 2015 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. John Mills of ICR. Please go ahead..

Thank you. Good afternoon, everyone and welcome to Limoneira’s first quarter fiscal year 2015 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Joe Rumley, Chief Financial Officer.

By now everyone should have access to the first quarter fiscal 2015 earnings release which went out today at approximately 4:00 PM Eastern Time. If you’ve not had a chance to review the release, it's available on the Investor Relations portion of the Company's Web site at limoneira.com.

This call is being webcast and a replay will be available on the Limoneira's Web site as well. Before we begin, we would like to remind everyone that the 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 that 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 it could cause or contribute to such differences include risk details 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. Also within the Company's earnings release and in today's prepared remarks, we include EBITDA which is the non-GAAP financial measure.

A reconciliation of EBITDA to the most directly comparable GAAP financial measures is included in the Company's press release which has been posted on our Web site. And with that, it's my pleasure to turn the call over to Company's President and CEO, Mr. Harold Edwards. Go ahead, Harold..

Thanks John. Good afternoon everyone and thank you for joining us. On today's call, I'll begin with a brief overview of financial highlights for the first quarter and provide an update on our progress across all of our business areas.

Joe will review the financial results for the first quarter in more detail, and I'll then discuss our 2015 outlook and open the call up for your questions. We're off to a solid start in fiscal year 2015.

While our first quarter financial results reflect anticipated seasonality of our Agribusiness, we're pleased to report top-line growth of 8% to $28 million in the first quarter.

This reflects another strong quarter for our Lemon business, which had revenue growth of 18% compared to the first quarter of last year, reflecting a higher average price per carton as well as increased volume. Based on our year-to-date results and outlook for the remainder of the year, we are reiterating our annual guidance.

I'll review this later during our remarks. Over the last several months we've continued to make progress on our long-term growth strategy across all aspects of our business and we're very excited about the growth opportunities ahead of us.

First, regarding our real-estate development business, a few weeks ago we received the final requisite approval to break ground on the Santa Paula Gateway project.

As we’ve previously announced at a City Council Meeting held last month, the Santa Paula City Council unanimously approved our updated East Area 1 master tentative track map, our supplemental environmental report and updated development agreement. Following the vote, the property is now fully entitled, which allows us to move forward with our plans.

We've been working closely with the City of Santa Paula on this development of this project for over 10 years and while this approval was expected, we're extremely excited to have the final regulatory hurdle behind us.

The Santa Paula Gateway project consist of a 550 acre master plan community with up to 1,500 residential units, 560,000 square feet of commercial space and 150,000 square feet of light industrial facilities. The plans for the project also include a Kindergarten through 8 Grade Public School and a 38-acre community park.

In addition, land is earmarked for a future high school or academy site as well as other master plan community amenities. The Santa Paula Gateway project will benefit from its prime location near the Pacific Ocean with easy access to Los Angeles.

As we stated before, our estimates suggest that our master plan community represents approximately 25% of Ventura County's buildable residential lots for the next several years. We've already begun rock removal on the property and are well down the road to the first phase of grading for the Santa Paula Gateway project.

We plan to announce a development partner in the coming months and pending market conditions, we anticipate commencing constructions in 2015. As the project progresses, Limoneira is positioned to benefit from significant additional cash flow.

Subject to real-estate and overall economic conditions, we expect this project to deliver over $100 million in cash flow to us over the next five to 10 years and we look forward to providing you with updates on our progress.

Now turning to our Agribusiness, we continue to execute on our long-term growth strategy to add productive agricultural properties to our portfolio. We recently announced that we expanded our agricultural lease agreement with Cadiz Incorporated to include an additional 200 acres.

We acquired a total of 200 acres of lemon trees and associated irrigation lines from Cadiz and one of its leasing tenants.

We amended our existing lease with Cadiz which we entered in July of 2013 and Limoneira now has the right to plant up to 1,480 acres of lemons over the next three years at the Cadiz Ranch operations in the Cadiz Valley which is in San Bernardino County, California. The acquired lemon trees are expected to be productive beginning in fiscal year 2017.

This acquisition complements a number of investments and acquisitions that we completed last fiscal year, including our purchase of the packing house property and equipment of the Marlin Ranching Company in Yuma, Arizona as well as our investment in Rosales S.A. a citrus packing, marketing and sales operation located in La Serena, Chile.

In addition, we are continuing the expansion of our lemon packing facilities in Santa Paula and remain on-track for its completion later this year. The extended facility is expected to increase efficiency and double the annual capacity of our lemon packing operations.

This should help us maximize growth opportunities for Limoneira and improve operating margins as we continue to execute on our long-term growth strategy to acquire additional lemon orchards and build relationships with third-party growers and add new lemon customers.

Now turning to the Rental Operations segment of our business, we remain on-track with the development of 71 additional agricultural workforce housing units in Santa Paula, California. This should available for rent to local agricultural workers’ add base during fiscal year 2015.

When the project is completed we anticipate this will add an additional $850,000 to $900,000 of annual revenue to our rental business. Our Rental Operations segment provides a dependable revenue stream and source of annual cash flow, as well as the unique ability to offer housing to agricultural workers and to our employees.

In summary, the progress we are making with our real estate development efforts combined with our expanding Agribusiness and Rental Operations make this a very exciting time for Limoneira.

We remain focused on continued execution across all business segments and capitalizing on opportunities to monetize our rich portfolio of assets and strategically investing in our Agribusiness. With that I’ll turn the call over to Joe..

Thank you, Harold. Good afternoon everyone. For the first quarter ended January 31, 2015 revenue was up 8% to $28 million compared to the first quarter of fiscal year 2014. Agribusiness revenue was up 9% to 26.9 million reflecting higher lemon revenue.

Rental Operations was $1.1 million in the first quarter of fiscal year 2015 and the first quarter of last year.

Our first quarter 2015 Agribusiness revenue includes $24.7 million of lemon sales compared to $20.9 million of lemon sales during the same period in fiscal year 2014, primarily reflecting a higher average price per carton due to more favorable market conditions, as well as an increase in the number of cartons of lemons sold.

As we expected due to the typical seasonality of the avocado crop, there were no significant avocado sales in the first quarter of fiscal year ’15. We recognized $1.5 million of orange revenue in the first quarter of 2015 compared to $1.9 million of orange revenue in the same period last year.

This decrease reflects lower prices partially offset by higher sales volume. Specialty citrus and other crop revenues were $723,000 in the first quarter of 2015 compared to $1.9 million in the first quarter of fiscal year 2014. This decrease was primarily due to lower prices and sales volume.

Turning to cost and expenses, for the first quarter of fiscal year 2015 we incurred $30.5 million of cost and expenses compared to $28.1 million in the first quarter of last year.

The year-over-year increase in operating expenses primarily reflects increased Agribusiness costs mainly associated with the higher packing cost related to increased lemon sales volume and our Packing business in Yuma, Arizona which we acquired in June of 2014.

In addition, third-party grower costs were higher in the first quarter of 2015 compared to the same period of last year reflecting a larger volume of fruit procured from third-party growers at a higher price.

Operating loss for the first quarter of fiscal year 2015 was $2.5 million compared to operating loss of $2.2 million in the same period last year. EBITDA was a negative $1.2 million in the first quarter of fiscal year 2015 compared to a negative $1.1 million in the first quarter of last year.

Net loss applicable to common stock for the first quarter of fiscal year 2015 was $1.6 million compared to $1.3 million in the first quarter of the prior year.

Loss per diluted share for the first quarter of fiscal year 2015 was $0.11 on approximately 14.1 million weighted average shares outstanding compared to a loss per diluted share of $0.09 on approximately 14 million weighted average shares outstanding last year.

Regarding our cash flow and balance sheet, in the first quarter of fiscal year 2015 net cash used in operating activities was $5.8 million compared to $4.1 million in the same period of the prior year.

Net cash used in investing activities was $7.1 million in the first quarter of fiscal year 2015 compared to net cash used in investing activities of 4.8 million in the same period of fiscal year ’14, primarily relating to our investments in the expansion of the lemon packing facilities and additional farm worker housing units.

Net cash provided by financing activities was approximately $12.9 million in the first quarter of 2015 compared to $8.9 million in the prior year period. As of January 31, 2015 long-term debt was $81.8 million compared to $67.8 million at the end of fiscal year ’14.

The increase in long-term debt is primarily related to funding our strategic initiatives including agricultural property development, the lemon packing house expansion project, farm worker housing project, acquisitions of Yuma packing house equipment and our equity interest in Rosales as well as ongoing investments into the Santa Paula Gateway and real estate development projects.

Now I’d like to turn the call back to Harold to discuss our fiscal year 2015 guidance..

Thanks Joe. We are reiterating our fiscal year 2015 operating income and earnings per share outlook. Based on a decrease in the estimated size of the lemon harvest, we are revising some of our assumptions.

In fiscal 2015 we now expect to sell approximately 3 million cartons of fresh lemons compared to our previous guidance of between 3.2 million and 3.4 million cartons of fresh lemons.

Offsetting the expected reduction in sales volume, we anticipate the average price per carton to increase to approximately $24 per carton compared to our previous estimate of an average price of approximately $22 per carton. We continue to expect to sell approximately 6.5 million to 7.5 million pounds of avocados at approximately $1 per pound.

However, as we stated on our last earnings call, certain of our avocado orchards experienced freezing temperatures earlier this year that likely caused some damage to a portion of the fiscal year 2015 crop. The extent of the damage is being assessed and we don’t expect to know the extent until the second quarter of fiscal year 2015.

The volume range of production I noted reflects our current estimate of production net of the effects of this pending damage.

The Company expects operating income and net income for fiscal year 2015 to be similar to fiscal year 2014 operating income and net income as a result of anticipated stable lemon and avocado revenue, lower orange and specialty citrus revenues, partially offset by lower expected selling, general and administrative expenses.

In general, subject to the extent of the avocado freeze damage noted above, we expect to earn approximately $9.4 million to $10.2 million in operating income in fiscal year 2015 compared to 9.9 million of operating income in fiscal year 2015.

Fiscal year 2015 income before tax is expected to be approximately 10.4 million to 11.1 million compared to 10.6 million of income before tax for fiscal year 2014. We expect fiscal year 2015 earnings per diluted share to be in the range of $0.42 to $0.46 compared to fiscal year 2014 earnings per diluted share of $0.46.

It's important to note that our guidance does not reflect any potential cash flow from expected transactions for the Santa Paula Gateway project.

While we anticipate, the development transaction will generate significant cash flow over the estimated five to 10 year life of the project we believe it is prudent to wait to update our guidance until a deal is reached. We're excited about our strong start to the year. We'll continue to focus on our opportunities to expand our core Agribusiness.

We also remain confident that we will break ground on our East Area 1 development this year and we expect to benefit from the significant cash flow associated with this project.

And with that, I'd like to now open the call up for your questions, operator?.

Thank you. [Operator Instructions] And we'll take our first question from Brent Rystrom with Feltl..

Just a couple of quick ones, can you give us a sense of how you might be thinking about the acquisition calendar this year? If you think about the last few years, some years maybe kind of spread over the course of the year, some years they kind of come together.

And I'm just curious, does the pipeline looks like things are coming in kind of over the quarters or is it going to be lumpy?.

I think it's probably going to be lumpy. We have still a robust portfolio of diligence going on right now. We have potential acquisitions, south the equator down in Chile. We're also we believe close to the potential of some acreage expansion up in the San Joaquin Valley.

We're hopeful that we'll be able to execute transactions in both of those places this year. However, as we've experienced in the past predicting the actual closing of the deals that we're working on has proven to be difficult just because typically these are generational family farms and there's always issues that come up with them..

Is there still a sense that the in particular A acquisition in the San Joaquin could be a relatively big one?.

I think there's the potential of that. We've actually increased the number of potential orange related transactions that we've been looking at. And we believe that potentially there is a big one in near future..

And if recall your strategy long-term is to build to 10 million cartons of lemons and 10 million cartons of oranges, so that's pretty consistent with that, right?.

That would be the goal. How soon we're able to execute on either the 10 million carton goal in lemons or the 10 million carton goal in oranges will really just be driven by our success in finding those strategic acquisitions. We are certainly talking to a number of potential targeted acquisitions.

If we were successful, it would allow us to get there predicting the timing of being able to do that is the challenge..

Next question then would be just out of curiosity in the worker housing that you’re developing are those properties are they being restricted on what they can be used for?.

Yes, and that is the primary challenge of building workers’ housing in Ventura County.

The zoning on these properties typically is agricultural 40 or agricultural 100 which makes the subdivision very-very complex and takes a variance to existing regulated zoning rules, because Limoneira has been a legacy provider of workforce housing we built the argument with the County of Ventura that we should be able to expand an existing workforce housing development area that we had and as such we’re successful in getting that variance to conventionally regulated zoning laws.

But it took a lot of work to get that variance and we were successful to get it. The upside of that is that we’re sort of alone in providing this workforce housing which makes the ability to rent these houses very-very high and very-very strong and the prices that we can get for them very attractive.

But it was very difficult getting that zoning variance..

When you mentioned those are probably agricultural 40s or 100s are you talking about a 40 acre parcel?.

Yes, exactly..

And then my final question actually has to do with the comments about avocados so I am assuming you would be updating your guidance on the avocado volumes on the second quarter call?.

That’s right, a couple of dynamics with what we’ll hear in the second quarter. So, we’ve got the issue we had one ranch that was impacted significantly of all of our ranches of avocado production in Fillmore, California our La Campana property just about every other property where we grow avocados made it through the freeze pretty well.

We’re really waiting to see the extent of the drop and what happens when an avocado experiences freezing temperatures it may look like it survived the freeze okay, but after a little bit of time following the freeze it just literally falls on the ground and becomes unmarketable and we lose it.

At this point we haven’t experienced high levels of drops but we’re continuing to guide with caution because we really won’t know until we get there.

So you’ll hear about that the other dynamic that you’ll hear about will be our forward-looking thinking of how imported fruit will affect the market and specifically the huge amounts of volume that anticipate coming from both Mexico and Peru this year that we think will encourage us or push us to conducting earlier harvest of our avocado crop earlier this year versus years before and the impact of that would be higher pricing which we could get because the foreign fruit won’t in the market but we may actually experience a smaller overall crop because we will have harvested smaller fruit and as such received a lower total volume.

So it’s very dynamic a lot of the variable we’ll be able to give guidance with a lot more clarity following our second quarter release..

And we’ll take our next question from Eric Larson with Janney Capital Markets. [Operator Instructions].

I was assuming you could hear me that’s why I asked the question I am not sure by phone isn’t working property today so I am hoping you can hear me. But just a follow-up questions on lemons, obviously some better volume, some better pricing.

What was the first utilization rate this year? I think last year you were at about 54% or something like that pretty close to 54% was your utilization also higher this quarter year-over-year?.

Joe you want to field it?.

Yes.

The utilization last year was in the 70% to 80% range actually for a year and usually it’s best to look at utilization over an entire season because as the crop comes off early timing different markets pricing, how the fruit holds up, storage, so we don’t normally look at utilization on a quarterly basis so we normally look at it kind of over the course of the year now than the entire season of harvest so I guess that last year was probably in that 70% to 80% range that was a good year, this year really thinking it might not be quite as good from a utilization standpoint, but it’s too early to call it.

It won’t be drastically different but it like will be less this year than last just by how tight the market was at times..

Yes I think the percentage that I read off was actually Limoneira sales versus of the total versus third-party so I was assuming the 1% and you said you did have, so when you look at the mix of your sales Limoneira versus third-party what was that ratio this quarter?.

That was about 50% this quarter versus 46% same time last year so a little more third-party fruit in the mix..

Okay..

The first quarter versus the same time last year..

So I know that you don’t release your actual volumes until you publish your Q, but with price have been the bigger determinant of the revenue increase in the quarter versus volume?.

I believe quarter-on-quarter, it was almost a dollar 23.40 versus 22.46 last year..

Okay..

And so the pricing is good and actually it's interesting how last year's pricing went. It didn’t start low obviously, but it kind of started at a point and continued to rise.

And this year, it started at a little better place and we're thinking it might stay a little -- not have that same curve in the upward shift, but stay relatively favorable like we said $24 kind of in that range during a good part of the year..

And have you seen any impact at all via the really strong dollar, I mean it doesn’t seem like the dollar has impacted your sales or your pricing as of yet? Any thoughts on what a strong dollar might do for you here?.

Yes, we have not seen any impact and I think it's just we're in a very fortunate place both with our avocados and our lemons and that we continue to experience a demand exceed supply situation, which I think is what is holding the pricing up.

We reported earlier about the impact of the port closures on our business and fortunately the lemons made it through that experience unscathed and we didn’t miss a shipment, especially as it related to our Japanese, our Korean and our Chinese markets.

And we continue to watch the impact of the strength of the dollar there, but so far we've been very-very fortunate and continue to see the orders if anything increasing right now..

Yes I was going to say it. It probably has to reflect a good supply demand relationship, because it would seem like it would be hard to hold the very lemons for sale elsewhere I would assume that that would have had an impact, so it's probably a better supply demand relationship.

And then just one other quick question on East Area 1 and 2, obviously you've received entitlement for East Area 1.

Do you still have entitlement risk for East Area 2 or is that also included in the total package for entitlement that you received on the 17th?.

Well when we decide the fate of East Area 2 and we only did as we submitted to the City of Santa Paula two potential track map options, one was for a commercial office and the other was for a big box commercial retail.

And both were already approved, so essentially what will happen is once the fate of East Area 2 is determined then we will submit the finalized if you will the final tentative track map in either commercial office for commercial retail, but there won't be any commensurate ERR work that's necessary that's not been approved and there won't be any necessary development agreement because that's already been approved.

It will just be for the approval of the track maps. And at that point, it's pretty straight forward with the approval and there's really no apposition that we're aware of to any of those plans..

So essentially your entitlement risk for that is pretty much gone as well?.

Yes..

And we'll take our next question from Chris Krueger with Lake Street Cap Markets..

Just another question on the Gateway project, I know you said you hope to announce development partner soon, is there any kind of work you can do in advance of that to kind of get the ball rolling on the project as far as grading or street work or whatever it takes upfront?.

Yes in fact I wish you were going to -- we're at an Investor Conference right now, we'll be presenting at the ROTH Conference tomorrow.

I wish you could see the presentation because we'll update the presentation with pictures of some of that work that we're talking about, but we've been removing rocks from the facility from the bottom part of the project now for the better part of about six months.

And as such have accelerated what will eventually be the grading of the project, this rock removal would have been necessary anyways and is necessary. Before we receive the entitlement from the vote two weeks ago, we have to call it agricultural rock removal and now it's the preliminary grading.

So that's given us a great jumpstart on the project and we're working 24x7 right now with that continued rock removal. And as we announce our development partner in the coming weeks, following that announcement you'll also see the phasing plans announced and the preliminary and first grading plans announced.

And as such, we'll then be able to very clearly show on a map how the project will phase, the type of projects that will be built first and the preliminary infrastructure that will be put in representing the first phase of the development..

My next question is just any kind of overview or update on your other potential hidden assets whether it'd be the Windfall Farms, the Vineyards or the water rights?.

Joe you want to see that?.

The Windfall Farms we’ve planted 100 acres of cabernet last year and we have slated another 100 this year, so we're continuing to move forward on making that property a better performing property for us, so we’re looking forward to seeing some early the first picks off that what we planned last year in 2018 so that’s working well.

And water monetization I wouldn’t say there is anything concrete or specific I don’t think but we still are working with the water asset management group that we have partnered with out in Yuma, Arizona and water still is precious and the draught isn’t over so we think that that we always thoughts that probably had some lead time to it so that’s probably one of those things that it will take some more patience before we start seeing and really start to move forward on some of those areas..

All right thanks that’s all I got..

Thanks Chris I just wanted to remind everybody that’s listening that we will be presenting in California at this investor conference tomorrow at 2 PM and from that point forward our updated investor presentation will be on our Web site effective from that point forward..

This does conclude today’s question-and-answer session. At this time, I would like to turn the conference back to Harold Edwards for any additional or closing remarks..

Thank you for your questions and interest in Limoneira. Tomorrow as I mentioned before we’ll be presenting at the ROTH Conference and we’ll be attending select investor events over the next several months. We hope to see many of you there. Thanks again and have a great day..

This does conclude the presentation. Thank you for your participation..