John Mills - ICR Harold Edwards - President & CEO Joe Rumley - CFO.

Gerry Sweeney - ROTH Capital Chris Krueger - Lake Street Capital Market Eric Larson - Buckingham Research Group Steven Martin - Slater Capital Management.

Good day and welcome to the Limoneira Third Quarter Fiscal 2017 Earnings 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..

Good afternoon everyone, and thank you for joining us for Limoneira's third quarter fiscal year 2017 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 third quarter fiscal year 2017 earnings release, which went out today at approximately 4:00 P.M. Eastern Time. If you not had a 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 the 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 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 about Limoneira's ongoing future results, 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 EBITDA, and adjusted EBITDA which are non-GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures is included in the Company's 10-Q and press release which have been posted to our website.

And with that, it's my pleasure to turn the call over to the Company's President and CEO, Mr. Harold Edwards..

Thanks John and good afternoon everyone, thank you for joining us. On today's call, I will begin with a brief overview of our financial results for the third quarter of 2017, and provide an update on our progress across all of our business areas. Joe will review the financial results in more detail. Then I will discuss guidance for fiscal year 2017.

After that we will open up the call and take your questions. In the third quarter, revenue increased over $40 million primarily due to a record quarter for our lemon business, which increased 14% during the quarter compared to the third quarter in 2016.

However, avocado sales were lower in the third quarter of 2017 compared to last year's third quarter. Recall that fiscal 2017 is a lighter year from a yield standpoint given the natural alternate bearing sequence of avocados.

That said, for the first nine months of this fiscal year, our agribusiness revenues remain at record levels for the company increasing 15% versus the prior year to-date period in fiscal 2016. Our operating income for the third quarter was impacted by the lower avocado sales and declined by $1 million to $13.2 million for the quarter.

Similarly, adjusted EBITDA was down $1 million to $14.9 million in the quarter as well. When excluding last year's $3.4 million gain on the sale of Calavo Growers stock.

On a year-to-date basis, however, we generated record adjusted EBITDA of $21.5 million in the nine-month period representing an increase of 19% compared to the same period of fiscal year 2016.

If you exclude the gain on the sale from Calavo Growers stock from the prior year, the comparative 2017 year-to-date operating results are even stronger, which reflects the company's efforts to create a scalable and efficient agribusiness that’s poised for continued long-term growth.

Shifting to our business segments and starting with our agribusiness. Over the past few years, we have made significant investments that are driving our top line and bottom line growth.

We've expanded our customer base to over 185 customers and increased distribution by leveraging our domestic and international marketing and sales channels during the past few years due to many factors including our trade marketing strategy, consumer facing strategy, as well as increasing our packing capacity.

Our new packing house in Santa Paula has doubled the annual capacity and increased operating efficiency of our lemon packing operations. Since commissioning the new packing facility in March of 2016, we have realized an increase in our packing productivity.

During the first nine months of fiscal year 2017, we packed 400,000 additional fresh lemon cartons versus the same period last year for $800,000 less cost. This improved efficiency has reduced our year-to-date per carton lemon packing cost to $5.87 per carton compared to $7.19 per carton for the first nine months last year.

We expect the new lemon packing facility will allow us to efficiently manage the planned growth in our fresh lemon business from both our own acreage as it becomes productive and additional third party grower lemons which we are actively recruiting.

We currently have over 7,900 planted agricultural acres of which approximately 1,500 acres are currently non-bearing lemons and are estimated to become full-bearing over the next four years.

Beyond these 1,500 acres, Limoneira currently intends to plant an additional 500 acres of lemons in the next two years that will further build our long-term pipeline of productive acreage.

We anticipate this additional acreage will increase our annual lemon supply from our current level by approximately 30% or about 900,000 to 1.3 million additional fresh cartons as the non-bearing and planned acreage becomes productive.

We are also expanding our footprint internationally, most recently with our acquisition this year of Pan de Azucar or PDA in Chile. Similar to other new acres that Limoneira has recently planted in United States, certain of PDA’s lemon orchards are young and beginning to enter their prime production.

Making our combined business well suited to address increasing global demand in years to come.

The acquisition of PDA marks an important expansion of our business that is expected to contribute through the execution of our long-term goal to expand our agribusiness internationally as a year-round supplier of citrus complementing our one world of citrus strategy.

As our lemon business grows, our customers recognize the quality and consistency they receive with Limoneira lemons as well as high levels of service that are a fundamental part of our culture.

The acquisition of PDA in Chile coupled with our other international relationships and our recently announced citrus marketing relationship with Suntreat underscores our commitment to being one of the leading global year-round citrus agribusinesses.

In addition to our fruit grown in the United States and Chile, Limoneira is also managing the marketing and sales function for locally sourced citrus from business partners in South Africa, Chile, Argentina, and Mexico.

These efforts combine to make us an important and consistent source of fresh citrus supply to our growing roster of global customers.

From an operational standpoint, we believe vertical integration of international production and marketing combine to maximize our revenue and margin opportunities while smoothing out the seasonality of our business over the long term. Turning now to our real estate development segment.

The partnership between Limoneira and the Lewis Group of companies for the development of harvest at Limoneira is progressing well. The total cash that Limoneira expects to receive over the life of the project will depend on several factors including median home price and the related lot sales price.

But with its highly desirable location near the Pacific Ocean, we believe that Limoneira should receive between $100 million and $130 million over the estimated seven- to 10-year life of the project which includes $20 million we received from Lewis when the joint venture was formed.

The company contributed $2.3 million in fiscal year 2016; and during the first nine months of fiscal 2017, we contributed an additional $7.5 million to the joint venture matching Lewis’ contribution to fund ongoing development activities.

Current project status has Phase 1 tree removal substantially complete with various other site preparation activities in progress. Current plans indicate that grading should begin during the fall of 2017 and Phase 1 site improvement should begin during the winter of 2017.

The lot sale process with home builders is expected to begin near the end of calendar 2017 and initial closings of lot sales are anticipated in the summer of 2018.

In addition to the residential aspect of the project, we're also planning the development of approximately 40 acres of commercial property adjacent to the residential development that is not included in the partnership plans and financial projections, which represent additional cash flow opportunities.

Initial interest from potential commercial tenants is very encouraging. We've had some activity with our three Santa Maria properties recently. You may recall that in March of this year, we entered into an agreement to sell our centennial property for $3.2 million. We expect escrow to close during this month.

In June of 2017, the company accepted an offer on its Pacific Crest property for the sales price of $3.5 million which after estimated transaction costs is anticipated to result in a loss of approximately $120,000 which was recognized as an impairment in the second quarter of this year. The transaction is subject to buyer due diligence.

In August of 2017, we entered into an agreement to sell the commercial portion of our Sevilla property for a sales price of approximately $1.5 million, which after estimated closing cost is anticipated to result in a gain of approximately $40,000. The transaction is subject to buyer due diligence and is expected to close in October of 2017.

Combined these three properties are anticipated to have an immaterial impact on our results of operations, but are expected to generate approximately $7.5 million in cash after transaction costs. Lastly, turning to the rental operation segment of our business.

This segment is not only a steady contributor to our operating results but is an important component that helps us maintain a consistent supply of labor for agribusiness operations by our workforce housing units, which encompass the majority of our tenants.

Our rental units averaged near full occupancy and should continue to be a consistent source of positive cash flow for the company going forward. In summary, we're pleased with our year to date results thus far in fiscal 2017.

Our record lemon results in the first nine months of fiscal 2017 enabled us to increase revenue by 14% and has us positioned for solid operating results for the year. And with that, I will now turn the call over to Joe..

Thank you, Harold. Good afternoon everyone. I will discuss some of the details of our financial results for the third quarter ended July 31, 2017. Revenue was $40.4 million compared to $39.9 million in the third quarter of 2016.

Agribusiness revenue was $39.1 million compared to $38.4 million in the third quarter last year, primarily due to stronger lemon sales partially offset by lower avocado sales. Rental operations revenue was $1.3 million in the third quarter of fiscal year 2017, which compared to $1.5 million in last year's third quarter.

There was no real estate development revenue in the third quarter of fiscal year 2017 and minimal revenue in the same period of 2016.

Agribusiness revenue for the third quarter of fiscal year 2017 includes $30 million in lemon sales compared to $26.2 million of lemon sales during the same period a fiscal year 2016 with the increase primarily result of higher prices and volume of fresh lemon sold compared to the same period in fiscal year 2016.

Approximately 919,000 cartons of fresh lemons are sold during the third quarter of fiscal year 2017 at $28.45 average price per carton. Compared to approximately 846,000 cartons sold at $27.19 average price per carton during the third quarter of fiscal year 2016.

Avocado revenue for the third quarter of fiscal year 2017 was $7.5 million compared to $9.6 million in the same period last year primarily result of lower volume of avocado sold offset by higher prices compared to the same period of fiscal 2016. The avocado harvest was substantially completed during the third quarter of fiscal year 2017 and 2016.

Typical volatility in avocado production resulted in approximately 5 million cartons sold at an average price of $1.5 per pound in the third quarter of fiscal year 2017 compared to $9.5 million pounds sold at an average price of one dollar one cents per pound for the same period last year.

For the nine months ended July 31, 2017, 6.3 million pounds of avocados were sold at an average price of $1.51 compared to 11.4 million pounds sold at an average price of $0.95 for the same period 2016.

The Company recognized $1.1 million of orange revenue in the third quarter of fiscal year 2017 compared to $1.9 million in the same period of fiscal 2016. Primarily attributable to lower prices and volume or oranges sold compared to the same period in fiscal 2016.

Especially citrus and other crop revenues were $400,000 in the third quarter of fiscal 2017 compared to $800,000 in the third quarter of fiscal year 2016. Total costs and expenses for the third quarter of fiscal 2017 were $27.2 million compared $25.7 million in the third quarter of last fiscal year.

The third quarter of fiscal year 2017 increase in operating expenses was primarily attributable to increases in the company's agribusiness cost mainly due to higher lemon volume particularly including an increase in lemons procured from third party growers which is consistent with the company's strategy.

The higher agribusiness cost was partially offset by decreases in the company's real estate development expenses and selling general administrative expenses.

Operating income for the third quarter of fiscal 2017 decreased to $13.2 million compared to $14.2 million in the third quarter of the previous fiscal year with lower avocado production a primary factor in the decrease.

Net income applicable to common stock after preferred dividends for the third quarter of fiscal 2017 was $7.7 million compared to $10.6 million in the third quarter of fiscal year 2016. Net income per diluted share for the third quarter of fiscal 2017 was $0.52 compared to net income per diluted share of $0.71 for the same period of fiscal year 2016.

EBITDA was $14.9 million in the third quarter of fiscal year 2017 compared to $19.3 million in the same period of fiscal 2016. Notably a $3.4 million gain on the sale of Calavo Growers stock is included in net income and EBITDA in last year’s third quarter.

Regarding our year to date results for the nine months of fiscal 2017 revenue was $105.4 million compared to $92.3 million in the same period last year. Operating income was $16.1 million compared the $10.2 million in the same period last year.

Adjusted EBITDA which excludes $120,000 impairment and real estate development assets in fiscal 2017 was $21.5 million compared to $18 million in the same period last year. Net income applicable to common stock after preferred dividends was $8.8 million compared to $7.6 million in the same period of last year.

Net income per diluted share for the first nine months of fiscal 2017 was $0.62 compared to net income per diluted share of $0.53 in the same period of fiscal 2016. Based on weighted average diluted common shares outstanding of approximately $14.6 million and $15.1 million respectively.

The increase in operating results for the nine months ended July 31, 2017 was primarily a result of higher volume of fresh lemons sold partially offset by lower prices compared to the same period in fiscal 16 as well as cost efficiencies of our new lemon packing facility.

In additional the result of operations for the nine months ended July 31, 2016, include a $3.4 million gain on the sale of Calavo Growers stock and a $1.2 million cost in Limoneira/Lewis joint venture transaction costs. Lastly, our long-term debt at July 31, 2017 was $97.6 million compared to $88.2 million at the end of fiscal 2016.

During the third quarter of 2017, the company entered a master loan agreement with Farm Credit West and repaid $68.6 million outstanding under the Rabo credit facility. The Farm Credit West credit facility provides borrowing capacity of $100 million and matures July 1, 2022.

Now I'd like to turn the call back to Harold to discuss our fiscal year 2017 outlook..

Thanks Joe. As I mentioned at the beginning of our call, we are reiterating our fiscal 2017 forecast. We continue to estimate earnings per diluted share to be in the range of $0.51 a share to $0.55 cents a share. We expect our operating income for fiscal year 2017 to be in the range of $14.7 million to $15.2 million.

Fiscal year 2017 adjusted EBITDA is expected to be in the range of $21.7 million to $22.2 million. We expect a sell between 3.1 million and 3.3 million cartons of fresh lemons at an average price per carton of approximately $24 a carton.

The company's avocado harvest concluded in the third quarter of fiscal year 2017 with the company selling 6.3 million pounds at a $1.51 per pound in fiscal year 2017, which was in-line with our expectations.

As we enter the last quarter of fiscal year 2017, we're turning our focus to 2018 and we’ll continue to leverage our strengths to provide customers with the year-round global supply of fresh citrus and avocados. We believe our one world a citrus strategy will enable us to deliver meaningful growth and enhance shareholder value for many years to come.

We believe our additional acreage and ability to leverage our new packing has us well positioned for a very strong fiscal 2018. And with that, I'd like to open up the call to your questions.

Operator?.

Thank you. [Operator Instructions] And we'll go first to Gerry Sweeney of ROTH Capital..

Hi, good afternoon Harold and Joe..

Hi Gerry..

How is it going?.

Good. Thanks. I want to talk a little bit about the packing houses to start off there. I think in the release you said cost for packing were about $5.1 million.

I assume this excludes the cost of third party acquisition lemons? Is that correct?.

Yes. That's correct. Yes, that’s just strictly just operating in the packing house..

I mean so that comes out to something like $5.55 per carton which is another very good step down even from the second quarter. I mean if my math is correct that’s a nice step down. What -- I mean is that - there were less cartons packed obviously in the quarter.

What's driving that additional cost and sometimes by math I figured you could probably get to at least $5 per carton. Just want to get a little - see if you can give a little detail as what's really driving some of those additional step down in cost just for some clarity..

Yes. So, I think the simple way to try to explain it is that we're operating at a much higher level of throughput with a significant reduction of manpower in the new packinghouse.

So simply said, the old packing house produced somewhere on the magnitude of 750,000 cartons an hour, and our new packing house is now running at somewhere between 1,900 and 2,000 cartons an hour, and it’s all now being done with 80% of the manpower that the old packinghouse operated under.

So even with the lower volumes you're still getting that significant efficiency and it's much more efficient than the old packing house. So, combined with even lower volumes, it's producing a significant result.

Where we expect to get even lower cost per carton will be when we get much higher throughputs which you'll begin to see next year based on some of our new acreage coming online but also new outside growers that we’ve recruited that should lead us to raise our estimated volumes for next year which should then again drive greater efficiency and lower our per carton costs even further..

Got it and then actually on the third-party side of the equation, how is that progressing this year? It looks like they may come in under the target of 500,000 additional cartons, and if that’s correct maybe what's driving that?.

Yes, so the calculus of that - the answer to that question involves the following variable. So, the answer is we have in fact recruited over 500,000 cartons of new fruit so that's gone very very well.

There also has been a minimal amount of loss of outside growers for various reasons but that needs to be factored in, and then and I think the biggest contributor to the reduced volume Gerry has to do with a lighter forecasted crop coming out of the desert which is just beginning right now and as you know when we estimate our volumes for the year, we really have no idea what the fourth quarter production in the desert is going to be.

So now here we are, just beginning those harvests and it looks like the desert fruit total volume and yield is going to be off of where we were last year. So those three things are the reason why that the volume is a little off of last time we reported..

But net-net you're very happy on the recruiting process and that’s the remainder?.

Yes. We’re very happy. The returns back to the growers, we think are in line with our expectation. We believe we are very very competitive against our competition and I see no reason next year that we can't achieve our goal or couldn't achieve our goal of recruiting an additional 500,000 cartons from new outside growers..

Got it. Then shifting over the real estate real-quick then I’ll jump back in queue. If my memory serves correct, I think some point later this year or early next year, we should be done maybe with some of the cash outlays because the project will be I guess far enough along where you can get some better financing or construction loan type activity.

Is that a fair assumption?.

Well, when you think about what we've been saying over that we said that during the first two, three years. So, I guess we’re in year two of that two or three.

We expected that there'd be cash outflows somewhere in the neighborhood of I recall $20 million to $30 million, and during that same period of time, we'd also start to put in place financing which we’re actually starting to look at packages now I’m talking to banks.

And then as that -- those two processes are occurring as we've been talking about you know sometime next year and maybe the end of this year or early next year, we start to get some deposits and realize some revenue.

So, all three of those things kind of work together that for at least a little while, we'll continue to invest cash into it for the next say 18 months anyway, and then we'll get to a point where we kind of cross this section of -- we might be investing in one quarter and taking money out in the different quarter as sales start to recover and loan proceeds start to come in.

So, I think as we look out maybe two to three years is the thinking which will keep you updated as we go that it might turn the corner and be more net cash coming back and cash going out that point. But I think we’ve got 18 months to 2 years or so to go and we’ll like we said keep you up to date on that..

Okay. I appreciate that update and congrats on a very next quarter..

Thanks Gerry..

Thanks..

And we’ll next go to Chris Krueger, Lake Street Capital Market..

Hi, good afternoon guys. Nice quarter..

Thanks..

Just a couple quick questions. US’s nightmare hurricane in Florida. I know they grow a lot of oranges there, I’m not sure if they grow lemons in Florida.

But do you anticipate any kind of market impact for any of your products?.

Yes. We were sort of anticipating that question. The only impact that we can see is - I think it’s important to reiterate that our - Limoneira’s primary focus in our business is to produce market and sell fresh citrus. And the majority of Florida's citrus is targeting more processing and processed products such as orange juice and products like that.

So, the real impact would be minimal, where I think there might be an impact though is if you look at the sort of the impact on our stock trading value we've seen some significant upticks recently and some of that might be based on sort of the speculation that there will be a correlation between the decrease in Florida fruit and our fruit.

I think the actual impact will be minimal. So that's sort of where -- from our seat right now that’s what we think is happening..

Okay.

Then on the real estate front, can you give us an update on outside of your partnership can you give us an update on your discussions with big box retailers and other uses for that property?.

Yes. So, our discussions with potential big box tenants or partners if you will, are progressing very nicely. There continues to be a high level of interest and we're very encouraged by that. We have yet to cut a deal but when we do cut a deal, it will be announced immediately.

And recall that we’re unable to actually begin the commercial development until the foundation of the infrastructure is developed and put in consistent with the residential part of harvest. So, the timing is getting closer to not only beginning to work on that infrastructure but then also announcing the deal if you will.

So I believe that’s imminent and I believe that will take place probably within the next 12 to 18 months but we'll continue to report quarter to quarter on our progress..

Alright. That’s all I got. Thanks..

Thanks Chris..

Thank you..

And we’ll next go to Eric Larson, Buckingham Research Group..

Yes, thank you. Good afternoon everyone..

Hi Eric..

Hi Eric..

I wasn’t sure if you could hear me. I had some problems connecting in. So, I might have missed some of the opening comments. So, if some of this is repetitive please excuse me for that.

But one of the positive things also with your packing facility has been that you’ve been able to achieve better realization from the fruits that you do get into the facility.

What was your realization rate this quarter versus maybe even 2Q or year-over-year?.

Yes. So, one of the - that’s a great question by the way. One of the challenges with answering that is that in the district two which is the coastal lemon fruit that we manage, that pool is open all year and so we really don't know what the actual utilization is and so day to day we have an idea but until we actually close the pools, we're not sure.

So it feels better and it feels higher and I know we're getting better response rates from our customers and our deliveries have been excellent and the quality has been excellent. But I hesitate to give you a hard and fast answer, because it would be pure speculation.

We do believe we’re operating sort of pretty close to the 80% utilization rate right now..

I'm sorry repeat that 80% percent utilization?.

That's what it feels like, but we won't know as I was just saying until we close the yearly pools..

Okay. Okay, that makes sense.

And then I’m assuming that the reason for taking the top end of your guidance down for lemon cartons for the year is because of maybe some volume shortfall in the desert, is that the reason?.

Yes, that’s the reason. It looks like it's a much shorter crop. Potentially 20% less fruit this year than last year. So that is the primary reason. It looks like we’re right on the number and right on our goals of being able to recruit new outside grower fruit. So that’s going very well.

The district two which is the coastal fruit which is just ending was right in line with our expectations. So, the volume reduction is the result of a shorter desert crop. That being said, we also anticipate that the impact of higher pricing is still very probably.

So, the overall economics of a shorter crop won’t necessarily hurt us, but it will just impact the volume. We believe the overall fundamentals of the economics remain intact..

Okay, that's great. And Harold, as I came in right when you were talking about your planted acreage in last year. The new acreage that’s going to be the planted acreage that will be coming up over the next three or four years.

You may have given this can you give us the cadence of how those cases will come in? When did those orchids become fruit bearing?.

Another great question. I’m going to show - I’m going to try to answer this, but I don’t have the actual proformas in front of me. Joe correct me if I am wrong, so 2018 will be modest growth. Actually… Joe do you have the schedule. Go ahead..

Yes, based on the schedule, we have an update in a little while that should be directionally accurate. 2018 should see a significant amount of that to come online somewhere in 600 acres or so of the 15 and then 2019 a little less, 2020 should be another good amount coming on and 21.

So 2018 will see like I said around 600 and in 19 it will be a little less and it will move on from there and then of course as we mentioned there is about 500 that's just now being planted. And if you think about that additional 500 there four years out, five years out from when we plant those before they become commercially viable..

And we’ll, Eric we’ll give more granular outlook for 2018 when we report the fourth quarter..

Okay. Yes, I was just going to say that I’m sure 18, that will go in your 18 guidance and that will come after you report the fourth quarter.

The next question is obviously we've had record avocado pricing, I think just by the ergonomics or just by the - how the trees work, this year would be a short - fiscal 17 had a shorter volume production year then what we might see next year.

Is that a fair way to describe it?.

Yes, that’s exactly a fair way to describe it and if it hadn’t been for a pretty severe heat event last week, I would have been very very bullish on the total volume. Somewhere sort of in the neighborhood of 10 million pounds, potentially more million-pound range.

We had very very high temperatures for sustained periods last week and there has been some impact on some of our eastern properties in terms of the toll it took on fruits. So, we are waiting for the field guys to get back to us. But all that being said, it's our expectation that next year will be a much higher volume year than 2017.

At this point we just, the thing that remains opaque given the interaction that the California fruit plays with Mexico, Peru, and Chilean fruit determine the price is still going to be somewhat nebulous and again we’ll give much more granular thoughts and guidance to that after the fourth quarter and when we next report..

And remember Eric, as Harold said the weather we had some heat, but also remember that we won’t start to harvest the avocado crop until March. So, there is a lot that can happen good and bad, have great weather, we cannot have great weather.

So, it's a ways way so we have to be a little bit careful on thinking what the avocado crop’s going to be like next year but your general comment about and an expectation of next year being larger is correct, we’ll just have to see how this most recent heat and other factors might play out..

Okay. Okay, good. And then just one last question for Joe.

Did you get any benefit in your interest rate - credit facility?.

No, it’s basically the same relative interest rate. At least the way it’s set up, there is a couple things that one of the main reasons, we did that was pushing that out to 2022, where other line of credit was going to expire in 2018.

So, needed to do that on that basis, one thing to know about the Farm credit facility is it does offer a rebate, it doesn’t - it’s not a guaranteed rebate, but they generally are expected to pay half to 0.75%, so we might see a little bit of a net decrease as that starts to play on our favor and that usually comes in around February I believe of each year.

So, there is potential for a little less decrease in the rate, but the basic terms are pretty similar..

Perfect. Thank you, Joe. Thanks everybody. We’ll talk later..

Thanks, Eric..

And we’ll go to Steven Martin, Slater..

Hi guys and congratulations on a great quarter..

Hi Steve. Thank you..

A couple of question follow-ups to the last answers. You talked about 600 acres being fruit bearing in 18.

How do you in your mind convert acres to cartons?.

So different regions have different expectations and then you layer on top of that sort of the maturity of the trees in those different areas so it's a great question and it's difficult to give you a linear answer. But let me go from the districts at full bearing and work back to what might help you if you are starting to think about it.

So, the desert sort of has a -- we have targets around 650,000 cartons of production per acre. The San Joaquin Valley, we think that is somewhere more around 1,000 cartons per acre at full bearing status and then working back down to district two somewhere around 750,000 cartons an acre is kind of a accrued average that we might use..

750?.

750, yes. So then to layer on to that thinking some more complexity so lemon trees begin to bear fruit in their third year and reach full production by their seventh year. So, when you put all that together Joe's comment about bringing 600 acres in and we’ll try to do a more thorough granular report when we talk in after the fourth quarter.

But the critical questions would be where are those 600 new acres and what year of maturation are those trees. And we'll try to make it, we’ll try to simplify that to give us a better idea of where that fruit is coming from and from a seasonality standpoint because all of those things play into the overall economics of our lemon business..

So, Steve one other thing on that, we said that the 1,500 acres and the other 500 that's planned would produce between 900,000 and 1.3 million. So, if you take 1,500 acres times 650 cartons per acre that’s 975,000 cartons. So somewhere in that 600, 650, 700 as Harold was saying depending on various factors where it is, how mature it is.

But I think we actually used 600 cartons per acre times 1,500 acre gave us that 900,000 that we talked about in the call..

Yes..

Right. So, you're taking from a conservatism standpoint, you gave me 650, 1000 and 750 and you're using 600 to give yourself some cushion..

That in the first few years we won’t see the higher end they are younger tree. But that’s right, we are trying to be conservative Steve..

The Suntreat announcement, can you elaborate on what that working relationship is and how the company sees benefits, economic and otherwise?.

Yes. So, the main opportunity that we see to be competitive against our primary competition, who typically are much larger and offer a full market basket of citrus offerings limes, oranges, specialty citrus, easy peel clementine's, mandarin the whole spectrum of citrus.

The benefits that we’ll receive by working with Suntreat is that they'll have full visibility into our lemon inventories and we’ll have full visibility into their orange inventories. They will put up a Leman Arab box of oranges for us if our customers need it. We will put up a Suntreat treat box of lemons if their customers need it.

But the other simple way to think about it is roughly 70% of Limoneira’s customer base for its lemon business are food service buyers with the balance of 30% being retail buyers and Suntreat’s orange customers are just the opposite. 70% of their customer base are retail buyers and 30% food service buyers.

So, by partnering with them with the full inventory of both of our products being visible to our sales force and to their sales force it allows us to leverage their oranges to sell our lemons into retail and for them to leverage our lemons to sell their oranges into food service.

And we expect that so long as it's managed properly and that that that the trick here is making sure that we don't call on the same customers to compete against each other but we actually through communication are able to divide and conquer.

We should be able to create through this alliance an extremely competitive value proposition against our competitors..

So, from an -- I understand the operational side.

How do you see that benefiting us on a monetary side?.

When you go to Kroger, if you don't take the oranges you can't get your lemons in there.

So, if you - that’s just an example and so monetarily it allows us to open up new customers and allow just to get better business because there are times when having the lemons actually increases the value of the oranges and vice versa given different customers at different times.

So, I know my answer and my description was more operational in nature. However, more and more of our business is done with customers that demand the full market basket of citrus offerings and just being sort of a one trick pony and only offering lemons, sort of puts us somewhat to some customers at a competitive disadvantage.

So, as we continue to grow our lemon business, having the complement of their oranges should significantly help us increase our customer base..

Okay. Now did you have packing operations that they don't have. Like do they have a lemon packing plant and an orange packing plant? So that….

No, they just have an orange packing plant. So basically, they operate their orange packing plant, we operate our lemon packing plant and the two then complement each other.

But the other piece to the Suntreat deal that we think potentially is very valuable is they have very very strong export relationships with their orange business, we have very very strong customer relationships with our lemon business and so it gives us a much better opportunity we believe to get more of our oranges into the export markets where we can realize significantly more value than if we’re competing in a more crowded just domestic market situation..

Okay. Let me ask one other question. How does the -- you talked about the Chile acreage in sort of descriptive terms and not numerical terms.

I presume the discussion we just had on lemon acreage and cartons excluded Chile and how does Chile then enter into that equation?.

It does exclude Chile and Chile is pretty small right now. It was 200 acres, 210 and as we’ve said they are pretty young. We don’t talk a lot about financial impact, yet as those acres become more productive. We foresee that having a bigger impact on our operations, but it was essentially kind of break-even so far.

Their season is a little different than ours. It allows us to have another source to complete the year-round supply especially as they do start to become more mature and more productive. But currently that - so I'm making a huge impact so that's why we didn’t get into the numbers on it.

But maybe just a follow-up comment Steve is we will begin to include that incorporate into our totals into the future especially as it relates to total cartons and then the economics and the value of our own acreage down [indiscernible] as you recall, we own 48% also of a packing house we have the packing operations which provide economic benefit but eventually we’ll be at, is it 300 acres on Pan de Azucar?.

Yes, there is roughly 300 more acres that will be planted..

Okay. So, think to just mention going back to your prior question Steve, we actually have blocks in that Pan de Azucar property that are producing over 2,000 fresh cartons an acre.

So, their productivity is significantly greater than anything we have in California so I do believe that even though it's not that much acreage it does have the ability through its productivity to actually be relevant and should move the total needle of total cartons that we’ll produce in the future as though those trees mature..

Okay. Thanks very much..

Thank you..

Thank you..

And that concludes today’s Question-and-Answer session. Mr. Edwards, I’ll turn things back over to you for any additional closing remarks..

Great. Thank you for your questions and interest in Limoneira. We look forward to updating you again in January on our fourth quarter call. Thank you again and have a great day..

And that does conclude today’s conference call. We thank you all for joining us..