Good day, and welcome to Limoneira First Quarter Fiscal 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to John Mills of ICR. Please go ahead..

Good afternoon, everyone, and thanks for joining us for Limoneira's First Quarter Fiscal Year 2019 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 first quarter fiscal year 2019 earnings release, which went out today at approximately 4 p.m. Eastern Time. If you've not had a chance to view the release, it's available on the Investor Relations portion of the company's website at limoneira.com.

This call is being webcast, and a replay will be available on Limoneira's website as well. Before we begin, we'd like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions.

Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control and could cause its future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors that could cause or contribute to such differences include risks detailed in the company's 10-Ks and 10-Qs 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. Please note that during today's call, we'll be discussing non-GAAP financial measures, including results on an adjusted basis.

We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira's ongoing results of operations, particularly when comparing underlying results from period-to-period. We've provided as much detail as possible on any items that are discussed on an adjusted basis.

Also, within the company's earnings release and in today's prepared remarks, we include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of EBITDA to the most directly comparable GAAP financial measures is included in the company's 10-K and press release, which has been posted to its website.

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

Thanks John, and good afternoon, everyone. On today's call I'll begin with the brief review of our first quarter of 209 results and provide an update on our progress across all of our business areas. Mark will then review the financial results at more detail and I'll finish with our updated outlook for fiscal year 2019.

After that we will open up the call and take your questions. In the first quarter, revenue increased 33% to $42 million with agribusiness revenues increasing 35% to $40.8 million, primarily due to higher volumes in lemon partially offset by pricing pressure with lemons and oranges.

There was a drop in fresh lemon pricing in the quarter as a result of demand slowdowns from bad weather throughout the United States which temporarily slowed traffic in restaurants and grocery stores, as well as pressure on price from an abundant supply of imported fruit from Turkey and Spain.

As we enter the second quarter, we are continuing to see pricing pressure but expected to improve as we enter the second half of fiscal year 2019. Shifting to our business segments starting with our Agribusiness. Over the past number of years, we've made significant investments that are driving our annual top and bottom line growth.

We've expanded our customer base to over 200 customers and increased distribution by leveraging our domestic and international marketing and sales channels. We are focused on trade marketing and consumer facing strategies, as well as increasing our packing capacity.

In addition, we've dramatically reduced seasonality for our customers by sourcing citrus from different global locations giving us 365 days of fresh lemons.

As part of our One World of Citrus initiative, we announced last month that we had entered into an agreement with FGF Trapani, or FGF, a multi-generational family-owned citrus operation in Argentina. FGF owns over 3,200 acres of lemons and oranges throughout Argentina.

As part of the agreement, Limoneira will create a subsidiary in Argentina under the name Limoneira Argentina SAU, Limoneira Argentina and will acquire upfront 25% of the parcels of Finca, Santa Clara which is approximately 1,200 acres of planted lemons with an additional 25% to be acquired over a three-year period.

Limoneira Argentina and FGF's agreement will operate under this name Trapani Fresh with Limoneira Argentina as the managing partner responsible for all fresh fruit sales holding a 51% interest and FGF holding a 49% interest.

We expect this agreement to close by the end of our fiscal second quarter and be slightly accretive for fiscal year 2019 as we complete the integration this year. We expect more accretion from this acquisition in fiscal year 2020 as we benefit from a full year of results and benefit from the integration.

We're very excited about this opportunity as well as the expected $0.15 a share contribution this year from our two additional acquisitions completed in fiscal year 2018. They are performing as expected and will be important contributors to our results during the second and third quarters this year.

Our increased packing capacity is due in part to our new packing house in Santa Paula which has doubled our annual capacity and increase the operating efficiency of our lemon packing operations and also the acquisition we made last year of the packing house and related assets of Oxnard Lemon which brings us added packing capacity to efficiently handle our growing carton volume.

This quarter, our lemon packing cost came in higher than last year with the addition of our newly acquired Oxnard Lemon facility. It's important to note that our larger Santa Paula facility packing cost came in lower than expected and will continue to gain efficiencies as our lemon carton throughput increases.

Last year, we established an objective to recruit 500,000 cartons from new outside lemon growers. And we have secured over 700,000 cartons to date with another 500,000 fresh cartons expected by 2020.

And as of today, we have over 8,500 planted agricultural assets of which approximately 1,200 acres are currently non bearing lemon and are estimated to become full bearing over the next four years. Beginning in 2020, we expect 300 acres to be full bearing and the total of an additional 1,200 acres to be full bearing by beyond 2023.

Beyond these 1,200 acres, we expect to plant an additional 500 acres of lemons in the next two years and believe this additional acreage will increase our global lemon supply from our current level of 900,000 cartons by approximately 30% or to 1.3 million additional fresh cartons as the non-barring and planned acreage become productive.

In addition, we expect to have a steady increase in third-party grower fruit. 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 very well.

Phase one site improvements have been substantially completed and the joint ventures received lot deposits from Lennar and KB Home in fiscal year 2018.

In February and March of this year, the joint venture closed on lot sales with KB Home representing approximately 55 residential units and with Lennar for lot sales representing approximately 119 residential units.

At the end of February, Lennar and KB Home broke ground at Harvest at Limoneira and homes are expected to become available by late spring of the year. Longer-term, we expect approximately $100 million in cash flow from the Harvest at Limoneira project over the next six to nine years.

In summary, while the pricing pressure we experienced in the first quarter is expected to continue into the second quarter, we are very excited by our increased volumes and the recent expansion into Argentina. Ongoing progression at Harvest at Limoneira and successful integration and stronger attention from the Oxnard Lemon acquisition.

We are committed to our goal of becoming the leader in high-quality fresh citrus and capitalizing on our strong platform. And with that I'll turn the call over to Mark..

Thank you Harold, and good afternoon, everyone. I will now discuss in greater detail the financial results for the first quarter ended January 31, 2019.

But first I'd like to reiterate for those new to our story that due to the seasonal nature of our business, revenue is driven by varying harvest periods from year-to-year and therefore we believe it is prudent to view our business on an annual not a quarterly basis.

For the first quarter of fiscal year 2019, total net revenue was $42 million compared to total net revenue of $31.6 million in the first quarter of the previous fiscal year. Agribusiness revenue increased to $40.8 million compared to $30.3 million in the first quarter last year primarily due to stronger lemon sales.

Rental operation revenue for the first quarter of fiscal year 2019 was $1.2 million compared to $1.3 million in the first quarter of the previous fiscal year.

There were no real estate development revenues in the first quarter of fiscal year 2019 or 2018 but we do expect to receive approximately $2 million in net equity earnings from Harvest at Limoneira during our second quarter due to the benefit from the recent lot closings.

Agribusiness revenue for the first quarter of fiscal year 2019 includes $38.6 million in lemon sales compared to $27.8 million of lemon sales during the same period of fiscal year 2018 with the increase primarily the result of higher volume, partially offset by lower prices of lemons.

As Harold said, the lower pricing was due to a combination of cold weather affecting dining habits in certain areas of the United States and a higher volume of foreign fruit entering the market for the first quarter.

Approximately 1,272,000 cartons of fresh lemons were sold during the first quarter of fiscal year 2019 at an average of $24.30 per carton compared to approximately 912,000 cartons sold at an average $26.32 per carton during the first quarter of fiscal year 2018.

As a reminder, the fourth quarter of 2018 was impacted from persistent rains from hurricanes and as such the harvest was delayed by two weeks causing, 120,000 cartons of lemons to slip from the fourth quarter into the first quarter of 2019.

As anticipated, we recognize minimal avocado revenue in the first quarter of fiscal year 2019 similar to the same period last year. As stated last quarter, we expect minimal contribution this fiscal year from avocados but expect to be fully back to our normal production capacity in fiscal year 2020.

The company recognized $900,000 of orange revenue in the first quarter of fiscal year 2019 compared to $1.3 million in the same period of fiscal year 2018, primarily attributable to lower prices of oranges sold, partially offset by higher volume compared to the same period in fiscal year 2018.

Specialty citrus and other crop revenue was $1.3 million in the first quarter of fiscal year 2019 compared to $1.2 million in the first quarter of fiscal year 2018. Total costs and expenses for the first quarter of fiscal year 2019 were $45 million compared to $33.3 million in the first quarter of last fiscal year.

The increase in operating expenses was primarily attributable to increases in agribusiness and SG&A costs. Cost associated with agribusiness includes packing costs, harvest costs, growing costs and costs related to fruit procured and sold for third party growers and depreciation expense.

We packed 300,000 additional cartons this quarter compared to last year and the vast majority of the cartons were from third-party grower which has a lower margin compared to our own fruit. Operating loss for the first quarter of fiscal year 2019 was $3 million compared to a loss of $1.7 million in the first quarter of the previous fiscal year.

Other expenses comprised primarily of $3.9 million of mark-to-market unrealized loss on marketable securities. Also interest is capitalized on real estate development projects and significant construction in progress using weighted average interest rate during the fiscal year. We capitalized $2.4 million of interest in fiscal year 2018.

It is important to note that most interest capitalization on real estate development projects is now discontinued beginning in February or the first month of our second quarter because under the equity method of accounting used for the Limoneira Lewis joint venture interest capitalization ceased upon the commencement of lot sales in February.

This will have an approximate $400,000 effect per quarter on interest expense or approximately $0.05 per share fiscal year 2019 impact which is already included in our guidance.

Net loss applicable to common stock after preferred dividends and including the $3.9 million mark-to-market non-cash impact of Calavo shares, for the first quarter of fiscal year 2019 was $4.8 million and compares to a net income of $8.5 million in the first quarter of fiscal year 2018, which includes a non-cash benefit of $10 million from the Tax Cuts and Jobs Act of 2017.

Excluding the non-cash $3.9 million impact from Calavo shares, adjusted net loss applicable to common stock was $2 million for the first quarter of fiscal year 2019 compared to $1.3 million for the same period last year, excluding the aforementioned non-cash tax benefit.

As a reminder, due to the new accounting rules we must mark-to-market our share holdings of Calavo Growers now on a quarterly basis.

Net loss per diluted share for the first quarter of fiscal year 2019 was $0.28 compared to net income for diluted share of $0.58 for the same period of 2018 based on weighted average diluted common shares outstanding of approximately 17.5 million shares and 15 million shares respectively.

Excluding the mark-to-market and the non-cash benefit from the $10 million from the Tax Cuts and Jobs Act in fiscal 2018, adjusted net loss per diluted share for the first quarter of fiscal year 2019 was $0.11 compared to adjusted net loss per diluted share of $0.09 for the same period of fiscal year 2018.

We expect to achieve approximately 30% increase in adjusted earnings for fiscal year 2019 compared to fiscal year 2018 and this is why we are consistent saying the best way to view our results is on an annual basis.

Adjusted EBITDA was a loss of $600,000 in the first quarter of fiscal year 2019 compared to income of $200,000 in the same period of fiscal year 2018. Adjusted EBITDA excludes the quarterly mark-to-market non-cash effect of Calavo shares. Before I hand the call back over to Harold a few comments on our balance sheet.

Our long-term debt as of January 31, 2019 was $94 million compared to $77 million at the end of fiscal year 2018. Now I'd like to turn the call back to Harold to discuss our fiscal year 2019 outlook..

Thank you, Mark. We expect our agribusiness to continue to benefit from the more efficient infrastructure we have in place, as we are able to build revenues through expansion of our in-house citrus orchards, as well as growth in third-party volumes that we pack and market and additional future strategic acquisitions.

We remain excited about the long-term growth trajectory of the business and will continue to work to deliver value for our shareholders. Turning to our fiscal year 2019 guidance. Due to our recent acquisitions and expansion of our global lemon supply, we will be providing more detail on our expected annual lemon production going forward.

For fiscal 2019 Limoneira including our international affiliates expects to sell 8.4 million to 9 million cartons of fresh lemons globally.

This includes 5.2 million to 5.5 million cartons of fresh domestic lemons at an average price of $26 compared to our previous guidance of 5 million to 5.3 million cartons at an average price of approximately $27 per carton.

The expected decrease in average prices due to the colder weather in the quarter mixed with the increased supply of foreign fruit putting downward pressure on our full year average price. We expect this pricing pressure to continue into the second quarter and to improve in the back half of fiscal year 2019.

We continue to expect to sell approximately 1.7 million pounds to 2 million pounds of avocados at approximately $1.20 a pound which is an off year due to the heat we experienced last year.

Offsetting this temporary event, we will benefit from crop insurance for approximately $2.5 million that will be calculated on actual avocado harvest in fiscal year 2019. We expect to receive the crop insurance payment in the fourth quarter of this year. We expect strong production next year.

We are reiterating our previous fiscal year 2019 operating income adjusted EBITDA and adjusted earnings per share guidance. We expect operating income for fiscal year 2019 to be approximately $20 million to $23 million compared to an operating income of $9.5 million for fiscal year 2018.

Fiscal year 2019 adjusted EBITDA is expected to be in the range of $28 million to $32 million.

Fiscal year 2019 adjusted earnings per diluted share guidance is expected to be between $0.75 to $0.85 per share based on an estimated 18.4 million diluted shares outstanding which does not include any potential equity earnings benefit from the Harvest at Limoneira project which we expect to be an approximate $2 million benefit in the second quarter.

While we do expect our strategic joint venture in Argentina to be slightly accretive in fiscal year 2019 due to the timing of closing of the acquisition, we are keeping our earnings per share guidance unchanged as the lower lemon pricing in the first quarter offsets a portion of the expected accretion from the joint venture.

Adjusted earnings per share for fiscal year 2019 exclude the impact of potential mark-to-market changes in the value of our 250,000 shares of Calavo Growers common stock and do not include expected equity earnings from our real estate development project Harvest at Limoneira.

Overall, we're very excited about how our company is well positioned for long-term profitable growth in all areas of our business. And with that I'd like to open the call up to your questions.

Operator?.

[Operator Instructions] We'll now take our first question from Vincent Anderson of Stifel. Please go ahead..

Yes, thank you. Good afternoon, gentlemen.

Are you seeing any significant effects from the heavy rainfall in California yet? Or is it just too early to anticipate any impact on production right now?.

No. Two primary impacts, one is it creates a real challenge to our supply chain getting harvest crews in there to harvest. It's tough to get into the end of the farms but it's also muddy and that makes it difficult to harvest. But the other impact that we're dealing with specifically right now is rain makes lemons grow quickly.

And we are seeing a buildup in larger sizes which is also partly responsible for some of the softness in the pricing that we're experiencing out there because you have real buildup of large sizes right now.

Now the other side of that it's actually creating great opportunities to increase pricing on the smaller sizes, but our large sizes there's just a lot of fruit out there and that's creating a tougher market conditions for us..

Okay.

So would that potential impact already be in your volume guidance for the year?.

Yes, it's all factored in there..

Okay. So I wanted to turn to Australia really quick.

Do you have enough export optionality right now to make the most of that short market? And if you can remind us of the seasonality in their supply demand imbalance with regards to how long you expect that opportunity window to be open, that'd be great?.

Speaking specifically about the Australian market, Vincent?.

Yes. .

Yes. So that market is pretty much open for about nine weeks towards the end of August and all the way through the months of September into early October. And as we look at our various productions in various areas that can reach the Australian market, we anticipate having ample fruit to be able to serve that market.

So we do look forward to hitting it hard next year..

Great, thank you. And I'll add one more here. With regards to these inflows of I believe it's Turkish and Spanish lemons.

Do you see that as more return to normal coming off of their poor production years? Is it just a timing issue with their harvest being earlier or is this a really a new development in the US import market?.

No. It's definitely not a new development. This is sort of normal --the normal impact. So I think your first comment is probably accurate, which is this is a return to normalcy as we see normal supplies hit the East Coast markets. That fruit has a pretty limited shelf life as we're getting towards the end of their seasons.

So the quality and the grades start to deteriorate pretty quickly, which creates a great opportunity for California fruit to get back into those markets. And so we're winding up in the tail end of that supply situation. But I characterize that as being more normal than abnormal..

We will now take our next question from [Tim Perse] of Stephens Inc. Please go ahead..

Hey, guys. Good afternoon.

Can you talk about the driver of your higher lemon volume guidance for the domestic market? And how are third party volumes progressing, the recruitment of those volumes?.

Sure. So we're seeing great opportunities to grow our market share domestically, as well as globally. The export market opportunity just like the Australian example that we just talked about with Vincent are creating a great sort of balance between the demand for fruit and the supply for fruit.

As it relates to Limoneira's ability to attract new outside growers, as well as to retain captive growers who are part of the Oxnard Lemon organization. I think we're doing pretty well. We can --we challenge ourselves to recruit 500,000 new cartons from growers that we worked on recruiting last year.

And it looks like when the dust settled we actually were able to attract another 700,000 cartons. So we over performed in that area.

And as it relates to retaining the many growers that were part of the Oxnard Lemon organization directionally we are in the 70% to 80% of grower retention we believe on an actual number of grower basis, but from an actual volume perspective somewhere closer to 80% of the volume has been retained.

So we're --we are looking forward to seeing a lot of that benefit flowing through in the second and the third quarters for us. That was very seasonally focused fruit late spring, early summer type of fruit that you'll see really begin to increase not only the revenues but volume that will drive those revenues in the second and third quarters..

And Tim it's Mark, if I might add. The increased in the carton guidance from 5 million to 5.3 million to now 5.2 million to 5.5 million cartons is primarily we're starting to see a bit more of the summer fruit when we first come out with estimates that fruits pretty small, it's pretty hidden inside the trees.

And there's a little bit more of that than we had anticipated. So that partially offset by the lower price was part of that guidance shift..

Okay, that's great. Can you elaborate on how the Argentine acquisition exactly fits into the companies One World of Citrus initiative? From what I remember Argentina serves is a good source of fruit for the East Coast where Limoneira is currently under indexed.

And what exactly is the window that the fruit would be shipped into the US from Argentina?.

So Argentina is one of the biggest producers of lemons in the world but with that said its focus is more on the industrial juice and oil and products markets for that and much lower utilization going towards fresh lemons.

So our focus is fresh lemons and we believe that with our recent acquisitions of FGF Trapani and Trapani Fresh that will move approximately 1.5 to 1.75 million fresh cartons from Argentina. The interesting part of that movement is only about 200,000 to 250,000 cartons we believe will find their way into the United States.

The balance will go to Southeast Asia and Central and Eastern Europe. So as it relates to our One world of Citrus strategy, it's a vital component to complete the supply chains in both Southeast Asia and in Central and Eastern Europe. And as we continue to grow I think Argentina will play a very, very valuable role in those markets.

But also as you know since the US market is now open to Argentine fruit to take advantage on a smaller basis of that opportunity to bring some of that fruit. And again our estimates are between 200,000 and 250,000 cartons in 2019 of that Argentine fruit to find its way up into the United States and Canada..

Our next question from Eric Larson of Buckingham Research Group. Please go ahead..

All right, yes, thanks everybody, good afternoon. A whole bunch of moving pieces in the quarter. Can you -- you had a big increase in fruit in the quarter. Can you qualify how much -- you had a shortfall in production in Q4 from pneuma, which I believe was going to push into Q1 in volumes.

And then you had acquisitions year-over-year that weren't in last year. So can you kind of give us from point A to point B, what was kind of may be base volume growth versus what came maybe from the Yuma issue? And then acquisitions..

We'll try our best on that. That's a great question but we think it was 100,000 to 120,000 cartons that shifted from Q4 into Q1 that was the Yuma situation. The total year-on-year volume difference in the first quarter was 300,000.

So as it relates to how much of the balance so what is that's 280,000 cartons, no sorry 180,000 cartons and it's a minimal comes from the acquisitions. Most of it comes, Eric, from new recruited outside growers.

And one of the reasons that there's the big disparity in the cost quarter-to-quarter is because the way that we account for outside growers is when they bring us their fruit, we provide --we perform our packing, marketing selling services for a fee.

And then we subtract our costs and that's our margins, but the balance then is returned back to that grower in a grower return. And grower return actually shows up on our P&L as cost but actually it's not. Cost it's just us giving the grower their money back for us providing those services and letting them use their lemons.

And so that's somewhat distorts the disparity in the cost structure. But I think when we looked at it earlier today of the call it $10 million in cost difference quarter-to-quarter; half of it was because it was just a grower returned. And then the balance was because we moved 300,000 more cartons of fruit..

I'm just writing that down. Okay, so now that you've got a whole bunch of more third party fruit, right? Are you finding any differences in your realization rates i.e. are you getting -- because you don't grow the fruit yourself, so you may have different growing practices, you may -- different husbandry, how you raise the lemons.

So are you getting as good as a realization less better in that third party fruit, does more out of it have to be juiced? How would you describe what that additional 700,000 cases is going to look like?.

Yes. I think we're all in pretty even footing. The quality's excellent. All of these growers are global GAAP certified. There --it's excellent quality. Every bit as good as ours. So it all blends together nicely to provide a homogeneous product offering across the eight different sizes in three different grades.

So we haven't really noticed any sort of material differences in grade, in our average grade or our average sizing. So it's I would say it's all been pretty complimentary. And where we are really getting some exciting results is in by having now all this increased throughput of volume in our new packing house in Santa Paula.

It's really starting to spread out our margins like we'd hoped. The thing that's masking it a little bit is by bringing the Oxnard packing cost on top of the efficiencies we're gaining in Santa Paula that moved us back a little bit just because it's a little older, less efficient packing house.

But net-net, we're kind of at or above our projections of where we wanted to be on packing margin right now..

Okay. So then the final question on guidance, I'm going to kind of come back -- just to kind of get what you impact to your Q2, Q3, which are your biggest impacts Q4 is obviously so more similar to Q1.

But when you go from what was traditionally kind of a 3 million to 3 million -- I don't know if you want to use 3.3 million or 3.5 million kind of carton cadence every year that you sold, you're now at 5.2 million to 5.5 million. I'm assuming that a good 700,000-plus of that difference is third-party fruit.

Is the rest acquisitions? Can you help get us from Point A to Point B on just your guidance number from where you were traditionally before acquisitions and third-party providers?.

Okay. I'll try it --we'll try our best there. So we're going to go from last year we did 3.3 million cartons and we guided to 5.3 million cartons of which of the 5.3 million, how much is ours-- almost 2 million would be ours and 3.3 million would be outside growers' fruit.

And then and the primarily the increase we're seeing it's across the board in district two. So the coastal fruit here we think has a bit more summertime fruit than we saw. So call it A if we were point 5.2 million to 5.5 million now that additional 300,000 carton potential would be 40% and 60% outside growers..

We will now take our next question from Christ Krueger of Lake Street Capital Markets. Please go ahead..

Good afternoon, guys. Most of my questions been answered but in general the two acquisitions you made in the second half of fiscal 2018.

I mean you say they're fully integrated or is there more work to do on that?.

So San Pablo fully integrated and we really got some great results from that ranch in the fourth quarter that really was very helpful. And then Oxnard Lemon fully integrated. You'll see the big benefit of that volume and the impact of that acquisition in the second but primarily in the third quarter this year.

And so as our volume ramps much of that volume that's ramping it's pushing later than we originally thought. So it's pushing out of Q and kind of pushing into Q3. So I would say Q3 is going to be much bigger than we thought and Q2 is going to be much smaller than we thought.

But net-net we're going to wind up right in the same place somewhere between to $0.75 to $0.85 we believe..

All right. And then just one other question.

Do you see any opportunities to get bigger in oranges or is a focus primarily on lemons right now?.

We do --we had a great --we have a great relationship and partnership with Suntreat that helps us market and sell our production. And they just did a bang-up job in 2018. 2019 off to a more challenging start. It's a bigger crop but the weather up in the San Joaquin Valley really hampered abilities to get fruit off the trees early.

We're further behind in our harvesting right now. There were also some issues getting some of that fruit to the export markets, however, things are beginning to pick up right now. So it's a little too early to guide up or down on oranges.

We're cautiously optimistic but we're getting a late start in oranges and maybe just to go specifically back to your question. We find that oranges are much more fragmented and you're seeing per capita consumption of oranges on the decline on a global basis at least -- sorry on a domestic basis.

Globally as economies are developing you're starting to see more consumption in other parts of the world. But net-net, it's we believe it's going to be tougher for us to add value in oranges to the extent that we're able to add value in lemons..

We will now take our next question from Vincent Anderson of Stifel. Please go ahead..

Yes. Thanks for letting me sneak one more in here. I was just wondering if you have any developments on any new supply agreements or potential new supply agreements that you could win over as a result of your Oxnard pack house acquisition..

So we estimated that in the Oxnard family of grow --outside growers there were approximately 200 growers of various sizes, varying in various sizes and we believe we've retained somewhere between 80% on a pure grower basis and maybe 80 percent-ish in terms of the total volume.

I would say that what's really helping us is there are all kinds of reasons that that growers would either stay or would leave. One reason they might leave is they may have loyalty and respect for our competitor over time. And so as a result, we may lose some there but we may actually pick up some other outside growers.

So on a grower level that's certainly what's happening. I still think we're right on our projections but we're also sort of dancing around with all the other handlers who are in the industry and many of them are kind of watching our results.

And the impact of our integration and I would say that there's a level of interest, but nothing specific to report yet..

Yes, thanks. What I was actually getting at and I apologize for not being clear. I was referring to potential agreements for you to supply large volumes of lemons to competitors' prior customers or --.

Oh I see. Sorry about that. I missed that. Yes, at this but nothing specific to report there other than that our sales team is stepping up to the challenge of literally doubling the volume which they're selling this year. Some of that sales growth is coming with existing customers.

But quite a bit of that growth is coming by turning over rocks and finding new customers and establishing new supply agreements. And so some of those opportunities are exactly as you're suggesting sort of taking customers and business from customers away from our competitors..

We will now take our next question from Sain Godil of Global Alpha. Please go ahead..

Yes. Hi, Hal and Mark. A few questions, one in regards to I think in the Q4 you talked about, Q3 sorry insurance for avocado.

Have we -- is it still the October time frame any clarity on that? Do you know the amount that the insurance companies have committed to?.

So the way that works is we have to go through the actual harvest experience which we believe should be done sort of directionally by the end of July. And at that point we'll know exactly how we were impacted and that's when we submit the claim. And at that point then the insurance company takes, I don't know a month or two.

So we still think that sort of Q4 is you call it October like you said is the time and, Mark, the amount we're anticipating is --.

So we're looking at $2.5 million and it's predicated, it's a little bit of a complicated equation, but it's based on your five year historical average pounds and pricing and you're guaranteed to a 60% amount of crop.

And so essentially what we have it for is it protects you to be a little bit better than breakeven in a year and that and so but we're very confident in that number. And if it's swung at all it would mean that the flipside we would have more production that we thought which we are just sort of equal sort of [Indiscernible] of one another.

So the net-net should be about the same with the pounds per price and the insurance one way or another..

Perfect and moving to the lots discussion. You spoke about 174 lots and their earnings. What's the impact on cash flow? Yes. So what's kind of cash flow --.

Yes. That's a great question. So there's the partnership which is the Lennar and Lewis community builders LLC partnership which for all intents and purposes at this point is a 50:50 partnership.

And then as the partnership recognizes earnings then those earnings then are recorded at the Limoneira level and the Lewis level of which then Limoneira allocates certain amounts of its cost which it's still amortized out over the life of getting the entitlement and developing the project.

So in the beginning we'll use the equity -- well throughout the life the project we will use the equity method of accounting which will show up so that'll be that $2 million to $2.5 million that mark talked about. $2 million that Mark talked about.

In terms of cash flow, all that cash that came into the partnership is being used to pay down the revolving line of credit. So now there's a very low balance on that revolving line of credit. And so that now is being targeting going out again in the next phase of the infrastructure. The actual cash flow back to Limoneira will be very lumpy.

Mark, you want to talk about how that would look with that --.

Yes. So as it's basically for infrastructure improvement. And so as we get, let's say three years in the project we're call it 70% of the infrastructure completed. That accordion out of that loan balance will be lessened net less, which will allow for distribution. So meaningful cash flow we expect in 2021.

We don't have guidance for that, but if you can imagine the project goes to 2025 and we're talking a $100 million of cash flow and we've received $20 million so far. It's going to be pretty lumpy but until we get through the majority of the infrastructure, the cash will stay in the partnership until we keep continuing..

So how much more money would we need to spend on the infrastructure and any clarity on the timing for the next few lots?.

Not at this point. We need to have a better answer for that, but there's no more capital contribution from Limoneira going into the partnership. It's contemplated for the rest of the build-out that $45 million revolving line of credit that the partnership has will provide ample capital to build out the rest of the infrastructure.

I'm not specific though on the total amount of capital required that will be funded by that line of credit at this point..

And could you remind us again and what's the total number of lots in phase one and when will the rest of it be released?.

Yes. So the first phase has 680 lots and so we just sold the first part of the first phase. So you go to part two of Phase one if that makes sense.

And we believe of that infrastructure will begin to be put in place based on --we're still in discussions about how that'll actually go down so I think we want to see some home sales data to see what kind of movement it goes. But we anticipate when what's the pro forma say in terms of the next --.

December would be the next --December of -- which will be our fiscal 2020 but December calendar 2019 should --is the initial plan for the next lot sales which would be equal to the amount that we just put up. So they'll be essentially three phases of the first phase.

And like Harold said that as we get a temperature for the first round of lots and how they're selling and the movement that will allow us either to move forward or back based on the market conditions. End of Q&A.

This concludes today's question-and-answer session. I would like to turn the conference back to Mr. Harold Edwards for any closing remarks..

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

This concludes today's call. Thank you for your participation. And you may now disconnect..