Limoneira CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview Limoneira Company, a Delaware corporation, is the successor to several businesses with operations in California since 1893. We are primarily an agribusiness company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 11,800 acres of land, water resources and other assets to maximize long-term stockholder value. Our current operations consist of fruit production, sales and marketing, rental operations, real estate and capital investment activities. We are one of California’s oldest citrus growers. According to Sunkist Growers, Inc. (“Sunkist”), we are one of the largest growers of lemons in the United States and, according to the California Avocado Commission, one of the largest growers of avocados in the United States. In addition to growing lemons and avocados, we grow oranges and other crops. We have agricultural plantings throughout Ventura, San Luis Obispo and San Bernardino Counties in California, Yuma County in Arizona, La Serena, Chile and Jujuy, Argentina, which collectively consist of approximately 4,600 acres of lemons, 900 acres of avocados, 100 acres of oranges and 300 acres of other crops. We also operate our own packinghouses in Santa Paula, California and Yuma, Arizona, where we process, pack and sell lemons that we grow, as well as lemons grown by others. We have a 47% interest in Rosales S.A. (“Rosales”), a citrus packing, marketing and sales business, a 90% interest in Fruticola Pan de Azucar S.A. (“PDA”), a lemon and orange orchard and a 100% interest in Agricola San Pablo, SpA ("San Pablo"), a lemon and orange orchard, all of which are located near La Serena, Chile. We have a 51% interest in a joint venture, Trapani Fresh Consorcio de Cooperacion ("Trapani Fresh"), a lemon orchard in Argentina. Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own. Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the un-adjudicated Fillmore and Paso Robles Basins (aquifers). We also use ground water from the Cadiz Valley Basin in California's San Bernardino County and surface water in Arizona from the Colorado River through the Yuma Mesa Irrigation and Drainage District (“YMIDD”). We use ground water provided by wells and surface water for our PDA and San Pablo farming operations in Chile and our Trapani Fresh farming operations in Argentina. For more than 100 years, we have been making strategic investments in California agriculture and real estate. We currently have an interest in three real estate development projects in California. These projects include multi-family housing and single-family homes of approximately 900 units in various stages of planning and development. Business Division Summary We have three business divisions: agribusiness, rental operations and real estate development. The agribusiness division is comprised of four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, which includes oranges, specialty citrus and other crops. The agribusiness division includes our core operations of farming, harvesting, lemon packing and lemon sales operations. The rental operations division includes our residential and commercial rentals, leased land operations and organic recycling. The real estate development division includes our investments in real estate development projects. Financial information and discussion of our four reportable segments are contained in the notes to the accompanying consolidated financial statements of this Quarterly Report on Form 10-Q. Agribusiness Summary We market and sell citrus directly to our food service, wholesale and retail customers throughout the United States, Canada, Asia, Australia, Europe and certain other international markets. We sell the majority of our avocados, oranges and specialty citrus to third-party packinghouses. Additionally, we sold our pistachios to a roaster, packager and marketer of nuts, and sell our wine grapes to various wine producers. Historically, our agribusiness division has been seasonal in nature with quarterly revenue fluctuating depending on the timing and variety of crops being harvested. Cultural costs in our agribusiness division tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter, coinciding with the increasing production and revenue. 24 Fluctuations in price are a function of global supply and demand with weather conditions, such as unusually low temperatures, typically having the most dramatic effect on the amount of lemons supplied in any individual growing season. We believe we have a competitive advantage by maintaining our own lemon packing operations, even though a significant portion of the costs related to these operations are fixed. As a result, cost per carton is a function of fruit throughput. While we regularly monitor our costs for redundancies and opportunities for cost reductions, we also supplement the number of lemons we pack in our packinghouse with additional lemons procured from other growers. Because the fresh utilization rate for our lemons, or percentage of lemons we harvest and pack that are sold to the fresh market, is directly related to the quality of lemons we pack and, consequently, the price we receive per 40-pound box, we only pack lemons from other growers if we determine their lemons are of good quality. Our avocado producing business is important to us, yet it faces constraints on growth. We are currently assessing all of our farmland in Ventura County for opportunities to expand our plantings of avocados. While avocado production is cyclical as avocados typically bear fruit on a bi-annual basis, the profitability and cash flow realized from our avocados helps to diversify our fruit production base. In addition to growing lemons and avocados, we grow oranges and other crops typically utilizing land not suitable for growing high quality lemons. We regularly monitor the demand for the fruit we grow in the current marketplace to identify trends. Rental Operations Summary Our rental operations include our residential and commercial rentals, leased land operations and organic recycling. Our residential rental units generate reliable cash flows that we use to partially fund the operating costs of our business and provide affordable housing to many of our employees, including our agribusiness employees. This unique employment benefit helps us maintain a dependable, long-term employee base. In addition, our leased land business provides us with a typically profitable diversification. Revenue from rental operations is generally level throughout the year. Real Estate Development Summary We invest in real estate investment projects and recognize that long-term strategies are required for successful real estate development activities. Our goal is to redeploy real estate earnings and cash flow into the expansion of our agribusiness and other income producing real estate. For real estate development projects and joint ventures, it is not unusual for the timing and amounts of revenues and costs, partner contributions and distributions, project loans, other financing assumptions and project cash flows to be impacted by government approvals, project revenue and cost estimates and assumptions, economic conditions, financing sources and product demand as well as other factors. Such factors could affect our results of operations, cash flows and liquidity. Water and Mineral Rights Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own. We believe we have adequate supplies of water for our agribusiness segments as well as our rental and real estate development activities. Water for our farming operations located in Ventura County, California is sourced from the existing water resources associated with our land, which includes approximately 8,600 acre-feet of adjudicated water rights in the Santa Paula Basin (aquifer) and the un-adjudicated Fillmore Basin (acquifer). We use ground water provided by wells that derive water from the Cadiz Valley Basin at the Cadiz Ranch in San Bernardino County, California. Our Windfall Farms property located in San Luis Obispo County, California obtains water from wells that derive water from the Paso Robles Basin (aquifer). Our Associated farming operations in Yuma, Arizona source water from the Colorado River through the YMIDD, where we have access to approximately 11,700 acre feet of Class 3 Colorado River water rights. We use ground water provided by wells and surface water for our PDA and San Pablo farming operations in La Serena, Chile and our Trapani Fresh farming operations in Argentina. California experienced above average precipitation during the first five months of the 2022 - 2023 rainfall season after experiencing below average precipitation the past three rainfall seasons. The series of nine storms in December 2022 and January 2023 helped to alleviate the drought conditions in California. Currently, the state is free from extreme drought conditions. According to the U.S. Drought Monitor, San Bernardino County was experiencing severe drought conditions and Ventura County was experiencing normal conditions as of February 28, 2023. We continue to assess the impact drought conditions may have on our California orchards. 25 In August 2021, the U.S. Bureau of Reclamation declared a Level 1 Shortage Condition at Lake Mead in the Lower Colorado River Basin for the first time ever, requiring shortage reductions and water savings contributions for states in the southwest. In January 2022, Arizona experienced water releases from Lake Mead reduced by approximately 18% of the state’s annual apportionment. In August 2022, the U.S. Bureau of Reclamation announced Lake Mead to operate in a Tier 2 shortage, which increases water restrictions for states in the southwest. In January 2023, Arizona forfeited approximately 21% of the state's yearly allotment of water from Lake Mead. In response, we entered into a fallowing agreement in fiscal year 2022 and are assessing the impact these additional reductions may have on our Arizona orchards. Recent Developments On October 10, 2022, we entered into a Purchase and Sale Agreement, as amended (the “Agreement”), with PGIM Real Estate Finance, LLC (“PGIM”) to sell 3,537 acres of land and citrus orchards in Tulare County, California (the “Northern Properties”) for a purchase price of approximately $100.4 million. On January 25, 2023, the Board of Directors approved the Agreement, binding us to sell the Northern Properties and the transaction closed on January 31, 2023. We received net cash proceeds of approximately $98.8 million and recorded a gain of approximately $40.0 million. The proceeds were used primarily to pay down debt. On January 31, 2023, we entered into a Farm Management Agreement (the “FMA”) with an affiliate of PGIM to provide farming, management and operations services related to the Northern Properties. The FMA has an initial term expiring March 31, 2024, and thereafter continuing from year to year unless earlier terminated under the terms of the FMA. Further, on January 31, 2023, we entered into a Grower Packing and Marketing Agreement to provide packing, marketing and selling services for lemons harvested on the Northern Properties for a minimum five-year term, subject to certain benchmarking standards. During the three months ended January 31, 2023, the Company made funding contributions of $2.6 million to fully fund and settle the plan obligations of the Limoneira Company Retirement Plan. Lump sum payments were made to a portion of the active and vested terminated participants and annuities were purchased for all remaining participants from an insurance company. There are no remaining benefit obligations or plan assets and the remaining accumulated other comprehensive loss was fully recognized. On November 30, 2022, we sold our Sevilla property and received net proceeds of $2.6 million and recorded an immaterial loss in the first quarter of fiscal year 2023. On December 20, 2022, we declared a cash dividend of $0.075 per common share paid on January 13, 2023, in the aggregate amount of $1.3 million to stockholders of record as of January 3, 2023. COVID-19 Pandemic The COVID-19 pandemic has had an adverse impact on the industries and markets in which we conduct business. In particular, the United States lemon market saw a significant decline in volume, with lemon demand falling since widespread shelter in place orders were issued in March 2020, resulting in a significant market oversupply. The export market for fresh produce also significantly declined due to the COVID-19 pandemic impacts. As of January 31, 2023, the demand within both markets is recovering but has not yet returned to pre-pandemic levels. The decline in demand for the Company's products beginning the second quarter of fiscal year 2020, has negatively impacted our sales and profitability for the last three years. The COVID-19 pandemic may impact our sales and profitability in future periods. The duration of these trends and the magnitude of such impacts are uncertain and therefore cannot be estimated at this time, as they are influenced by a number of factors, many of which are outside management’s control, including, but not limited, to those presented in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended October 31, 2022. Notwithstanding the adverse impacts and subject to unforeseen changes that may arise as the COVID-19 pandemic continues, we currently expect improvement in fiscal year 2023 compared to fiscal year 2022. Given the economic uncertainty as a result of the COVID-19 pandemic over the past three years, we have taken actions to improve our current liquidity position, including strategically selling certain assets, temporarily postponing capital expenditures and substantially reducing discretionary spending. There is continued uncertainty around the breadth and duration of our business disruptions related to the COVID-19 pandemic, as well as its impact on the U.S. economy and the ongoing business operations of our customers. The ongoing impact of the COVID-19 pandemic on our results of operations, financial condition, or liquidity for fiscal year 2023 and beyond cannot be estimated at this time. The following discussions are subject to the future effects of the COVID-19 pandemic on our ongoing business operations. 26 Results of Operations The following table shows the results of operations (in thousands): Three Months Ended January 31, 2023 2022 Net revenues: Agribusiness $ 36,528 $ 38,083 Other operations 1,373 1,191 Total net revenues 37,901 39,274 Costs and expenses: Agribusiness 41,241 41,244 Other operations 1,238 1,074 Gain on disposal of assets, net (39,742) (85) Selling, general and administrative 9,280 6,599 Total costs and expenses 12,017 48,832 Operating income: Agribusiness (4,713) (3,161) Other operations 135 117 Gain on disposal of assets, net 39,742 85 Selling, general and administrative (9,280) (6,599) Operating income (loss) 25,884 (9,558) Other (expense) income: Interest income 8 21 Interest (expense), net of patronage dividends (1,172) 215 Equity in earnings of investments, net 253 51 Other (expense) income, net (2,612) 15 Total other (expense) income (3,523) 302 Income (loss) before income tax (provision) benefit 22,361 (9,256) Income tax (provision) benefit (6,827) 2,650 Net income (loss) 15,534 (6,606) Net loss attributable to noncontrolling interest 97 88 Net income (loss) attributable to Limoneira Company $ 15,631 $ (6,518) Non-GAAP Financial Measures Due to significant depreciable assets associated with the nature of our operations and interest costs associated with our capital structure, management believes that earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA, which excludes stock-based compensation, named executive officer cash severance, pension settlement cost, gain on disposal of assets, net and cash bonus related to the sale of assets are important measures to evaluate our results of operations between periods on a more comparable basis. Adjusted EBITDA in previous periods did not exclude stock-based compensation which has now been excluded as management believes this is a better representation of cash generated by operations and is consistent with peer company reporting. Adjusted EBITDA for prior periods has been restated to conform to the current presentation. Such measurements are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should not be construed as an alternative to reported results determined in accordance with GAAP. The non-GAAP information provided is unique to us and may not be consistent with methodologies used by other companies. 27 EBITDA and adjusted EBITDA are summarized and reconciled to net income (loss) attributable to Limoneira Company which management considers to be the most directly comparable financial measure calculated and presented in accordance with GAAP as follows (in thousands): Three Months Ended January 31, 2023 2022 Net income (loss) attributable to Limoneira Company $ 15,631 $ (6,518) Interest income (8) (21) Interest (expense), net of patronage dividends 1,172 (215) Income tax provision (benefit) 6,827 (2,650) Depreciation and amortization 2,447 2,480 EBITDA $ 26,069 $ (6,924) Stock-based compensation 1,064 997 Named executive officer cash severance — 432 Pension settlement cost 2,741 — Gain on disposal of assets, net (39,742) (85) Cash bonus related to sale of assets 2,000 — Adjusted EBITDA $ (7,868) $ (5,580) Three Months Ended January 31, 2023 Compared to the Three Months Ended January 31, 2022 Revenues Total net revenues for the three months ended January 31, 2023 were $37.9 million, compared to $39.3 million for the three months ended January 31, 2022. The 3% decrease of $1.4 million was primarily the result of decreased lemon and avocado agribusiness revenues, as detailed below ($ in thousands): Agribusiness Revenues for the Three Months Ended January 31, 2023 2022 Change Lemons $ 34,129 $ 35,568 $ (1,439) (4)% Avocados — 766 (766) (100)% Oranges 1,152 873 279 32% Specialty citrus and other crops 1,247 876 371 42% Agribusiness revenues $ 36,528 $ 38,083 $ (1,555) (4)% • Lemons: The decrease in the first quarter of fiscal year 2023 was primarily the result of decreased brokered fruit and decreased shipping and handling compared to the same period of fiscal year 2022. During the first quarter of fiscal years 2023 and 2022, fresh lemon sales were $24.7 million and $24.7 million, in aggregate, on 1,308,000 and 1,207,000 cartons of lemons sold at average per carton prices of $18.88 and $20.48, respectively. Lemon revenues in the first quarter of fiscal years 2023 and 2022 included shipping and handling of $5.6 million and $6.0 million, brokered fruit and other lemon sales of $2.5 million and $3.9 million, and lemon by-product sales of $1.2 million and $1.0 million, respectively. • Avocados: Due to harvest timing, no sales were recorded in the first quarter of fiscal year 2023 compared to sales of 365,000 pounds of avocados at an average per pound price of $2.10 in the first quarter of fiscal year 2022. • Oranges: The increase in the first quarter of fiscal year 2023 was primarily the result of increased volume and higher prices of oranges sold, compared to the same period of fiscal year 2022. In the first quarter of fiscal years 2023 and 2022, we sold 64,000 and 53,000 40-pound carton equivalents of oranges at an average per carton price of $18.00 and $16.47, respectively. • Specialty citrus and other crops: The increase in the first quarter of fiscal year 2023 was primarily the result of increased volume and higher prices of specialty citrus sold, compared to the same period of fiscal year 2022. During the first quarter of fiscal years 2023 and 2022, we sold 54,000 and 51,000 40-pound carton equivalents of specialty citrus at an average per carton price of $23.09 and $14.63, respectively. Other operations revenue in the first quarter of fiscal years 2023 and 2022 was $1.4 million and $1.2 million , respectively. 28 Costs and Expenses Our total costs and expenses in the first quarter of fiscal year 2023 were $12.0 million, compared to $48.8 million in the same period of fiscal year 2022. The 75% decrease of $36.8 million was primarily the result of increased gain on disposal of assets, net primarily related to the Northern Properties sale. Costs and expenses associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the fruit we procure and sell for third-party growers and suppliers and depreciation and amortization expense, as detailed below ($ in thousands): Agribusiness Costs and Expenses for the Three Months Ended January 31, 2023 2022 Change Packing costs $ 12,339 $ 11,280 $ 1,059 9% Harvest costs 4,078 5,246 (1,168) (22)% Growing costs 7,671 8,278 (607) (7)% Third-party grower and supplier costs 15,018 14,255 763 5% Depreciation and amortization 2,135 2,185 (50) (2)% Agribusiness costs and expenses $ 41,241 $ 41,244 $ (3) —% • Packing costs: Packing costs consist primarily of the costs to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. In the first quarter of fiscal years 2023 and 2022, lemon packing costs were $11.4 million and $10.6 million, respectively. During the first quarter of fiscal years 2023 and 2022, we packed and sold 1,308,000 and 1,207,000 cartons of lemons at average per carton costs of $8.68 and $8.74, respectively. Additionally, in the first quarter of fiscal years 2023 and 2022, packing costs included $1.0 million and $0.7 million of shipping costs, respectively. • Harvest costs: The decrease in the first quarter of fiscal year 2023 was primarily the result of decreased volume of lemons and avocados harvested compared to the same period in fiscal year 2022. • Growing costs: Growing costs, also referred to as cultural costs, consist of orchard maintenance costs such as cultivation, fertilization and soil amendments, pest control, pruning and irrigation. The decrease in the first quarter of fiscal year 2023 was primarily the result of farm management decisions based on weather, harvest timing and crop conditions. • Third-party grower and supplier costs: We sell fruit that we grow and fruit that we procure from other growers and suppliers. The cost of procuring fruit from other growers is referred to as third-party grower and supplier costs. The increase in the first quarter of fiscal year 2023 was primarily the result of increased volume, partially offset by decreased prices of third-party grower fruit sold, compared to the same period of fiscal year 2022. Of the 1,308,000 and 1,207,000 cartons of lemons packed and sold during the first quarter of fiscal years 2023 and 2022, 866,000 (66%) and 693,000 (57%), respectively, were procured from third-party growers at average per carton prices of $13.60 and $16.28. Additionally, in the first quarter of fiscal years 2023 and 2022, we incurred $3.2 million and $3.0 million, respectively, of costs for purchased, packed fruit for resale. • Depreciation and amortization: Depreciation and amortization expense for the first quarter of fiscal years 2023 and 2022 was $2.1 million and $2.2 million, respectively. Other operations expenses were $1.2 million and $1.1 million in the first quarter of fiscal years 2023 and 2022, respectively. Gain on disposal of assets, net was $39.7 million and $0.1 million in the first quarter of fiscal years 2023 and 2022, respectively. The change is primarily related to sale of our Northern Properties in fiscal year 2023. Selling, general and administrative costs and expenses were $9.3 million and $6.6 million in the first quarter of fiscal years 2023 and 2022, respectively. The 41% increase of $2.7 million was primarily the result of: • $2.0 million net increase in salaries, benefits and incentive compensation; • $0.1 million increase in selling expenses; and • $0.6 million net increase in other selling, general and administrative expenses, primarily associated with our strategic initiatives. 29 Other (Expense) Income Other (expense) income was $(3.5) million and $0.3 million in the first quarter of fiscal years 2023 and 2022, respectively. The change of $3.8 million in other expense was primarily the result of: • $1.4 million increase of interest expense, net as a result of a $1.6 million patronage dividend recorded in the first quarter of fiscal year 2022, compared to zero in fiscal year 2023; • $2.6 million increase of other expense, net; primarily as a result of pension settlement costs; and • $0.2 million increase of equity in earnings of investments. Income Taxes We recorded an estimated income tax (provision) benefit of $(6.8) million and $2.7 million in the first quarter of fiscal years 2023 and 2022 on pre-tax income (loss) of $22.4 million and $(9.3) million, respectively. The tax provision recorded for the first quarter of fiscal year 2023 differs from the U.S. federal statutory tax rate of 21.0% due primarily to foreign jurisdictions which are taxed at different rates, state taxes, tax impact of stock-based compensation, and nondeductible tax items. Our projected annual effective blended tax rate for fiscal year 2023, excluding discrete items, is approximately 27.4%. Net Loss Attributable to Noncontrolling Interest Net loss attributable to noncontrolling interest represents 10% and 49% of the net losses of PDA and Trapani Fresh, respectively. Segment Results of Operations We operate in four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness. Our reportable operating segments are strategic business units with different products and services, distribution processes and customer bases. We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. Each segment is subject to review and evaluations related to current market conditions, market opportunities and available resources. See Note 19 - Segment Information for additional information regarding our operating segments. Three Months Ended January 31, 2023 Compared to the Three Months Ended January 31, 2022 The following table shows the segment results of operations for the three months ended January 31, 2023 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 28,481 $ 5,648 $ — $ — $ 2,399 $ 36,528 $ 1,373 $ 37,901 Intersegment revenue — 7,363 (7,363) — — — — — Total net revenues 28,481 13,011 (7,363) — 2,399 36,528 1,373 37,901 Costs and expenses (gain) 33,300 11,353 (7,363) — 1,816 39,106 (29,536) 9,570 Depreciation and amortization — — — — — 2,135 312 2,447 Operating income (loss) $ (4,819) $ 1,658 $ — $ — $ 583 $ (4,713) $ 30,597 $ 25,884 The following table shows the segment results of operations for the three months ended January 31, 2022 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 29,600 $ 5,968 $ — $ 766 $ 1,749 $ 38,083 $ 1,191 $ 39,274 Intersegment revenue — 6,589 (6,589) — — — — — Total net revenues 29,600 12,557 (6,589) 766 1,749 38,083 1,191 39,274 Costs and expenses 32,161 10,556 (6,589) 321 2,610 39,059 7,293 46,352 Depreciation and amortization — — — — — 2,185 295 2,480 Operating (loss) income $ (2,561) $ 2,001 $ — $ 445 $ (861) $ (3,161) $ (6,397) $ (9,558) 30 The following analysis should be read in conjunction with the previous section “Results of Operations.” Fresh Lemons Fresh lemons segment revenue is comprised of sales of fresh lemons, lemon by-products and brokered fruit and other lemon revenue such as purchased, packed fruit for resale. For the first quarter of fiscal years 2023 and 2022, our fresh lemons segment total net revenues were $28.5 million and $29.6 million, respectively. The 4% decrease of $1.1 million was primarily the result of a net decrease in brokered fruit and other lemon sales. Costs and expenses associated with our fresh lemons segment include growing costs, harvest costs and costs of lemons we procure from third-party growers and suppliers. For the first quarter of fiscal years 2023 and 2022, our fresh lemons segment costs and expenses were $33.3 million and $32.2 million, respectively. The 4% increase of $1.1 million was primarily the result of: • Harvest costs for the first quarter of fiscal year 2023 were $1.1 million lower than the same period of fiscal year 2022. • Growing costs for the first quarter of fiscal year 2023 were $1.1 million higher than the same period of fiscal year 2022. • Third-party grower and supplier costs for the first quarter of fiscal year 2023 were $0.1 million higher than the same period of fiscal year 2022. • Transportation costs for the first quarter of fiscal year 2023 were $0.3 million higher than the same period of fiscal year 2022. • Intersegment costs and expenses for the first quarter of fiscal year 2023 were $0.8 million higher than the same period of fiscal year 2022. Lemon Packing Lemon packing segment revenue is comprised of packing revenue, intersegment packing revenue and shipping and handling revenue. For the first quarter of fiscal years 2023 and 2022, our lemon packing segment total net revenues were $13.0 million and $12.6 million, respectively. The 4% increase of $0.5 million was primarily the result of increased volume of lemons packed and sold. Costs and expenses associated with our lemon packing segment consist of the cost to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. For the first quarter of fiscal years 2023 and 2022, our lemon packing costs and expenses were $11.4 million and $10.6 million, respectively. The 8% increase of $0.8 million was primarily the result of increased volume of lemons packed and sold. For the first quarter of fiscal years 2023 and 2022, lemon packing segment operating income per carton sold was $1.27 and $1.66, respectively. In the first quarter of fiscal years 2023 and 2022, the lemon packing segment included $7.4 million and $6.6 million, respectively, of intersegment revenues that were charged to the fresh lemons segment to pack lemons for sale. Such intersegment revenues and expenses are eliminated in our consolidated financial statements. Avocados For the first quarter of fiscal year 2023, our avocados segment had no revenue, compared to $0.8 million in the same period of fiscal year 2022. Costs and expenses associated with our avocados segment include growing and harvest costs. For the first quarter of fiscal years 2023 and 2022, our avocados segment costs and expenses were zero and $0.3 million, respectively. Other Agribusiness For the first quarter of fiscal years 2023 and 2022, our other agribusiness segment total net revenues were $2.4 million and $1.7 million, respectively. The 37% increase of $0.7 million was primarily the result of: • Orange revenues for the first quarter of fiscal year 2023 were $0.3 million higher than the same period of fiscal year 2022. • Specialty citrus and other crops revenues for the first quarter of fiscal year 2023 were $0.4 million higher than the same period of fiscal year 2022. 31 Costs and expenses associated with our other agribusiness segment include growing costs, harvest costs and purchased fruit costs. For the first quarter of fiscal years 2023 and 2022, our other agribusiness costs and expenses were $1.8 million and $2.6 million, respectively. The 30% decrease of $0.8 million was primarily the result of: • Harvest costs for the first quarter of fiscal year 2023 were $0.1 million lower than the same period of fiscal year 2022. • Growing costs for the first quarter of fiscal year 2023 were $1.4 million lower than the same period of fiscal year 2022. • Purchased fruit costs for the first quarter of fiscal year 2023 were $0.7 million higher than the same period of fiscal year 2022. Total agribusiness depreciation and amortization expenses for the first quarter of fiscal years 2023 and 2022 were similar at $2.1 million. Corporate and Other Our corporate and other operations had revenues of $1.4 million and $1.2 million for the first quarter of fiscal years 2023 and 2022, respectively. Costs and expenses in our corporate and other operations for the first quarter of fiscal years 2023 and 2022 were approximately $(29.5) million and $7.4 million, respectively, and include selling, general and administrative costs and expenses and gain on disposal of assets not allocated to the operating segments. Depreciation and amortization expenses for the first quarter of fiscal years 2023 and 2022 were similar at $0.3 million. Seasonal Operations Historically, our agribusiness operations have been seasonal in nature with quarterly revenue fluctuating depending on the timing and the variety of crops being harvested. Cultural costs in our agribusiness tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with the increasing production and revenue. Due to this seasonality and to avoid the inference that interim results are indicative of the estimated results for a full fiscal year, we present supplemental information for 12-month periods ended at the interim date for the current and preceding years. 32 Results of Operations for the Trailing Twelve Months Ended January 31, 2023 and 2022 The following table shows the unaudited results of operations (in thousands): Trailing Twelve Months Ended January 31, 2023 2022 Net revenues: Agribusiness $ 177,726 $ 162,327 Other operations 5,506 4,699 Total net revenues 183,232 167,026 Costs and expenses: Agribusiness 160,648 152,798 Other operations 4,602 4,324 (Gain) loss on disposal of assets (44,157) 24 Selling, general and administrative 24,496 20,130 Total costs and expenses 145,589 177,276 Operating income (loss) 37,643 (10,250) Other (expense) income: Interest income 40 357 Interest expense, net of patronage dividends (3,678) (1,420) Equity in earnings of investments, net 1,543 2,888 Other (expense) income, net (3,582) 111 Total other (expense) income (5,677) 1,936 Income (loss) before income tax (provision) benefit 31,966 (8,314) Income tax (provision) benefit (10,300) 1,729 Net income (loss) 21,666 (6,585) Loss attributable to noncontrolling interest 247 836 Net income (loss) attributable to Limoneira Company $ 21,913 $ (5,749) The following analysis should be read in conjunction with the previous section “Results of Operations.” • Total revenues increased $16.2 million in the twelve months ended January 31, 2023, compared to the twelve months ended January 31, 2022, primarily related to increased agribusiness revenues, particularly increased avocado sales, oranges and specialty crops. • Total costs and expenses decreased $31.7 million in the twelve months ended January 31, 2023, compared to the twelve months ended January 31, 2022, primarily related to gain on disposal of assets, partially offset by increased agribusiness costs and selling, general and administrative expenses. • Total other expense increased $7.6 million in the twelve months ended January 31, 2023, compared to the twelve months ended January 31, 2022, primarily related to increased interest expense, net of patronage dividends, decreased equity in earnings of investments and increased other expense primarily due to pension settlement costs. • Income tax provision increased $12.0 million in the twelve months ended January 31, 2023, compared to the twelve months ended January 31, 2022, primarily related to an increase in pre-tax income of $40.3 million. 33 Liquidity and Capital Resources Overview Our primary sources of liquidity are cash and cash flows generated from our operations and use of our revolving credit facility. Our liquidity and capital position fluctuates during the year depending on seasonal production cycles, weather events and demand for our products. Typically, our first and last fiscal quarters coincide with the fall and winter months during which we are growing crops that are harvested and sold in the spring and summer, which are our second and third quarters. To meet working capital demand and investment requirements of our agribusiness and real estate development projects and to supplement operating cash flows, we utilize our revolving credit facility to fund agricultural inputs and farm management practices until sufficient returns from crops allow us to repay amounts borrowed. Raw materials needed to propagate the various crops grown by us consist primarily of fertilizer, herbicides, insecticides, fuel and water, all of which are readily available from local sources. Material contractual obligations arising in the normal course of business consist primarily of purchase obligations, long-term fixed rate and variable rate debt and related interest payments and operating and finance leases. See Note 10 - Long-Term Debt and Note 12 - Leases for amounts outstanding as of January 31, 2023, related to debt and leases. Purchase obligations consist of contracts primarily related to packing supplies, the majority of which are due in the next three years. We believe that the cash flows from operations and available borrowing capacity from our existing credit facilities will be sufficient to satisfy our capital expenditures, debt service, working capital needs and other contractual obligations for the next twelve months. In addition, we have the ability to control a portion of our investing cash flows to the extent necessary based on our liquidity demands. Cash Flows from Operating Activities For the three months ended January 31, 2023, net cash used in operating activities was $21.2 million, compared to net cash used in operating activities of $8.2 million for the three months ended January 31, 2022. The significant components of our cash flows used in operating activities were as follows: • Net income (loss) for the three months ended January 31, 2023 and 2022 was $15.5 million and $(6.6) million, respectively. The components of net income in the three months ended January 31, 2023, compared to the net loss in the same period in fiscal year 2022 consist of an increase in operating income of $35.4 million, an increase in total other expense of $3.8 million and an increase in income tax provision of $9.5 million. • Adjustments to reconcile income (loss) to net cash used in operating activities: ◦ Adjustments used $29.1 million and provided $1.1 million in the three months ended January 31, 2023 and 2022, respectively, primarily related to gain on disposal of assets, depreciation and amortization, stock compensation expense and deferred income taxes. ◦ Changes in operating assets and liabilities used $7.6 million and $2.6 million of operating cash in the three months ended January 31, 2023 and 2022, respectively, primarily related to accounts receivables/other from related parties, cultural costs, prepaid expenses and other current assets, accounts payable and growers and suppliers payable. Cash Flows from Investing Activities For the three months ended January 31, 2023 and 2022, net cash provided by (used in) investing activities was $99.1 million and $(0.7) million, respectively. • The $99.1 million of cash provided by investing activities during the three months ended January 31, 2023 was comprised primarily of net proceeds from sales of assets of $98.9 million, net proceeds from the sale of real estate development assets of $2.6 million, partially offset by capital expenditures of $2.2 million, primarily related to orchard and vineyard development. • The $0.7 million of cash used in investing activities during the three months ended January 31, 2022 was comprised primarily of capital expenditures of $2.1 million primarily related to orchard and vineyard development, partially offset by net proceeds from sales of assets of $1.1 million. 34 Cash Flows from Financing Activities For the three months ended January 31, 2023 and 2022, net cash (used in) provided by financing activities was $(66.3) million and $9.3 million, respectively. • The $66.3 million of cash used in financing activities during the three months ended January 31, 2023 was comprised primarily of net repayments of long-term debt of $64.8 million and common and preferred stock dividends of $1.5 million. • The $9.3 million of cash provided by financing activities during the three months ended January 31, 2022 was comprised primarily of net borrowings of long-term debt of $11.7 million, partially offset by common and preferred dividends, in aggregate, of $1.5 million and the exchange of common stock of $0.9 million. Transactions Affecting Liquidity and Capital Resources Credit Facilities and Long-Term Debt We finance our working capital and other liquidity requirements primarily through cash from operations and from our AgWest Farm Credit Facility, which includes the Master Loan Agreement (the "MLA"), Supplements and Revolving Equity Line of Credit (the "RELOC"). In addition, we have Banco de Chile term loans and COVID-19 loans. Additional information regarding these loans can be found in Note 10 - Long-Term Debt. In June 2021, we entered into the MLA with AgWest Farm Credit, formerly known as Farm Credit West, PCA (the "Lender"), together with the Supplements and a Fixed Interest Rate Agreement, which extends the principal repayment to July 1, 2026. The MLA governs the terms of the Supplements. The Supplements and RELOC provide aggregate borrowing capacity of $130.0 million, comprised of $75.0 million under the Revolving Credit Supplement, $40.0 million under the Non-Revolving Credit Supplement and $15.0 million under the RELOC. As of January 31, 2023, our outstanding borrowings under the AgWest Farm Credit Facility and RELOC were $40.0 million and we had $90.0 million of availability. On January 31, 2023, the Company sold the Northern Properties which resulted in total net proceeds of $98.8 million. The proceeds were used to pay down all of the Company's domestic debt except the Non-Revolving Credit Supplement. The MLA subjects us to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets of our business. We are also subject to a financial covenant that requires us to maintain compliance with a specified debt service coverage ratio greater than or equal to 1:25:1.0 on an annual basis. We were in compliance as of October 31, 2022. In February 2023, the Lender declared an annual cash patronage dividend of 1.25% of average eligible loan balances and the Company received $1.4 million in the second quarter of fiscal year 2023. In the first quarter of fiscal year 2022, the Lender declared an annual patronage dividend of $1.6 million, which we received in the second quarter of fiscal year 2022. Dividends The holders of the Series B Convertible Preferred Stock (the “Series B Stock”) and the Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) are entitled to receive cumulative cash dividends. Such preferred dividends paid were $0.1 million in the three months ended January 31, 2023 and 2022. Cash dividends declared in the three months ended January 31, 2023 and 2022 were $0.08 per common share and such dividends paid were $1.3 million in the three months ended January 31, 2023 and 2022. Critical Accounting Estimates The preparation of our consolidated financial statements in accordance with GAAP requires us to develop critical accounting policies and make certain estimates, assumptions and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates and judgments on historical experience, available relevant data and other information that we believe to be reasonable under the circumstances, and we continue to review and evaluate these estimates. Actual results may materially differ from these estimates under different assumptions or conditions as new or additional information become available in future periods. During the three months ended January 31, 2023, our critical accounting policies and estimates have not changed since the filing of our Annual Report on Form 10-K as of October 31, 2022. Please refer to that filing for a description of our critical accounting policies and estimates. 35 Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022 as filed with the SEC on December 22, 2022.