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 11,000 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., 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 and San Luis Obispo Counties in California, Yuma County in Arizona, La Serena, Chile and Jujuy, Argentina, which collectively consist of approximately 3,400 acres of lemons, 1,200 acres of avocados, 100 acres of oranges and 400 acres of wine grapes. 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 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. We use ground water from the San Joaquin Valley Basin and water from local water and irrigation districts in Tulare County, which is in California’s San Joaquin Valley. 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, single-family homes and apartments of approximately 800 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 primarily includes oranges, specialty citrus, other crops and farm management services. 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. 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 our avocados and oranges to third-party packinghouses. Additionally, we 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. 25 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 and 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. 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 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. We believe that 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 (aquifer). 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 2022 - 2023 rainfall season after experiencing three years of below average precipitation and drought conditions. The above average precipitation helped to alleviate the drought conditions in California. As of January 31, 2024, the state was free from moderate drought conditions and Ventura County was free from any drought conditions. We continue to assess the impact drought conditions may have on our California orchards. 26 In August 2021, the U.S. Bureau of Reclamation (the “Bureau”) 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 August 2022, the Bureau announced Lake Mead to operate in a Tier 2 shortage, which further increased water restrictions. As a result, in January 2023, Arizona forfeited approximately 21% of the state's yearly allotment of water from Lake Mead. In August 2023, the Bureau announced Lake Mead will operate in a Tier 1 shortage in 2024, which requires Arizona to forfeit approximately 18% of the state's yearly allotment of water from Lake Mead. In response to these water shortages, we entered into fallowing agreements during fiscal years 2023 and 2022 and continue to assess the impact these reductions may have on our Arizona orchards. Recent Developments On December 1, 2023, we announced the commencement of a strategic review process to explore potential alternatives aimed at maximizing stockholder value. Potential strategic alternatives could include, but not be limited to, a sale of all or parts of the Company and its assets, a merger or other transaction. The Board has not set a timetable for completion of the review and no transaction or other outcome is guaranteed to take place. At this time, we cannot predict the impact that such strategic alternatives might have on our business, operations or financial condition. In December 2023, we sold 12 acres of real property located in Yuma, Arizona for a sales price of $0.8 million. After transaction and closing costs, we recorded a gain on sale of approximately $0.2 million. On December 19, 2023, we declared a cash dividend of $0.075 per common share paid on January 12, 2024, in the aggregate amount of approximately $1.3 million to stockholders of record as of January 2, 2024. 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 export market for fresh produce significantly declined due to the COVID-19 pandemic impacts and continues to experience decreased demand. The decline in demand for the Company's products negatively impacted our sales and profitability for the last four fiscal years. The COVID-19 pandemic may continue to 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, 2023. Given the economic uncertainty as a result of the COVID-19 pandemic over the past four fiscal 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 export market business disruptions related to the COVID-19 pandemic. The ongoing impact of the COVID-19 pandemic on our results of operations, financial condition, or liquidity for fiscal year 2024 and beyond cannot be estimated at this time. 27 Results of Operations The following table shows the results of operations (in thousands): Three Months Ended January 31, 2024 2023 Net revenues: Agribusiness $ 38,339 $ 36,528 Other operations 1,392 1,373 Total net revenues 39,731 37,901 Costs and expenses: Agribusiness 39,114 41,241 Other operations 1,182 1,238 Gain on disposal of assets, net (165) (39,742) Selling, general and administrative 7,345 9,280 Total costs and expenses 47,476 12,017 Operating (loss) income: Agribusiness (775) (4,713) Other operations 210 135 Gain on disposal of assets, net 165 39,742 Selling, general and administrative (7,345) (9,280) Operating (loss) income (7,745) 25,884 Other (expense) income: Interest income 22 8 Interest expense, net of patronage dividends (207) (1,172) Equity in earnings of investments, net 41 253 Other income (expense), net 22 (2,612) Total other expense (122) (3,523) (Loss) income before income tax benefit (provision) (7,867) 22,361 Income tax benefit (provision) 4,190 (6,827) Net (loss) income (3,677) 15,534 Net loss attributable to noncontrolling interest 92 97 Net (loss) income attributable to Limoneira Company $ (3,585) $ 15,631 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, pension settlement cost, gain on disposal of assets, net, and cash bonus related to sale of assets are important measures to evaluate our results of operations between periods on a more comparable basis. 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. 28 EBITDA and adjusted EBITDA are summarized and reconciled to net (loss) income 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, 2024 2023 Net (loss) income attributable to Limoneira Company $ (3,585) $ 15,631 Interest income (22) (8) Interest expense, net of patronage dividends 207 1,172 Income tax (benefit) provision (4,190) 6,827 Depreciation and amortization 2,058 2,447 EBITDA $ (5,532) $ 26,069 Stock-based compensation 864 1,064 Pension settlement cost — 2,741 Gain on disposal of assets, net (165) (39,742) Cash bonus related to sale of assets — 2,000 Adjusted EBITDA $ (4,833) $ (7,868) Three Months Ended January 31, 2024 Compared to the Three Months Ended January 31, 2023 Revenues Total net revenues for the three months ended January 31, 2024 were $39.7 million, compared to $37.9 million for the three months ended January 31, 2023. The 5% increase of $1.8 million was primarily due to farm management revenues from our relationship with PGIM. Agribusiness revenues are detailed below (in thousands): Three Months Ended January 31, 2024 2023 Change Lemons $ 32,976 $ 32,969 $ 7 —% Avocados — — — —% Oranges 1,141 1,152 (11) (1)% Specialty citrus and other crops 1,086 1,247 (161) (13)% Farm management 2,048 — 2,048 —% Other 1,088 1,160 (72) (6)% Agribusiness revenues $ 38,339 $ 36,528 $ 1,811 5% • Lemons: Revenues in the first quarter of fiscal year 2024 were similar to the same period of fiscal year 2023. During the first quarter of fiscal years 2024 and 2023, fresh lemon sales were $23.9 million and $24.7 million, in aggregate, on 1,137,000 and 1,308,000 cartons of lemons sold at average per carton prices of $21.06 and $18.88, respectively. Lemon revenues in the first quarter of fiscal years 2024 and 2023 included brokered lemons and other lemon sales of $2.9 million and $1.4 million, shipping and handling of $5.6 million and $5.6 million and lemon by-product sales of $0.5 million and $1.2 million, respectively. • Avocados: Due to harvest timing, no sales were recorded for the first quarters of fiscal years 2024 and 2023. • Oranges: Revenues in the first quarter of fiscal year 2024 were similar to the same period of fiscal year 2023. During the first quarter of fiscal years 2024 and 2023, we sold 80,000 and 64,000 cartons of oranges at an average per carton price of $14.26 and $18.00, respectively. • Specialty citrus and other crops: The decrease in the first quarter of fiscal year 2024, compared to the same period of fiscal year 2023, was primarily due to a decrease in specialty citrus revenue of $0.8 million, partially offset by wine grapes revenue of $0.6 million. During the first quarter of fiscal years 2024 and 2023, we sold 17,000 and 54,000 40-pound carton equivalents of specialty citrus at an average per carton price of $28.88 and $23.09, respectively. 29 • Farm management: Farm management revenues in the first quarter of fiscal year 2024 were $2.0 million, primarily related to the Northern Properties farming, management and operations services. There were no farm management revenues in the first quarter of fiscal year 2023. • Other: Other revenue is comprised primarily of fallowing and freight revenue. Other revenues in the first quarter of fiscal year 2024 were similar to the same period of fiscal year 2023. Other operations revenue in the first quarters of fiscal years 2024 and 2023 were $1.4 million. Costs and Expenses Total costs and expenses in the first quarter of fiscal year 2024 were $47.5 million, compared to $12.0 million in the same period of fiscal year 2023. The 295% increase of $35.4 million was primarily related to the gain on the sale of the Northern Properties in the first quarter of fiscal year 2023, partially offset by decreases in agribusiness costs and expenses and selling, general and administrative expenses. Agribusiness costs and expenses are detailed below (in thousands): Three Months Ended January 31, 2024 2023 Change Packing costs $ 10,718 $ 11,353 $ (635) (6)% Harvest costs 1,933 4,078 (2,145) (53)% Growing costs 6,192 7,671 (1,479) (19)% Third-party grower and supplier costs 17,723 15,018 2,705 18% Other costs 804 986 (182) (18)% Depreciation and amortization 1,744 2,135 (391) (18)% Agribusiness costs and expenses $ 39,114 $ 41,241 $ (2,127) (5)% • Packing costs: Packing costs consist primarily of the costs to pack lemons for sale such as labor and benefits, custom pack, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. During the first quarter of fiscal years 2024 and 2023, we packed and sold 1,137,000 and 1,308,000 cartons of lemons at average per carton costs of $9.43 and $8.68, respectively. The increase in per carton packing costs was primarily due to decreased volume packed and sold. • Harvest costs: The decrease in the first quarter of fiscal year 2024, compared to the same period of fiscal year 2023, was primarily due to decreased volume of lemons harvested due to rainfall delaying harvest. • 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 2024, compared to the same period in fiscal year 2023, was primarily due to the Northern Properties sale in the first quarter of fiscal year 2023. • 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 and suppliers is referred to as third-party grower and supplier costs. The increase in the first quarter of fiscal year 2024, compared to the same period of fiscal year 2023, was primarily due to increased volume and prices for third-party grower fruit. In the first quarter of fiscal years 2024 and 2023, we incurred costs for third-party grower fruit of $14.7 million and $11.8 million, respectively. Of the 1,137,000 and 1,308,000 cartons of lemons packed and sold during the first quarter of fiscal years 2024 and 2023, 952,000 (84%) and 866,000 (66%), were procured from third-party growers at average per carton prices of $15.41 and $13.60, respectively. The increased volume for third-party grower fruit was primarily due to Northern Properties fruit that was Limoneira fruit in the first quarter of fiscal year 2023 and third-party grower fruit in the first quarter of fiscal year 2024. In the first quarter of fiscal years 2024 and 2023, we incurred costs for third-party supplier fruit of $3.0 million and $3.2 million, respectively. • Other costs: The decrease in the first quarter of fiscal year 2024, compared to the same period of fiscal year 2023, was primarily due to decreased freight costs. • Depreciation and amortization: Depreciation and amortization expense for the first quarter of fiscal years 2024 and 2023 was $1.7 million and $2.1 million, respectively. The decrease in the first quarter of fiscal year 2024, compared to the same period of fiscal year 2023, was primarily due to the Northern Properties sale in the first quarter of fiscal year 2023. Other operations expenses were $1.2 million in the first quarters of fiscal years 2024 and 2023. 30 Gain on disposal of assets, net was $0.2 million and $39.7 million in the first quarter of fiscal years 2024 and 2023, respectively. The decrease was primarily due to the Northern Properties sale in the first quarter of fiscal year 2023. Selling, general and administrative costs and expenses were $7.3 million and $9.3 million in the first quarter of fiscal years 2024 and 2023, respectively. The 21% decrease of $1.9 million was primarily due to: • $2.0 million net decrease in salaries, benefits and incentive compensation, primarily due to the Northern Properties sale; and • $0.1 million net increase in other selling, general and administrative expenses, primarily associated with our strategic initiatives. Other (Expense) Income Total other expense was $0.1 million and $3.5 million in the first quarter of fiscal years 2024 and 2023, respectively. The decrease of $3.4 million in total other expense was primarily due to: • $1.0 million decrease in interest expense as a result of decreased long-term debt; and • $2.6 million decrease in other expense, net, primarily related to the pension plan settlement. Income Taxes We recorded an estimated income tax benefit (provision) of $4.2 million and $(6.8) million in the first quarter of fiscal years 2024 and 2023 on pre-tax (loss) income of $(7.9) million and $22.4 million, respectively. The tax benefit recorded for the first quarter of fiscal year 2024 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, nondeductible tax items and valuation allowances on certain deferred tax assets of foreign subsidiaries. Our projected annual effective blended tax rate for fiscal year 2024, excluding discrete items, is approximately 45.2%. Net Loss Attributable to Noncontrolling Interest Net loss attributable to noncontrolling interest represents 10% and 49% of PDA and Trapani Fresh, respectively, of the net loss in the first quarter of fiscal years 2024 and 2023, 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. 31 Three Months Ended January 31, 2024 Compared to the Three Months Ended January 31, 2023 The following table shows the segment results of operations for the three months ended January 31, 2024 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 27,384 $ 5,592 $ — $ — $ 5,363 $ 38,339 $ 1,392 $ 39,731 Intersegment revenue — 6,716 (6,716) — — — — — Total net revenues 27,384 12,308 (6,716) — 5,363 38,339 1,392 39,731 Costs and expenses 28,841 10,718 (6,716) — 4,527 37,370 8,048 45,418 Depreciation and amortization — — — — — 1,744 314 2,058 Operating (loss) income $ (1,457) $ 1,590 $ — $ — $ 836 $ (775) $ (6,970) $ (7,745) 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 $ 27,321 $ 5,648 $ — $ — $ 3,559 $ 36,528 $ 1,373 $ 37,901 Intersegment revenue — 7,363 (7,363) — — — — — Total net revenues 27,321 13,011 (7,363) — 3,559 36,528 1,373 37,901 Costs and expenses 32,314 11,353 (7,363) — 2,802 39,106 (29,536) 9,570 Depreciation and amortization — — — — — 2,135 312 2,447 Operating (loss) income $ (4,993) $ 1,658 $ — $ — $ 757 $ (4,713) $ 30,597 $ 25,884 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, brokered lemons and other lemon revenue. For the first quarter of fiscal years 2024 and 2023, our fresh lemons segment total net revenues were $27.4 million and $27.3 million, respectively. The increase of $0.1 million was primarily due to: • Fresh lemon sales decrease of $0.8 million; • Lemon by-products sales decrease of $0.7 million; and • Brokered lemons and other lemon sales increase of $1.6 million. Costs and expenses associated with our fresh lemons segment include growing costs, harvest costs, cost of lemons we procure from third-party growers and suppliers and packing service charges incurred from the lemon packing segment to pack lemons for sale. For the first quarter of fiscal years 2024 and 2023, our fresh lemons segment costs and expenses were $28.8 million and $32.3 million, respectively. The 11% decrease of $3.5 million was primarily due to: • Harvest costs decrease of $2.2 million; • Growing costs decrease of $3.5 million; • Third-party grower and supplier costs increase of $2.9 million; and • Intersegment costs and expenses decrease of $0.7 million. Lemon Packing Lemon packing segment revenue is comprised of packing revenue and intersegment packing revenue. For the first quarter of fiscal years 2024 and 2023, our lemon packing segment total net revenues were $12.3 million and $13.0 million, respectively. The 5% decrease of $0.7 million was primarily due to decreased volume of lemons packed. Costs and expenses associated with our lemon packing segment consist 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. For the first quarter of fiscal years 2024 and 2023, our lemon packing costs and expenses were $10.7 million and $11.4 million, respectively. The 6% decrease of $0.6 million was primarily due to decreased volume packed and sold. For the first quarter of fiscal years 2024 and 2023, lemon packing segment operating income per carton sold was $1.40 and $1.27, respectively. 32 The lemon packing segment included $6.7 million and $7.4 million of intersegment revenues for the first quarter of fiscal years 2024 and 2023, respectively, 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 Our avocados segment had no revenues for the first quarters of fiscal years 2024 and 2023. Costs and expenses associated with our avocados segment include growing and harvest costs. Our avocados segment had no costs and expenses for the first quarters of fiscal years 2024 and 2023. Other Agribusiness Our other agribusiness segment total net revenues were $5.4 million and $3.6 million for the first quarter of fiscal years 2024 and 2023, respectively. The 51% increase of $1.8 million was primarily due to: • Specialty citrus and other crops revenues decrease of $0.2 million; and • Farm management revenues for the first quarter of fiscal year 2024 were $2.0 million. There were no farm management revenues in the first quarter of fiscal year 2023. Costs and expenses associated with our other agribusiness segment include growing costs, harvest costs, purchased fruit costs and freight costs. Our other agribusiness costs and expenses were $4.5 million and $2.8 million for the first quarter of fiscal years 2024 and 2023, respectively. The 62% increase of $1.7 million was primarily due to: • Harvest costs increase of $0.1 million; • Growing costs increase of $2.0 million; • Purchased fruit costs decrease of $0.2 million; and • Freight costs decrease of $0.2 million. Total agribusiness depreciation and amortization expenses were $1.7 million and $2.1 million for the first quarter of fiscal years 2024 and 2023, respectively. Corporate and Other Our corporate and other operations had revenues of $1.4 million for the first quarters of fiscal years 2024 and 2023. Costs and expenses in our corporate and other operations were approximately $8.0 million and $(29.5) million for the first quarter of fiscal years 2024 and 2023, respectively, and include selling, general and administrative costs and expenses and gain on disposal of assets, net. Depreciation and amortization expenses for the first quarters of fiscal years 2024 and 2023 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. 33 Results of Operations for the Trailing Twelve Months Ended January 31, 2024 and 2023 The following table shows the unaudited results of operations (in thousands): Trailing Twelve Months Ended January 31, 2024 2023 Net revenues: Agribusiness $ 176,192 $ 177,726 Other operations 5,538 5,506 Total net revenues 181,730 183,232 Costs and expenses: Agribusiness 167,042 160,648 Other operations 4,556 4,602 Loss (gain) on disposal of assets 10,728 (44,157) Gain on legal settlement (2,269) — Selling, general and administrative 24,520 24,496 Total costs and expenses 204,577 145,589 Operating (loss) income (22,847) 37,643 Other income (expense): Interest income 378 40 Interest (expense), net of patronage dividends 471 (3,678) Equity in earnings of investments, net 5,110 1,543 Other income (expense), net 23 (3,582) Total other income (expense) 5,982 (5,677) (Loss) income before income tax benefit (provision) (16,865) 31,966 Income tax benefit (provision) 6,770 (10,300) Net (loss) income (10,095) 21,666 Loss attributable to noncontrolling interest 278 247 Net (loss) income attributable to Limoneira Company $ (9,817) $ 21,913 The following analysis should be read in conjunction with the previous section “Results of Operations.” • Total revenues decreased $1.5 million, primarily due to decreased avocados and oranges agribusiness revenues, partially offset by increased farm management revenues. • Total costs and expenses increased $59.0 million, primarily due to loss (gain) on disposal of assets and increased agribusiness costs and selling, general and administrative expenses. • Total other income decreased $11.7 million, primarily due to decreased interest expense, increased equity in earnings of investments, net and decreased other expense related to pension settlement costs. • Income tax benefit increased $17.1 million, primarily due to increased pre-tax loss of $48.8 million. 34 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, 2024, related to debt and leases. Purchase obligations consist of contracts primarily related to packing supplies, the majority of which are due in the next 5 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. We believe our revenue generating operations, distributions from equity investments and credit facilities will generate sufficient cash needed to operate beyond 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 Net cash used in operating activities was $10.3 million and $21.2 million for the three months ended January 31, 2024 and 2023, respectively. The significant components of our cash flows used in operating activities were as follows: • Net (loss) income was $(3.7) million and $15.5 million for the three months ended January 31, 2024 and 2023, respectively. The components of net loss in the three months ended January 31, 2024, compared to the net income in the same period in fiscal year 2023 consist of a decrease in operating income of $33.6 million primarily due to the Northern Properties sale, a decrease in total other expense of $3.4 million and an increase in income tax benefit of $11.0 million. • Adjustments to reconcile net (loss) income to net cash used in operating activities: ◦ Adjustments used $1.1 million and $29.1 million in the three months ended January 31, 2024 and 2023, respectively, primarily related to depreciation and amortization, gain on disposal of assets and deferred income taxes. ◦ Changes in operating assets and liabilities used $5.5 million and $7.6 million of operating cash in the three months ended January 31, 2024 and 2023, respectively, primarily related to accounts receivables and receivables/other from related parties and accounts payable and growers and suppliers payable. Cash Flows from Investing Activities Net cash (used in) provided by investing activities was $(1.6) million and $99.1 million for the three months ended January 31, 2024 and 2023, respectively. ▪ The $1.6 million of cash used in investing activities during the three months ended January 31, 2024 was comprised primarily of capital expenditures of $2.2 million, primarily related to orchard and vineyard development, and equity investment contributions and capitalized interest of $0.3 million, partially offset by net proceeds from sales of assets of $0.8 million. ▪ 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 and 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. 35 Cash Flows from Financing Activities Net cash provided by (used in) financing activities was $8.8 million and $(66.3) million for the three months ended January 31, 2024 and 2023, respectively. • The $8.8 million of cash provided by financing activities during the three months ended January 31, 2024 was comprised primarily of net borrowings of long-term debt of $11.1 million, partially offset by common and preferred stock dividends of $1.5 million and exchange of common stock of $0.7 million. • 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 dividends of $1.5 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”) and Supplements. 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 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 provide aggregate borrowing capacity of $115.0 million, comprised of $75.0 million under the Revolving Credit Supplement and $40.0 million under the Non-Revolving Credit Supplement. As of January 31, 2024, our outstanding borrowings under the AgWest Farm Credit Facility were $51.3 million and we had $63.7 million of availability. On January 31, 2023, the Company sold the Northern Properties which resulted in total net proceeds of $98.4 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 specific debt service coverage ratio on an annual basis. In September 2023, the Lender modified the covenant to defer measurement as of October 31, 2023 and resume a debt service coverage ratio of 1.25:1.0 measured as of October 31, 2024. In December 2023, the Lender declared an annual cash patronage dividend of 1.25% of average eligible loan balances and we received $0.3 million in the second quarter of fiscal year 2024. In February 2023, the Lender declared an annual cash patronage dividend of 1.25% of average eligible loan balances and we received $1.4 million in the second quarter of fiscal year 2023. Dividends The holders of the Series B Convertible Preferred Stock and 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, 2024 and 2023. Cash dividends declared in the three months ended January 31, 2024 and 2023 were $0.075 per common share and such dividends paid were $1.4 million and $1.3 million in the three months ended January 31, 2024 and 2023, respectively. 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, 2024, our critical accounting policies and estimates have not changed since the filing of our Annual Report on Form 10-K as of October 31, 2023. Please refer to that filing for a description of our critical accounting policies and estimates. 36 Recent Accounting Pronouncements See Note 2 - Summary of Significant Accounting Policies of the notes to consolidated financial statements included in this Quarterly Report for information concerning recent accounting pronouncements. 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, 2023, as filed with the SEC on December 21, 2023.