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 10,500 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 and according to the California Avocado Commission, we are one of the largest growers of avocados in the United States. In addition to growing lemons and avocados, we grow oranges and wine grapes. 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 3,100 acres of lemons, 1,400 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. 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, wine grapes 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. Generally, we see our Company as a land and farming company that generates annual cash flows to support our progress into diversified real estate development activities. 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, 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, also referred to as growing 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. 23 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 plantings have been profitable and historically have been pursued to diversify our product line. We plan to expand our avocado production by 1,000 acres through fiscal year 2027 to capitalize on robust consumer demand trends. In addition to growing lemons and avocados, we grow oranges and wine grapes. 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. 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 8,700 acre-feet of water rights in the adjudicated 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 farming operations in Yuma, Arizona source water from the Colorado River through the YMIDD, where we have access to approximately 11,500 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. Southern California is experiencing below average precipitation for the 2024 - 2025 rainfall season. As of January 31, 2025, Ventura County was experiencing extreme drought conditions. We continue to assess the impact drought conditions may have on our California orchards. In August 2024, the U.S. Bureau of Reclamation announced that Lake Mead will continue to operate in a Tier 1 shortage in 2025, which requires Arizona to forfeit approximately 18% of the state’s yearly allotment of water from Lake Mead. In response to this and prior years’ water shortages, we entered into fallowing agreements during fiscal years 2022 and 2023 and in February 2025, extended an existing fallowing agreement through calendar year 2026. We continue to assess the impact these ongoing water reductions may have on our Arizona orchards. 24 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 are not 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 January 2025, we completed three separate sale transactions of Santa Paula Basin water pumping rights at a selling price of $30,000 per acre-foot, totaling $1.7 million and recorded a gain on sales of water rights of $1.5 million. On December 17, 2024, we declared a cash dividend of $0.075 per common share payable on January 15, 2025, in the aggregate amount of $1.4 million to common stockholders of record as of December 30, 2024. Results of Operations The following table shows the results of operations (in thousands): Three Months Ended January 31, 2025 2024 Net revenues: Agribusiness $ 32,852 $ 38,339 Other operations 1,453 1,392 Total net revenues 34,305 39,731 Costs and expenses: Agribusiness 33,499 39,114 Other operations 1,171 1,182 Gain on sales of water rights (1,488) — Gain on disposal of assets, net (6) (165) Selling, general and administrative 6,475 7,345 Total costs and expenses 39,651 47,476 Operating (loss) income: Agribusiness (647) (775) Other operations 282 210 Gain on sales of water rights 1,488 — Gain on disposal of assets, net 6 165 Selling, general and administrative (6,475) (7,345) Operating loss (5,346) (7,745) Other (expense) income: Interest income 15 22 Interest expense, net of patronage dividends (260) (207) Equity in earnings of investments, net 102 41 Other income, net 11 22 Total other expense (132) (122) Loss before income tax benefit (5,478) (7,867) Income tax benefit 2,407 4,190 Net loss (3,071) (3,677) Net (gain) loss attributable to noncontrolling interest (3) 92 Net loss attributable to Limoneira Company $ (3,074) $ (3,585) 25 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 and gain on disposal of assets, net 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. EBITDA and adjusted EBITDA are summarized and reconciled to net 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, 2025 2024 Net loss attributable to Limoneira Company $ (3,074) $ (3,585) Interest income (15) (22) Interest expense, net of patronage dividends 260 207 Income tax benefit (2,407) (4,190) Depreciation and amortization 2,016 2,058 EBITDA $ (3,220) $ (5,532) Stock-based compensation 932 864 Gain on disposal of assets, net (6) (165) Adjusted EBITDA $ (2,294) $ (4,833) Three Months Ended January 31, 2025 Compared to the Three Months Ended January 31, 2024 Revenues Total net revenues for the three months ended January 31, 2025, were $34.3 million, compared to $39.7 million for the same period of 2024. The 14% decrease of $5.4 million was primarily due to decreased agribusiness revenues from lemons, specialty citrus and wine grapes and farm management, partially offset by increased agribusiness revenues from oranges, as detailed below ($ in thousands): Three Months Ended January 31, 2025 2024 Change Lemons $ 28,261 $ 32,976 $ (4,715) (14)% Avocados 162 — 162 —% Oranges 1,568 1,141 427 37% Specialty citrus and wine grapes 503 1,086 (583) (54)% Farm management 1,181 2,048 (867) (42)% Other 1,177 1,088 89 8% Agribusiness revenues $ 32,852 $ 38,339 $ (5,487) (14)% • Lemons: The decrease for the first quarter of fiscal year 2025, compared to the same period of fiscal year 2024, was primarily due to lower prices of fresh lemons sold. Fresh lemon sales were $21.2 million and $23.9 million, in aggregate, on 1,147,000 and 1,137,000 cartons of lemons sold at average per carton prices of $18.44 and $21.06 for the first quarter of fiscal years 2025 and 2024, respectively. Lemon revenues included brokered lemons and other lemon sales of $2.2 million and $2.9 million, lemon packing of $4.5 million and $5.6 million and lemon by-product sales of $0.4 million and $0.5 million, for the first quarter of fiscal years 2025 and 2024, respectively. • Avocados: During the first quarter of fiscal year 2025, 73,000 pounds of avocados were sold at an average per pound price of $2.25. Due to harvest timing, no avocado sales were recorded for the first quarter of fiscal year 2024. 26 • Oranges: The increase for the first quarter of fiscal year 2025, compared to the same period of fiscal year 2024, was primarily due to higher prices, partially offset by decreased volume of oranges sold. We sold 75,000 and 80,000 cartons of oranges at an average per carton price of $20.91 and $14.26, for the first quarter of fiscal years 2025 and 2024, respectively. • Specialty citrus and wine grapes: Specialty citrus revenue for the first quarters of fiscal years 2025 and 2024 was $0.5 million. Due to harvest timing, no wine grape revenue was recorded for the first quarter of fiscal year 2025, compared to $0.6 million in the first quarter of fiscal year 2024. • Farm management: Farm management revenue is comprised primarily of Northern Properties farming, management and operations services. The decrease in farm management revenues for the first quarter of fiscal year 2025, compared to the same period of fiscal year 2024, was primarily due to farm management decisions based on weather and crop conditions. • Other: Other revenue is comprised primarily of fallowing and shipping revenue. Other revenue for the first quarter of fiscal year 2025 was similar to the same period of fiscal year 2024. Other operations revenue for the first quarter of fiscal years 2025 and 2024 were $1.5 million and $1.4 million, respectively. Costs and Expenses Total costs and expenses for the three months ended January 31, 2025, were $39.7 million, compared to $47.5 million for the same period of fiscal year 2024. The 17% decrease of $7.8 million was primarily due to gains on sales of water rights and decreases in agribusiness costs and expenses and selling, general and administrative expenses. Agribusiness costs and expenses are detailed below ($ in thousands): Three Months Ended January 31, 2025 2024 Change Packing costs $ 10,591 $ 10,718 $ (127) (1)% Harvest costs 1,821 1,933 (112) (6)% Growing costs 4,262 6,192 (1,930) (31)% Third-party grower and supplier costs 14,352 17,723 (3,371) (19)% Other costs 699 804 (105) (13)% Depreciation and amortization 1,774 1,744 30 2% Agribusiness costs and expenses $ 33,499 $ 39,114 $ (5,615) (14)% • 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, subcontracted costs and facility operating costs. We packed and sold 1,147,000 and 1,137,000 cartons of lemons at average per carton costs of $9.23 and $9.43, for the first quarter of fiscal years 2025 and 2024, respectively. • Harvest costs: The decrease for the first quarter of fiscal year 2025, compared to the same period of fiscal year 2024, was primarily due to decreased wine grapes harvested due to harvest timing. • 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 for the first quarter of fiscal year 2025, compared to the same period for fiscal year 2024, was primarily due to 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 and suppliers is referred to as third-party grower and supplier costs. The decrease for the first quarter of fiscal year 2025, compared to the same period of fiscal year 2024, was primarily due to lower prices of third-party grower fruit. We incurred costs for third-party grower fruit of $11.7 million and $14.7 million for the first quarter of fiscal years 2025 and 2024, respectively. Of the 1,147,000 and 1,137,000 cartons of lemons packed and sold, 953,000 (83%) and 952,000 (84%) were procured from third-party growers at average per carton prices of $12.23 and $15.41 for the first quarter of fiscal years 2025 and 2024, respectively. Additionally, we incurred $2.7 million and $3.0 million of costs for brokered fruit for the first quarter of fiscal years 2025 and 2024, respectively. • Other costs: Other costs for the first quarter of fiscal year 2025 were similar to the same period of fiscal year 2024. • Depreciation and amortization: Depreciation and amortization expense for the first quarter of fiscal year 2025 was similar to the same period of fiscal year 2024. 27 Other operations expenses were $1.2 million for the first quarters of fiscal years 2025 and 2024. Gain on sales of water rights was $1.5 million for the first quarter of fiscal year 2025 due to three separate sale transactions of Santa Paula Basin water pumping rights. Gain on disposal of assets, net was immaterial and $0.2 million for the first quarter of fiscal years 2025 and 2024, respectively. The decrease was due to a sale of real property located in Yuma, Arizona in the first quarter of fiscal year 2024. Selling, general and administrative costs and expenses were $6.5 million and $7.3 million for the first quarter of fiscal years 2025 and 2024, respectively. The 12% decrease of $0.8 million was primarily due to: • $0.4 million net decrease in consulting and legal fees primarily associated with our strategic initiatives; • $0.1 million net decrease in salaries, benefits and incentive compensation; and • $0.3 million net decrease in other selling, general and administrative expenses. Other (Expense) Income Total other expense was $0.1 million for the first quarters of fiscal years 2025 and 2024. We recorded an estimated income tax benefit of $2.4 million and $4.2 million for the first quarter of fiscal years 2025 and 2024 on pre-tax loss of $5.5 million and $7.9 million, respectively. The tax benefit recorded for the first quarter of fiscal year 2025 differs from the U.S. federal statutory tax rate of 21.0% primarily due to foreign jurisdictions that are taxed at different rates, state taxes, tax impact of stock-based compensation, executive 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 2025, excluding discrete items, is approximately 43.1%. Net (Gain) Loss Attributable to Noncontrolling Interest Net (gain) loss attributable to noncontrolling interest represents 10% of PDA’s net income or loss for the period and 49% of Trapani Fresh’s net loss for the period. 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 17 - Segment Information for additional information regarding our operating segments. 28 Three Months Ended January 31, 2025 Compared to the Three Months Ended January 31, 2024 The following table shows the segment results of operations for the three months ended January 31, 2025 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 23,716 $ 4,545 $ — $ 162 $ 4,429 $ 32,852 $ 1,453 $ 34,305 Intersegment revenues — 7,270 (7,270) — — — — — Total net revenues 23,716 11,815 (7,270) 162 4,429 32,852 1,453 34,305 Costs and expenses 24,429 10,591 (7,270) 37 3,938 31,725 5,910 37,635 Depreciation and amortization — — — — — 1,774 242 2,016 Operating (loss) income $ (713) $ 1,224 $ — $ 125 $ 491 $ (647) $ (4,699) $ (5,346) 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 revenues — 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 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. Our fresh lemons segment total net revenues were $23.7 million for the first quarter of fiscal year 2025, compared to $27.4 million for the same period in fiscal year 2024. The (13)% decrease of $3.7 million was primarily due to: • Fresh packed lemon sales decrease of $2.8 million; • Lemon by-products sales decrease of $0.2 million; and • Brokered lemons and other lemon sales decrease of $0.7 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 2025 and 2024, our fresh lemons segment costs and expenses were $24.4 million and $28.8 million, respectively. The 15% decrease of $4.4 million was primarily due to: • Growing costs decrease of $0.9 million; • Third-party grower and supplier costs decrease of $4.2 million; • Harvest costs increase of $0.1 million; and • Intersegment costs and expenses increase of $0.6 million. Lemon Packing Lemon packing segment revenue is comprised of packing revenue and intersegment packing revenue. For the first quarter of fiscal years 2025 and 2024, our lemon packing segment total net revenues were $11.8 million and $12.3 million, respectively. The 4% decrease of $0.5 million was primarily due to decreased packing revenue. 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, subcontracted costs and facility operating costs. Our lemon packing costs and expenses were $10.6 million and $10.7 million, for the first quarter of fiscal years 2025 and 2024, respectively. Lemon packing segment operating income per carton sold was $1.07 and $1.40, for the first quarter of fiscal years 2025 and 2024, respectively. 29 The lemon packing segment included $7.3 million and $6.7 million of intersegment revenues for the first quarter of fiscal years 2025 and 2024, 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 For the first quarter of fiscal year 2025, our avocados segment had revenues of $0.2 million, compared to no revenues in the same period of fiscal year 2024. Costs and expenses associated with our avocados segment include growing and harvest costs. Other Agribusiness Our other agribusiness segment total net revenues were $4.4 million and $5.4 million for the first quarter of fiscal years 2025 and 2024, respectively. The 18% decrease of $1.0 million was primarily due to: • Farm management revenues decrease of $0.9 million; • Specialty citrus and wine grapes revenues decrease of $0.6 million; • Oranges revenues increase of $0.4 million; and • Other revenues increase of $0.1 million. Costs and expenses associated with our other agribusiness segment include growing costs, harvest costs, brokered fruit costs and shipping costs. Our other agribusiness costs and expenses were $3.9 million and $4.5 million for the first quarter of fiscal years 2025 and 2024, respectively. The 13% decrease of $0.6 million was primarily due to: • Growing costs decrease of $1.1 million; • Harvest costs decrease of $0.2 million; • Shipping costs decrease of $0.1 million; and • Brokered fruit costs increase of $0.8 million. Total agribusiness depreciation and amortization expenses were $1.8 million and $1.7 million for the first quarter of fiscal years 2025 and 2024, respectively. Corporate and Other Our corporate and other operations had revenues of $1.5 million and $1.4 million for the first quarter of fiscal years 2025 and 2024, respectively. Costs and expenses in our corporate and other operations were $5.9 million and $8.0 million for the first quarter of fiscal years 2025 and 2024, respectively, and include selling, general and administrative costs and expenses, gain on sales of water rights and gain on disposal of assets, which are not allocated to the operating segments. Depreciation and amortization expenses for the first quarter of fiscal years 2025 and 2024 were $0.2 million and $0.3 million, respectively. 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. 30 Results of Operations for the Trailing Twelve Months Ended January 31, 2025 and 2024 The following table shows the unaudited results of operations (in thousands): Trailing Twelve Months Ended January 31, 2025 2024 Net revenues: Agribusiness $ 180,436 $ 176,192 Other operations 5,641 5,538 Total net revenues 186,077 181,730 Costs and expenses: Agribusiness 159,192 167,042 Other operations 5,263 4,556 Impairment of intangible asset 643 — Gain on sales of water rights (1,488) — (Gain) loss on disposal of assets (348) 10,728 Gain on legal settlement — (2,269) Selling, general and administrative 26,594 24,520 Total costs and expenses 189,856 204,577 Operating loss (3,779) (22,847) Other income (expense): Interest income 111 378 Interest (expense), net of patronage dividends (1,014) 471 Equity in earnings of investments, net 18,417 5,110 Other income, net 201 23 Total other income 17,715 5,982 Income (loss) before income tax (provision) benefit 13,936 (16,865) Income tax (provision) benefit (6,156) 6,770 Net income (loss) 7,780 (10,095) Loss attributable to noncontrolling interest 447 278 Net income (loss) attributable to Limoneira Company $ 8,227 $ (9,817) The following analysis should be read in conjunction with the previous section “Results of Operations.” • Total revenues increased $4.3 million, primarily due to higher avocado revenue, partially offset by decreased lemon and farm management revenue. • Total costs and expenses decreased $14.7 million, primarily due to decreased agribusiness costs, increased gain on sales of water rights and decreased loss on disposal of assets, partially offset by increased selling, general and administrative expenses and decreased gain on legal settlement. • Total other income increased $11.7 million, primarily due to increased equity in earnings of investments, net related to LLCB, partially offset by an increase in interest expense, net of patronage dividends. • Income tax provision increased $12.9 million, primarily due to increased pre-tax income of $30.8 million. 31 Liquidity and Capital Resources Overview Our primary sources of liquidity are cash and cash flows generated from our operations, use of our revolving credit facility, sales of assets and distributions from our equity investments. 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 11 - Leases for amounts outstanding as of January 31, 2025, 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 12 months. We believe our revenue generating operations, distributions from equity investments and credit facilities will generate sufficient cash needed to operate beyond the next 12 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 $12.9 million and $10.3 million for the three months ended January 31, 2025 and 2024, respectively. The significant components of our cash flows used in operating activities were as follows: • Net loss was $3.1 million and $3.7 million for the three months ended January 31, 2025 and 2024, respectively. The components of net loss for the three months ended January 31, 2025, compared to the net loss in the same period for fiscal year 2024, consist of a decrease in operating loss of $2.4 million, partially offset by a decrease in income tax benefit of $1.8 million. • Adjustments to reconcile net loss to net cash used in operating activities: ◦ Adjustments were $(0.6) million and $(1.1) million for the three months ended January 31, 2025 and 2024, respectively, primarily related to gain on sales of water rights and deferred income taxes. ◦ Changes in operating assets and liabilities used $9.3 million and $5.5 million of operating cash for the three months ended January 31, 2025 and 2024, respectively, primarily related to accounts receivables and receivables/other from related parties, accounts payable and growers and suppliers payable, and accrued liabilities and payables to related parties. Cash Flows from Investing Activities Net cash used in investing activities was $3.5 million and $1.6 million for the three months ended January 31, 2025 and 2024, respectively. ▪ The $3.5 million of cash used in investing activities for the three months ended January 31, 2025 was comprised primarily of capital expenditures of $4.1 million, mainly related to orchard and vineyard development, partially offset by proceeds from sales of water rights of $0.6 million. ▪ The $1.6 million of cash used in investing activities for the three months ended January 31, 2024 was comprised primarily of capital expenditures of $2.2 million, mainly 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. 32 Cash Flows from Financing Activities Net cash provided by financing activities was $14.5 million and $8.8 million for the three months ended January 31, 2025 and 2024, respectively. • The $14.5 million of cash provided by financing activities for the three months ended January 31, 2025 was comprised primarily of net borrowings of long-term debt of $17.4 million, partially offset by common and preferred dividends of $1.5 million and the exchange of common stock of $1.2 million. • The $8.8 million of cash provided by financing activities for 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 dividends of $1.5 million and the exchange of common stock of $0.7 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, distributions from equity investments and from our Credit Facility with AgWest Farm Credit, formerly known as Farm Credit West, (the "Lender"), which includes the Master Loan Agreement (the “MLA”), a revolving credit facility supplement (the “Revolving Credit Supplement”), a non-revolving credit facility supplement (the “Non-Revolving Credit Supplement” and, together with the Revolving Credit Supplement, the “Supplements”), and a Fixed Interest Rate Agreement, which extends principal repayment to July 1, 2026. The MLA governs the terms of the Supplements. In addition, we have COVID-19 loans in Chile. Additional information regarding these loans can be found in Note 10 - Long-Term Debt. 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, 2025, our outstanding borrowings under the AgWest Farm Credit Facility were $57.8 million and we had $57.2 million of availability. 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 of 1.25:1.0 on an annual basis. We were in compliance wtih the covenants as of October 31, 2024. Dividends The holders of our Series B Convertible Preferred Stock and Series B-2 Preferred Stock are entitled to receive cumulative cash dividends. Such preferred dividends paid were $0.1 million for the three months ended January 31, 2025 and 2024. Cash dividends declared for the three months ended January 31, 2025 and 2024 were $0.075 per common share. Such dividends paid were $1.4 million for the three months ended January 31, 2025 and 2024. 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 becomes available in future periods. As of January 31, 2025, our critical accounting policies and estimates have not changed since the filing of our Annual Report on Form 10-K for the fiscal year ended October 31, 2024, as filed with the SEC on December 23, 2024. Please refer to that filing for a description of our critical accounting policies and estimates. 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. 33 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, 2024, as filed with the SEC on December 23, 2024.