Limoneira Co (LMNR) 2025 Q4 法說會逐字稿

Greetings, and welcome to Limoneira's fourth-quarter fiscal year 2025 financial results conference call. (Operator Instructions) It is now my pleasure to introduce your host, John Mills with ICR. Thank you, and you may begin.

Good afternoon, everyone. Thank you for joining us for this fourth fiscal year 2025 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Executive Vice President and Chief Financial Officer. By now, everyone should have access to the fourth quarter fiscal year 2025 earnings release, which went out today at approximately 4:05 p.m. Eastern time.

If you've not had a chance to view the release, it's available on the Investor Relations portion of the company's website at limoneira.com. This call is being webcast, and a replay will be available on Limoneira's website as well. Before we begin, we'd like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions.

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

Important factors that could cause or contribute to such differences include risk details in the company's Form 10-Qs and 10-Ks filed with the SEC and those mentioned in the earnings release. Except as required by law, we undertake no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise.

Please note that during today's call, we will be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira's ongoing results or operations, particularly when comparing underlying results from period to period.

We've provided as much detail as possible on any items that are discussed on an adjusted basis. Also, within the company's earnings release and in today's prepared remarks, we include adjusted EBITDA and adjusted diluted earnings per share, which are non-GAAP financial measures. A reconciliation of adjusted EBITDA and adjusted diluted earnings per share to the most directly comparable GAAP financial measures are included in the company's press release, which has been posted to its website.

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

Thanks, John, and good afternoon, everyone. Today, I want to update you on the substantial progress we've made in transforming Limoneira's business model. Over the past two years, we've systematically addressed the fundamental oversupply in the global lemon market by repositioning our company around multiple profit centers and dramatically improving our cost structure.

The strategic initiatives we began implementing in fiscal year 2023 were driven by a clear assessment of market realities. We took decisive action to reduce our exposure to volatile lemon pricing while building sustainable competitive advantages. In the fourth quarter of fiscal year 2025, we accelerated this work by reducing future costs to position us for stronger fiscal year 2026 results.

Our return to Sunkist exemplifies this strategy in action. In fiscal year 2026, we expect to generate $10 million in cost savings compared to fiscal year 2025. Importantly, Sunkist provides enhanced customer access to premium accounts and major US retailers through a full category citrus offering.

This positions us to deliver comprehensive solutions for retail buyers while removing pricing pressure from the marketplace and strengthening both our packing margins and grower partner relationships. Another key initiative involved expanding our avocado offering. Today, we have 1,500 acres planted with only 800 acres currently bearing fruit.

The additional 700 acres will begin bearing fruit over the next three to four years, representing a near 100% increase in our avocado production capacity. California avocados command premium pricing due to superior quality, and our strategic location provides logistical advantages to the highest per capita consumption markets in the Western United States.

Our strategic initiatives extend well beyond agriculture. We have our planned 50-50 organic recycling joint venture with Agroman that we expect to process 300,000 tons of organic waste annually and generate $4 million to $5 million in additional EBITDA beginning in fiscal year 2027. We also have our real estate development project Harvest at Limoneira.

We continue to expect future distributions to total $155 million over the next five fiscal years. Phase 3 of the project consists of approximately 500 home lots and 300 apartments, plus we have an additional 35-acre East Area 2 medical pavilion development that we believe could be begin to be monetized in fiscal year 2026.

Additionally, we have Limco Del Mar, our 221-acre agricultural property that is infill property within the City of Ventura which represents a strategic asset with potential for residential development and significant long-term value creation. We are also unlocking value by divesting nonstrategic assets and monetizing our water rights to fuel this transformation and strengthen our balance sheet.

We successfully completed the sale of our Chilean assets in November for $15 million. We are now advancing the monetization of our Windfall Farms Vineyard in Paso Robles and Argentina agricultural assets together valued at approximately $40 million, with completion targeted by the end of fiscal year 2026.

Simultaneously, our water monetization strategy is gaining momentum. We realized $1.7 million from the sales of the Santa Paula Basin pumping water rights this past year and are positioned to capture an additional $50 million to $70 million in value through fiscal year 2027 from our Class 3 Colorado River water rights and Santa Paula Basin conserved pumping rights.

These represent a transformation of our business model, shifting from a focus on oversupplied lemons to higher-demand avocados, optimizing our asset base through strategic divestitures and partnerships and operating with a more asset-light structure across multiple profit centers.

Fiscal year 2026 will mark the beginning of this transformation's financial impact with multiple value drivers converging simultaneously. We expect to realize a 50% reduction in SG&A or approximately $10 million in savings in fiscal year 2026 from our operational restructuring initiatives completed in the fourth quarter of fiscal year 2025. Our expanding avocado production will begin contributing meaningfully in fiscal year 2027 as our 700 acres of nonbearing trees begin maturing.

Additionally, our diversification strategy gains momentum with our planned Agroman organic recycling joint venture moving toward its expected $4 million to $5 million EBITDA contribution beginning in fiscal year 2027. Combined with continued asset optimization and reduced commodity exposure, we expect fiscal year 2026 to deliver substantially improved financial performance. The proof points are clear.

Our cost structure has dramatically improved, our customer access is enhanced, our product mix is optimized, and our asset base is being monetized. These are strategic initiatives that we believe will drive financial results beginning in fiscal year 2026. As our cash generation improves, we will evaluate capital allocation opportunities, including share repurchases of our stock price doesn't reflect our operational improvements debt reduction and potential dividend increases as our diversified cash flows improve.

In closing, Limoneira today is fundamentally different from the company we were 18 months ago. we've transformed from a commodity lemon producer to a diversified agricultural and real estate company with multiple growth engines and a dramatically improved cost structure. Now let me turn it over to Mark for the financial details, and then we'll take your questions.

Thank you, Harold, and good afternoon, everyone. Before I begin, I would remind you, it is best to view our business on an annual, not quarterly basis due to the seasonal nature of our business. Historically, our first and fourth quarters have been the seasonally softer quarters, while our second and third quarters have been stronger, a pattern that has held true for the fiscal year 2025.

However, Beginning in fiscal year 2026, our seasonal cadence will shift due to our Sunkist partnership transition. Under this new structure, we expect the cadence of the quarterly results to be as follows: the first and second quarters will be the seasonally softer quarters, while our third and fourth quarters now will be stronger.

This represents an important change in our quarterly rhythm that investors should factor into their modeling as we move forward. For the fourth quarter of fiscal year 2025, total net revenue was $42.8 million compared to total net revenue of $43.9 million in the fourth quarter of the previous fiscal year. Agribusiness revenue was $41.3 million compared to $42.5 million in the fourth quarter last year.

Other operations revenue was $1.5 million in the fourth quarter of fiscal year 2025 compared to $1.4 million in the fourth quarter last year. Agribusiness revenue for the fourth quarter of fiscal year 2025 includes $19.2 million in fresh pack lemon sales compared to $8.4 million during the same period of fiscal year 2024.

Approximately 821,000 cartons of US packed fresh lemons were sold during the fourth quarter of fiscal year 2025 at a $23.33 average price per carton compared to 470,000 cartons sold at a $17.95 average price per carton during the fourth quarter of fiscal year 2024. Brokered lemons and other lemon sales were $12.5 million and $14.7 million in the fourth quarter of fiscal years 2025 and 2024, respectively.

The company recognized $300,000 of avocado revenue in the fourth quarter of fiscal year 2025 compared to $8.9 million of avocado revenue in the same period of fiscal year 2024. Approximately 396,000 pounds of avocados were sold in aggregate during the fourth quarter of fiscal year 2025 at a $0.79 average price per pound compared to approximately 4.6 million pounds sold at a $1.92 average price per pound during the fourth quarter of fiscal year 2024.

The California avocado crop typically experiences alternate years of high and low production due to plant physiology and was the primary reason for lower volume this year compared to last year. We achieved our avocado volume goal for fiscal year 2025.

The company recognized $2.9 million of orange revenue in the fourth quarter of fiscal year 2025 compared to $1.7 million in the fourth quarter of fiscal year 2024 and approximately 148,000 cartons of oranges were sold during the fourth quarter of fiscal year 2025 at a $19.67 average price per carton compared to approximately 91,000 cartons sold at an $18.99 average price per carton during the fourth quarter of fiscal year 2024.

Specialty citrus, wine grape and other revenues were $2.9 million in the fourth quarter of fiscal year 2025 compared to $3.5 million in the fourth quarter of fiscal year 2024. Due to the termination of our farm management agreement effective March 31, 2025, there was no farm management revenue in the fourth quarter of fiscal year 2025 compared to $2.9 million in the same period of fiscal year 2024.

Total cost and expenses for the fourth quarter of fiscal year 2025 were $53.9 million compared to $46.6 million in the fourth quarter of last year. Operating loss for the fourth quarter of fiscal year 2025 was $11.1 million compared to operating loss of $2.8 million in the fourth quarter of the previous fiscal year.

Net loss applicable to common stock after preferred dividends for the fourth quarter of fiscal year 2025 was $8.8 million compared to net loss applicable to common stock of $2 million in the fourth quarter of fiscal year 2024. Net loss per diluted share for the fourth quarter of fiscal year 2025 was $0.49 compared to a net loss per diluted share of $0.11 for the same period of fiscal 2024.

The increase in net loss and net loss per share compared to the prior year reflects $6.7 million in strategic transformation costs, including expenses related to the Sunkist transition, tree disposals for the expansion of avocado production and other nonrecurring costs and expenses. In addition, we incurred costs related to a power outage at our storage facilities, which we expect to recover through insurance proceeds in the first quarter of fiscal year 2026.

Adjusted net loss for diluted EPS for the fourth quarter of fiscal year 2025 was $8 million or $0.45 per diluted share compared to adjusted net loss for diluted EPS of $1.6 million or $0.09 per diluted share in the same period of fiscal year 2024. A reconciliation of net income or loss attributable to Limoneira Company to adjusted net income or loss for diluted EPS is provided at the end of the earnings release.

Non-GAAP adjusted EBITDA for the fourth quarter of fiscal year 2025 was a loss of $7 million compared to income of $1.2 million in the same period of fiscal year 2024. A reconciliation of net income or loss attributable to Limoneira Company to adjusted EBITDA is also provided at the end of our earnings release.

Looking beyond this year, the citrus sales and marketing plan we announced with Sunkist is anticipated to enhance our resilience to market volatility by creating a more efficient cost structure. For the fiscal year ended October 31, 2025, total net revenue was $159.7 million compared to $191.5 million last year.

The decrease was primarily driven by decreased agribusiness revenues from lemons, avocados, wine grapes and farm management, partially offset by increased agribusiness revenues from oranges. Operating loss for fiscal year 2025 was $20.4 million compared to an operating loss of $6.2 million last year.

Net loss applicable to common stock after preferred dividends was $16.5 million for fiscal year 2025 compared to net income of $7.2 million for fiscal year 2024. Net loss per diluted share for fiscal year 2025 was $0.93 compared to net income per diluted share of $0.40 in fiscal year 2024.

For fiscal year 2025, adjusted net loss per diluted EPS was $14 million compared to adjusted net income for diluted EPS of $11 million for fiscal year 2024. Adjusted net loss per diluted share for fiscal year 2025 was $0.79 compared to adjusted net income per diluted share of $0.62 for fiscal year 2024 and based on approximately 17.8 million and 17.7 million weighted average diluted common shares outstanding, respectively.

The effective tax rates for fiscal year 2025 and 2024, were 22.1% and 37.9%, respectively. For fiscal year 2025, adjusted EBITDA was a loss of $6.5 million compared to an income of $26.7 million for fiscal year 2024. Turning now to our balance sheet and liquidity. Long-term debt as of October 31, 2025, was $72.5 million compared to $40 million at the end of fiscal year 2024. Debt levels as of October 31, 2025, less $1.5 million of cash on hand resulted in a net debt position of $71 million at the end of fiscal year 2025.

In April 2025, we received $10 million of our share of a $20 million cash distribution from our 50-50 real estate development joint venture with the Lewis Group of companies. The distribution came from the joint venture's available cash and cash equivalents, which is as of October 31, 2025, totaled $31.2 million.

Last week, we negotiated more favorable banking covenants that allow us to continue to use the full capacity of our $115 million credit facility of which we had $41.6 million of availability as of October 31, 2025. Now I'd like to turn the call back to Harold to discuss our fiscal year 2026 outlook and longer-term growth pipeline.

Thank you, Mark. Looking ahead to fiscal 2026, we expect this to be the year of strategic transformation begins delivering measurable financial results. We entered fiscal 2026 with approximately $10 million in anticipated cost savings initiated in fiscal year 2025 that are expected to benefit fiscal year 2026, this includes the benefits of our Sunkist partnership, which will be visible in our fiscal year 2026 results through improved cost structure and enhanced customer relationships.

Our avocado expansion continues on schedule with significant production increases expected in fiscal year 2027 as our nonbearing acreage matures. For fiscal 2026, we are providing the following guidance: fresh lemon volumes of 4 million to 4.5 million cartons and avocado volumes of 5 million to 6 million pounds.

Beyond our core operations, we have several additional value creation opportunities progressing. Our real estate pipeline remains strong with $155 million in expected distributions over the next five fiscal years. The Limco Del Mar entitlement process represents another significant real estate development opportunity.

And our planned organic recycling joint venture is expected to contribute meaningful EBITDA beginning in fiscal year 2027. We've built a more resilient business model that's less dependent on commodity lemon pricing while creating multiple engines for profitable growth. Operator, we'll now open the call to questions.

(Operator Instructions)

Pooran Sharma, Stephens.

Good afternoon and thanks for the question. Just wanted to start off with the partnership here. Just wanted to start off with the partnership here. I know you just mentioned here $10 million of cost savings. Just wondering if you could just give us a little bit more granularity into kind of operationally how you expect to get that $10 million?

And then also, you did quote better customer relationships in your prepared comments. Just wondering if you could parse that out a little bit more, maybe just give us a sense on how much of your lemon volumes are moving toward contracted versus open and maybe how this compares to your guys' business before the partnership?

Great. Thank you, Pooran . So I'll take the first part around the cost and the cost reduction and then Harold will go for your second question. So as you recall, back in our June quarter, we announced our transition to Sunkist that we expected to generate approximately about another $5 million of EBITDA, and that's the transition of our sales and marketing team, which most of those employees did go over to Sunkist and expand their program with all of our customers.

And as we analyze the rest of the structure in the program, we really took a deeper check at storage first and foremost, and all of our operational processes there. While our sales and marketing plan with Sunkist now has a new cadence, which requires more storage. We've successfully renegotiated some of our storage contracts and also utilize some of the Sunkist unused capacities, which have allowed us to lower transportation costs and also leasing costs.

And so there's a pretty good split in the $10 million $5 million that we started with, which was the sales employees and all those going over and then another $5 million relative to storage and operational efficiencies as well as using the opportunity, so what we'll say, rightsize our own business, whether in every category from farming accounting, packing, just to make sure as we were going to become smaller to get bigger, we had the best platform to be able to do that.

And as we go through '26 and start to see that and recognize that, and then pile on the new revenue opportunity is as well double plus our avocado production. I think that's what we're really trying to set ourselves up for.

And Pooran I might just follow up with that by saying that when we did a deep dive into our cost structure, and we held ourselves accountable to the entire team that we put together to advance the marketing and sales efforts we realized that we were spending all in, including all the administrative support and efforts that went behind the sales and marketing function, about $1.50 a carton for that sales and marketing effort.

And by returning to Sunkist now, that is now fixed at $0.60 a carton. So if you multiply that over 4 million to 4.5 million cartons, you see where the savings comes from. As to the second part of your question about stronger marketing and selling opportunities by returning to Sunkist, it's really driven by two things.

Number one, we were beginning to face challenges in the retail segment of the market because as a single commodity supplier of just selling lemons we were really challenged competitively against the other big marketers and sellers like Sunkist who have the full category of citrus and as we all know, citrus buyers at retail like one-stop shopping.

And so by us rejoining Sunkist and becoming part of that supply chain with lemons across their full category of citrus we now take advantage of much greater access to the top retail customers in the country but also a lot of their prices are fixed for a period of time, which versus the spot markets give us a great much greater pricing advantage, which should manifest itself in better grower returns for our grower partners but also in greater returns back to our own lemon production as a large lemon grower.

And then last part to the puzzle, which is one of the biggest reasons we returned is Sunkist has an exclusivity in supply to one of the largest food service buyers of fresh lemons. This one customer makes fresh lemonade in all of their quick-serve restaurants across the country.

And they do that by using exclusively Sunkist lemons, and so for us to now become part of Sunkist lemon supply chain, it gives us access to some of the top food service customers at very excellent pricing, which gives us a greater opportunity for higher fresh utilization but ultimately, for higher pricing, not only for our grower partners but also for ourselves as a large lemon producer.

Great. Appreciate the color there. Maybe wondering if we could talk about some of the strategic assets or I should say, noncore assets that you're selling off. And I wanted to specifically focusing on water. It looks like you made some moves this quarter. I think you've mentioned in the past a range of valuation that you get per acre feet.

How does this compare versus your expectations? And could you maybe go through some of the puts and takes in terms of trying to achieve a higher valuation? Do you get pushback from some of the local governments. I would just love to hear some color regarding your water assets.

Yes. Water is complex because it sort of follows that when you're dealing with water in water scarce areas the value of the water is much higher than when you're dealing with and managing water assets in areas where there's water abundance. We really have two dynamics where we're dealing with local scarcity.

One is as we continue to operate our agricultural operations in the Santa Paula Basin, we're surrounded on both sides of our operations by municipalities to the west, the City of Ventura and to the east, the City of Santa Paula. And as a result of the scarcity and the lack of water supply in both of those municipalities, the opportunity to monetize conserved water rights and pumping rights as we do a better job with conservation and sustainability in our own operations, creates opportunities periodically to monetize some of these conserved rights.

When a city is following an urban growth mandate, which all cities in California do there's a certain requirement for new development of residential, commercial or industrial development to bring water to any specific project. And typically, the developers of these projects don't have water, so they pay a fee in lieu to the city and the cities then need to go out and purchase the water rights.

So we've put ourselves in a position to be one of the suppliers of some of these water rights for some of those opportunities as it relates to opportunities in the Santa Paula Basin. The other interesting water monetization opportunity relates to our assets that we own in Yuma, Arizona, which have Class III Colorado [River reparion] water rights.

And as the Department of Interior, the Bureau of Reclamation have mandated that one-third of the consumptive use of the Colorado River be cut, we have put ourselves into position to take advantage of following programs where entities like the Central Arizona project, like the Bureau of Reclamation actually pay farmers to not use the water so that water can be diverted off for higher and better uses, which, in this case, typically is for urban use.

And so as a result, those following programs have become very, very valuable. The Colorado River has just ended its 25-year a cord that was on the river, and is now looking to put the next 25 years of following per together, we believe that those programs will be put into place by the end of 2026, and we're negotiating and working with other agricultural water owners to figure out the best way to monetize those water rights. But fundamentally, those water rights are very, very valuable, and most likely will be contributed to following programs, of which will be paid to not use that water.

Got it. I appreciate the call there. I'll, jump back in the queue.

Gerry Sweeney, ROTH Capital Partners.

Good afternoon, Harold and Mark, thanks for taking my call. Just following up on the water side. Obviously, the renegotiation of the Colorado River Compact is underway starting. I think there was a big comp fab in Vegas last week discussing this. I would imagine my sense is or what I'm hearing is that there's going to be a lot of cuts along the river and less allocation.

So specifically impacting Arizona and Southern California. I would believe this would be a strong positive for your water rights strategy. Is this can you confirm that and maybe provide a little bit of details around it.

Yes, you bet. So as Harold alluded to, we have Class III Colorado River water rights. And there's eight different classes throughout the system which start with the American Indians, the Mexican government. And then third is ours, which are original generation farms that were formed in the early to mid-1900s.

Following that, subsequently four, five, six, seven, eight, you have Phoenix, Tucson, Scottsdale, Las Vegas, California in all of the western states that have their piece of that pie. It was recently as we've all watched Lake Mead in the last two to three years with all of the drought, federally mandated that one-third of the water needs to come off the river and getting everyone in agree.

So everyone has been in the back room, all of the federal, state and local agencies paired with local agricultural growers and commercial water users. And I think, as you mentioned, that water conference last week was a big step forward. We weren't there, but we did have her a lot of it and a lot of the people that were working negotiations that we're thinking about contributing our water for the better good of that, we're going very well.

Now 12/31/26 is the deadline when everybody needs to agree, which means everyone needs to agree before the summer starts. And as we see, it's obviously it's been it's raining in California and it's about to rain a lot more, and sometimes that makes people complacent. But the water values that people are talking about just sort of in the back rooms have been double per acre foot of the current filing programs and allowing more use of your total acreage.

The one part that we're very conscious about is the social aspect of it and the conserved nature of the water, so not just walking away from the water and the community like, for example, Yuma, Arizona, where we have farmers and jobs and local communities. Part of the whole plan will need to incorporate that.

So really going to, as an example, a low use water crop like an agave you can still have jobs, you can still have economies and then also have the rest of those that need, whether it's California, Arizona or other Western states to have that water. So I think the answer is yes, yes and yes. there's going to get a deal that's going to need to be done. People are starting to come to the table and agree and they'll be at higher values.

Just curious on that front cluster, right? So most people I don't know understand that it's first in time in place. So Class 1, the American Indians, they have the most senior water rights in Class III is very senior as well, so that's where you're standing. Is there any talk of cut down to Class III? Or would the cuts come in classes that are below you or later in time?

No, that's a great question because we've always had our eye on that, Gerry. The as you know, there's 8 tiers and in times of scarcity or cuts, they cut Tier 8 first and 7, 6, 5, 4, 3 so on. All of the discussions that have been held to our level of awareness have been below Class 3 down to Class 5 is what we've heard.

A lot of the Central Arizona projects, so all the housing that Mark was talking about from Phoenix to Tucson and all of Las Vegas. Those are Class V water rights. And so that's really where the demand is coming is for all the urban uses of Class V water that needs to be replaced with a more senior class, and to your earlier point, that puts us in a great spot to take advantage of that. Exactly.

Got you. Super helpful. couple more questions. I just before I go to the asset, but Limco Del Mar, obviously, that's infill land right in the town. Any ideas on how that develops?

And I would imagine that acreage is highly valuable. And when I say how it develops, I'm just curious if you've come up to a conclusion whether or not I mean, do you sell it? Do you self-develop it? Do you partner again and take a similar track with like you did at the Harvest of Limoneira?

No, that's a great question. So there's two pieces to this. The first part, which is the heavy lift is the entitlement piece. As you know, Jerry, in Ventura County, there's legislation that mandates a public vote to convert an agricultural piece of land into an urban development piece of land. And it follows that people would much rather look at a beautiful orchard than a strip mall and a bunch of condos and houses.

And so the trick to gaining entitlements is to build development agreements that have enough benefit to the local communities that they're willing to vote to endure the cost of the loss of the beautiful agriculture and the and the traffic that they'll have to endure and just the general inconvenience of development so there's an art to it.

And so what that art involves is a lot of outreach and public charettes, where we'll be listening to the local community members tell us what they really want incorporated into this project. And following that as these public threats, which will take place throughout most of 2026. We'll then take the ideas that we've pulled together and incorporate them into a specific plan. We will then do all of the environmental impact review and sequel work, which is arduous and comprehensive and there's just a lot of work we want to study.

And then once that's done, we'll sit down with the city officials in the City of Ventura to create a development agreement that provides a lot of the benefits that we hope to bring to the community in terms of types of housing and parks and recreation and schools and all kinds of things that will be contemplated, and then once all of that is put together, then we have to go to the poles and have a public vote.

If we win that vote, then at that point, that property becomes entitled to convert at which point then we go through another agency, which is called LAFCO for the annexation of that property into the city of Ventura, and then we can start the second phase where the biggest value or a lot of the value is created which is the development phase.

Your question related to how we would go about developing. And I think we're not there yet. We're not sure we have great relationships with our development partner at Harvest at Limoneira. We're in discussions with them about the potential of moving forward with Del Mar, but there's a lot of heavy lifting to be done with the entitlement part of the project. So that's really what we're focusing on right now.

I would imagine there's a pretty hefty increase in value of the land as well when it moves from the entitlement, if you would win the entitlement vote, that's a pretty heavy lift itself, correct?

Yes. And it's a heavy lift. If you get the vote anecdotally, the value of the land goes from $100,000 an acre to $1 million an acre.

Well, that's good to know. good number.

It's a good vote to get.

Yes. And I know (inaudible) is not easy too. That's a process.

That's right. And I don't mean to be flipping about it. It's a very arduous and challenging process and you only win that vote if you truly have connected with the local community. So that's really what we're really trying to do.

Got it. Switching gears, I don't want to take this over, but switching gears real quick just to the avocado. So two questions on that front. The cadence of the 700 acres coming into production and in calls past, we've talked about the operating income per acre for avocados, if we could touch upon that again.

Yes. So right now, we've got 700 acres that are nonbearing at the moment. We have another 250 to 300 acres to plant this year and then the same the following year. So as you see, and it's still the same in our deck, and I think it's most people have that and it's up to date. But next year will be our first year of our first planting.

So think about four to five total plantings of 250 acres a year starting in '27 and going all the way through 2021 maturing equally. So as we have as you know, avocados are alternate bearing. And so as we go through those years, we think we will still have increasing volumes even with those alternate bearing acres. And remember, the new plantings are twice as debt.

So instead of 93 per acre there are 120 trees per acre. So we're expecting an average of about 17,000 pounds an acre. If you consider the alternate bearing going forward over a 10-year period, you'll have the lows 10 to 12 and the highs to 25-plus pounds per acre. And we expect anywhere if we use historical pricing, over the last 10 years was about $1.33 a pound.

This year was a little bit of anomaly. You saw a bigger heavy crop this late summer which took the price below $1 we're starting to see that recover and then you obviously get the infamous Super Bowl time and [Cinco de Mayo] and when the prices come back. So we're really comfortable with the long-term price of $1.30 plus and using anywhere from $12,000 to $14,000 in operating profit per acre, it ends up costing us about $5,000 to farm it per acre.

And currently, right now, it's about $3,500 to pick and haul it. So the math off of that $20,000 an acre or $12,000 an acre, ends up being about $12,000 to $14,000 of operating profit.

Okay, got you, I really appreciate it, and I'll jump back in queue. Thanks.

(Operator Instructions)

Mark Smith, Lake Street Capital Markets.

Hi guys, I want to look First, at kind of the expense side of things. You guys talked about streamlining operations and potential cost cutting. And I think you gave some the potential SG&A savings next year on the work that you've already done. Can you just give us more update on that? How much of that has worked in, in the transition to Sunkist and how much is kind of other projects that you've been working on?

So good question. It's pretty complex. So really, November 1 was the start, right? And so it's never a perfect cut off line. We had a transition of the sales force go over actually some of them left a little bit before, some of them are left a little bit after.

And then some of the ancillary accounting positions, we did if you remember, transition our whole brokerage business, which is why we'll have the large drop in revenue, which was that 6% to 8% commission business, about $30 million. And so that closed out. We actually just finished selling the brokerage business.

So you'll have some of that cleanup. If you looked at a full calendar year 12 months, probably is the realistic conservative $10 million. But we also think that in that number, transportation, we used to have a packing house up in the Central Valley. We packed (inaudible) fruit with about $0.5 million of transportation costs. There's just going to be a number of new items that are shut down and no longer this year that are not included and from our budgetary purposes or guidance.

So I think we'll be surprised. It will be as we see it and prove it out. And then really, we get through January, we just are finalizing integrating all the computer systems. Sunkist has a different system, obviously, and we're we just finalized implementing a system of our own. So those are starting to work well together.

So a lot of those operational efficiencies another specific one was we renegotiated our lease at Oxnard Lemon that saved us about $700,000 in that one respect. And so we've got some more work to do around storage. So we're going to be learning the transition in Sunkist and being asked to store fruit longer.

So we got to have mother nature as our friend always working with that. But the value proposition from the new Sunkist plan and holding that fruit longer into a higher-priced market into those Chick-fil-A and raising cans kinds of customers makes a lot of sense to us. And so that's why you saw in our fourth quarter this year, we had our first glimpse into those customers and an average price of over $23. So bottom line is a lot of the people costs have moved out. There will be a little bit of dragging through December. And then it's all right straight into operational and that's going to be our focus.

Okay. And then just you mentioned some lemon pricing. Just any insights you can give us into your outlook for kind of lever pricing here near term or even through the fiscal year?

Yes. So that's the $10 million question. So last year, we had the [Chair Noble] market, which I hadn't seen in my 15 years here where we had a one of the packing houses left Sunkist and with the home with 4 million cartons without a home. And so the only way you sell lemons without a home and real good customers and it was with price.

And so we saw an imbalance in the market that took pricing in January, February last year, sometimes below $10. Right now, the price is somewhere just below $20. Typically, we see a dip go into the '16, '17 range in sort of February, January, February, March, and it's a lot of it's contract based.

And so if you don't have any much of the market fruit, which now being in the Sunkist system, we don't you really get that floor protection. And so then going into the summer is what's going to happen again, which we think will be a repeat of next summer because Turkey and Spain had a really tough freeze last year, which will turn into a two-year event.

And what happens there is, again, it's all about balance of supply as most of the southern hemisphere fruit will go to Europe this summer instead of come to the US. And so our fruit, which we'll be holding will be in a better balance. So at the end of the day, I'd like to say there'd be a two in front of the average price this year. We're not going to put a formal forecast out. But if it plays out like last year, and we don't get the low lows in February, then we should have a good opportunity to try to hit that.

Excellent. And I think the last question is just kind of comfort around the balance sheet. You guys talked about kind of reworking some covenants and stuff. Just any update and thoughts around the debt and kind of your comfort levels?

Yes. So first thing we want to do is pay down debt when we can get to. I think $40 million is a good number. We've always had our target on. This year was elevated, obviously, with the operating loss and then the continued foot on the gas for the CapEx, we also, as you might have seen, we had our loan was up at term this summer, and so we had to put a new term out there in new conditions.

And one of the new conditions was this MAX leverage debt ratio that came out. And it was new for the bank, it was new for us, and it was backward looking four quarters, which and on the face of it looks good but as a company that's in development, i.e., 40% of our acreage is non-bearing but with the continued expense it was challenging to have a backward-looking measurement.

And while you don't breach it until you breach it, obviously, not from the accounting side in Deloitte, you have to forecast out what looks forward. And so being in that position was something that we weren't comfortable with. And the bank, we sat down with everybody at the bank. We went through a good forecast.

And we have a new ratio which is basically a capitalization ratio or balance sheet based which we forecasted out as far as at the end of '27 and looks like it's in good shape. So it's basically debt divided by assets minus liabilities and a ratio there. So and then the other ratio that we have, which is the debt service coverage ratio which is basically computing interest expense and your ability to pay they suspended that measurement until the end of fiscal '27.

So really gave us free rein to open up and use our capacity. We've had a great lender in Farm Credit Ag West, and they just showed up again. So that's it was just very helpful. And it was a real, real positive.

Mark, the oversimplified way to try to explain this is that putting all of the efforts we're working on with the avocados, the organic recycling is to and our return back to Sunkist is to get our core operating agricultural business to generate consistently more EBITDA while at the same time, then using asset monetization and real estate development as the stop gap between now and when that core business is really generating consistent growing cash flows to pay down debt and to delever that way.

So EBITDA up, debt down with a core business that then can operate sustainably and very profitably and begin to generate free cash flow that then at that point, the world is our oyster, and then we'll have some great sort of capital allocation decisions to make.

Okay, great. Thank you, guys.

Thank you.

This now concludes our question-and-answer session. I would like to turn the call back over to Harold Edwards for closing comments.

So I'd like to thank you all for your questions and your interest in Limoneira. And finally, I'd like to wish you all a very happy holidays. Thank you for your time.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.