Greetings, and welcome to Limoneira’s Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us for Limoneira’s third quarter fiscal year 2022 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Chief Financial Officer. By now, everyone should have access to the third quarter fiscal year 2022 earnings release, which went out today at approximately 4:00 p.m. Eastern Time. If you have not had a chance to view the release, it’s available on the Investor Relations portion of the company’s website at limoneira.com. This call is being webcast, and a replay will be available on Limoneira’s website as well. Before we begin, we’d like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company’s control and could cause its future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks detailed in the company’s 10-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 also be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira’s ongoing results of operations, particularly when comparing underlying results from period to period. We have provided as much detail as possible on any items that are discussed on an adjusted basis. Also, within the company’s earnings release and in today’s prepared remarks, we include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure is included in the company’s 10-Q and press release, which have been posted to our 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. Operating income increased over 200%, and our top line grew by 20% driven by record avocado revenues and strong fresh lemon sales in the third quarter of fiscal 2022 compared to the prior year period. Our strategic approach to fresh utilization enabled our sales and marketing team to successfully market our fresh lemons throughout the year. The investments we've made in technology and our supply chain have resulted in superior market timing compared to our peers and have brought more grower partners to our company. Even though overall lemon pricing remains challenged in the third quarter as the domestic and global lemon markets continue to work through a surplus of inventory, we were able to offset many industry-wide inflationary pressures and logistical issues. In addition, our avocado segment has continued to outperform expectations, with pricing almost doubling year-over-year resulting in record revenues of $12.6 million in the third quarter of 2022. Our results are even more impressive when you consider the fact that our industry continued to face rising labor costs and higher packing and supplier costs. But our strong top line and efficient marketing and selling plans more than offset these cost increases. Last quarter, we informed you of our plan to unlock the value of our many assets and better leverage our leading global citrus position by expanding our One World of Citrus initiative, increasing our avocado plantings, and selling certain assets to dramatically increase our cash flow in the near future. Today, we are updating that plan and we expect the updated plan to increase our One World of Citrus business by focusing on growth of asset lighter sales using more grower partner fruit in order to reduce the impact of pricing volatility and rising farming costs. We will continue to develop best-in-class grower services to recruit additional grower partners. We have over 15,400 acres of rich agricultural lands, real estate properties, and water rights in California, Arizona, Chile, and Argentina, with a fair market value of over $600 million in today's market. You have a book value on our balance sheet of $220 million because many of these assets were acquired years ago at low cost basis. We believe selective monetization of certain assets in our portfolio creates a tremendous value creation opportunity for our shareholders. As a reminder, our Board's objectives with our new directive include the following: reduce debt and right-size our balance sheet. We also reiterated today that we expect to receive approximately $95 million over the next five years from harvest at Limoneira, beginning this year with $8 million expected in the fourth quarter of fiscal year 2022. In addition to harvest, we have identified assets that we will be monetizing and selling in the coming months to streamline our operations. Our updated strategic plan involves four specific initiatives. First, we will be transitioning our One World of Citrus to an asset lighter business model. In order to unlock the value of our many assets and better leverage our leading global citrus position, we will be expanding our One World of Citrus model, while also strategically selling certain assets and streamlining our operations to dramatically increase our long-term cash flow. In order to accomplish this, we will be increasing our focus on growth of asset light sales using more grower partner fruit in order to reduce the impact of pricing volatility and rising farming costs. We will continue to develop best-in-class grower services to recruit additional grower partners. We will also be reconfiguring our global lemon packing network to better support our grower partners' fruit. This may include reducing certain orange and lemon acreage globally, while still maintaining the packing and marketing of the fruit grown on these locations. In the coming years, we expect 30% of our lemon global supply chain to come from Limoneira fruit and 70% to come from grower partner fruit, while maintaining our overall growth goals. Number two, this asset lighter model will enable us to achieve improvements in the following metrics our Board is using to measure progress and position us to improve shareholder value. The first is reduced investment risk outside of North America. The second is to generate more stable and higher growth in EBITDA and earnings. And lastly, to improve our annual return on invested capital. During the past 12 years, as we grew our One World of Citrus offering, we also made certain investments and assets that were embedded in this growth and the overall infrastructure of Limoneira. Now we will be focusing on monetizing certain of these assets that have increased in value over the years, and this will dramatically improve our return on invested capital. As an example, today we announced that we expect to generate $8 million in cash in the fiscal fourth quarter of 2022 from the sale of 17 acres to our joint venture to potentially develop an additional 200 or more residential units within harvest. Number three, we expect to also leverage our leading avocado position by increasing our avocado production based in Ventura County, and exploring additional ways to participate in the packing, marketing, and selling of avocados as a complement to our One World Of Citrus initiative. Number four, our strategic objective is enhancing our ESG goals. Limoneira has a long history of sustainability practices, and this is one of the reasons our company has enjoyed almost 130 years of giving back to the community. We build housing for farm workers, sponsor community programs, feed farm workers, reduce our carbon footprint with seven solar installations, and manage green waste with a facility that receives over 200 tons per day of organic green waste. We minimize pesticides and herbicides through integrated pest management programs, and we are a pioneer in water conservation. However, to ensure our land is here for future generations, we are redoubling our efforts on environmental, social, and governance standards. We are increasing our focus on regenerative agricultural practices, including expanding our relationship with third-party agronomists to further enhance and properly nurture our soil and water conservation efforts. We continue to use new technology and improve our digital information system to increase efficiencies across our supply chain. This system will work in tandem with our agricultural practices by monitoring daily tree health and fruit growth, identifying labor and distribution needs, predicting the right time to harvest, and matching harvest fruit grades and sizes to meet global demand. Lastly, we are evolving our governance structure and last month, we announced enhancements to our Board of Directors. Scott Slater was appointed Chairperson of the Board of Directors. Scott Slater, who joined the Board in 2012, succeeds Gordon Kimball, who has stepped down as the Chairperson due to health reasons, and will remain a Director of the company. In addition, Amy Fukutomi resigned as a Director of the company and will now serve as our Vice President of Compliance and Corporate Secretary of the company. We believe this updated strategic plan will result in an asset lighter business model, a dramatic debt reduction, reduced volatility, an increase in EBITDA and earnings per share, higher returns on invested capital, an increase in our quarterly dividend, higher ESG scores, expansion of global fruit packaged and marketed by Limoneira, and lastly, an increase in the packaging and marketing of avocado production. We will update you on a regular basis regarding our progress, and we believe we will be in a position to announce additional asset sales and streamlining of our business model in the coming quarters. And with that, I'll now turn the call over to Mark.

Thank you, Harold, and good afternoon, everyone. As a reminder, there is a seasonal nature to our business with our revenue driven by varying harvest periods from year to year. Our first and fourth quarters are our seasonally softer quarters, while our second and third quarters are stronger. Therefore, it is best to view our business on an annual, not a quarterly basis. For the third quarter of fiscal year 2022, total net revenue was $58.9 million, compared to net revenue of $49.1 million in the third quarter of the previous fiscal year. Agribusiness revenue was $57.6 million, compared to $48 million in the third quarter last year. Other operations revenue increased to $1.3 million in the third quarter of fiscal 2022 compared to a prior year period of $1.2 million. Agribusiness revenue for the third quarter of fiscal year 2022 includes $27.8 million in fresh lemon sales, compared to $24.4 million during the same period of fiscal year 2021. Approximately 1,512,000 cartons of fresh lemons were sold during the third quarter of fiscal year 2022 at an $18.39 average price per carton, compared to approximately 1,144,000 cartons sold at a $21.34 average price per carton during the third quarter of fiscal year 2021. The company recognized $12.6 million of record avocado revenue in the third quarter of fiscal year 2022 compared to $4.1 million in the same period last fiscal year. Approximately 5.7 million pounds of avocados were sold during the third quarter of fiscal year 2022 at a $2.21 average price per pound, compared to approximately 3.5 million pounds sold at a $1.16 average price per pound during the third quarter of 2021. The company recognized $3.7 million of orange revenue in the third quarter of fiscal year 2022 compared to $2 million in the same period of fiscal year 2021. Approximately 209,000 cartons of oranges were sold during the third quarter of fiscal year 2022 at a $17.88 average price per carton, compared to 259,000 cartons sold at a $7.65 average price per carton in the prior year period. Specialty citrus and other crop revenues were similar to the prior year at $1.1 million for the third quarter of fiscal years '22 and 2021. Total costs and expenses for the third quarter of fiscal year 2022 were $47.9 million, compared to $45.8 million in the third quarter of last fiscal year. Costs as a percent of revenue decreased year-over-year as improvements in our cost structure offset industry-wide inflationary pressures. Operating income for the third quarter of fiscal year 2022 increased to $11.1 million, compared to income of $3.4 million in the third quarter of the previous fiscal year. Net income applicable to common stock after preferred dividends for the third quarter of fiscal year 2022 was $7.3 million, compared to net income of $3.6 million in the third quarter of fiscal year 2021. Net income per diluted share for the third quarter of fiscal year 2022 was $0.40, compared to net income per diluted share of $0.20 for the same period of fiscal year 2021. Adjusted net income for diluted EPS for the third quarter of fiscal year 2022 was $7.5 million, compared to $3.7 million in the same period of fiscal year 2021. Adjusted income per diluted share was $0.41, compared to adjusted net income per diluted share of $0.20 for the third quarter of fiscal year 2021. A reconciliation of net income to adjusted net income is provided at the end of our earnings release. Adjusted EBITDA was $14.2 million in the third quarter of fiscal year 2022 compared to $7.8 million in the same period of fiscal year 2021. A reconciliation of net income to adjusted EBITDA is also provided at the end of our earnings release. Now turning to our balance sheet and liquidity. Long-term debt as of July 31, 2022, was $129 million compared to $130.4 million at the end of fiscal year 2021. We believe the level of debt will continue to decrease throughout fiscal 2022 due to the monetization of certain real estate assets. Now I'd like to turn the call back to Harold.

Thanks, Mark. We continue to expect fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2022. Avocado volumes were 8 million pounds compared to our previous range of 6 million to 7 million pounds for fiscal year 2022. We continue to expand our product offerings in fiscal year 2022 by marketing other producers' oranges and specialty citrus through our One World Of Citrus program. We have a growing list of customers that enjoy our ability to provide all of their citrus needs from one single supplier. By increasing our oranges and specialty citrus offerings, we will attract even more customers. In addition, our ability to successfully sell over 80% of our lemons fresh at competitive prices enables us to enhance our grower partner recruiting efforts. We continue to expect to receive $95 million from harvest at Limoneira during the next five fiscal years, beginning in fiscal year 2022, which includes $8 million during the fourth quarter of this fiscal year. The breakdown of annual cash flows expected from harvest at Limoneira is as follows: fiscal year 2023 is expected to generate $15 million, fiscal year 2024 is expected to generate $27 million, fiscal year 2025 is expected to generate $30 million, and fiscal year 2026 is expected to generate $15 million. These expectations from harvest do not include potential opportunities associated with a medical campus in our East area for development. We also have a number of non-strategic real estate asset sales planned that we expect to be able to provide more detail on during our fourth-quarter call in December. Now I will open up the call to your questions. Operator?

[Operator Instructions] Our first question comes from the line of Ben Bienvenu with Stephens. You may proceed with your question.

Hey, thanks. Good afternoon.

Hi, Ben.

Hey, Ben.

So you guys, it sounds like you're still relatively early innings on monetization of noncore, non-essential assets. And we're kind of at the outset of a lot of cash coming into the business. Can you talk to us a little bit about maybe the pipeline of reinvestment that you're considering? You talked about the strategy shift to a more asset-light model. But if you could talk to us a little bit about the balance of returning cash to shareholders versus reinvesting into a business transformation. And then from a financial perspective, sort of minimum return thresholds that you're thinking about, whether it's IRR or return on capital, that would be a helpful paradigm for us to think about.

Great, Ben. That's a great question. And I'll take a stab at the higher level sort of part of that question. Mark might be able to dig in with some more granular components to it. But we're very interested in investing in new packing capacity in Chile, that we think will complement our North American lemon packing, as well as potentially new packing operations up in the San Joaquin Valley that we're exploring right now, which will give us better logistical control over our district one crop. We're also, as we've mentioned earlier, planning on expanding our avocado production in our Coastal California properties. That effort will serve two purposes. One, we find ourselves in a chronically oversupplied situation in that densely populated area just because of too many lemons being produced at any one time by too many producers. Therefore, pulling back our own production and converting to avocados, we believe will not only do a better job for strengthening the lemon pricing out of that region, but also allow us to capture greater value with more avocado production. Last, as we've alluded to, we're also exploring potentially investing into packing and marketing avocados as a complement to our One World of Citrus, citrus product offerings. So those are the primary sort of directional shifts you'll see operationally that we're contemplating. In terms of hurdle rates or internal rates of return, we generally aim for a 10% hurdle rate that we're working to achieve. We've just gone through an insightful process with our Board analyzing the last 10 years of acquisitions and conducting a post-completion audit of how those investments actually performed versus our expectations. As typical of any portfolio, we had some investments that performed extraordinarily well and some that performed sub-optimally. This exercise helped our Board understand that a significant part of the capital we've invested over the past decade has been embedded in land and water assets that are fundamentally appreciating. However, until monetized, they weren't generating the returns on capital that we hoped to achieve. This logical strategy explains our approach. As we succeed with monetization, we look forward to sharing some of those benefits with our shareholders through an increased dividend, while also taking the capital generated to reduce our debt to more moderate levels, given the current rising interest rates and the inflationary pressures we face. Mark, would you like to add any more color?

Yes, I'll just add that our weighted average cost of capital is about 7%. We have a target IRR of 10% to 12% that we're considering for our new investments. Over the last 10 years, our cost of debt has stayed below 2%. We currently have a nice fixed portion just above 3.5% at $40 million, and the rest is revolving. We will have the opportunity to pay that down as this plan monetizes and then reinvest into the projects that Harold mentioned.

Okay, that's great. My second question, and you touched on it a little bit. Just supply and demand; it sounds like you guys are working to repurpose production from lemons to avocados. Can you speak to the demand piece of the equation for lemons? What does the path back to a more constructive lemon price environment look like? Is it going to take others to do what you are doing? Is that a multi-year endeavor? Help us understand the sensitivities here.

So fundamental to that question, Ben, there are two pieces to consider. One is going back to pre-pandemic market growth rates. Remember, a big part of the story included emerging markets in Southeast Asia that were growing at double-digit rates. Additionally, because of health and wellness trends, the United States saw domestic consumption grow at 5% to 6% annually. I think we're really excited to see both food service and retail demand finding their way back to those pre-pandemic growth levels that we're currently experiencing. So we're pleased with the domestic demand. The export demand in Southeast Asia is not back 100%; it is still struggling with COVID-related challenges and supply chain issues. However, as we gain greater visibility into consumption levels in Japan and Korea—set aside China for a moment—we are optimistic. We are already seeing growth return to pre-pandemic levels, along with demand. One challenge that remains is that certain parts of California are facing water supply issues. Lemons consume less water than other types of crops. Thus, we have seen exuberant lemon planting in each of the districts in California and Arizona. With the current situation regarding the Colorado River and challenges faced in the Yuma, Imperial, and Coachella valleys, we expect a reduction in lemon production as various programs are being put in place due to limited water access. District One is also over-planted. However, this is year four of suboptimal lemon returns for many growers. Consequently, we are starting to see growers there begin to remove lemons. We're also seeing water constraints that are impacting more lemon production. In contrast, we are already observing growers down the coast considering alternatives; in fact, if you got in a truck and drove around Ventura County with us, we could show you blocks where growers have decided to pull out their lemons and contemplate planting other crops. Therefore, I believe that increasing domestic demand with decreasing supplier production will significantly help the lemon pricing environment. It's also worth noting that weather events can disrupt supply lines, and it's been a while since we've experienced significant weather-related disruption. I am optimistic that as these demand and supply factors play out, we will see improvements in lemon prices. Currently, we are starting to see overall improvements in lemon pricing and expect this to continue.

Okay, very helpful. Thank you both.

Thanks, Ben.

Thanks, Ben.

[Operator Instructions] Our next question comes from the line of Vincent Anderson with Stifel. You may proceed with your question.

Yes. Good afternoon, guys.

Hi, Vince.

Hey, Vince.

And then so, yes, Ben had me thinking a little bit there with that growth in desert lemons and lower labor costs, certainly in California, I’d imagine. Do you not still have that old packing plant down there? And is there any value opportunity to dust that off and just really move to only a packing kind of outfit down in that growing region?

It's a great question that demonstrates insight. We continue to analyze what happens if we take that throughput away from our efficient Santa Paula facility and move it to a closer, more logistically advantageous facility in Yuma, which is much less efficient. So far, the analysis indicates that it is better to keep the fruit coming to Santa Paula due to the efficiencies gained by processing that much volume through a common facility outweighing the added logistics costs. However, we're closely monitoring the trends, especially as more and more Yuma lemons come out. This analysis will become increasingly pivotal because, as you noted, all producers who depend on river access will undoubtedly be affected in some capacity.

Okay, that makes sense. And then I'm just trying to dig into avocados a little bit more. There are a couple of pretty big players out there. I think both of them do well on the packing and marketing side. So you mentioned wanting to get into that game as well. I'm wondering what's the attractiveness of that relative to lemons? Or is it more that avocados might be your best route to diversify into, say, Mexican agriculture? Is it really about getting into Mexico?

No, I think it's just the opposite. Our focus is squarely on California. We're one of the largest producers of avocados in the United States and in California, and we see a good opportunity to establish leadership in California. Yes, we have good relationships with other major players who have different operational models, but they may not prioritize California as we aim to do. To be truly strong in California, we will likely need to develop programs in Mexico and potentially Peru to complement our offerings to our customers. This year marked our first experience marketing our avocados independently since 2005. The results have been intriguing, especially given the supply chain shortages from Mexico that created a unique opportunity for California. We seized this opportunity aggressively, harvesting earlier than we ever have. Thanks to favorable weather, we were able to present high-quality fruit into the market quicker than ever. Consequently, we achieved unprecedented pricing due to our proactive marketing and sales strategies using multiple handlers.

Interesting. I don’t know much about avocado packaging, but is there an opportunity to retrofit, say, Oxnard, or is there enough spare capacity in Yuma?

Yes, you're getting straight to the point. We see a significant opportunity to expand our capabilities in Santa Paula. Our vision involves increasing the storage for lemons while also taking advantage of other cold storage capabilities that could facilitate our distribution and marketing for various commodities. This expansion could allow us to package and sell avocados from our common facility in Santa Paula, which would further enhance our operations.

Okay, excellent. I'll hop back into the queue for the other questions. Thank you.

Thanks, Vince.

Thank you.

Our next question comes from the line of Ben Klieve with Lake Street Capital Markets. You may proceed with your question.

All right, thanks for taking my questions. First, congratulations on a really nice quarter here. My first question, I apologize for making you guys repeat yourself here. I dropped off for a couple of minutes during the prepared comments. But regarding brokered fruit, it looks like from what I see in the queue, this was down a little bit. Can you talk about the dynamics on the brokered fruit side in the quarter, specifically in terms of your outlook for the full year and '22 into '23? Mark, you want to jump on that?

Sure, yes. Much of the brokered fruit we procure comes from the southern hemisphere, primarily Argentina and Chile. This year, we observed a dramatic increase in shipping containerized shipping costs, which more than doubled year-over-year, and coupled with lower lemon prices, many shippers hesitated to send fruit. Argentine volumes are down about 30% year-over-year from an industry perspective. However, our volumes did not decrease as dramatically, and I believe you will see us end up around similar revenue levels to last year. We have picked up additional commodities to offset that reduction; we've also gotten involved with navels, mandarins, and other baskets to help fill the void.

Maybe I'll just jump in and add that going back to Ben Bienvenu's question about what could improve lemon pricing. Interestingly, higher logistic costs for southern hemisphere imports could lead to better pricing protection for domestic fruit. It’s a strange situation but helps improve lemon pricing we receive domestically.

Indeed; the cost of a 40-foot container literally doubled from the southern hemisphere to the northern hemisphere year-over-year. These freight costs are helping us enhance the lemon pricing for our domestic production.

Got it. Yes, absolutely understand those dynamics. That brings up another question regarding the outlook for brokered fruit. If we're in a world where commodity costs are challenged, and transportation costs are also a concern, and that business remains difficult, given how you’ve spoken about brokered fruit growing over the years—how much of that growth is really tied to an improved overall market? If market conditions do not improve, will the brokered fruit business remain stagnant, or could we see material growth despite ongoing challenges?

Yes, I think there's an opportunity for substantial growth as we've observed this year. However, it may not be a straight-line growth; we might experience fluctuations as world conditions change. That said, Mother Nature continually influences supply chains globally. Considering the seasonal growing cycle, we have confidence that we can continue to grow the brokered fruit business—or what we call the agency business—because it should be entering a market that isn't adequately supplied by domestic sources. However, this year, we faced high logistical costs and an oversupplied market due to substantial crops in California and Arizona, making it hard for that level of brokered business to expand as we had anticipated. Next year, we aim to press forward and continue to see growth. The flexibility of our model allows us to pivot; if opportunities arise, we will pursue them, but if the market is unfavorable, we won’t force it. Ultimately, our focus will be on our customers, and as we grow market share each year, we're poised to retain it by efficiently sourcing fruit to serve the market.

Additionally, as we explore more source countries that we haven't tapped yet—like Peru and Morocco, both strong in citrus—we're opening additional pathways for growth.

Okay, good. Lastly, regarding the expansion of avocado production, you noted that some existing lemon acreage may be converted to avocado production. Can you discuss the level of lemon acreage that you have that is optimal for avocado production?

Yes, that's a fantastic question. In our various growing regions, we have about 1,300 acres in Yuma, of which we've fallen back on about 400 acres. We still retain 700 active producing acres of lemons there; however, avocados do not thrive in arid desert conditions. In district two, which is coastal California, we have about 3,000 acres of lemons. This gives us a scale, and we are talking about a potential transition of around 500 acres to avocados.

Understood. Thank you for the details, I appreciate all the insights. Again, congratulations on a solid quarter, and I'll get back in the queue.

Thank you.

Thank you.

Our next question comes from the line of Eric Larson with Seaport Research Partners. You may proceed with your question.

Yes, thanks guys. Good quarter. I'm happy to have the opportunity to speak here. So can you guys hear me?

Yes. Thank you, Eric.

Okay. So, Martin and Harold, I really would like to dig deeper into your strategic actions, as I think this is probably the most important part of your stock price moving forward. Literally, this is the next step for your whole company. With the asset sales you're discussing, it seems you could potentially reduce debt on your balance sheet by—I’m guessing—a number around $100 million. So tell me if I'm wrong, Mark and Harold, but you have an opportunity to take this company to an entirely different level. I think that hasn't been part of your discussion in this call today, and I believe it's vital. What are your plans in terms of monetizing these underperforming or low-return assets to re-liquefy your balance sheet? What will you do with that cash? I think that's one of the more exciting parts of your narrative.

Yes, that part of the narrative is truly exciting, Eric. I believe the number you mentioned, $100 million, might be light. Right now, we have about $120 million in debt, and we expect to generate more than that in cash as we execute on our monetization strategy. Also, as Mark noted, we've structured our debt favorably, and we plan to keep those pieces in place while accumulating cash. The vital question for investors is what we will do with the reloaded balance sheet and that cash. Increasing the dividend will certainly be key as we achieve historic returns on invested capital. The monetization of these assets comes with significant appreciation potential. We aim to share some benefits with our shareholders through adjusted dividends. Additionally, we plan to reinvest capital into opportunities that yield consistent and reliable returns. For example, one of our best investments over the last decade has been our updated packing house in Santa Paula, demonstrating that we can manage capital deployment effectively while also delivering great financial performance, providing reliable margins insulated from market pricing volatility. That’s an exciting part of our strategy because transitioning to this new model is not necessarily at the expense of our production; it’s about growth through investing in new packing capacity globally, allowing us to capture more dependable returns. For investors tired of inconsistent results, this renewed focus should yield more stable earnings and cash flow.

Okay, thanks. That's an exciting narrative. So, that might be a question for Mark. When you sell these assets, I'm assuming they're probably low-cost basis assets, meaning there could be pretty significant tax outlays for cash. Can you preserve that? Could you do 1031 exchanges? Is there a way for you to enhance growth through the sale of these assets by transferring to other assets?

That's an insightful question, Eric. We are actively reviewing those tax strategies. Fortunately for us, we have about $16 million to $17 million in net operating losses on the books for tax purposes. Coupled with our pension termination by the end of this year, we will have over $20 million in shelter on any gains we realize, which is quite beneficial. While some of these low-cost basis properties could be appraised at double our book values, we will consider a mix of strategies. We may not strictly do 1031 exchanges, since we don't want to get back into hard assets; we might pay taxes on part of the gains but will be shielded by that $20 million.

Additionally, some of these assets have high basis, and we're effectively achieving great appreciation on top of the original investments. However, to clarify, the assets we’re contemplating for monetization are not the core holdings, such as the Santa Paula assets, that are on the books at $400 an acre but have a fair market value of $100,000 an acre.

Yes, thanks! I'm just keeping track of your strategic options. Avocados look enticing, and you're staying asset light. I’m tracking all of this. I’m interested in how you feel about the areas you're focusing on, especially considering that your balance sheet needs work. Looking out over the next 2 to 3 years, especially if the asset sales progress as you hope, can you outline your priorities for us?

When we say 'asset lighter,' we’re also considering investment in a packing house there. That's important to know. In our discussions about asset light, we see transitioning to an asset lighter model as key for our future growth strategy. One of the concrete initiatives we're currently undertaking includes replanting about 250 acres of avocado. This is underway using less productive areas of lemon acreage planned for removal. Next, we will focus on expanding our packing capacity in Chile to support our operations. Also, we aspire to articulate our successes in recruiting more grower partner fruit domestically clearly. We formed a cross-functional grower services team that combines our farming personnel, harvest teams, IT personnel, and finance members. Together, they create effective business solutions targeting grower partners—essentially the hooks to encourage them to join our team. We're already starting to see gratifying results in our ability to attract more grower partners to expand our supply chains. This growth will positively reflect on our overall annual sales by increasing our MVP in grower partner fruit.

Okay, excellent. If I can ask one last question regarding the brokered side of the business. What specifically about that would entail from an investment perspective? I'm thinking about the growth areas, such as South Africa gaining market share in Europe; what commodities might be left behind in California that might prove beneficial? How are you approaching that situation? What does it take to grow your broker operations?

Mark, would you like to take that one?

Sure. It's primarily a matter of human capital. We have a small team of two people currently handling this. They can process a few million cartons easily, and I estimate we’ll be close to that number this year—about a million cartons via our target. The strategy primarily involves reaching out—attending trade shows and building networks. As I mentioned earlier, we aim to open up new markets like Morocco for mandarins and work on expanding citrus offerings in various locations. It is just a matter of dedicated people going out and hustling. This may require adding a few more personnel to efficiently manage growth; an annual target of approximately 10% growth is what we strive for.

Exactly. Additionally, we will explore more source countries, as Mark mentioned, providing us more opportunities for new varieties looking forward.

Okay, excellent. Thank you so much for answering all of my questions.

Thanks, Vince.

Thank you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Harold Edwards for closing remarks.

Thank you for your questions and your interest in Limoneira. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.