Earnings Call Transcript - LMNR Q2 2022

Operator, Operator

Greetings, and welcome to Limoneira’s Second 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.

John Mills, Host

Good afternoon, everyone and thank you for joining us for Limoneira’s second 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 second 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 on its website. And with that, it is my pleasure to turn the call over to the company’s President and CEO, Mr. Harold Edwards.

Harold Edwards, CEO

Thanks, John, and good afternoon, everyone. We achieved top line growth of 4% to $47 million and generated $5.8 million of adjusted EBITDA in the second quarter. The growth was driven by higher avocado, orange and specialty citrus revenue. Our avocado segment has continued to outperform expectations this fiscal year with pricing up 50% compared to last year. Lemon pricing remained challenged in the second quarter as the domestic lemon market works through surplus inventory; however, we were encouraged to see lemon export markets begin to return to normal. The topline improvement in the second quarter was partially offset by the cost side of our business as we and our industry continue to face rising labor costs and higher packing and supplier costs. Our company is 129 years old and over the past 20 years, we have made important strategic investments in our overall business to become a leading global producer, packager and marketer of citrus leading to the creation of a One World of Citrus. This new marketing plan, combined with our recent investments, has enabled us to increase our revenue by over 200%, from $54 million in 2010 to over $166 million in fiscal year 2021, which equates to an 11% CAGR. Today, 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, yet a book value on Limoneira's balance sheet of $220 million because many of these assets were acquired many years ago at a low basis. Selective monetization of certain assets in Limoneira’s portfolio going forward creates a tremendous value creation opportunity for our shareholders. Based on this and in order to better leverage our leading global position and enhance shareholder value, over six months ago, our Board of Directors and Management formulated a plan that included updated priorities and objectives for Limoneira to achieve in the coming years and certain metrics to measure our progress. Our Board's objectives are as follows: first, to 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. In addition to Harvest, we have identified over $100 million in assets that we will be monetizing in the near term to streamline our operations. Second, 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 while also strategically selling certain assets and streamlining our operations to dramatically increase our long-term cash flow. To accomplish this, we will be focusing on growth of the asset light model using more grower partner fruit in order to reduce the impact of pricing volatility and farming costs. We will continue to develop best-in-class grower services to recruit additional grower partners. We'll 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 increasing the packing and marketing of food grown on these locations. In the coming years, we expect 30% of our lemon growing supply chain to come from Limoneira fruit and 70% to come from grower partner fruit while maintaining our overall growth goals. To put this in perspective, today 50% of our fruit is produced on Limoneira properties. As an example, last week, we announced our engagement with the Yuma Mesa Irrigation and Drainage District in a two-year following in forbearance program at the company's Associated Citrus Packers ranch in Yuma, Arizona. The program targets 400 acres of farmable land on the property over the duration of the agreement and will result in excess of 4,200 acre-feet or more than 1.3 billion gallons annually of saved water that will be retained in Lake Mead as Colorado River system conservation water. In addition to conserving natural water resources, the program converts previously unprofitable acreage to profitable with an estimated annual savings of approximately $1 million. As a reminder, our Associated Citrus Packers ranch includes 1,300 acres of land comprised of approximately 900 acres of productive lemon orchards and 400 acres of other crops and facilities with access to the Colorado River for crop irrigation. We cultivate, harvest and pack fruit for sale within the Limoneira family of brands as well as third-party contract partners. Now with the following program in place, we will have 700 acres of productive lemons, 400 valid acres and 200 acres of other crops. We will continue to leverage our existing supply chain for the 700 acres of lemons and expect to add more grower partners in the desert area into our supply chain in the coming year. This will result in more lemon volume than we previously generated. This asset light 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, generate more stable and higher growth of EBITDA in earnings, and lastly, to improve our annual return on invested capital. During the past 12 years, we grew our One World of Citrus offering. We also made certain investments in assets that were embedded in this growth and the overall infrastructure of Limoneira. Now we'll be focusing on monetizing certain of these assets that have increased in value over the years, and this will dramatically improve our churn on invested capital. We expect to also leverage our leading avocado position by increasing avocado production 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. Our fifth 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 built housing for farm workers, sponsored community programs, reduced our carbon footprints with seven solar installations, managed greenways with 28 facilities that receive over 200 tons per day of organic greenways, minimized pesticides and we are pioneers in water conservation. However, in order to ensure our land this year 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 relationships with third-party agronomists to further enhance and improve property and water conservation efforts. We continue to 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 food grades and sizes to meet global demand. Lastly, we are evolving our governance structure to ensure best practices. We believe that this new strategic plan will result in an asset lighter business model, dramatic debt reduction, reduced volatility and an increase in EBITDA and earnings per share, higher return on invested capital, increase in our quarterly dividend, higher ESG scores, expansion of global fruit packaged to marketing by Limoneira, and lastly, an increase in the growing, packing, marketing and selling of avocados. 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. Our entire team at Limoneira is very excited about our new strategic plan to realize the value of the many investments we have made over the past 20 years. This will dramatically improve our financial position and expand our One World of Citrus opportunities. We have a deep history of being a leader in the citrus and avocado world. In this new plan, we will elevate Limoneira and enhance the value of our company for all stakeholders. And with that, I'll now turn the call over to Mark.

Mark Palamountain, CFO

Thank you, Harold, and good afternoon, everyone. For the second quarter of fiscal year 2022, total net revenue was $46.8 million compared to total net revenue of $45.1 million in the second quarter of the previous fiscal year. Agribusiness revenue was $45.4 million compared to $44 million in the second quarter last year. Other operations revenue was $1.4 million compared to $1.1 million in the second quarter of the previous fiscal year. Agribusiness revenue for the second quarter of fiscal year 2022 includes $27.3 million in fresh lemon sales compared to $28.7 million in the same period of fiscal year 2021. Approximately 1,552,000 cartons of fresh lemons were sold during the second quarter of fiscal year 2022 at a $17.57 average price per carton compared to approximately 1,528,000 cartons sold at $18.79 average price per carton during the second quarter of fiscal year 2021. Lemon pricing has remained challenging for the first half of fiscal year 2022 as we've dealt with adverse weather on the East Coast as well as the emergence of the Omicron variant creating an oversupply of lemons in the marketplace. We are seeing the lemon export market beginning to return to normal levels; however, it is expected to be a slower recovery. While we expect improvement in the second half of this year, it is still expected to be down year-over-year. The company recognized $2.7 million of brokered fruit and other lemon sales in the second quarter of fiscal year 2022 compared to $2.3 million in the same period last year. The company recognized $3.6 million of avocado revenue in the second quarter of fiscal year 2022 compared to $2.7 million in the same period of fiscal year 2021. Approximately 1,877,000 pounds of avocados were sold during the second quarter of fiscal year 2022 at a $1.90 average price per pound compared to approximately 2,142,000 pounds sold at $1.26 average price per pound during the second quarter of fiscal year 2021. The company recognized $2.6 million of orange revenue in the second quarter of fiscal year 2022 compared to $1.4 million in the same period of fiscal year 2021. Approximately 328,000 cartons of oranges were sold during the second quarter of fiscal year 2022 at a $7.98 average price per carton compared to approximately 154,000 cartons sold at a $9.12 average price per carton in the prior year period. Specialty citrus and other crop revenues were $1.4 million in the second quarter of fiscal year 2022 compared to $1.2 million in the second quarter of fiscal year 2021. Total costs and expenses for the second quarter of fiscal year 2022 were $44.1 million compared to $42.7 million in the second quarter of last fiscal year. The increase in operating cost was primarily attributable to the company's agribusiness associated with an increase in packing and growing costs, partially offset by decreases in third-party grower and supplier cost in the second quarter of fiscal year 2022. Operating income for the second quarter of fiscal year 2022 increased to $2.7 million compared to operating income of $2.4 million in the second quarter of the previous fiscal year. Net income applicable to common stock after preferred dividends for the second quarter of fiscal year 2022 was $1.4 million compared to a net income of $1.8 million in the second quarter of fiscal year 2021. Net income per diluted share for the second quarter of fiscal year 2022 was $0.08 compared to a net income per diluted share of $0.10 for the same period of fiscal year 2021. Adjusted net income applicable to common stock for the second quarter of fiscal year 2022 was $1.7 million compared to net income of $1.8 million in the same period of fiscal year 2021. Adjusted net income per diluted share was $0.10 for the second quarter of fiscal year 2022 and for 2021. A reconciliation of net income to adjusted net income is provided at the end of our earnings release. Adjusted EBITDA was $5.8 million in the second quarter of fiscal year 2022 compared to $6 million in the same period of fiscal year 2021. A reconciliation of net income to adjusted EBITDA is provided at the end of our earnings release. Now turning to our balance sheet and liquidity. Long-term debt as of April 30, 2022, was $135.6 million compared to $130.4 million at the end of fiscal year 2021. We believe the level of debt will decrease throughout fiscal 2022 due to expected cash flow from our agriculture and real estate businesses. Now I'd like to turn the call back over to Harold to discuss our fiscal year 2022 outlook and longer-term growth pipeline.

Harold Edwards, CEO

Thanks, Mark. As we all know, the COVID-19 pandemic continues to affect our foodservice business and industry logistics on a global basis. However, due to our diversified fruit business, we expect to achieve stronger top line growth in the third quarter compared to our second quarter and improve EBITDA. We are beginning to experience improved lemon demand domestically, but we expect lemon pricing to remain pressured this fiscal year until we see the Asian export markets fully open again. We continue to expect fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2022 and we expect strong profitable avocado demand to continue into the third quarter of fiscal year 2022. We also expect volumes to be in the 6 million to 7 million pound range 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, and by increasing our oranges and specialty citrus offerings, we will be able to attract even more customers. We continue to expect to receive $95 million from Harvest at Limoneira during the next five fiscal years beginning in fiscal year 2022. Currently, we are in negotiations of Phase 2, which represents 554 residential lots. The breakdown of annual cash flow expected from Harvest at Limoneira is as follows: fiscal year 2022 is expected to generate $8 million of cash to Limoneira, 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 the potential opportunity of a medical campus in our East Area 2 development. Now I will open the call to your questions. Operator?

Operator, Operator

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ben Bienvenu with Stephens. You may proceed with your question.

Jack Atkins, Analyst

Hey. This is Jack Atkins stepping in for Ben Bienvenu. Good afternoon.

Harold Edwards, CEO

Hi, Jack.

Jack Atkins, Analyst

Hello. Yeah. So I wanted to ask about the expanded strategic scope of One World Citrus. I know you identified $100 million in assets to be sold in the near term. Do you have any sense of how much of the $600 million you would like to monetize overall? And maybe if you could provide some additional color on how you deploy that capital?

Harold Edwards, CEO

Yes, be glad to. So we went through a rigorous review of the assets that are involved in the One World of Citrus business model with our board and collaboratively developed a strategic plan back in February that was unanimously approved by the board. We're tasked at the management level to provide the board with a roadmap for the expansion of the asset lighter model that includes over $100 million of non-core assets to be divested. Some of those assets are specific assets in areas where our returns on invested capital historically have not achieved the desired levels that we wanted. We’ve seen those assets appreciate significantly over time. So, for us to convert some of our owned acreage to be able to divest that to interested financial parties would allow us to continue to market and sell the fruit by running that fruit through our packing, marketing and sales program, which is specifically what we're talking about. While we don't necessarily have the ability to talk about the specific assets that we're working on, there are assets in each of the growing district areas in district one and district three that will be potentially in a package of assets that we're going to run a process to try to monetize.

Jack Atkins, Analyst

Awesome. Thank you so much. That's it from us. Thank you.

Operator, Operator

Our next question comes from the line of Gerry Sweeney with ROTH Capital. You may proceed with your question.

Gerry Sweeney, Analyst

Hey, Harold, Mark. Thanks for taking my call.

Harold Edwards, CEO

Hi, Gerry.

Gerry Sweeney, Analyst

Just staying on the asset divestitures that may be realignment or most of the assets domestic or are you looking at making any changes on the international side?

Harold Edwards, CEO

So, Gerry, as you know, we also own assets in Argentina and in Chile. And in Argentina, our desire is to opportunistically transition the business into more of an agency approach where we represent other shippers' fruit and work on the potential divestiture of our owned acreage in Argentina for political risk reasons. In Chile, our thoughts are to monetize a percentage of our production, but then to convert that capital in Chile into the development of a new packing house and operation, very similar to what we did in Santa Paula.

Gerry Sweeney, Analyst

Got it. And speaking of that, was sort of my next question, was — you kind of alluded to that in the prepared remarks was maybe some other investments. Is that packing facility in Chile the one — are you looking at one facility in terms of packing houses or will there be others? And then secondarily, are there other sort of value-enhancing investments you can make as well to support this asset lighter model?

Harold Edwards, CEO

Yes. So we only look at one packing house. We're also interested in the packing, marketing and selling company called La Serena packing in Chile. Our packing house currently has a capacity of about 1 million cartons, but based on our relationships with certain farm managers, we have somewhere between 4 million to 5 million cartons identified for lemon throughput that need a home from a packing, marketing and sales perspective. We see a great opportunity to expand our La Serena operation to build a packing house with a 4 million to 5 million carton annual capacity to take advantage of that throughput, but then as a great way for us to grow the asset lighter model of our One World of Citrus.

Mark Palamountain, CFO

And one more thing to add there. So on the domestic front, we're going to see opportunities in our packing house; there's tremendous growth in volume and bagging these days for retail. So we're going to add a number of value machines to our packing house. Then as we pay down debt to what we think are sufficient levels, we are also going to redeploy capital into up to 500 acres of avocados and explore other opportunities in the food chain there.

Gerry Sweeney, Analyst

Got you. On the avocado side, would you do any packing on that front or would you just use that — so then and just to the other third-party packagers?

Harold Edwards, CEO

So right now, we see a great opportunity with our land and water assets in Ventura County to reduce our lemon production because fundamentally, there is an oversupply in that part of California during that season. We plan to convert that acreage into the expansion of avocado production by somewhere between 250 to 500 additional acres. With the significant growth in volume, we will explore the potential of entering the packing, marketing and selling of avocados by potentially being acquisitive.

Gerry Sweeney, Analyst

Got you. Switching gears, I'm not sure there's other people in the line, but real quick, just on the real estate side. The medical campus and additional sort of acres sales there, you look like you’re going to be doing on the real estate separate from Harvest at Limoneira that's going to be a little bit different sort of structure in terms of cash flow. I mean, is that a direct sale land and you get the cash up front, not necessarily like a joint venture where you had to develop and then build the land then get the cash flow? Just any guidance on that front.

Harold Edwards, CEO

That's exactly right, Gerry. We entered a letter of intent with a developer who, in return, has also developed a letter of intent with the health care agency of Ventura County, which is the public hospital system in Ventura County. The idea is that the land is envisioned to have a upwards of a 50-bed hospital on five acres and a 150,000 square-foot outpatient medical office building on five acres. When it's ready to break ground, then Limoneira will sell that land, so that 10 acres to the developer. We envision that monetization for Limoneira will be an all-cash outright sale; the terms have been negotiated, and we expect that to take place in 2023. Additionally, we also have another 2.5 acres that's contiguous to that where we're currently negotiating with a hotel on an outright land sale as well to serve as a complement not only to the Harvest at Limoneira residential component but also to the medical campus component. The last piece to that is that will leave 20 acres in the East Area II area, and we're currently under discussions with the Ventura Community College District to potentially sell 10 to 20 acres to them. If we were successful in doing that, that would complete all of East Area II, so it's exciting to see the momentum and progress. We expect to begin the monetization of that next year in 2023.

Gerry Sweeney, Analyst

Got you. I appreciate. I'll jump back in line.

Operator, Operator

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

Ben Klieve, Analyst

All right. Thank you for taking my questions here. First, I have a question on the monetization of the water rights that you announced last week and touched on here on the call today. Curious, the $1 million of improved operating profit that you are looking for here from that announcement. Can you kind of outline how you get to that number from the perspective of increased cash flow due to the water rights being divested versus savings on operating savings given that those acres are not going to be productive anymore?

Mark Palamountain, CFO

Yeah. Sure. Thanks for the question. The way we are looking at that is over the past three or four years, that acreage specified for the fallowing program was very tired in old lemons. A typical lemon can last 22 to 25 years. As we saw this program come out, it was about a $1,000-an-acre losing proposition specifically because there was not much fruit being produced as they get older, and the trucking costs and shipping costs of getting it all the way to Santa Paula made it more difficult. That $1,000-per-acre loss then flipped over to a $600,000 benefit from the fallowing programs, essentially looking at about a $1 million turnaround from where it was and then having no input costs and generating $600,000 for the program.

Ben Klieve, Analyst

Got it. That's really helpful. So then I guess a follow-up question is, at the end of two years here, you're going to effectively have completely fallow land and then make a decision on whether to replant with limes, replant with another crop or divest it or sit on it and continue to monetize the water rights, is that kind of the different calculation that you're looking at right now for two years out for that land?

Harold Edwards, CEO

That's a great question. We actually believe that the situation on the Colorado River is dire. The issues surrounding Lake Powell and Lake Mead as storage facilities for western water are serious. As a result, we expect that this fallowing program will become more lucrative over time because the agencies governing the river will require more water to be diverted away from agriculture into storage or residential uses. We fully expect to see a new fallowing program put in place at significantly higher values after the current program ends. So, the way we're thinking about the asset in Arizona is more as a long-term water monetization opportunity rather than a reliable source for lemon production.

Ben Klieve, Analyst

Got it. Very interesting. And it's pretty impossible to be optimistic about the outlook for water throughout the Colorado River system, so I hear you loud and clear there. On the lemon market side, I wholly appreciate the broad comments around your approach to kind of move from a more vertically integrated business to one where you're more of a processor and marketer of third-party fruit. My question, though, is given the challenge that you guys have observed for four years in that market. Can you talk about the farmers that you're going to be sourcing from here and in an increasing manner via this business model? What is the state of the lemon market and the average farmer? And how much pressure do you see on this business here over the long term that could potentially impact your efforts to be a marketer of the fruit in a really challenged environment?

Harold Edwards, CEO

That's a great question and sort of at the essence of our shift in strategy. The answer to your question varies by growing regions. In Yuma, due to the water situation, you will see a natural reduction in production because of the fallowing programs and the lack of access to water for irrigation. The other thing we are observing by following local nurseries is there are a lot of new and young plantings in the district three region in the Coachella Valley. We are already in discussions with high-quality citrus producers very committed to growing in that area who look forward to our marketing approach focused on higher fresh utilization rates and ensuring returns to keep them profitable versus our competition. In the San Joaquin Valley, we've also seen significant plantings of young trees coming online, so there's a great opportunity to source new grower partners in that region. Finally, in the coastal district two, the curtailment of water access in some areas of Ventura County has led to farmers, who used to have abundant water, cutting back. It takes less water to grow a lemon tree than it does for many other crops. Therefore, we're seeing substantially more lemon plantings going into the Ventura County than we previously expected. The dynamic will be interesting as we're experiencing three challenging years from oversupply and low pricing due to COVID and systemic overplanting worldwide. We're very optimistic about our ability to access new grower partners and continue expanding that facet of our business.

Ben Klieve, Analyst

Okay. That's really interesting. Yeah. There's plenty going on there. It's good to hear your thoughts though. There's plenty more to ask; that's probably a good place to leave it. I appreciate you guys taking my questions and I'll get back in queue.

Harold Edwards, CEO

Thanks, Ben.

Mark Palamountain, CFO

Thanks, Ben.

Operator, Operator

[Operator Instructions] Our next question comes from the line of Eric Larson with Seaport Research. You may proceed with your question.

Eric Larson, Analyst

Yeah. Hi, guys. Thanks for taking my question.

Harold Edwards, CEO

Hi, Eric.

Eric Larson, Analyst

So my first one is, what was your fresh utilization in the quarter? I see the fresh sales were off a little bit. Obviously, pricing was not fun. So what was the utilization, and were you able to get good market sizing? There were no sizing issues per se maybe in the quarter.

Harold Edwards, CEO

Great question, Eric. So it was a really good quarter, and seasonally, the majority of the fruit produced and sourced came from the San Joaquin Valley in our district one area. We finalized the district one crop at a little over 78% fresh utilization at an average return per bin of about $165 per bin, which was very competitive. The combination of great grower returns per bin and the amount of fruit sold drove a much higher profitability back to the acre for our grower partners than other companies were able to provide.

Eric Larson, Analyst

Got it. Okay. So we're probably three or four weeks away from home kind of the traditional seasonal influx of fruit from Peru. What does the import situation look like this year from Peru?

Harold Edwards, CEO

Yes. I'll tell you about avocados, Eric. This has been an extraordinary avocado year and season for us as producers because it's the first time in 20 years that the pendulum has swung from the handler back to the producers. There's been dramatic shortages coming out of Mexico, leading to higher returns coming back to our California fruit. We expect that part to end when Peruvian fruit starts to pour in; first boats are on the water now, so we expect that season to ramp up shortly. As producers, we have our foot on the gas with our picking strategy to try to get all of our fruit off as quickly as we can and aim to have our harvest and marketing wrapped up by the beginning of July.

Eric Larson, Analyst

Okay. Wow. That's a pretty fast timeframe. I didn't see you have a little bit of delayed harvest in avocados a year ago. So will that make your third quarter better than the fourth quarter for volumes? I might be messing up my timeframe here.

Harold Edwards, CEO

No, you're pretty close. The timing will be quite similar to last year. The calculus involves how much risk you assume by holding your avocados on the tree and letting them size naturally against what you think future returns will be as much imported fruit comes into the market. Last year, we held about 1 million pounds towards a later date. This year, because the pricing is so high, we're aiming to get that fruit off the tree and into the market as soon as we can. Currently, we have the potential for revenue from avocados between $9 million and $10 million if we play this right, so we're really going after it because of the extraordinary pricing.

Eric Larson, Analyst

Wow, excellent. Okay. So kind of back to some of the questions that you're talking about, your strategic asset sales, and you've identified $100 million of potential sale value. First question is, number one, is that an after-tax value? And number two, can you maybe give us a little better feel for the timeframe on that? And then number three is it, I think this question was probably asked, or maybe I missed a real answer on it, but is it limited to only $100 million or do you have other sort of underperforming ROIC land and assets that could come out on top of the $100 million?

Mark Palamountain, CFO

All great questions. As far as the $100 million goes, there is about $30 million of gain that we could foresee. We've got a number of offsets already in our handle. So we've got about $15 million to $16 million of NOLs on the books. Not sure we've talked about this in prior calls, but we're also in the process of terminating our pension, which has an AOCI loss on the books there, and there's a number of better offsets that allow us to almost completely shelter that from tax. The timeframe we see for this occurring is sometime in the next 12 months to 24 months, with a high probability, and we're working hard on it. There is a process in place for some of the assets, so we're optimistic this will happen in an orderly and quick fashion. To answer your last question, we identified $100 million of opportunity, but there's actually a significantly greater amount that we're working on—potentially twice that. It really comes down to the market conditions and our success in finding willing buyers for those assets that are being marketed right now.

Eric Larson, Analyst

Okay. No, that's — thank you, Mark. I appreciate that clarity. So the final question I have you guys, is this — this is really just kind of your thoughts about California, the drought. The situation is dire and you aren’t in the prune business. How is all this going to play out in California agriculture? I'm not talking just you, I'm talking about almonds which are very water-intensive, and are they going to get the water down from Northern California, to Southern California to grow almonds? I'm really curious about the California drought and your perspective on it.

Harold Edwards, CEO

Thank you, Eric, and I'll try to give you our thoughts on it. We've been around for 130 years monitoring the cycles in weather and rainfall. We've seen prolonged drought periods and prolonged wet periods. Right now, the West Coast is facing a continuing drought. What's concerning is the willingness of politicians to sacrifice productive farmland to save fish and the environmental agenda while also catering to urban water requirements. It's making it tougher and tougher for us to rely on politicians to protect our water rights, especially our repairing rates that come from snow pack and release melt from the Sierra Nevada mountains. This year we faced a very low snow pack, leading to historically low water allocations, creating significant challenges not just for us but for everyone across the San Joaquin Valley. The further West you go in the San Joaquin Valley, the less water there is, forcing many producers to lose access to water. Consequently, we anticipate seeing quite a bit of agriculture start to vanish from that valley. The situation in Arizona, pertaining to the Colorado River, is not purely drought-driven, but rather a systemic over-allocation of that water; although it is certainly affected by drought conditions in the Rocky Mountains. We're optimistic about our assets due to very strong water rights and deep aquifers. Nonetheless, we share your concern that this dynamic will continue to become more intricate, leading to both winners and losers in accessing water.

Eric Larson, Analyst

Okay. Great. Thanks, guys. I'll follow up later thanks for the comments.

Harold Edwards, CEO

Thank you.

Operator, Operator

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.

Harold Edwards, CEO

Thank you, operator, and thank you for all your questions and your interest in Limoneira. Have a great day.

Operator, Operator

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