Good day and welcome to the Limoneira Second Quarter Fiscal 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir.

Thank you. Good afternoon everyone, and thank you for joining us for Limoneira's second quarter fiscal year 2017 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Joe Rumley, Chief Financial Officer. By now, everyone should have access to the second quarter fiscal year 2017 earnings release, which went out today at approximately 4:00 P.M. Eastern Time. If you have not had a chance to review the release, it's available on the Investor Relations portion of the Company's website. This call is being webcast and a replay will be available on the Limoneira's website as well. Before we begin, we would like to remind everyone that today's 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 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 about Limoneira's ongoing results, 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 EBITDA, and adjusted EBITDA which is adjusted to exclude real estate impairment and both of which are non-GAAP financial measure. A reconciliation of EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures is included in the Company's 10-Q and 10-K, and press release which has been posted to its website. And with that, it's my pleasure to turn the call over to the Company's President and CEO, Mr. Harold Edwards.

Thanks John and good afternoon everyone, thank you for joining us. On today's call, I will begin with a brief overview of our financial results for the second quarter of 2017. And provide an update on our progress across all of our business areas. Joe will review the financial results in more detail. Then I will discuss our upward revision to guidance for fiscal year 2017 and then we will open the call and take your questions. I am pleased to announce that we continue to experience positive momentum thus far in fiscal 2017 driven by a number of factors that we will discuss today. In the second quarter revenue increased 35% to $36.9 million compared to the prior year period with substantially all of our crops contributing to the increase. Our operating income for the second quarter improved to $6.2 million compared to $2.2 million in the prior year period. Our adjusted EBITDA more than doubled to $7.8 million in the second quarter of fiscal year 2017 compared to $3.4 million in the same period of fiscal year 2016. Based on the first 6 months of this fiscal year and our expectations for the balance of the year we believe we are well positioned to achieve a better than expected year in our agribusiness division due to improved overall lemon revenue and an improved pricing outlook for avocados. I'd now like to provide an update on our business segments. Starting with our agribusiness, over the past few years we've made significant investments that are beginning to drive our top and bottom line growth. We've expanded our customer base to over 170 customers and increased distribution by leveraging our domestic and international marketing and sales channels during the past few years due to many factors including our trade marketing strategy,…

Thank you, Harold. Good afternoon everyone. I will discuss some of the details of our financial results for the second quarter ended April 30, 2017. Revenue was $36.9 million an increase of 35% compared to the second quarter of 2016. Agribusiness revenue was $35.4 million compared to $25.9 million in the second quarter last year with most of our crops playing a part in the increase. Rental operations revenue was $1.5 million in the second quarter fiscal year 2017, which compares to $1.4 million in last year's second quarter. There were no real estate development revenues in second quarter of fiscal year 2015 or 16. Agribusiness revenue for the second quarter of fiscal year 2017 includes $26.2 million in lemon sales compared to $20.8 million of lemon sales during the same period of fiscal 2016 with the increase primarily a result of higher total lemon revenue and greater volume of fresh lemons partially offset by lower prices for fresh lemons. 958,000 cartons of fresh lemons were sold during the second quarter of fiscal 2017 at $21.5 average price per carton compared to 780,000 carton sold at $22.44 average price per carton during the second quarter of fiscal year 2016. Avocado revenue for the second quarter of fiscal year 2017 was $2 million compared to $1.2 million in the same period last year. Primarily the result of higher prices of avocados partially offset by lower volume compared to the same period of fiscal year 2016. We recognize $4.9 million of orange revenue in the second quarter of fiscal 2017 compared to $2.6 million in the same period fiscal year 2016. Higher orange prices in the second quarter fiscal 2017 compared to the same period of 2016 are primarily due to a combination of more favorable market conditions and higher prices recognized…

Thanks Joe. As I mentioned at the beginning of our call, we are raising our earnings guidance for fiscal year 2017 based on an expected increase in total lemon revenues and an improved pricing outlook for avocados. We are raising our estimated earnings per diluted share to be in the range of $0.51 to $0.55 a share compared to the previous guidance range of $0.48 to $0.52 a share. We expect our operating income from fiscal year 2017 to be in a range of $14.7 million to $15.2 million compared to the previous range of $14.4 million to $14.9 million. Fiscal year 2017 adjusted EBITDA is expected to be in the range of $21.7 million to $22.2 million compared to the previous range of $21.5 million to $22 million. The company continues to expect to sell between 3.1 and 3.5 million cartons of fresh lemons at an average price per carton of approximately $23 a carton. However, we anticipate total lemon revenues which include sales of fresh cartons lemon by product and shipping and handling revenue to be higher than previously estimated. In addition, we expect a sell approximately 6 million to 6.5 million pounds of avocados at an average price per pound of $1.50 a pound compared to previous avocado sales estimates 8.5 million to 9 million pounds at an average price of $1 per pound. As you know, our quarterly earnings typically, very considerably quarter-to-quarter due to the crop harvest timing in production. Regarding the cadence of how we expect this year's quarterly earnings to play out, the third quarter is expected to be similar to year excluding last year's gain on sale of Calavo shares and the fourth quarter slightly softer than last year. We are well positioned to capitalize on opportunities that we have been cultivating over the past few years and we continue to look for additional opportunities that lie ahead. And with that, I'd like to open the call up to your question. Operator?

Thank you. [Operator Instructions] And we'll take our first question from Gerry Sweeney with ROTH Capital.

Good afternoon, Harold and Joe. How are you?

Good afternoon.

I wanted to talk a little bit about the agribusiness and the lemons and the byproducts side. It sounds like in the guidance you were targeting better revenue from that perspective but it also seems like in this quarter lemon byproduct was lower and you packed more into the fresh carton side. And I was just curious as to the dynamic that's going on there obviously would like to see more into the fresh carton side and want to see where the trend was going and sort of triangulate that a little bit.

Sure. So your observation is correct. We actually have been doing a better job this year at getting more fresh cartons sold and less of the product going into the juice of byproducts market. So that's been very positive and we believe that trend is continuing as we've discussed on prior calls. There are three different grades of lemons and 8 different sizes. And where the fresh utilization percentages can really increase is when we have better success selling our off grade and our off size lemons are fresh. And so it's fancy choice and standard are the 3 grade. And where the action takes place that really increases are fresh realization is in the standards and if we can create more market opportunities and cultivate more customers that will buy our fresh standard cartons. Then our fresh utilization goes up significantly. And through the first half of this year that's exactly what's happened.

Got it. That's helpful. And then on the third party packing obviously that's a critical part of sort of leveraging some of the fixed cost at the packed house on a go forward basis. Targeting 500,000 cartons a year increase how is that going this year so far?

That's going right on right on track for us right now. We finished, as you recall we finished 2016 with 2.9 million fresh cartons of lemon sold. We continue to guide in a range of 3.1 million to 3.5 million cartons for this year. At this moment I believe we will be somewhere between 3.3 million 3.10 is really and 3.4 million cartons and the delta is really explained by the increase of outside growers. So I think we're right at to slightly above the 500,000 cartons that we set out to sign off this year.

Got it and then finally just a quick comment. Growing cost sounds like you're going to do some more plantings this year, next year would that have a material impact on growing cost that we should be looking at in terms of modeling?

Typically not on the P&L. The typically get capitalized until.

Well, growing costs can -- they start to kick in when you harvest them. So they are in the range of about $5 or $4 a carton as they sell. Starting to elude some of those planned things will be in areas that we capitalize part of the year and expense during production part of the year. So yes if think about at least in broad general terms as we bring some of that fruit to production and start to sell it you could consider those variable and you would see an increase but there certainly obviously the sales will cover that --.

Got it. Perfect. Okay, I'll jump back in life appreciate it thank you.

Thank you, Gerry.

We'll go next to Eric Larson with Buckingham Research Group.

Yes, thanks. Good afternoon everyone. Thanks for taking my questions. Just a quick follow-up question Gerry just asked. And better fresh utilization of your lemons being able to sell more of your off grade off size as fresh is it a different customer base that you are having Harold or is it a different sales efforts or is it off grade off size, not so off grade off size this year that is actually - it's a better product or what's causing the change?

Yes. Now that's a great question Eric and the answer is all three of the reasons you cited. Which are the three reasons; a little bit of new segments, segmentation in the markets working with the various types of buyers, so what Limoneira has really been putting a lot of effort in the marketplace is going after sometimes non-conventional uses of lemon. So for instance as a natural cleaner, for health and beauty, or as a garnishing a drink typically which is how they use it also in conventional cooking and in culinary uses and so we tend to you drive approximately 70% of our total sales into the food service arena. And that's really where we have our biggest opportunity to sell the standards because if you think about how a food service buyer might use lemons typically the esthetic look on a lemon sometimes it less important because you're using the lemons for that use where as a retail buyer might be more apt to buy a much higher quality looking lemon because it's going to be sold retail and that's very important to consumer. So that's certainly part of it, but the last part that you alluded to, we also have a different set up this year where there's not as much fruit in the marketplace. And when you have less fruit creating less competition, it creates a better opportunity for all of us to sell the off grade and off sizes at better values and doesn't require us to sell as much as in the juice of products market.

Okay. That helps. So even though you're able to sell those - first of all sounds like that might be a more sustainable trend so that you're over time your percentage of fresh utilization to total will actually will actually rise by several hundred basis points. I mean it sounds like that's a positive. But the other thing is that your lemon pricing is actually down in the quarter. So if you have a tighter fruit market, I guess I would have expected to see your lemon pricing a little stronger.

But you just touched on the reason it was down, the reason it was down is the market overall is the same or up, but we're selling as a percentage more of that off grade and - so the average price is down but we're selling a lot more. If you run the algorithm of all that I just said, you actually will see that our overall profitability is considerably up.

That was, I just wanted to make sure those dots were connected and it's really a mixing issue on your pride but you're selling more as fresh and it's just isn't much more profitable of proposition.

That's it. And when you are able to run those additional units over are now much more efficient packing house with net-net total profitability really starts to get into attractive ranges.

Makes perfect sense. Let me just shift and I will pass it on here. I am going to shift to one other question. Guidance on avocado volumes, obviously your volume is down quite a bit more than what your previous guidance was. I'm guessing that's all because of the -- production the trees are in their off year I'm assuming that that's it. Is there a weather related issue too or no, what is cause for the significant volume decline?

Yes, it's a great question. Really this is the art of growing avocados. So if you look at the actual percentage from our previous guidance at 8.5 million to 9 million pounds down to 6 million to 6.5 million pounds, we're in the 23% reduction range. And if you think about the way that avocado size, and so the size of an avocado is related to how many pieces of fruit at a certain size create a 25 pound box of fruit. And so on the differential in the size of a 60 count box of fruit versus a 48 pound box of fruit -- 48 piece box of fruit is about that 20% the 23%. So really what's going on here is by. Harvesting the way that we believe we're going to harvest for the rest of the year we're actually anticipating selling smaller fruit and not leaving it on the tree as long as we originally thought we might and that's all driven by what we believe is going to be significant market pressure later on in the year from Mexican fruit that should come into the market pretty heavily starting in August. So as a result of all that we're anticipating smaller fruit which translates into fewer pounds which is why we've lowered the per-pound estimate in total.

Is this year you're pushing your crop further forward last year you pushed it further backward to take advantage of a potential market advantage pricing, this year it's just the opposite.

That right. Now, it's all speculative and so we've tried to guide conservatively thinking what we think the size of the fruit is going to be. We won't really know obviously until we actually harvest it. But we've tried to guide conservatively at less volume, but we continue to believe that the market opportunity is very strong from a pricing standpoint so that's why we've chosen to guide the way we've done it.

Okay. That makes sense. I'll go back into the queue and maybe we'll catch up a little bit later. Thanks.

Thanks Eric.

We'll take our next question with Aaron Steele with Feltl and Company.

Hi guys, thanks for taking the call. Just wondering if you could comment a little bit on what might the impact be from the stay being lifted on the Argentinean lemon imports. Just wondering what maybe impact they'll have for pricing and then when are we likely to see that impact come through?

So that's a great question Aaron. Thank you. I believe that this summer we'll seem very very minimal about of Argentine fruit enter the US market. There are pretty strict protocol requirements that the Argentine growers will be put through in terms of the type of fruit that they'll allow to be harvested and specifically they're mandated to harvest green fruit and then it needs to be packed immediately fresh after it's harvested. And so as a result growers that weren't going through the strict protocols for their production this year to hit that opportunity, they're going to be eliminated from the option to ship this summer. So I don't think there's going to be a lot of fruit that comes in from Argentina this summer. But looking forward at future shipments, this would've been the perfect year to have more Argentine fruit rather than less and the reason is that the California fruit in district two which is where we are on the coast in those harvest. You're going to get very very tight to nonexistent towards the end of July. We're going to basically be out of fruit. Strategically, that's going to - that bodes very very well for Limoneira acquisition of out of Chile. So our Chilean fruits going to complement our Coastal California fruit very nicely and create a seamless supply chain for us in the US market. Have that argentine fruit been available and been ready to come into the market that would have been a ready market for it and it would not have been disruptive at all. In the future, I anticipate that similar situations will take place I think the Argentine fruit will really start to show up into the market probably somewhere around June, sort of June, June-July-ish. It'll become heavier in the East Coast markets, all of the shipments that come from Argentina require to land on the East Coast. That doesn't prohibit them from coming West, however when you put the freight bill coming from the East Coast to the West Coast it really gets prohibitively expensive for them to make their way out to the West Coast. So I believe it's really Mississippi River east for the market for Argentine fruit. I anticipate shipment somewhere in the 1 million to 1.5 million carton range. And I think as long as the handlers remain discipline in how they manage their Argentine sources, their Chilean sources and their US sources this won't be disruptive at all and we'll create a great opportunity for all of us to collectively clip grow the market together.

Alright. No, excellent that's good information. Maybe switching over to real estate, you gave a pretty good timeline I guess but what should we kind of expect going forward in terms of getting more details on some of the home builder commitments when are we likely to see some of those and actually get the detailed financial expectations and some of the milestone payments that you might see coming from there. So just wondering, if you could provide some more clarity on the real estate and the timeline there?

So from a permitting process standpoint, we have one last hurdle that we're working on clearing which we believe we'll clear in the next month or two that will then allow us to pull the grading permit that will allow the grading to begin. Lewis is having meaningful meetings with a whole host of home builders. They remain cautious at this point until the grading permits have been pulled and so that'll be the next real milestone that will be able to communicate and so it is our hope that by the next call the next queue that we'll be communicating that those grading permits have been pulled and that we're actively grading and at that point Aaron I'm hopeful that we'll have a little bit more specific information on some of the home builders that have expressed interest. I can't really say whether we'll have any deals cut. Joe do you have any thought on that?

Yes, I think going back to the timing as we start to engage with the home builders and start that pricing and sales process. Until we really get into it, this will be the first round et cetera. So we really need to see how that initial entrance starts to come in. Engage the interest and the volumes and how many builders and what types of models and we all have that planned out and contemplated. But until you actually start getting people signed up and that's what I think we need to start having similar timing we mentioned and I think we'll start seeing better ideas that will help us better articulate some of the financials and the metrics.

Yes, I would anticipate that by the fourth quarter we would have some clear views on who some of the builders, we may not know who all of them are but we most certainly will have an idea on some of them and it would be my expectation that we would have taken some deposits down at that point and had some commitments ready to announce and communicate.

Alright. Perfect, I appreciate the clarity there. That does it for me. Thanks guys.

Thanks Aaron.

We'll take our next question from Chris Krueger with Lake Street Capital Market.

Hi good afternoon, nice quarter.

Thank you, Chris.

You went over you cadence with third and fourth quarter. Were you referring to EPS?

Well, all of it of course it's just kind of the timing of the - EPS revenues and all obviously goes together.

Alright. Then then new packing facility, you talked about lemon cost per carton declining to $5.99 to $7.39 do you have like an internal goal for how low you think that can go?

We do. It is volume driven Chris. So our success at recruiting outside growers fruit, but also our success in bringing on our non-bearing fruit becoming bearing is going to play into that significantly. So our goals internally are not only cost related but also packing charge or revenue related as well so we try to look at holistically on a margin level. And we have goals of being in the $2 carton range on those margins.

Okay. And then what's the utilization rate right now for that facility?

Well, question - can pack 3.3 or so million and it can pack 8 is that what you are asking about? It was close to was that 40% or so.

Here is what the challenge of answering what the true capacity is in order to hit optimal or maximum capacity you would have to be 52 weeks of constant packing supply, if they had throughput and so a big part of what our challenge is going to be as we grow is to make sure that we're balanced in when that fruit comes in so it doesn't inundate us at some time in the year and then leave us sort of slower and other times of the year. So that's another part of it, that's going to be going to be tough to balance out perfectly. So 8 million is really the theoretical sort of capacity, but 7 million is probably the more practical capacity if that makes sense. So we're nearing 45% to 50% capacity utilization today.

Okay. That's all I got thanks.

Thank you.

That concludes today's question and answer session. At this time, I will turn the call back to Mr. Harold Edwards for any final remarks.

Thank you very much for your questions and interest in Limoneira. We look forward to updating you again in September on our next quarterly call. Thank you again and have a great day.

This does conclude today's conference. Thank you for your participation. You may now disconnect.