Limoneira(LMNR) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported a $2.3 million net loss for the nine months ended July 31, 2019, a significant decline from prior year's net income due to increased costs Consolidated Balance Sheets Total assets slightly decreased to $415.7 million as of July 31, 2019, while total liabilities decreased and stockholders' equity increased to $228.1 million Consolidated Balance Sheet Highlights ($ in thousands) | Account | July 31, 2019 | October 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $415,689 | $421,339 | ($5,650) | | Total Current Assets | $50,587 | $31,044 | $19,543 | | Real estate development | $16,378 | $107,162 | ($90,784) | | Equity in investments | $57,775 | $18,698 | $39,077 | | Total Liabilities | $176,762 | $191,389 | ($14,627) | | Long-term debt, less current portion | $109,253 | $76,966 | $32,287 | | Sale-leaseback deferral | $0 | $58,330 | ($58,330) | | Total Stockholders' Equity | $228,117 | $219,140 | $8,977 | Consolidated Statements of Operations Q3 2019 revenues increased to $50.9 million, but rising agribusiness costs led to a net loss of $0.4 million, contrasting with prior year's net income Q3 Financial Performance ($ in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | $50,869 | $39,950 | +27.3% | | Total Costs and Expenses | $48,751 | $28,525 | +70.9% | | Operating Income | $2,118 | $11,425 | -81.5% | | Net (Loss) Income | ($397) | $8,200 | -104.8% | | Diluted EPS | ($0.06) | $0.50 | -112.0% | Nine Months Financial Performance ($ in thousands, except per share data) | Metric | 9M 2019 | 9M 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | $134,922 | $114,678 | +17.7% | | Total Costs and Expenses | $136,829 | $95,611 | +43.1% | | Operating (Loss) Income | ($1,907) | $19,067 | -110.0% | | Net (Loss) Income | ($2,253) | $23,429 | -109.6% | | Diluted EPS | ($0.19) | $1.50 | -112.7% | Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $4.3 million for the nine months ended July 31, 2019, primarily due to lower net income Cash Flow Summary for Nine Months Ended July 31 ($ in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,274 | $23,203 | | Net cash used in investing activities | ($31,380) | ($50,852) | | Net cash provided by financing activities | $27,479 | $27,646 | | Net increase in cash | $334 | $13 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2019 revenue growth to higher lemon volumes, offset by increased agribusiness costs, impacting profitability and liquidity Results of Operations Q3 2019 agribusiness revenue increased 28% to $49.6 million, primarily from lemons, but costs surged 78% to $42.7 million, leading to an operating loss Q3 Agribusiness Revenue Breakdown ($ in thousands) | Category | Q3 2019 | Q3 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lemons | $46,401 | $30,736 | $15,665 | 51% | | Avocados | $2,519 | $5,643 | ($3,124) | (55)% | | Oranges | $711 | $1,986 | ($1,275) | (64)% | | Total Agribusiness | $49,631 | $38,677 | $10,954 | 28% | - The increase in lemon revenue was driven by higher volume (1,876,000 cartons vs. 992,000 in Q3 2018), which included 609,000 cartons from the newly acquired Trapani Fresh. This was partially offset by a lower average price per carton ($19.09 vs. $25.91)[182] Q3 Agribusiness Costs and Expenses ($ in thousands) | Category | Q3 2019 | Q3 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Packing costs | $13,524 | $6,033 | $7,491 | 124% | | Harvest costs | $6,296 | $3,609 | $2,687 | 74% | | Third-party grower costs | $14,715 | $8,041 | $6,674 | 83% | | Total Agribusiness | $42,747 | $23,983 | $18,764 | 78% | Liquidity and Capital Resources Liquidity is supported by the $115 million Farm Credit West facility, with $29.6 million available, despite a significant decrease in operating cash flow - The company utilizes a Master Loan Agreement with Farm Credit West with an aggregate borrowing capacity of $115.0 million, comprised of a $75.0 million revolving line and a $40.0 million non-revolving line[239] - As of July 31, 2019, the company had $85.4 million in outstanding borrowings under the Farm Credit West facility, with $29.6 million of availability[245] - Significant investing activities in the first nine months of 2019 included $15.0 million for the Trapani Fresh business combination and a $4.0 million contribution to the Limoneira Lewis Community Builders joint venture[235] Critical Accounting Policies and Estimates The company adopted ASC 606, impacting brokered fruit sales recognition, and applies critical policies for business combinations and asset impairment - Adopted new revenue recognition standard ASC 606 on November 1, 2018. This resulted in a change in accounting for certain brokered fruit sales, now recognized on a gross basis, increasing both revenue and costs without affecting net income[274][277] - Business combinations are accounted for under the acquisition method (ASC 805), with assets and liabilities measured at fair value. Acquisitions not meeting the definition of a business are treated as asset acquisitions[293] Quantitative and Qualitative Disclosures about Market Risk No material changes were reported in market risk disclosures since the fiscal year ended October 31, 2018 Annual Report on Form 10-K - There have been no material changes in the disclosures regarding market risk since the last Annual Report on Form 10-K for the fiscal year ended October 31, 2018[298] Controls and Procedures Management concluded disclosure controls were effective as of July 31, 2019, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of July 31, 2019[299] - The operations of the recently acquired Trapani Fresh will be excluded from the scope of management's assessment of internal control over financial reporting for the fiscal year 2019[302] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any material pending legal proceedings outside of its ordinary course of business - The company reports no material pending legal proceedings[304] Risk Factors No material changes to risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended October 31, 2018 - No material changes to risk factors have occurred since the filing of the Annual Report for the fiscal year ended October 31, 2018[305] Other Items (2-6) The company reported no unregistered sales of equity securities, no defaults, and no other material information for Items 2-5 - Items 2, 3, 4, and 5 reported no activity or information to disclose[306][307][308]