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Limoneira (NASDAQ: LMNR)
Q2 2023 Earnings Call
Jun 06, 2023, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings and welcome to Limoneira’s second quarter fiscal 12 months 2023 monetary outcomes convention name. [Operator instructions] A matter-and-answer session will comply with the formal presentation. As a reminder, this convention is being recorded. It is now my pleasure to introduce your host, John Mills with ICR.
Thank you. You could start.
John Mills — Head of Investor Relations
Great. Thank you. Good afternoon, everybody, and thanks for becoming a member of us for Limoneira’s second quarter fiscal 12 months 2023 convention name. On the decision right now are Harold Edwards, president and chief government officer; and Mark Palamountain, chief monetary officer.
By now, everybody ought to have entry to the second quarter fiscal 12 months 2023 earnings launch, which went out right now at roughly 4 p.m. Eastern time. If you have not had an opportunity to evaluate the discharge, it’s out there within the investor relations portion of the corporate’s web site at limoneira.com. This name is being webcast, and a replay shall be out there on Limoneira’s web site as effectively.
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Before we start, we would wish to remind everybody that ready remarks include forward-looking statements and administration could make extra forward-looking statements in response to your questions. Such statements contain a lot of identified and unknown dangers and uncertainties, a lot of that are exterior the corporate’s management and will trigger its future outcomes, efficiency, or achievements to vary considerably from the outcomes, efficiency, or achievements expressed or implied by such forward-looking statements. Important components that might trigger or contribute to such variations embrace dangers detailed within the firm’s 10-Qs and 10-Ks filed with the SEC and people talked about within the earnings launch. Except as required by regulation, we undertake no obligation to replace any forward-looking or different statements herein, whether or not a results of new info, future occasions, or in any other case.
And please word that in right now’s name, we shall be discussing non-GAAP monetary measures, together with outcomes on an adjusted foundation. We consider these adjusted monetary measures can facilitate a extra full evaluation and larger understanding of Limoneira’s ongoing outcomes of operations, significantly when evaluating underlying outcomes from interval to interval. We’ve supplied as a lot element as potential on any objects which are mentioned on an adjusted foundation. Also, throughout the firm’s earnings launch and in right now’s ready remarks, we embrace adjusted EBITDA and adjusted diluted earnings per share, that are non-GAAP monetary measures.
A reconciliation of adjusted EBITDA and adjusted diluted EPS to probably the most straight comparable GAAP monetary measures are included within the firm’s press launch, which has been posted to its web site. And with that, it’s my pleasure to show the decision over to the corporate’s president and CEO, Mr. Harold Edwards.
Harold Edwards — President and Chief Executive Officer
Thanks, John, and good afternoon, everybody. I’m happy with our efficiency within the second quarter and first half of fiscal 12 months 2023. A number of of our lemon ranches have been impacted by the extremely publicized heavy rains in California, delaying a portion of the lemon harvest into the third quarter, in addition to softer pricing for lemons and avocados as markets proceed to work via surplus stock. Even with the latest rains, we proceed to count on to realize our full fiscal 12 months 2023 lemon quantity steering.
We are also experiencing sturdy curiosity from nationwide builders for the second section of our residential growth mission, Harvest at Limoneira. We generated over $48 million of income within the second quarter, and adjusted web revenue for diluted earnings per share within the second quarter of fiscal 12 months 2023 was $3.9 million, or $0.21 per diluted share, roughly doubling in comparison with final 12 months. Our web debt place was decreased to $32 million on the finish of the second fiscal quarter from $105 million on the finish of fiscal 12 months 2022 because of the continued implementation of our asset-lighter enterprise mannequin. Our strategic asset-lighter transition plan that we count on to be accomplished within the subsequent 12 months is pivoting our enterprise towards a mannequin that may streamline our operations and promote nonstrategic belongings, enhance the consistency of our earnings, enhance EBITDA and dividends per share, scale back debt, rightsize the steadiness sheet, and enhance our return on invested capital.
The advantages of this may start to be absolutely realized in fiscal 12 months 2024. This plan now entails roughly $180 million of belongings on the market, and we have now already closed on 4 of the six recognized belongings over the previous 9 months for a complete of $130 million in proceeds. We have $50 million of remaining belongings recognized that we plan to monetize over the following 12 months. We proceed to make important progress advancing our technique to monetize sure nonstrategic belongings, with practically all of these recognized belongings offered, increasing our One World of Citrus initiative with the recruitment of near 1 million extra cartons from new grower companions, and executing on Harvest at Limoneira, all of that are remodeling our steadiness sheet and positioning us to enhance our top- and bottom-line leads to fiscal 12 months 2024.
Since the start of fiscal 2023, we have now achieved the next transactions to boost our asset-lighter enterprise mannequin. On January 31, 2023, we offered our Northern Properties, which resulted in whole web proceeds of $98.4 million. The proceeds have been used to pay down a lot of the corporate’s home debt. As a part of this transaction, Limoneira and Prudential Agricultural Investments entered right into a farm administration companies settlement to offer farming companies associated to the property for an preliminary time period of 1 12 months and entered right into a grower packing and advertising settlement to offer packing, advertising, and promoting companies for lemons harvested on the property for a minimal five-year interval.
This piece of the transaction suits squarely with our strategic plan to increase our One World of Citrus in an asset-lighter manner as we concentrate on leveraging our main world packing, advertising, and promoting companies utilizing extra grower associate fruit. The economics of utilizing grower companions is extraordinarily engaging, with Limoneira focusing on $2 to $2.50 per carton of margin with no extra capital outlay. It reduces the impression of pricing volatility and rising farming prices on our enterprise and shall be additive to EBITDA and earnings per share on a professional forma foundation. Even after the nonstrategic asset gross sales, we proceed to farm roughly 11,100 acres, with over 21,000 acre-feet of owned water rights, utilization rights, and pumping rights.
We are discovering nice monetization alternatives for our water belongings by both fallowing acreage, leasing pumping rights, or promoting the water rights for important appreciation over our investments. A near-term water monetization alternative is the 1,300 acres of farmland we have now in Yuma, Arizona that has related Class 3 Colorado River water rights. The Department of the Interior has instructed the seven states that derive water from the Colorado River to scale back their consumption by a 3rd, and the cuts will first come from Class 8 water rights, all the best way down. These states shall be compelled to go to these with senior water rights like Class 3 water rights and pay for his or her water.
There is a proposed new fallowing program of which we plan to take benefit with roughly 600 of our 1,300 acres, and we count on to obtain $2,240 an acre to divert water from farming to city use. In April of 2023, we entered right into a settlement settlement with Southern California Edison Company and Edison International to formally resolve any and all claims associated to the Thomas Fire in fiscal 12 months 2018. Under the phrases of the settlement settlement, we have been awarded a complete settlement of $9 million. In May of 2023, we obtained $6.1 million web of authorized and different associated prices.
Mark will present extra element on this shortly. Also, in April of 2023, we decided that citrus farming operations have been economically unviable on 670 acres of leased agricultural land on the Cadiz Ranch. As a end result, we ceased farming operations; disposed of the associated property, plant, and tools; and recorded a noncash loss on disposal of belongings of $9 million as of April 30, 2023. This transfer is likely one of the some ways we count on our margins to enhance dramatically in fiscal 12 months 2024 by eliminating unprofitable operations.
In May of 2023, we entered into an unique licensing relationship with Apeel Sciences. Their main expertise will defend our lemons throughout the provision chain with Apeel’s coating expertise. This non-GMO, edible, plant-based coating maintains moisture for longer and reduces oxidation, stopping spoilage all through the provision chain. For lemons, this implies they keep juicy, juicy, and retain their shiny yellow coloration for longer.
As Apeel’s first absolutely built-in lemon provider within the United States, we’ll considerably increase availability of Apeel-protected lemons domestically and internationally via Limoneira-affiliated packing amenities and thru licensing administration. In product trials performed by Limoneira, Apeel-protected lemons demonstrated a big distinction in high quality in comparison with different coatings. Apeel-protected lemons exhibited decreased water loss, shrivel, and coloration change or bronzing, together with when examined in ambient circumstances. This validates that Apeel’s expertise permits citrus to retain its high quality for longer, no matter how they’re saved or merchandised, which improves our strategic place for market alternatives with retail and meals service clients demanding a extra sustainable strategy to offering the best high quality, freshest produce.
Because of all of the enhancements and refocusing of our enterprise to an asset-lighter mannequin that features the enlargement of third-party fruit, we grow to be very engaging to grower companions and proceed to develop best-in-class grower companies to bolster our enchantment via investments in our expertise and provide chain. Our strategic strategy to recent utilization allows our gross sales and advertising workforce to efficiently market recent lemons all year long with among the best recent utilization charges out there. This is clearly an vital draw with grower companions. We are additionally working to higher help our grower companions by reconfiguring our world lemon packing community.
This consists of lowering sure orange and lemon acreage globally whereas nonetheless sustaining the packing and advertising of the lemons grown on these places. In the primary six months of fiscal 12 months 2023, roughly 57% of our U.S.-packed recent lemon sourced quantity got here from grower companions, and our objective is to have that quantity nearer to 75% on an annual foundation. In addition, we have now our actual property growth mission, Harvest at Limoneira. We introduced on the finish of December that we elevated our money proceeds projection for this mission by over 20% to $115 million and up to date our timeline to incorporate each the Harvest growth and the Harvest medical pavilion throughout the freeway.
We obtained the primary $8 million of proceeds within the fourth quarter of fiscal 12 months ’22 and count on to generate the total $115 million over seven fiscal years. The mission is at present authorised to develop 1,500 residential models, and we’re in negotiations with town of Santa Paula to increase that as much as 2,000 models. We consider we can announce the extra 500 models later this 12 months. Interest within the second section of this growth has resulted in latest discussions with nationwide homebuilders that participated within the profitable first section of this mission.
We count on to have extra info on this within the coming months. So, what’s subsequent for Limoneira now that we have now a really sturdy steadiness sheet and a transparent path to stronger EBITDA, money circulate, and earnings? Over the following 12 months, you’ll be able to count on to see our continued transition to an asset-lighter enterprise mannequin and concentrate on the most effective use of our belongings to boost shareholder worth. Our board and administration workforce will proceed to guage methods to greatest leverage our experience in farm administration, packing, advertising, and distributing citrus, mixed with our helpful portfolio of agricultural lands, actual property properties, and water rights, in an effort to improve long-term shareholder worth. And with that, I’ll now flip the decision over to Mark.
Mark Palamountain — Chief Financial Officer
Thank you, Harold, and good afternoon, everybody. As a reminder, it’s best to view our enterprise on an annual not quarterly foundation because of the seasonal nature of our enterprise. Historically, our second and third quarters are the seasonally stronger quarters, whereas our first and fourth quarters are softer. For the second quarter of fiscal 12 months 2023, whole web income was $48.1 million, in comparison with whole web income of $46.8 million within the second quarter of the earlier fiscal 12 months.
Agribusiness income was $46.7 million, in comparison with $45.4 million within the second quarter final 12 months. In April 2023, Limoneira entered right into a settlement settlement with Southern California Edison Company to formally resolve any and all claims associated to the Thomas Fire in fiscal 12 months 2018. Under the phrases of the settlement settlement, the corporate was awarded a complete settlement of $9 million. In May of 2023, Limoneira obtained roughly $6.1 million web of authorized and associated prices, of which $3.8 million was thought-about misplaced income and recorded in agribusiness revenues and $2.3 million was recorded in achieve on authorized settlement within the second quarter of fiscal 12 months 2023.
Other operations income was $1.4 million in each the second quarters of fiscal 12 months 2023 and 2022. Agribusiness income for the second quarter of fiscal 12 months 2023 consists of $26.6 million in recent lemon gross sales, in comparison with $27.3 million throughout the identical interval of fiscal 12 months 2022. Lemon revenues within the second quarter of fiscal 12 months 2023 consists of settlement proceeds of $1.5 million allotted to lemons. Approximately 1.547 million cartons of recent lemons have been offered through the fiscal — second quarter of fiscal 12 months 2023 at a $17.23 common value per carton, in comparison with roughly 1.552 million cartons offered at a $17.57 common value per carton through the second quarter of fiscal 12 months 2022.
Lemon pricing for the primary half of fiscal 12 months 2023 has remained difficult. And whereas we’re starting to see a small restoration, we count on a sluggish rise in value within the second half of this 12 months. Of the 1.547 million and 1.552 million cartons of U.S.-packed recent lemons offered through the second quarter of fiscal 12 months 2023 and 2022, respectively, 49% and 51%, respectively, have been procured from grower companions. Due to heavy rainfall that occurred through the first quarter of fiscal 12 months 2023, the timing for the preliminary avocado harvest was delayed from the primary quarter into the second quarter of fiscal 12 months 2023.
The firm acknowledged $3.6 million of avocado income within the second quarter of fiscal 12 months 2023 and expects to recoup the remaining delayed income within the third quarter. Avocado revenues within the second quarter of fiscal 12 months 2023 included settlement proceeds of $2.4 million allotted to avocados. Approximately 900,000 kilos of avocados have been offered in combination through the second quarter of fiscal 12 months 2023 at a $1.30 common value per pound, in comparison with roughly 1.9 million kilos offered at a $1.90 common value per pound through the second quarter of fiscal 12 months 2022. We are at present coping with an oversupplied avocado market, exacerbated by lots of fruit coming in from Mexico and Peru that’s going to proceed to strain the value of avocados for fiscal 12 months 2023.
The firm acknowledged $1.4 million of orange income within the second quarter of fiscal 12 months 2023, in comparison with $2.6 million within the second quarter of fiscal 12 months 2022. Approximately 88,000 cartons of oranges have been offered through the second quarter of fiscal 12 months 2023 at a $15.72 common value per carton, in comparison with roughly 328,000 cartons offered at a $7.98 common value per carton through the second quarter of fiscal 12 months 2022. Specialty citrus and different income was $2.4 million within the second quarter of fiscal 12 months 2023, in comparison with $1.4 million within the second quarter of fiscal 12 months 2022. As a reminder, we offered nearly all of our orange acreage and 100% of our specialty citrus acreage within the Northern Properties transaction.
Total prices and bills for the second quarter of fiscal 12 months 2023 have been $51.9 million, in comparison with $44.2 million within the second quarter of final 12 months. The enhance of $7.8 million was primarily because of the disposal of the Cadiz Ranch belongings. As Harold spoke to earlier, Cadiz Ranch was an asset that was working at a lack of roughly $1.5 million per 12 months. And as a part of the corporate’s shift towards an asset-lighter enterprise mannequin, we determined it was within the firm’s greatest curiosity to stop farming operations and eliminate the associated property, plant, and tools.
As such, we recorded a loss on disposal of belongings of $9 million as of April 30, 2023. Operating loss for the second quarter of fiscal 12 months 2023 was $3.9 million, in comparison with working revenue of $2.6 million within the second quarter of the earlier fiscal 12 months. Net loss relevant to widespread inventory after most popular dividends for the second quarter of fiscal 12 months 2023 was $1.7 million, in comparison with web revenue relevant to widespread inventory of $1.4 million within the second quarter of fiscal 12 months 2022. Net loss per diluted share for the second quarter of fiscal 12 months 2023 was $0.10, in comparison with web revenue per diluted share of $0.08 for a similar interval of fiscal 12 months 2022.
Adjusted web revenue for diluted earnings per share for the second quarter of fiscal 12 months 2023 was $3.9 million, in comparison with $1.9 million in the identical interval of fiscal 12 months 2022. Adjusted web revenue per diluted share was $0.21, in comparison with adjusted web revenue per diluted share of $0.11 for the second quarter of fiscal 12 months 2022. A reconciliation of web loss or revenue attributable to Limoneira firm to adjusted web revenue or loss for diluted earnings per share is supplied on the finish of our earnings launch. Adjusted EBITDA was $6.2 million within the second quarter of fiscal 12 months 2023, just like the identical interval of fiscal 12 months 2022.
A reconciliation of web loss or revenue attributable to Limoneira firm to adjusted EBITDA can be supplied on the finish of our earnings launch. Turning now to our steadiness sheet and liquidity. At the start of the 12 months, we offered our Northern Properties, which resulted in whole web proceeds of $98.4 million. Those proceeds have been used to pay down all of our home debt, besides the AgWest Farm Credit $40 million nonrevolving line of credit score, which is mounted at 3.57% till July 1 of 2025.
Long-term debt as of April 30, 2023 was $40.8 million, in comparison with $104.1 million on the finish of fiscal 12 months 2022. Debt ranges as of April 30, 2023, minus $9.8 million of money readily available, resulted in a web debt place of $31.5 million at quarter-end. As a reminder, we have now $50 million of remaining nonstrategic belongings for monetization over the following 12 months and count on their sale, mixed with enhancing EBITDA, will end result within the alternative to don’t have any debt and a money place on our steadiness sheet. Now, I’d like to show the decision again over to Harold to debate our fiscal 12 months 2023 outlook and longer-term progress pipeline.
Harold Edwards — President and Chief Executive Officer
We proceed to consider whole lemons gross sales quantity shall be within the vary of 5 million cartons to five.4 million cartons for fiscal 12 months 2023. This is up from 4.9 million cartons in fiscal 12 months 2022. For the third quarter of fiscal 12 months 2023, we count on to expertise continued pricing strain however consider the industrywide decrease manufacturing will result in barely increased costs. Due to weather-related components adversely reflecting our orchards and impacting our orchards, we now count on avocado volumes for fiscal 12 months 2023 to be within the vary of three million kilos to 4 million kilos, in comparison with a earlier vary of 4 million kilos to five million kilos.
Also, it is vital to notice that whereas fiscal 12 months 2022 was a file 12 months for avocado income, the California crop usually experiences alternating years of excessive and low manufacturing because of plant physiology. In addition, we proceed to count on to obtain $115 million from Harvest at Limoneira and the addition of the Limoneira Community Builders 2 and East Area 2 unfold over seven fiscal years, with proceeds of $8 million already obtained within the fourth quarter of fiscal 12 months 2022. Our money circulate projections have been up to date in January to incorporate the medical campus in our East Area 2 growth. The breakdown continues to be anticipated as adopted: fiscal 12 months 2022 generated $8 million of money to Limoneira, fiscal 12 months 2023 is anticipated to generate $5 million, fiscal 12 months 2024 is anticipated to generate $8 million, fiscal 12 months 2025 is anticipated to generate $17 million, fiscal 12 months 2026 is anticipated to generate $25 million, fiscal 12 months 2027 is anticipated to generate $30 million, and monetary 12 months 2028 is anticipated to generate $22 million.
And lastly, as beforehand said, we have now recognized $180 million of nonstrategic belongings on the market. We’ve made nice progress to date executing in opposition to our plan with the sale of $130 million prior to now 9 months and count on to announce the sale of the remaining $50 million within the subsequent 12 months. And with that, I’d wish to open the decision as much as your questions. Operator.
Questions & Answers:
Operator
Thank you. We will now be conducting a question-and-answer session. [Operator instructions] Our first query comes from Ben Bienvenu with Stephens. Please proceed along with your query.
Ben Bienvenu — Stephens, Inc. — Analyst
Hey, everyone. Thanks a lot for taking my questions.
Harold Edwards — President and Chief Executive Officer
Hey, Ben.
Mark Palamountain — Chief Financial Officer
Hey, Ben.
Ben Bienvenu — Stephens, Inc. — Analyst
I wish to begin simply should you may simply give us form of a bit little bit of a view or your view on the lemon markets as we transfer via the steadiness of this 12 months. And form of what’s the path again to extra normalized earnings from this section of your corporation? Obviously, you recognize, the basics have been beneath strain for a lot of years. But I’m curious, you recognize, you may have so many company-specific dynamics which are favorable happening for you. You know, if we take into consideration lemons finally attending to be a extra constructive contributor to the P&L than detrimental, I’m interested by form of how we get there and what you finally assume that might contribute to the enterprise.
Harold Edwards — President and Chief Executive Officer
You know, that — thanks for that query, Ben. That’s a terrific query, and that is — that’s kind of the query we have been targeted on answering as we have begun our pivots. But the monetary workforce at Limoneira put collectively a very helpful and useful evaluation that basically confirmed the impression of — on our P&L of various financial influences in other places the place we have been producing. And so, the very first thing that we did to got down to enhance was to get rid of the areas the place we have been actually having our challenges.
And the primary space simply on this very low-price, high-cost atmosphere is within the desert in Yuma, Arizona. And so, due to the fallowing program and the alternatives to really scale back our precise manufacturing however enhance our revenues and our price there by making the most of these helpful fallowing packages with the Bureau of Reclamation, we consider that we have solved the profitability drawback out of Yuma. And with our elevated concentrate on manufacturing there, however our important price discount in Yuma, we predict that you’re going to see, even on this low-pricing atmosphere, a lot better lemon outcomes popping out of that space. The outcomes that have been coming from our lemons within the San Joaquin Valley, we have pivoted to 100% service supplier to be a packer, marketer, and vendor of these lemons, the place earlier than when this low-cost and low-pricing — high-cost, low-pricing atmosphere, we have been actually battling the profitability of these — that manufacturing.
Finally, the manufacturing that we even have in Ventura County, simply because it’s totally near our packing home, it is the logistical price of transferring these lemons is considerably higher than the opposite areas the place we’re producing. So, in consequence, we — even on this low-pricing atmosphere, we see a terrific alternative to generate worth out of these lemons. So, I feel the primary and the easy reply to your query is the very first thing we wanted to do was to unravel our issues within the unprofitable space. The ultimate actual drawback that we had was in Cadiz.
And as we have simply introduced, we have now stopped our farming operations in Cadiz and eradicated that a part of our provide chain. It actually solely amounted to about 250,000 cartons of precise provide, which we’ll offset with manufacturing from grower companions on the similar time in these areas. But the elimination of these issues in these areas after which the main target in on our streamlining and our operations in Ventura County and in Santa Paula ought to see a very dramatic swing within the revenue contributions from the lemon enterprise. And that is assuming that we keep on this very low-priced atmosphere that is brought on by oversupply.
We’re beginning to see some manufacturing in — not solely within the three manufacturing districts in California and Arizona come out, however you are additionally seeing provide reductions in different elements of the world. That will take time for that to present itself within the steadiness between demand and provide, however we’re — you are going to see important enhancements due to the tactical modifications to the best way we’re working our enterprise. And that places us into a very good place to attend for the next value, which we’re assured will come, we’re simply undecided how lengthy that is going to take to get there.
Ben Bienvenu — Stephens, Inc. — Analyst
OK. That’s nice. Very useful. And possibly shifting gears to the avocado aspect of the enterprise.
Obviously, volumes coming into the U.S. are up significantly. Prices are down. You famous form of the quantity dynamic that you simply’re experiencing.
With costs beneath strain, what’s your sense of parsing out how a lot of that’s provide versus demand, and has demand been impaired in any respect by what has been a weaker client backdrop?
Harold Edwards — President and Chief Executive Officer
Certainly, the large driver is provide. Mexico, as you recognize, has an enormous crop, a lot bigger 12 months on 12 months this 12 months than final 12 months. And bear in mind, final 12 months’s kind of bizarre pricing dynamic was pushed by a disruption within the provide chain that was non permanent, however it took some time for the provision chains to catch again as much as the demand. One of the issues that we seen, Ben, and I’ve seen this earlier than in my profession, however when you may have these disruptions in provide chain and also you see these actually excessive costs, it tends to show demand off for a time frame as a result of the pricing will get so excessive.
And so, whereas it is superb as a producer throughout that point interval since you’re reaching increased costs and far increased profitability, it is unsustainable since you get to kind of that place in elasticity within the market the place shoppers get turned off due to the excessive pricing. Now that we’re again to regular pricing and also you see rather more worth on the grocery store in your avocados, that demand takes some time to catch again up as a result of individuals have been turned off earlier than by the excessive pricing atmosphere. So, we have seen this earlier than. We’ve seen the demand lag.
I feel we’re going via that lag interval proper now. I’m absolutely assured it’s going to catch again up. But proper now, we even have seen demand fall off 12 months on 12 months. It was actually simply pushed by the actually excessive pricing atmosphere within the market.
Ben Bienvenu — Stephens, Inc. — Analyst
OK. And then final query for me, if I may, on the potential monetization of water rights. You talked in regards to the fallowing packages that you’re going to take part in. I’m curious, one, what’s the urge for food out there for, you recognize, precise outright purchases or some kind of strategic association through which you financially monetize your water rights and what’s your need to have interaction with that kind of urge for food?
Harold Edwards — President and Chief Executive Officer
So, I’ll offer you a kind of a imprecise reply as a result of, you recognize, we’ll assess all of the alternatives as they kind of are offered. But — so the dynamic on the river is fascinating. The fallowing program that we put in place that we simply agreed to will drive about $1.4 million of extra income towards us for not farming 613 acres. And that is a three-year deal that may finish by 2026.
And you could have adopted what the federal authorities has come out and mentioned, however they mentioned that the present settlement is a three-year settlement, however then the seven states that draw water off the Colorado River must have their new agreements for the following 25 years put in place by 2026. So, behind the scenes, there’s a lot of horse-trading and negotiation and choices which are being fabricated from who’re patrons and who’re sellers of water. But the objective is — for the federal authorities is to chop a 3rd of the consumptive use off the river. We consider that there is the potential that the following spherical of fallowing shall be a 25-year deal for the entire acreage at considerably increased values.
The values that we have now on this deal proper now are $400 an acre-foot. We’re listening to whispers of $800 to $1,000 an acre-foot to not take the water for the entire manufacturing, which might imply we would should exit and complement the — that a part of our provide chain from elsewhere. But the fallowing program might be extraordinarily profitable for us. Now, realizing that that is kind of occurring, we’re — as you recognize, we’re additionally companions with a water-focused hedge fund in New York that is taking a look at all of this and making an attempt to determine what their greatest play on it’s.
And one in every of their greatest performs could also be to really purchase the acreage outright at out-of-value. And so, we’re engaged in these discussions, and we’re undecided which manner it may go, however we’re evaluating each. And no matter our choice is that we — we’re decided to ensure it is the most effective choice for our shareholders.
Mark Palamountain — Chief Financial Officer
And, Ben, simply I’d add, one different factor that is out there may be a few of these cities are being proactive, particularly out within the desert. As we noticed, town of Buckeye pay about $13,000, $13,500 for an acre-foot, which is an enormous quantity, you recognize, primarily based in opposition to our water rights on the market. And so, as this three-year interval kind of dries up and individuals are wanting towards the long run, I feel you may see rather more industrial sorts and cities come and strategy us for water as effectively.
Ben Bienvenu — Stephens, Inc. — Analyst
OK. Very good. Thanks a lot.
Operator
Thank you. Our subsequent query comes from Raj Sharma with B. Riley Securities. Please repeat — please proceed along with your query.
Raj Sharma — B. Riley Financial — Analyst
Yeah. Thank you for taking my query. A number of of my questions have already been answered. Can we focus a bit bit on the asset-light outlook? That’s the one half that kind of has not been spelled out.
You’ve, prior to now, talked a few five-year plan and the place you wish to take this manufacturing or the quantity of — the variety of lemon cartons to. Is there any kind of degree we must always count on by, you recognize, this 12 months, and might you discuss that for subsequent 12 months and the place the third-party cartons are going to return from? Could you discuss that, please?
Harold Edwards — President and Chief Executive Officer
Yeah. Sure. We’d be blissful to, Raj, and it is a terrific query. Thank you for that.
So, lots of the solutions to that query have been pushed prior to now by how a lot packing capability we had out there to us. And so, theoretically, the Santa Paula facility right now has a capability of seven million cartons yearly. And as you recognize, we’re additionally nonetheless using some storage and washing capabilities in our Oxnard facility. But as we consider kind of the place the lemons are going to return from by district, so District 3, which is the desert, we truly consider that part of that provide chain goes to be decreased due to the water strain from the Colorado River.
And then we take a look at what is going on on with provides within the San Joaquin Valley. We assume that these provides are literally going to extend due to the massive alternative that we see with exterior growers and the enlargement of lemon manufacturing in that space. So, having us pursue extra lemon packing capabilities and optionality within the valley is one thing that we’re taking a look at very intently proper now as a result of we predict that is an space of progress. Finally, as we take into consideration the coast, and that is the lemon — that is the spring-early summer season lemon, we have now that capability of seven million cartons there.
But I feel to be truthful about all of it, we have now kind of an inside goal of 15 million cartons that we wish to attempt to get to within the subsequent, name it, three to 5 years and all of the whereas kind of making an attempt to handle that progress someplace from a quantity perspective round 20% every year.
Raj Sharma — B. Riley Financial — Analyst
Volume progress of 20% every year, together with the third social gathering in packing and transport?
Harold Edwards — President and Chief Executive Officer
Mostly with the third social gathering as a result of we do have some youthful acreage that’s nonetheless coming on-line, however the lion’s share of that progress will include — from third-party grower associate fruit.
Raj Sharma — B. Riley Financial — Analyst
Got it. And now, is that to be anticipated to circulate via evenly throughout the following 5 years or —
Mark Palamountain — Chief Financial Officer
By 12 months? I feel it is truthful to say that, yeah. If — so should you’re fascinated by it from a modeling perspective, that is how I’d do it, by 12 months. It will not — we cannot be precisely that, however it must be near that. The different dynamic is we — in order that’s enlargement, however you are additionally seeing contraction due to water in District 3.
So, that is a part of the calculus right here that we’re making an attempt to think about to steadiness the general progress. But I feel if we thought of it by way of 20% quantity progress per 12 months, that is most likely pretty much as good a quantity as we are able to get, and that is what we’re making an attempt to perform.
Raj Sharma — B. Riley Financial — Analyst
Thank you. And then simply a few extra questions on the water rights. Yuma, did I — do I perceive that accurately, your $1.4 million a 12 months may truly triple, quadruple merely since you’d be — you’d have a — you recognize, if they arrive again with a 25-year requirement, pricing would double and in addition the variety of acres you’d fallow would additionally double?
Harold Edwards — President and Chief Executive Officer
That’s proper. Yeah, so here is the tough math on that, Raj. So, we have now 613 acres that we fallowed, and we’re — the three-year program that we have simply entered permits us to get 5.6 acre-feet per acre that is fallowed instances $400 an acre-foot. And they’ve allowed us to — of our 1,300 acres, they’ve allowed us to fallow half of it.
So, what we consider the following alternative goes to be is one thing directionally like the entire acreage, so, at which level, it could be 1,300 acres, instances 5.6 acre-feet per acre instances no matter worth that they really provide, and we — that is what we have heard whispers of $800 to $1,000 in acre-foot.
Raj Sharma — B. Riley Financial — Analyst
Right. So, the precise cash, proper, may quadruple?
Harold Edwards — President and Chief Executive Officer
Could — it may. Yes. And that is why we wish to ensure that we stick round within the occasion that that chance presents itself.
Raj Sharma — B. Riley Financial — Analyst
Got it. Thank you. And then lastly, the Cadiz. Could you clarify the Cadiz, the rise within the prices of 9 million? Is your complete working — is the loss within the numbers within the working prices, like are you able to make clear that, please? And is that noncash?
Mark Palamountain — Chief Financial Officer
Yeah. So, it is all noncash. So, we have now 9 million invested in 640 acres, one part there. Half of the acreage was the pink lemon, which we have been making an attempt — you recognize, we experimented on the market and which did not go effectively.
And so, we determined because the final two, actually, three years, we have been dropping wherever from $1 million to $1.5 million on the working aspect whereas nonetheless having growth prices. So, in essence, final 12 months, 1.5 million of working loss additionally had about $1.3 million of growth prices as a result of these — a few of these timber weren’t positioned in service but. And so, it was actually a no brainer on the 9 million, you recognize, and three million of money out. And so, that is why we predict we’ll see a dramatic shift in our fourth and first quarters relative to that asset in there.
Does that reply your query?
Raj Sharma — B. Riley Financial — Analyst
So, your 1.3 million growth and 1.5 million working loss that will get reversed, clearly, that will get taken out, you recognize, 49 million noncash loss —
Harold Edwards — President and Chief Executive Officer
Correct. Yeah.
Mark Palamountain — Chief Financial Officer
Yeah. And the opposite a part of the timing was, you recognize, to offset a tax cost arising right here in June relative to our positive aspects. And it simply made lots of sense. And as we have been seeing the 12 months go ahead that, you recognize, this asset, it is actually in the midst of nowhere should you’ve been out at Cadiz within the San Bernardino Desert.
And so, you recognize, the transportation was a killer in that, and we have been dropping about $10 a carton. So, I feel, on the finish of the day, it must be very effectively obtained and it may make an enormous distinction for us.
Raj Sharma — B. Riley Financial — Analyst
Great. Great. Thank you. I’ll take my questions offline.
Thanks so much.
Harold Edwards — President and Chief Executive Officer
Thanks, Raj.
Operator
Thank you. Our subsequent query comes from Ben Klieve with Lake Street Capital Markets.
Ben Klieve — Lake Street Capital Markets — Analyst
All proper. Thanks for taking my questions. Harold, I promised you that I might badger you in regards to the Apeel settlement, and that is a promise that I intend to maintain right here. A few questions right here.
You did not actually confer with this in your ready remarks, however the relationship between the 2 of you, within the press launch, there was some ingredient of exclusivity that was famous. Can you discuss precisely what the connection is between the 2 of you and the diploma to which there’s exclusivity, both from the angle of Limoneira or Apeel?
Harold Edwards — President and Chief Executive Officer
I’d be blissful to, Ben. Great query. So, we have been good pals with the Apeel workforce since their formation and have adopted their progress with nice curiosity since they first began. And they’ve had many, many successes, however they’ve had some challenges alongside the best way of their enterprise fashions as they’ve labored with varied vegetables and fruit and the applying.
The one factor that we completely have been offered on is the science and the efficacy of the science. The challenges that we predict they bumped into in a few of their different relationships with different commodities have been due to the ways in which they structured their relationship with suppliers. In this explicit case, Apeel’s founder and CEO, James Rogers, got here to us and supplied us the chance to be principally their one-stop store lemon associate. And the best way that we envision this to happen is Limoneira will exit and set up relationships for Apeel-coated lemons with the key retail and meals service clients initially within the United States however finally globally.
And the thought is that, clearly, Limoneira shall be — we won’t be able to deal with the entire provide chain to all clients, nor will the shoppers tolerate most likely having a single supply of provide. So, what we’ll do is we’ll work very intently with our clients on the quantity of the provision that we are able to present as Limoneira. And then with the partnership or collaboration of shoppers, have them decide which strategic companions they’d like for different sources of provide. And then we, as Limoneira, will work on a licensing association to go arrange these — that extra a part of the provides to the shoppers with different suppliers.
And so, we’ll be capable to keep the unique relationship with the shoppers for the total relationship, however that does not essentially imply will probably be 100% of the provision as a result of simply to dream a bit bit, should you’ve received a buyer like Walmart, as an illustration, to say, OK, we’ll solely purchase lemons in the event that they’re coated with Apeel, that’s such a large account. We must exit and be very cautious and analytically strategic on which provider companions we select to work with to produce that one account. So, that will — will transcend itself throughout all retail and meals service clients. And we’re simply going to go one buyer at a time and attempt to present options for them that work greatest for them.
Ben Klieve — Lake Street Capital Markets — Analyst
Very useful. Very useful. Thank you, Harold. So, that then stimulates a few follow-up questions.
So, first follow-up is, you recognize, in — the journey of Apeel, I feel, has been fairly effectively documented for a while. And so, you recognize, your — what you simply described, you recognize, strikes me as precisely what we have heard from different sources. So, you recognize, given the science that they’ve, given the shelf life advantages that you simply described, but additionally given the challenges that they’ve had traditionally, are you able to discuss how your retail clients are taking to this information? Are you seeing these clients, you recognize, keen to have interaction with you on this, or is that this one thing that’s going to take a bit little bit of time to essentially hit the revenue assertion?
Harold Edwards — President and Chief Executive Officer
I feel it may take a bit little bit of time. You know, it is new. And so, there is a logistical part that must be kind of contemplated and labored out as to the place and the way it will get utilized and the way the distribution takes place. But the opposite factor that is actually fascinating, Ben, is there’s lots of completely different locations the place functions can profit clients and within the provide chain.
It’s not so simple as let’s simply put this coating on and watch how a lot better it appears to be like on the shelf. That’ll definitely be a part of it. But what it’s going to do is it’s going to enable us to start to work intently with clients on experimenting with issues like transport in ambient temperatures and completely different channels of provide that do not have perfected refrigeration. One factor that is fascinating a few lemon is that over 40% of that lemon’s life from it went post-harvest, from the time it leaves the tree to the time it is truly consumed by a client, is spent in an ambient temperature atmosphere.
So, if we have now a coating that truly kind of reduces or eliminates ripening in that ambient temperature, it is simply going to be a a lot better expertise for our clients after which finally for the end-user shoppers. So — however, you recognize, the unique query, the reply to that’s it is one buyer at a time. And I feel we’ll favor to form of to speak our successes as we truly obtain them relatively than overhyping it on the entrance finish and, you recognize, overpromising and underdelivering.
Ben Klieve — Lake Street Capital Markets — Analyst
Got it. Got it. No, that is sensible. Very good.
And simply my different one, very fascinating, wanting ahead to listening to about these successes right here as they arrive. That does it for me. Thanks for taking my questions. I’ll simply get again in line.
Harold Edwards — President and Chief Executive Officer
Thanks, Ben.
Mark Palamountain — Chief Financial Officer
Thank you.
Operator
Thank you. Our subsequent query comes from Gerry Sweeney with ROTH Capital. Please proceed along with your query.
Gerry Sweeney — ROTH Capital Partners — Analyst
Good afternoon, Harold and Mark. Thanks for taking my name.
Harold Edwards — President and Chief Executive Officer
Hey, Gerry.
Mark Palamountain — Chief Financial Officer
Hey, Gerry.
Gerry Sweeney — ROTH Capital Partners — Analyst
A pair, I’m going to begin possibly on the prime. So, clearly, you are divesting a bunch of underperforming belongings, then you may have the Yuma, and also you’re simply tightening the whole lot down. And I feel you have talked about possibly even in some unspecified time in the future, I’ll name it Limoneira 2.0, reinvesting a few of the cash for progress. Obviously, a few of that is advertising, packing, and so on.
When will we get a greater glimpse into the place kind of Limoneira 2.0 goes to go in timing?
Mark Palamountain — Chief Financial Officer
Great query, Gerry. And so, we have been working actually diligently with the board. We met in April and had a strategic planning session to go over completely different concepts and issues that we’ll do to create worth for our shareholders going ahead. We received to ask, Harold and I, to return again in July to place a street map along with completely different concepts relative to this asset-lighter mannequin.
So, I feel in September, in our name there, we’ll be capable to articulate extra relative to that. But within the meantime, we’re being actually diligent in making an attempt to create money, and we’re not in an enormous hurry to exit and spend what we simply put again. I feel, you recognize, getting ourselves a money place and web zero debt is our first goal. And as we see these earnings, you recognize, kind of enhance from all these, you recognize, fixing the holes within the ship, if you’ll, I feel you may see us to return out with concepts to deploy that capital creatively and effectively.
Harold Edwards — President and Chief Executive Officer
And, Gerry, if I may simply pile on and say that, you recognize, our success — our preliminary success in serving grower companions and filling capacities — current packing capacities by offering packing, advertising, and promoting companies to grower companions has been — and exceeds expectation for us by way of not solely how profitable it has been however how worthwhile that is been. So, we wish to proceed to fan these flames and develop in that asset-lighter manner. But the opposite space that we’re actually honing in and focusing in on now could be the thought of making a brand new division for the corporate in farm administration companies. We got the reward of the chance to work very intently with Prudential in offering these farm administration companies because of the transaction that we accomplished lately with them.
But as you may word, we — we’re very targeted on making an attempt to ship best-in-class service in order that we are able to proceed to carry on to that contract however then additionally start to consider increasing that a part of our firm, which may drive incrementally important quantities of latest worth for the corporate in a really asset-light manner, with out having to deploy lots of capital to develop. So, these two areas will definitely be areas that we talk extra intently as we transfer ahead. And as Mark mentioned, we’re simply making an attempt to be actually stingy with the capital that we have now now in order that we do not, you recognize, put all of it again on the market after we simply introduced all of it again in.
Gerry Sweeney — ROTH Capital Partners — Analyst
Totally comprehensible. And I imply, the message right here is you guys are engaged on a plan. It’s going to develop over the following month or two, and we’ll begin getting some particulars later this 12 months, proper?
Harold Edwards — President and Chief Executive Officer
Perfect. That’s it. Yeah. Perfect.
Mark Palamountain — Chief Financial Officer
Yeah.
Gerry Sweeney — ROTH Capital Partners — Analyst
Talking about lemons, you recognize, beforehand, we at all times talked about China, Asia being a terrific space for a few of the higher-priced lemons. What’s happening in that space? Is that — has that modified? Is there a chance there? Obviously, China was on lockdown some 3.5 months in the past, however possibly opening up. But simply curious if the market has completely modified in that area.
Harold Edwards — President and Chief Executive Officer
I feel what we have now to say is thank goodness for China as a result of if China wasn’t there, the oversupplied scenario could be even worse. So, actually, our greatest enemy proper now in Southeast Asia have been — or has been overseas change. And simply due to the energy of the greenback after which the pricing that that kind of creates as we export fruit from the United States into Japan, into Korea, into Hong Kong, into China, these — the energy of the greenback and people weaker currencies have made the price of these and the value of these lemons in these international locations a lot, a lot increased. And what that is carried out is that opens the door for our buyer base to start exploring different sources of provide that is cheaper.
And so, what we’re seeing is we’re seeing fruit from Egypt and fruit from Turkey and fruit from South Africa start to search out their methods into these markets, which is creating rather more of a aggressive scenario, which is additional difficult to the scenario for us. So, whereas earlier than pre-pandemic after we had this nice steadiness of fine, you recognize, affordable change charges and excessive ranges of demand, you noticed it kind of aspect as a big premium to U.S. pricing after we shipped into these export markets in Japan and Korea and, to a sure extent, Hong Kong and China, that is now modified. So, there’s form of world parity in pricing that is occurring in a way more difficult panorama of competitors since you’ve received these different suppliers from these different international locations that have been duking it out every single day in these marketplaces.
So, that is form of the dynamic that is happening. They’re nice markets. It’s simply they don’t seem to be as — they don’t seem to be buying and selling on the premiums that they have been pre-pandemic right now for us.
Gerry Sweeney — ROTH Capital Partners — Analyst
Got it. And then water rights, I do know this can be a horse that is been crushed however what the hell. You know, water rights are a bit bit esoteric, and I feel you even alluded to it. There’s a number of courses, proper, Class 1, possibly 8 and even increased.
I feel there’s completely different seniorities amongst these, proper? How does that course of work? If you are Class 3, which is presumably extra senior than 4 via 8, does this system choose and worth these water rights and courses at completely different ranges? Because clearly, the much less senior — if there is a drought, you may have much less entry to water. So, you wish to have kind of a portfolio strategy to water rights whenever you’re doing a few of these packages on the state degree and even on the metropolis degree like Buckeye, and so on. But curious as to how that works. And yeah, I do know that is moving into the weeds, however possibly at a excessive degree.
Harold Edwards — President and Chief Executive Officer
No. It’s a terrific query, and I’ll attempt to reply it in a easy manner. So, on the flip of the century, 1900, 1905, there was an accord that was put along with the seven states on who received what off the river that was put in place. And that is been what they known as the treaty on the river that established these class ranges 1 via 8, 1 being senior and eight being junior — probably the most junior.
And that is been the regulation and the rule of the river since that was put in place. That treaty and that accord is ready to run out in 2026. So, it is a — it is on the finish of its life. And so, that is why there are offers which are being put collectively proper now for the following three years.
But now, what is going on on is the federal authorities is posturing in its utilizing the Bureau of Reclamation as its kind of its negotiating arm to place strain on the seven states that pull water off the Colorado River to scale back the full consumptive use off the river by a 3rd. And so, the best way it is beginning initially is the low — the junior water rights holders are the primary ones which are going to get reduce. And then the senior water rights holders are the house owners of the water who’ve the appropriate to both hold it and use it or hold it and promote it or simply promote it outright. And so, that is the chance that we’re being supplied.
And so, you have received completely different ranges of demand and willingness to promote it or not promote it. You have farmers within the Imperial Valley which have a senior water proper that do not wish to promote it however wish to have it to allow them to proceed to farm with it. You’ve received the — you have received lots of the everlasting crop producers in like Yuma, Arizona, the lemon growers, us, who see a a lot better worth proposition, at the least right now, to really fallow and promote these water rights to the city customers in Phoenix and Scottsdale, all the best way to Las Vegas, as a greater alternative for us as asset house owners than preserving that water to proceed to develop lemons. So, that is form of the dynamic, if that is sensible, and it was at all times esoteric and opaque and also you have been by no means actually positive what you had till, proper now, you are beginning to see precise affords of prepared patrons and prepared sellers because the dynamic that is now kind of happening on the river.
And we consider that on the finish of the day, you may see a 3rd of the consumptive use reduce off the river and you may see all of the housing from the Central Arizona mission having purchased the water. And that’ll all be funded by the federal authorities. And you discover most likely in a few of the press releases how a lot cash the feds have thrown at this, in addition to the person states who will battle to fund a few of this for the preservation of these water rights.
Gerry Sweeney — ROTH Capital Partners — Analyst
Got it. I admire it. I’ll discuss to you guys in a bit bit offline. Thanks.
Harold Edwards — President and Chief Executive Officer
Thanks, Gerry.
Operator
Thank you. I want to flip the ground again over to Harold Edwards for closing feedback.
Harold Edwards — President and Chief Executive Officer
Thank you very a lot and thanks all in your questions and your curiosity in Limoneira. Have a terrific day.
Operator
[Operator signoff]
Duration: 0 minutes
Call individuals:
John Mills — Head of Investor Relations
Harold Edwards — President and Chief Executive Officer
Mark Palamountain — Chief Financial Officer
Ben Bienvenu — Stephens, Inc. — Analyst
Raj Sharma — B. Riley Financial — Analyst
Ben Klieve — Lake Street Capital Markets — Analyst
Gerry Sweeney — ROTH Capital Partners — Analyst
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