Farmland Partners Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 1, 2024

Key Takeaways

  • Positive Sentiment: Raised guidance: AFFO outlook for 2024 was increased to $9.4 million–$12.8 million ($0.19–$0.26 per share) following strong Q1 results and 13% overhead cost reductions.
  • Neutral Sentiment: Recurring deposit income: The $1.2 million non-refundable deposit recognized in Q1 is unusual per quarter but occurs about twice a year, bolstering quarterly P&L.
  • Positive Sentiment: Asset dispositions planned: The company expects around $50 million of farm sales in late Q3/Q4 2024 under its seven‐transaction REIT safe harbor, funding debt paydown and share repurchases if valuation discounts persist.
  • Positive Sentiment: Targeted acquisitions: In Q1, $16.3 million was deployed to buy three Illinois farms adjacent to existing holdings, leveraging scale efficiencies to support long-term rent stability despite higher borrowing costs.
  • Neutral Sentiment: Portfolio focus shift: Management is pivoting toward core Corn Belt and Mississippi Delta properties for stronger historical returns while gradually trimming western U.S. exposure due to water limitations.
AI Generated. May Contain Errors.
Earnings Conference Call
Farmland Partners Q1 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Thank you

Speaker 1

for standing by. My name is Kath and I will be your conference operator today. At this time, I would like to welcome everyone to the Farmland Partners Incorporated First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Speaker 1

I would now like to turn the call over to Luca Fagri, President and Chief Executive Officer. Please go ahead.

Speaker 2

Thank you, Kath. Good morning, everybody. Welcome to our quarterly update call after the announcement of our earnings last night. Before we just jump into the call, I will turn over the call to our General Counsel, Christine Garrison for some customary preliminary remarks. Christine?

Speaker 3

Thank you, Luca, and thank you to everyone on the call. The press release announcing our Q1 earnings was distributed after market closed yesterday. The supplemental package has been posted to the Investor Relations section of our website under the subheader Events and Presentations. For those who listen to the recording of presentation, we remind you that the remarks made herein are as of today, May 1, 2024, and will not be updated subsequent to this call. During this call, we will make forward looking statements, including statements related to the future performance of our portfolio, our identified and potential acquisitions and dispositions, impact of acquisitions, dispositions and financing activities, business development opportunities, as well as comments on our outlook for our business rents and the broader agricultural markets.

Speaker 3

We will also discuss certain non GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. Definitions of these non GAAP measures as well as reconciliations to most comparable GAAP measures are included in the company's press release announcing Q1 2024 earnings, which is available on our website farmlandpartners.com and is furnished as an exhibit to our current report on Form 8 ks dated April 30, 2024. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release distributed yesterday and in documents we have filed with or furnished to the SEC. I would now like to turn the call to our Executive Chairman, Paul Pittman.

Speaker 3

Paul?

Speaker 4

Thank you, Christine. This is a really strong quarter for the company. I'm going to talk in a minute about the transaction where we received some non refundable deposits that we ran through the quarterly P and L, but I'll come back to that in a minute. The really important things about the quarter are we materially increased the annual guidance. Our cost control efforts are working with our overheads down around 13%.

Speaker 4

With all the asset sales, we decreased our assets last year by around 12%, but our rents have only gone down about 5% overall. So clearly, we sold off assets that weren't as strongly performing as the ones we held on to. And that's really what we're trying to accomplish here to drive efficiencies and higher AFFO into the company. The one comment I want to make about the transaction with the non refundable deposits is the following. I saw in several of the analyst reports that there was sort of an immediate reaction to call that a one time event.

Speaker 4

And yes, it is an unusual event, but in an annual sense, we have about twice a year something like that, that runs through our P and L. So yes, it's unusual in the context of any given quarter and it's not true, which is the reason we disclosed it the way we did. It's not traditional rents. But we get approximately every other quarter some major payout related to the way we negotiate our various real estate transactions. In this particular case, it was someone who wanted to buy a farm from us.

Speaker 4

We required them to make a non refundable down payment toward the purchase of that farm and they eventually decided they could not complete the purchase and we kept our money. In the Q4 of 2023, we had a similarly large payment from a solar company, because we had negotiated a one time payment from them when they initiated construction and so on and so forth. So I just wanted to add a little bit of clarity. We will always disclose these things that are unusual, but I'm not quite sure it's appropriate to immediately kind of pull them out of our P and L, if you're an equity analyst, because these things happen over and over and over again for us, which is good. With that, I'm going to turn it over to Luca to make further comments about the quarter.

Speaker 2

Thank you, Paul. There are really a couple of areas that I want to spend a minute on. Kind of the first one is acquisitions and dispositions and how our strategy in 2024 visavis those items is changing in 2023 and what are the drivers of our strategy this year. And this is also because of we just spoke we did a round of meetings with some investors and there were some questions that came up. So that's why I think it's appropriate to draw a little bit more clarity, even though some of these items might be obvious to some of you.

Speaker 2

So in 2023, we had a very significant disposition activity in terms of both number of transactions and dollar volume of those transactions. We I believe we use those proceeds very, very well in paying down debt and in buying back stock. We intend to do fundamentally the same thing in 2024. However, we have some regulatory constraints to follow. Specifically, as a real estate investment trust, we are subject to certain limitations in terms of the disposition activity that we had in either given year.

Speaker 2

And we can rely on a number of different safe harbors in any given year. Last year, we relied on a safe harbor that is really related to a dollar, a total aggregate dollar amount of transactions is really based on a 3 year average. That Safe Harbor would have led to a very small number of dispositions this year. So we are relying on a different safe harbor, which is purely a number of transactions, namely 7, regardless of the individual or aggregate dollar amount of those transactions. We already kind of used one of those transactions through dispositions in the Opportunity Zone fund in which we hold which we are an asset manager in which we hold a 10% equity interest and because of that 10% equity interest that counted as a disposition transaction for us.

Speaker 2

So while last year whenever disposition opportunities came to our attention and we decided to pursue them, we were executing on them effectively right away. This year we need to be a little bit more thoughtful because we only have 6 remaining transactions that we disposition transactions that we complete. Therefore, we are being a little bit more thoughtful and planning and prioritizing the various opportunities that we have in front of us. So while so far we haven't completed any dispositions, I expect that we will enter into some of these transactions later in the year. Although to preempt any questions, I don't have any information to share at this point publicly related to the expected specific timing or volume of transactions of regions and so on and so forth.

Speaker 2

One other kind of item I wanted to cover is on the cost management side. I think we did a pretty good job in 2023 by reducing some G and A costs. We are continuing that approach this year with some we had some staff reductions. We had some compensations. At the senior executive level, compensation has been either reduced or capped, and we will continue to pursue further opportunities in the course of this year to reduce expenses whenever we can.

Speaker 2

And with that, I will now turn the call over to James for his overview of the company's financial performance. James?

Speaker 5

Thank you, Luca. I'm going to cover a few items today, including summary of the Q1 2024, review of capital structure and interest rates and updated guidance for 2024. I'll be referring to the supplemental package in my comments, which as Christine mentioned, is available in the Investor Relations section of our website under the subheader Events and Presentations. First, I'll share a few financial metrics that appear on Page 2. For the 3 months ended March 31, 2024, net income was 1,400,000 dollars and net income per share available to common stockholders is $0.01 lower than the same period for 2023 largely due to the impacts of dispositions that occurred last year.

Speaker 5

AFFO was $2,800,000 and AFFO per weighted average share was $0.06 significantly higher than the same period for 2023. While Q1 2024 AFFO was negatively impacted by sales that occurred in 2023, it was positively impacted by the 1,200,000 dollars of income from forfeited deposits that Paul referred to, which I'll also explain a little bit further in a minute. Next, we'll review some of the operating expenses and other items shown on Page 5. Depreciation, depletion and amortization was lower in the Q1 of 2024 due to fewer depreciable assets in service. Property operating expenses were lower in Q1 2024 caused by lower property taxes, lower property insurance expenses and lower repair expenses.

Speaker 5

General and administrative and legal and accounting expenses had small changes between the periods. Gain on dispositions was down in Q1 2024 as no farms were sold, only small fixed assets on a few properties. Income from forfeited deposits, as Paul described, that relates to the sale of a farm that was initiated back in 2020 where we received a series of non refundable deposits over time. The sale was terminated by mutual agreement in the Q1 of 2024 and as a result of the sale termination we recognized the $1,200,000 of forfeited deposits. Interest expense increased slightly in Q1, twenty twenty four due to higher rates.

Speaker 5

Next, moving to Page 12, there are a few capital structure items to point out. Total debt at March 31, 2024 was $383,000,000 Floating rate debt, net of the swap, as a percent of total debt was approximately 18%. Fully diluted share count as of April 25 was 49,400,000 shares. We had undrawn capacity on the lines of credit of approximately $179,000,000 at the end of the Q1 of 2024. In 2024, we have 3 MetLife rate resets on debt totaling approximately $44,000,000 That's loan number 9, number 11 and number 12.

Speaker 5

We agreed to the new rate for MetLife loan number 9 at 6.37% for the next 3 years. That rate is effective on May 5. The Rabobank debt shown on the table had a change within the quarter. The $2,100,000 of annual amortization has been eliminated. The spread on the Rabobank debt remained the same.

Speaker 5

The next spread reset is in 2 years. The Rutledge facility also maintained its spread. The next spread reset is at the beginning of Q2 2025. Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. Please note that our GAAP financials had a small presentation change in the Q4 of 2023.

Speaker 5

Tenant reimbursements are included now in rental income on the income statement as reflected in the 10 ks and also the Q1 10 Q. In Note 2 of the K and the Q, we show the components of rental income, fixed farm rent, solar and wind recreation, tenant reimbursements and variable rent. Page 14 shows these building blocks for the Q1 of 'twenty three and the Q1 of 'twenty four with comments at the bottom to describe the differences between the periods. A few points to highlight are, as expected, fixed farm rent decreased due to dispositions in 2023. Solar, wind and recreation changes were caused primarily by rent on land with a large solar project in Illinois that was higher in 2023 than 2024 as the project moved from its construction phase to its operational phase at the very end of 2023.

Speaker 5

We will see this difference in this impact throughout the year, especially in the Q4. Tenant reimbursements decreased in Q1 2024 due to a one time tax reimbursement in Q1 of last year, dispositions that occurred throughout 2023 and a small number of leases that renewed with higher fixed rent in exchange for lower tenant reimbursements. Management fee and interest income decreased excuse me, increased with greater loans and financing receivables outstanding. Variable payments were higher in the Q1 of 2024 due to GRIMES. Direct operations is a combination of crop sales, crop insurance and cost of goods sold.

Speaker 5

It was up relative to 2023 largely due to citrus. Other items decreased slightly between the periods. On the next page, Page 15, we show the outlook for 2024 using the same format as the previous pages. Assumptions are listed at the bottom. We had 3 acquisitions in the Q1 of 2024.

Speaker 5

No other transactions are included in these projections. On the revenue side, fixed farm rent changes reflect full year impact of 2023 transactions, plus the 3 Q1 twenty twenty four acquisitions and a few lease changes that occurred in the Q1 of 2024. Direct operations, again that's crop sales plus crop insurance plus cost of goods sold, is up due to higher expected performance in citrus farms under direct operations. On the expense side, general and administrative decreases with slightly lower spend in the Q1 of 2024. Interest expense is higher due to updated forward curves.

Speaker 5

And keep in mind, we don't show the entire income statement here, but please note that the Q1 impact of forfeited deposits is included in AFFO. The forecasted range of AFFO is $9,400,000 to $12,800,000 or $0.19 to $0.26 per share, an increase over the outlook from last quarter. This summarizes where we stand today and we will keep you updated as we progress throughout the year. This wraps up our comments this morning. Thank you all for participating.

Speaker 5

Operator, you can now begin the Q and A session.

Speaker 1

Thank you. We will now begin the question and answer session. And your first question comes from the line of Scott Fortune with ROTH MKM. Your line is open.

Speaker 6

Good morning and thanks for the question. Just want to follow-up real quick on the farmland acquisitions you did in 1Q, dollars 16,300,000 just kind of a sense for what type of farmland was geography and kind of how you're looking at acquiring opportunistically going forward, just some color on what you're seeing out there from an acquisition standpoint. Obviously, the liquidity and high interest rates and spread mix is difficult, but just kind of your strategic opportunities as you look into 2024 here on the acquisition side?

Speaker 4

Sure. This is Paul and I'm in a different location today than the rest of the team. So I'll answer the general parts of that question. And Luca, if you would gather your thoughts on the specifics of where those farms we bought were located, so you can take that piece of it. So just in the general point, our posture on acquisitions for this year given high borrowing costs is that we are largely limiting our acquisitions to add on properties either literally adjoining or very close to a place where we already own a farm.

Speaker 4

When a great opportunity comes up to expand 1 of the farms we already own, we'll almost always want to do that assuming the price is fair, because we believe firmly that increased scale adds to the profitability of our farmers and therefore to the amount of rent that we can charge on those farms. So that's the kind of acquisitions we will do this year. It's really important to recognize though that return to farmland is not just current yield. Return to farmland is current yield plus appreciation. And we think today appreciation plus current yield is at least as high as the long term average, which is 11% or so per annum is a combination of appreciation plus current yield.

Speaker 4

And we're obviously got cost of capital on the debt side way below 11%. So we will still do transactions from time to time, even if they are a little bit negative on a current yield versus interest rate basis, as long as we believe they are a net positive addition to value overall. Luca, you want to address the specifics of where I think there were 3 small transactions in that 16,000,000 dollars and address where they were located.

Speaker 2

Scott, so we need 3 acquisitions all in Illinois. It was really one acquisitions was the overwhelming majority was a little large and 2 very, very small acquisitions. These were all farms that were either directly adjoining or the immediate vicinity of something we already owned, especially the very large one was right next to another very large farm that we own. That offers us to have significant that offers the operator on that combined those combined farms significant economies of scale and therefore better ability to pay strong rent and more stability and more value for the combined assets. So this is why we pursued these acquisitions despite the cost of capital because we thought that in the long term we're absolutely kind of slam dunk value adds for our portfolio as a whole.

Operator

I really appreciate the color. That's helpful, especially obviously with a tough spread environment going on right now.

Speaker 6

And just a follow-up, you mentioned it in your remarks here. You have 6 transactions left potentially to for sales of assets. I know you've mentioned you're looking at probably kind of a second half timing standpoint, but you've been looking at decent size of $25,000,000 Can you put any type of figure that kind of potential asset sales could hit in 2024? I know you mentioned on last call around the $50,000,000 mark, but kind of just a little more color or detail around assets sales potential for 2024 here.

Speaker 4

So again, this is Paul. Let me make a couple of comments there. I would say that we'll end up with $50,000,000 or so of sales in the calendar year. No certainty around that, but I think it is highly likely and maybe some more. Those transactions will be relatively speaking late in the year.

Speaker 4

We want to preserve and we can only do 6 transactions. We don't want to burn those too early in the calendar year. We want to present the optionality, maintain the optionality of somebody coming to us and really wanting to own something we own and we don't have to turn that transaction down. So the asset sales we do will be concentrated in the fall of the year. Think of it as a probably late Q3, Q4 set of events.

Speaker 4

They are likely to be relatively larger in size given that we can only do 6 for the year. And so that's kind of how we look at it. But what's going to drive us toward asset sales more than any other fact is if we continue to maintain what I view as a $5 or greater discount in our stock price versus our underlying value of the portfolio, we're going to sell assets late in the year and buy back stock. I mean, this is crazy. As you all know, I own almost 6% of the company and that valuation gap needs to be narrowed.

Speaker 4

I think we've got a stock work well in excess of $16 and in terms of the underlying asset value And we're trading even after the nice uptick between yesterday and today at something like a $5 discount. And it's crazy. The assets are highly, highly valuable and highly liquid. And so if late in the year, this gap is still there, we're going to try to create value for everybody by as I jokingly say, the cheapest farmland on the planet is our own stock. So that's what we want to buy.

Speaker 4

Hope that helps.

Operator

I appreciate. Yes, I appreciate the update and color there. That's very helpful. I will jump back in the queue. Thanks.

Speaker 1

Your next question comes from the line of Rob Stevenson with Janney. Your line is open.

Speaker 7

Good morning, guys. I guess, Luca or Paul, anything changing in terms of availability of financing for people to buy farms? I'm assuming that the issue surrounding the forfeited deposit was specific to that person, but figured I'd ask if anything's changing at the margin these days given the higher for longer rates and what's happened with some of the banks?

Speaker 4

So the answer is the farmland market itself is incredibly strong. It's the power of a market that's largely dominated by the 1,000 and 1,000 of small farmland holders around the country, the farmers themselves are who drives the market, particularly in the grain producing regions. California, which is a much more institutional ownership market, there getting transactions done is a little more difficult. But for the overwhelming bulk of our portfolio, we haven't seen any real weakness. Turning to the one specific transaction, that potential transaction was would have been relatively large.

Speaker 4

And the person that walked away from those deposits as a percentage of the entire purchase price of the property that we were talking about, it's not that much money. I'm guessing they had some financing challenges. We don't know that for sure. I'm also thinking they just kind of changed their mind. It wasn't in the context of the overall transaction, an incredibly huge amount of money.

Speaker 4

And they just decided that the asset they thought they desperately wanted, they decided they didn't need.

Speaker 7

Okay. But you're not seeing any type of, reticence on the standpoint of banks or some of the government programs to lend at

Speaker 5

this point?

Speaker 4

Not really, but I'm going to expand your question even though you didn't really ask it for everybody's benefit. I view your question as the farm economy getting into trouble in a way that's going to cause problems for us. And the answer to that question is, yes, there's a little more trouble out there than there was 12 months ago. And we're seeing it we're seeing it in having an occasional farmer come to us and say, hey, can you re rent this farm to someone else? We've had that occur.

Speaker 4

We've been able to re rent the farms at the same price or in some cases a little bit higher. So we're not really suffering yet from those sorts of problems, but we are hearing about those problems. And what's driving that, of course, is the biggest single factor is relatively lower commodity prices for the row crop guys in the face of somewhat higher, particularly high interest rate environment, as you know, a little bit of distress starting to show up in the market. Now recognize the worst bad debt this company ever had in the last downturn was still very, very tiny. This is a 0 vacancy asset class and we're not going to end up with people with vacant farms or unrented farms.

Speaker 4

But we will occasionally have a tenant get in trouble and we will scramble to replace that tenant and not lose any money. For those of you new to the story, we have in almost every jurisdiction what's called a 1st lien security interest in the growing crop. And if you have that security interest in the growing crop, you can seize those revenues if you're scared of getting your rent paid, at the time of harvest. And so that's why we have incredibly low bad debt numbers even when the farm economy gets a little wobbly. Hope that helps, Rob.

Speaker 7

Yes, that helps. And then a clarification on the 6 remaining dispositions that you guys could do. Do 1031 transactions count in that? So if you bought a $10,000,000 farm and sold 10,000,000 farms, is that accepted?

Speaker 4

A 1031 does not count.

Speaker 7

Okay, that's helpful.

Speaker 4

It doesn't and you may see us do some of those for exactly that reason.

Speaker 7

Okay. And then last clarification, Luca, the 3 Illinois assets that you just bought, what are they growing these days? And is that what's going to wind up being grown on there going forward?

Speaker 2

It's real crops, so corn and soybean rotation.

Speaker 7

Okay. And I mean, where are you guys seeing the best opportunities pricing wise? Is it Midwest row crops? Is it something else? Is you're looking out there to potentially do any more acquisitions?

Speaker 4

Yes. So we have looked back across our portfolio over the long kind of long in the case of the farms that I have personally owned that went into the REIT 10 years ago when we founded the REIT, we've got a 25 year linear set of data, so to speak. And you certainly we had in the last decade as a public company. Our experience is our best long term returns have been in the core of the Corn Belt and the 2nd best has been the Delta. Those are the 2 most important farming regions in the country, the upper Midwest and the lower Mississippi River Valley.

Speaker 4

It's not a surprise. Those are the best farming regions in the U. S. And a combination of the following three things is why I say what I say. It's a combination of the current yield, the long term appreciation rates and the ease of operations, which leads to lower property operating cost and lower overheads for personnel and other things.

Speaker 4

And the Corn Belt has the lower current yield, but higher appreciation rates and incredibly efficient operations. In our company, we have a single farm manager who operates the Nebraska assets and the Illinois assets, which is really the core of our upper Midwest holdings, that's about $600,000,000 of our overall portfolio run by one human being. We don't have that level of efficiency anywhere else in the country. So long term, we love buying core of the Corn Belt assets because that's what the long term history says has treated us the best from a financial return perspective.

Speaker 7

All right. That's helpful. Thanks, guys. Appreciate the time this morning.

Speaker 1

Your next question comes from the line of John Massocca with B. Riley Securities. Your line is open.

Operator

Good morning.

Speaker 4

Good morning, John. Good morning, John.

Operator

So, I know you talked a lot about the kind of Corn Belt region, but maybe touching on some of the farms you own in California and kind of the Western region, how are those kind of trending today? I mean, have some of the issues with particularly, let's say, tree nut farms, are they starting to abate at all? Or is that still remain a kind of challenged kind of farming market?

Speaker 4

When you look at California, you really have to break the farms out crop by crop. So yes, California continues to be challenging. There are water issues, whether they're caused by politics of water or the actual availability of water. In either case, they're negative for farmers. And that's why, as we've said now, for probably a year or more in these conference calls, we will gradually lessen our exposure to the U.

Speaker 4

S. West Coast and frankly to the Colorado, High Plains region as well also because of the water limitations. So those problems continue and that's an overlay on all crops in California. It will lead to the very best farms we own in that region actually appreciating quite rapidly. The really good farms with really good water, California is a unique location in terms of climate and there are high value crops there that you can grow few other places in the world and certainly no other places in North America.

Speaker 4

And so those best farms out there are going to continue to appreciate rapidly. But the more mediocre farms, which we own some of, they're going to be a little challenged. And they are challenged because of water. And then depending on the crop, they're challenged because of worldwide supply demand characteristics. Walnuts, for example, are in a really tough place on a worldwide supply demand basis.

Speaker 4

Pistachios and almonds are challenged, but not nearly so much as walnuts. They're probably going to be okay and recover, although there's certainly some over planting in those crops. Citrus, on the other hand, is very much a local U. S. Market only.

Speaker 4

We get a lot of citrus in this country from South America, but at the certain harvest window that the U. S. Crop becomes available, there's not much competition. So citrus is this year, I think, going to be a pretty good crop for us and so on and so forth. We, for example, own one vegetablestrawberry farm in California and that farm is quite profitable, quite successful and will continue to be.

Speaker 4

So it's kind of all over the map. But for the general reason of water, we will gradually reduce exposure on that on the Western U. S. Markets. Sort of think of it as Colorado West will probably own less over time than we do right now.

Operator

I mean, is there a market to sell, maybe kind of just a specific crop California tree net farms right now, just given all the kind of stress that particular industry has seen in recent months years?

Speaker 4

Yes, there is a market. It's at a lower price point than it might have been a little while ago. But yes, there is a market to move properties out there. We are super patient. It is a rare occasion where we will just get rid of something.

Speaker 4

We think very long term about our portfolio and the question isn't do you are yet thrilled with the property right now. I mean the management team in general and me in particular have been doing this a long, long time. It's do you think this crop, this particular crop or this particular farm will bounce back in value over the next 3 to 5 years. It's not a question about what's going to happen in the next 12 months. If we become convinced that a farm is not going to generate long term value for us, we will let it go.

Speaker 4

And I'll give you two examples. Last year, we sold blueberries in Michigan at a loss and we sold a small citrus farm in Florida at a loss. We sold everything else last year pretty much at big gains. But I had and the rest of the management team had given up on Florida citrus and Michigan blueberries. And we've given up because we did not believe that there was a meaningful recovery in those farms in the medium term and it's just time to take your capital and deploy it somewhere else.

Speaker 4

We're not really at that point in anything in California right now.

Operator

Okay. That's very helpful.

Speaker 4

Hope that helps.

Operator

It definitely does. And then, I saw that kind of gross profits for the kind of operated farms went up and expectations for what you can do for the year went up and it was just maybe notable that part of that was a reduction in kind of cost of goods sold. Just can you provide some color on what's driving that?

Speaker 4

I'm going to leave that to you, James, or you, Luca, there in the Denver office because it's fact specific and I don't have the facts right in front of me.

Speaker 5

Yes. John, on the cost of goods sold change in our outlook, that was mostly caused by kind of revised budgets for spend for the year. In the our firm manager had the chance to kind of sharpen up, if you will. And there's our farm manager had the chance to kind of sharpen up, if you will. And there's going to be decreased spend associated with those farms.

Speaker 5

So that's what's causing the change there.

Operator

I guess is there opportunity for maybe more reduction in that line item as there's more budget clarity or is that kind of now more finalized thing as we get kind of closer into the growing season probably into the growing season, frankly?

Speaker 5

Yes. There's always small changes available, potential, but we think it's pretty sort of the range of outcome tends to narrow or converge. So we think it's narrowing. But there are some little tweaks that can be made later in the year. But for now, we don't expect any big changes.

Operator

Okay. That's very helpful. And that's it for me. Thank you.

Speaker 1

That concludes our Q and A session. I will now turn the conference back over to Luca Febri for closing remarks.

Speaker 2

Thank you everybody for your time and your interest in our company and stay tuned for further updates in the quarters to come. Have a great day.

Speaker 1

Ladies and gentlemen, that concludes today's conference call. Thank you all for joining. You may now disconnect.

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