Tejon Ranch Co. 2026 Q2 Earnings Call

Welcome to Tejon Ranch Company's second quarter 2026 earnings call. My name is Nick Ortiz. Joining me today are Matthew Walker, President and CEO, and Robert Velasquez, Senior Vice President and Chief Financial Officer. Today's press release, 10-Q, and the webcast are available on our investor relations website. A replay will be posted after we conclude. That site is ir.tejonranch.com. Today's remarks, including responses to questions, include forward-looking statements. These statements are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Key factors are detailed in our SEC filings, including our most recent forms 10-Q and 10-K. We assume no obligation to update any forward-looking statements. We also reference non-GAAP measures. These measures should be considered in addition to, not as a substitute for, GAAP results.

Reconciliations to the most directly comparable GAAP measures and reasons why we use non-GAAP measures are included in today's filings and are posted on our IR website. Again, ir.tejonranch.com. After prepared remarks, we'll address questions. Shareholders were invited to submit questions by email in advance. I'll now turn the call over to our CEO, Matthew Walker.

Thank you, Nick. Good afternoon, everyone. Let me start off by saying we had a good quarter. Revenues were up across all segments. Adjusted EBITDA grew approximately 47% year-over-year, and we delivered net income of $2.6 million against a loss a year ago. Corporate expenses were down significantly. More than half of that reduction reflects the absence of last year's non-recurring costs. Setting those aside, core corporate expenses are still down 18% for the first six months of the year, highlighting the cost savings measures that we've put in place. This quarter's revenue growth was led by the Dedeaux Properties 1B land sale, which contributed $6.9 million in revenues. That transaction reinforces our commitment to Tejon Ranch Commerce Center as our nucleus of growth. With it, we are moving forward on our joint venture with Dedeaux on a 510,000 square foot Class A industrial building.

Walls are being tilted up this week. It's a good illustration of our land monetization model, which is contributing our land to a joint venture, retaining an ongoing economic interest, and growing our income-producing portfolio with minimal net capital outlay. It's also worth noting that we committed to the project while much of the industrial market was sitting on the sidelines. The fundamentals in Southern California are now improving as we anticipated, positioning us well for an early 2027 delivery. We are also continuing to see traffic and sales increase at our outlets and revenues increase at our travel centers, due in part to the halo effect from the Hard Rock Casino Tejon. In addition, July produced the strongest new leasing performance in nine months at our Terra Vista apartments.

I'm going to turn it over to Robert to walk through the financials, then I'll offer my thoughts on some important topics.

Thank you, Matt. Net income attributable to common stockholders was $2.6 million, or $0.10 per share, versus a loss of $1.7 million a year ago, a $4.3 million improvement. The 10-Q provides details by segment. I'll focus on what the tables don't say: earnings quality, costs, and overall balance sheet. First, earnings quality. As Matt described, the company contributed land with a fair market value of $9.9 million to the Dedeaux Properties joint venture. As a result, we recognized $6.9 million of revenue and $2 million of profit during the quarter. The remaining $3 million of profit was deferred because it relates to our retained ownership interest in the joint venture. The recurring business performed as well. Multifamily swung to positive net operating income, with leasing at Terra Vista crossing 80% this month.

Joint venture equity earnings rose 21% to $3.1 million, led by TA/Petro, improved results at the outlets, and steady contributions from our fully leased industrial portfolio. Second, costs. Excluding cost and sales on land and water, which fluctuate with transaction activity, expenses declined nearly 18% year-to-date. Outside of corporate and new Terra Vista operations, segment expenses were down roughly 8%. The discipline is evident across our operating segments. One 10-Q note, we now present farming before and after fixed water obligation, assessments we incur regardless of activity. Farming was profitable before those fixed costs this quarter. Third, the balance sheet. We ended the quarter with approximately $79 million of liquidity and debt to capital ratio of 16.3%. Let me close with the metric I watch most closely, trailing 12-months adjusted EBITDA of $29.8 million, up 21% from a year-ago.

While land sales can significantly influence any single quarter, the trailing 12-month view provides a better measure of our underlying performance, and that performance continues to strengthen. I'll hand it back to Matt for some additional remarks.

Thanks, Robert. I now want to take a step back and talk about three things that are on my mind. The first is about AI and how it's impacting our company. This spring, after evaluating several different options, we implemented a cost-effective rollout of a leading enterprise AI platform across the company. We started with a small group, not knowing exactly what the results would be. However, it became immediately clear to us that the combination of the AI technology overlaid on the accumulated knowledge base of a 183-year-old ranch could be incredibly powerful. This led us to extend AI to every desktop user, and we are now seeing meaningful improvements in performance and efficiency in multiple areas of the business. Each month seems to be a step function up in utilization and new use cases.

We believe AI allows a relatively small company like ours to better compete in the marketplace, quickly testing new ideas, and researching new revenue opportunities, as well as automating manual processes to better focus on improving performance. AI is by no means perfect or the panacea to every challenge we face. It often gets you about 90% there, and you then have to constantly fact-check the conclusions. I want our shareholders to know that we're using every available tool to drive shareholder value. Next, I'd like to talk about water. I am pushing our management team to take a fresh look at every part of our business. That includes our fairly complex water story. In addition to the surface water and groundwater that comes from the ranch, we have multiple water contracts which provide for our current and future anticipated needs.

The output from many of these contracts varies depending on how much water is available from the California State Water Project. We also bank excess water in one of two water banks. As I noted in May, too much of our balance sheet is generating too little of our bottom line. As it relates to water, we're working to change that. Water can't be a dormant asset for us. We have recently generated some opportunistic sales of our excess water to drive a higher current return on this valuable asset. We will continue to pursue both strategic and opportunistic water sales as market conditions permit. You will also notice that we have enhanced our water disclosures in this quarter's financials to more clearly tell our water story.

Thinking more long term, we are looking at infrastructure investments that would make our considerable water assets even more liquid than they already are, and ways to do this which minimize capital outlays. Finally, I'd like to explain how we're looking at the future. Given our 183-year history, we often take a long-term outlook. As we survey our many opportunities and consider what to do next, I want you, the shareholder, to understand the rational process we are using to evaluate facts and make measured decisions. I've talked before about our investment criteria and hurdle rates. We look at our enterprise over multiple time horizons because many of our initiatives incubate over several years. Sometimes we use net present value as an evaluation tool, but NPV doesn't address the timing component or the realities that we face as a public company to deliver value sooner.

What we're finding is a more valuable tool, particularly when you roll everything up to an entity level, is projected total shareholder return. TSR incorporates the entirety of our capital allocation strategy. As we compare different scenarios, we can see the compounding impact over both the near term and the long term. It's clear that we need to drive earnings commensurate with comparable companies. We need to return those earnings to our shareholders within a reasonable timeframe. We believe we have a sound process in place to get us there. Our intention is to make rational decisions that are in our shareholders' best interests. I look forward to sharing more as this process unfolds. In closing, overall, it was a good quarter. Our plan continues to show positive results. We're just getting started. We have a long way to go.