Alico, Inc. Form 10-Q Summary
Business context and reporting period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 81,000 acres of land and approximately 90,000 acres of mineral rights. Its two segments are Alico Citrus and Land Management and Other Operations. This unaudited Form 10-Q covers the three months ended December 31, 2021, compared with the three months ended December 31, 2020. The business is seasonal, with higher revenue generally occurring in the second and third fiscal quarters.
Key financial metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Total revenue | $15.337 million | $13.732 million | 11.7% increase |
| Gross profit | $1.811 million | $5.397 million | 66.4% decrease |
| Gross margin | 11.8% | 39.3% | Down 27.5 percentage points |
| Income from operations | $(0.773) million | $2.869 million | Declined $3.642 million |
| Other income, net | $7.553 million | $2.185 million | 245.7% increase |
| Net income attributable to Alico common stockholders | $10.131 million | $3.845 million | 163.5% increase |
| Diluted EPS | $1.34 | $0.51 | Increase of $0.83 |
| Net cash used in operating activities | $(9.608) million | $(5.109) million | Cash use increased $4.499 million |
Alico Citrus revenue increased 14.1% to $14.748 million, while segment gross profit declined 71.5% to $1.362 million. Land Management and Other Operations revenue declined 26.9% to $0.589 million, and segment gross profit declined 27.3% to $0.449 million.
Citrus operating data included 896,000 boxes harvested, up 7.6%, but pound solids produced declined 2.7% to 4.021 million. Early and Mid-Season price per pound solids increased 14.7% to $2.58, while pound solids per box declined 7.6% to 4.86. Fresh fruit price per box increased 49.5% to $12.74.
Liquidity, cash flow, debt and capital allocation
- Cash and cash equivalents were $69,000 at December 31, 2021, compared with $886,000 at September 30, 2021.
- Working capital increased to $42.711 million from $32.607 million, and the current ratio increased to 3.69:1 from 2.46:1.
- Total principal debt, including lines of credit, was $134.599 million, compared with $126.294 million at September 30, 2021. Long-term debt, net of current portion and deferred financing costs, was $119.989 million; lines of credit were $9.377 million.
- Available borrowing capacity at December 31, 2021 was approximately $25.0 million under the revolving line of credit and $60.287 million under the working capital line of credit.
- Cash used in operating activities was driven by seasonal working-capital needs, including increases in accounts receivable and inventories and decreases in accounts payable and accrued liabilities.
- Investing activities provided $4.079 million, including $8.604 million of proceeds from asset sales, partly offset by $4.193 million of capital expenditures.
- Financing activities provided $4.712 million. Borrowings on revolving credit facilities exceeded repayments, while dividends paid were $3.763 million.
- The quarterly dividend was $0.50 per share, compared with $0.18 per share in the prior-year quarter. Management stated that available cash may be used for debt repayment, grove acquisitions, share repurchases or increased dividends.
- Management stated that cash on hand, operating cash flow, asset-sale proceeds and available credit are expected to provide sufficient liquidity for at least the next twelve months and over the long term.
Material changes versus the prior comparable period
- Revenue increased despite lower citrus quality and reduced industry production, primarily because of higher citrus pricing and increased fresh fruit and grove-management revenue.
- Gross profit deteriorated substantially because operating expenses increased 64.3% in Alico Citrus. The change partly reflected approximately $4.1 million of Hurricane Irma relief proceeds recognized in the prior-year quarter, compared with substantially less relief in the current quarter.
- Net income benefited from $8.445 million of gains on sales of real estate, property and equipment and assets held for sale, compared with $3.364 million in the prior-year quarter.
- The company recorded a $3.300 million income tax benefit, compared with a $1.250 million tax provision in the prior-year quarter. The benefit primarily reflected a charitable deduction related to land sold below market value to the State of Florida. Excluding this benefit, management indicated the company would have recorded an income tax provision of approximately $1.578 million.
- The State of Florida purchased approximately 1,638 acres for $5.675 million, generating a gain of approximately $5.570 million. The company also sold approximately 302 acres for $1.476 million, generating a gain of approximately $1.404 million.
- General and administrative expense increased 2.2% to $2.584 million, principally due to employee vaccination incentives, higher stock compensation and ESG consulting expenses, partly offset by lower payroll, legal and director costs.
- The company adopted new income-tax accounting guidance effective October 1, 2021; adoption had no material impact.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management expected a 12% to 15% decline in the Early and Mid-Season crop compared with the prior year, versus a USDA forecast of a 22.9% decline for that crop statewide. Management stated that a late-January 2022 freeze is expected to have a material adverse effect on the current-season Valencia crop, but the extent of damage and financial impact had not yet been determined.
- Primary operating risks include weather, citrus greening and citrus canker, pests, water availability, crop yields, citrus pricing, labor availability, supply-chain conditions and seasonality.
- The company remains exposed to variable interest rates and the planned transition from LIBOR. Its variable-rate debt references one-month and three-month LIBOR, with the transition expected to occur in fiscal 2023; the replacement rate and financial impact were not yet clear.
- Credit facilities include financial covenants for debt-service coverage, tangible net worth, current ratio, debt-to-total-assets and capital expenditures. The company was in compliance as of December 31, 2021.
- Outstanding letters of credit were approximately $336,000, and citrus-tree purchase commitments were approximately $1.508 million.
- The company reported no material litigation and no material changes to previously disclosed risk factors. It reported no material adverse COVID-19 impact to date.
- Federal citrus-relief proceeds remaining to be collected were estimated at approximately $2.0 million, of which approximately $1.0 million was received in October 2021; the remainder was expected in fiscal 2023.
Most important facts for investors to verify
- Assess the actual yield and financial impact of the January 2022 freeze on the Valencia crop.
- Determine whether citrus pricing can offset lower yields, declining pound solids per box and disease-related fruit losses.
- Reconcile operating cash use with the reported net income, including the effect of land-sale gains and the tax benefit.
- Monitor cash balances, working-capital borrowing and the company’s ability to maintain covenant compliance during seasonal cash outflows.
- Evaluate the sustainability of the increased $2.00 annualized dividend relative to operating cash flow and debt requirements.
- Track the LIBOR transition, future borrowing costs and refinancing requirements, particularly the long-term balloon maturities.
- Verify the timing and collectability of remaining Hurricane Irma relief proceeds and the utilization of related tax attributes.