Alico, Inc. Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2019. The request references “2018 Q4,” but the supplied filing is the fiscal 2019 annual report, filed December 5, 2019.
Business Context
Alico is a Florida agribusiness and land-management company owning approximately 111,401 acres, including approximately 45,173 citrus acres and approximately 90,000 acres of mineral rights. Operations are reported through Alico Citrus and Water Resources and Other Operations. Citrus accounted for 97.4% of 2019 operating revenue. Tropicana represented approximately 88.6% of consolidated revenue.
Financial Performance and Liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Operating revenue | $122.3 million | $81.3 million | +50.4% |
| Gross profit | $60.4 million | $25.6 million | +135.8% |
| Income from operations | $45.2 million | $10.5 million | +329.2% |
| Net income attributable to common stockholders | $37.8 million | $13.1 million | +189.9% |
| Diluted earnings per share | $5.05 | $1.57 | +221.7% |
| Cash flow from operations | $48.8 million | $18.6 million | +162.8% |
- Approximate margins were 49.4% gross, 37.0% operating and 30.9% net attributable to common stockholders.
- Processed citrus production increased to 7.904 million boxes and 46.727 million pound solids, versus 4.702 million boxes and 26.513 million pound solids in 2018.
- Cash, cash equivalents and restricted cash totaled $23.8 million at September 30, 2019, down from $32.3 million.
- Working capital was $33.0 million, compared with $49.6 million, and the current ratio declined to 2.14 from 3.31.
- Capital expenditures were $20.0 million, primarily for citrus operations and grove development.
- Principal debt was $163.4 million, including $5.3 million current maturities; no revolving credit borrowings were outstanding at year-end. Approximately $94.5 million of revolving capacity was available, subject to borrowing conditions.
- Total stockholders’ equity was $199.4 million, including $194.3 million attributable to Alico stockholders.
Material Changes Versus the Prior Comparable Period
- Results rebounded sharply from the 2018 harvest disruption caused by Hurricane Irma. Higher volumes and improved grove productivity drove the increase in citrus revenue and gross profit.
- FY2019 included approximately $15.6 million of Florida Citrus Recovery Block Grant proceeds and $0.5 million of additional Hurricane Irma insurance proceeds, recorded as reductions of operating costs.
- The Company recorded a $13.2 million gain on asset sales, primarily from the September 2019 sale of approximately 5,500 West Ranch acres.
- Alico 2.0 modernization initiatives continued to reduce costs, divest underperforming assets and streamline grove management. Cumulative cash generated from asset sales under the program reached approximately $57.8 million through September 30, 2019.
- More than 400,000 citrus trees were planted in both fiscal 2019 and fiscal 2018.
- The Company repurchased 752,234 shares for $25.6 million in the October 2018 tender offer, approximately 9.2% of shares outstanding at that time. No fourth-quarter 2019 repurchases occurred.
- Former CEO Remy Trafelet resigned in February 2019 under a settlement agreement. The Company recorded $0.8 million of consulting and separation expense and agreed to annual consulting fees of $0.4 million for up to 24 months.
- Debt declined from $177.0 million of principal at September 30, 2018 to $163.4 million. Interest expense declined to $7.2 million from $8.6 million.
- The Company adopted ASC 610-20, increasing opening retained earnings by $10.9 million net of taxes, and adopted ASC 606 without an opening retained-earnings adjustment.
Outlook, Risks, Contingencies and Unusual Items
- Management expects FY2020 Florida citrus production to be slightly higher, based on the USDA forecast, but anticipates lower market prices due to excess domestic and international supply. The filing does not provide formal earnings or revenue guidance.
- The Company expects to maintain liquidity through operating cash flow, asset sales, available credit facilities and potential capital-market access. Management believes resources are sufficient for at least the next 12 months, but financing availability is not assured.
- Key risks include hurricanes and other weather events, citrus greening and citrus canker, concentrated Florida acreage, water availability, labor and immigration constraints, commodity pricing, customer concentration, and competition from foreign producers.
- Variable-rate debt creates interest-rate exposure; a one-percentage-point increase in applicable rates would have increased FY2019 interest expense by approximately $3.5 million.
- Debt agreements contain financial covenants, including minimum debt-service coverage and current-ratio requirements. The Company reported compliance at September 30, 2019.
- The South Florida Water Management District water-storage contract could provide up to $12.0 million of annual operating and maintenance payments, subject to annual funding approval and remaining federal and local approvals.
- Remaining contractual obligations totaled approximately $220.1 million, including $163.4 million of debt principal, $48.1 million of interest, $5.9 million of retirement benefits and other commitments.
- Subsequent to year-end, the Company received approximately $4.1 million in additional CRBG proceeds; the timing and amount of remaining program proceeds were not finalized.
- On November 12, 2019, 734 Investors distributed its 3,173,405 Alico shares to its members, increasing the public float and potentially affecting trading liquidity and share price.
- The Board declared a first-quarter fiscal 2020 dividend of $0.09 per share, compared with $0.06 per share quarterly during fiscal 2019.
Important Investor Verification Items
- Determine how much of FY2019 earnings and margin improvement was attributable to one-time Hurricane Irma relief, insurance proceeds and asset-sale gains versus recurring citrus operations.
- Verify the sustainability of FY2019 citrus volumes, pricing and grove-cost savings as market prices are expected to decline.
- Review Tropicana contract terms and assess the risk associated with approximately 88.6% customer revenue concentration.
- Review debt maturities, variable-rate exposure, collateralized acreage and covenant headroom, particularly under lower citrus-price scenarios.
- Confirm the status, funding approvals and permitting requirements for the water-storage project.
- Assess the impact of the 734 Investors share distribution on ownership, public float, market liquidity and potential selling pressure.
- Reconcile reported operating cash flow with capital expenditures, dividends, share repurchases and debt repayments to evaluate recurring free cash generation.