Alico, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2019, filed August 6, 2019. The supplied metadata identifies “2018 Q3,” but the filing is for fiscal 2019 third-quarter results. Financial statements are unaudited.
Business context
Alico is a Florida agribusiness and land-management company owning approximately 117,000 acres, including approximately 90,000 acres of mineral rights. Its two operating segments are Alico Citrus and Water Resources and Other Operations. Citrus production is seasonal, with the second and third fiscal quarters generally generating most annual revenue.
Financial performance and liquidity
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Total revenue | $57.6 million, up 117.1% | $120.9 million, up 51.7% |
| Gross profit | $26.0 million; 45.2% margin | $45.5 million; 37.6% margin |
| Income from operations | $23.3 million; 40.5% margin | $34.7 million; 28.7% margin |
| Net income attributable to Alico stockholders | $16.2 million; 28.2% margin | $21.3 million; 17.6% margin |
| Basic diluted EPS | $2.17 / $2.17 | $2.85 / $2.85 |
| Operating cash flow | Not separately provided | $41.7 million |
- Alico Citrus generated $56.8 million of third-quarter revenue and $118.5 million for the nine-month period. Water Resources and Other Operations generated $0.7 million and $2.3 million, respectively.
- June 30, 2019 cash and cash equivalents were $3.5 million; cash plus restricted cash totaled $10.5 million, down from $32.3 million at September 30, 2018.
- Working capital was $20.8 million, compared with $49.6 million at September 30, 2018. The current ratio declined to 1.89 from 3.31.
- Debt principal totaled $166.2 million, consisting primarily of long-term term loans; $5.3 million was current. No amounts were outstanding under the revolving lines of credit at June 30, 2019.
- Available borrowing capacity was approximately $69.5 million under the working capital line and $25.0 million under the revolving line. The Company had approximately $0.5 million of outstanding letters of credit.
- Capital expenditures were $14.6 million for the nine months, including citrus trees, land, equipment and other assets. Dividends declared were $0.06 per share for the quarter and $0.18 per share year to date.
Material changes versus the prior comparable period
- Revenue and profitability increased substantially because the prior-year citrus harvest was adversely affected by Hurricane Irma. Nine-month processed boxes increased 68%, to 7.9 million, and pound solids per box increased to 5.91 from 5.64.
- Third-quarter Valencia revenue increased 125.6%, while Valencia processed boxes increased 145.7%. However, Valencia price per pound solids decreased 11.1% to $2.49.
- Gross profit more than doubled for the nine-month period, while operating income increased 233.3%. Water Resources and Other Operations improved from a $1.1 million gross loss to $0.6 million of gross profit, primarily because cattle-related costs ceased after the 2018 herd sale.
- Other income in the prior-year periods included approximately $7.2 million of third-quarter and $9.1 million of nine-month asset-sale gains. Current-year results included a $1.0 million derivative fair-value loss and no comparable significant asset-sale gains.
- Operating cash flow increased to $41.7 million from $16.1 million, but investing cash flow changed to a $14.3 million use from a $19.2 million source because 2018 included approximately $31.7 million of asset-sale proceeds.
- Financing cash use increased to $49.1 million, mainly due to the $25.6 million tender offer for 752,234 shares and the $11.3 million payment to terminate the Global Ag post-closing agreement.
- The Company adopted ASC 610-20 on October 1, 2018, increasing opening retained earnings by $14.6 million before a subsequent $3.7 million deferred-tax adjustment. ASC 606 adoption did not require an opening retained-earnings adjustment.
Guidance, outlook, commentary and risks
- Management stated that the Alico 2.0 modernization program remained on target to reach approximately $2,164 of citrus expenses per acre and $1.56 cost per pound solid when fully implemented in 2020.
- Management increased its fiscal 2019 production expectation from 31%–37% growth to approximately 68% growth in processed boxes versus fiscal 2018, based on harvest results through the third quarter. Management continues to view approximately 7.9 million annual boxes and targeted cost savings as potentially achievable, but provides no assurance.
- The Company planted more than 400,000 trees in fiscal 2018 and intended to plant approximately 400,000 in fiscal 2019. It believes current acreage could produce 10 million boxes annually on a sustained basis, even with pervasive citrus greening.
- Key risks include weather and hurricanes, citrus greening and other diseases, harvest yields, citrus pricing, water availability and permitting, seasonality, labor, interest rates, financing availability, debt covenants, agricultural land values, government programs and international trade conditions.
- The Company represented that it was in compliance with its financial covenants at June 30, 2019. Management believes cash, operating cash flow, asset sales and available credit will cover obligations, capital expenditures and working capital needs for at least the next twelve months; additional financing may be required for significant growth opportunities.
- On August 1, 2019, after quarter-end, Alico received $5.8 million under Florida’s Citrus Recovery Block Grant for Hurricane Irma. The timing and amount of any Part 2 or Part 3 reimbursement had not been finalized.
- Former CEO Remy Trafelet resigned in February 2019 under a settlement resolving related litigation. Alico recorded $0.8 million of consulting and separation expense and is obligated to pay a $0.4 million annual consulting fee for up to 24 months, subject to the agreement.
- John Kiernan became President and CEO and Richard Rallo became CFO effective July 1, 2019. Benjamin Fishman became Executive Chairman, and Henry Slack stepped down from that role while remaining a director.
Investor verification points
- Verify the sustainability of the 2019 citrus volume recovery and whether pricing pressure offsets higher production.
- Assess progress toward Alico 2.0 cost targets and the ability to maintain production near management’s long-term expectations.
- Reconcile low unrestricted cash with debt maturities, seasonal working-capital needs and reliance on available credit facilities.
- Review exposure to citrus greening, hurricanes, water-storage project approvals and potential future Hurricane Irma relief payments.
- Confirm the financial and governance implications of the Trafelet settlement, executive transition and registration rights agreement.
- Review the impact of the ASC 610-20 accounting treatment, derivative fair-value changes and remaining obligations related to the former Global Ag transaction.