Alico, Inc. Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2018, compared with the corresponding 2017 periods. The filing is dated May 7, 2018. The request metadata labels the period “2017 Q2,” but the filing reports fiscal 2018 second-quarter results.
Business Context
Alico is a Florida agribusiness and land-management company owning approximately 121,000 acres, including approximately 90,000 acres of mineral rights. Its operating segments are Alico Citrus, Conservation and Environmental Resources, and Other Operations. The company’s results are seasonal, with the majority of annual revenue historically generated in the second and third fiscal quarters.
Financial Performance and Position
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $35.6 million, down 36.7% | $53.1 million, down 27.9% |
| Gross profit | $7.8 million; 22.0% margin | $8.4 million; 15.8% margin |
| Income from operations | $4.8 million; 13.4% margin | $1.5 million; 2.7% margin |
| Net income attributable to Alico common stockholders | $(5.5) million; $(0.67) diluted EPS | $3.2 million; $0.39 diluted EPS |
| Operating cash flow | Not separately reported | $(0.3) million |
- Alico Citrus revenue declined 37.6% for the quarter and 28.6% year to date. Citrus gross profit declined 41.7% and 46.5%, respectively.
- Conservation and Environmental Resources generated $0.9 million of gross losses year to date, compared with a $0.6 million loss in the prior-year period, primarily reflecting costs associated with the ranch and conservation activities.
- Interest expense declined to $4.5 million year to date from $4.7 million, reflecting debt repayment.
- Cash and cash equivalents increased to $12.0 million at March 31, 2018, from $3.4 million at September 30, 2017. Working capital was $43.4 million, compared with $50.5 million at fiscal year-end.
- Principal debt declined to $179.8 million from $186.5 million. Current debt was $5.2 million, and debt less current portion and deferred financing costs was $172.9 million.
- No revolving credit borrowings were outstanding at March 31, 2018. Availability was $25.0 million under the revolving line of credit and approximately $59.7 million under the working capital line, reduced by approximately $10.3 million of outstanding letters of credit.
- The company remained in compliance with its financial covenants, including a 1.10-to-1.00 minimum debt-service coverage ratio and a 1.50-to-1.00 minimum current ratio for the principal credit facilities.
Material Changes Versus Prior Period
- Hurricane Irma caused fruit drop, earlier harvesting, lower volumes, and reduced pound solids per box. Total citrus boxes harvested declined 40.7% for the quarter and 27.9% year to date.
- Year-to-date pound solids produced declined 29.8%, while pound solids per box declined to 5.08 from 5.58. Management maintained its estimate that fiscal 2018 production would be 40% to 45% below fiscal 2017.
- Valencia revenue increased 21.1% year to date, partially offsetting significant declines in Early and Mid-Season fruit, fresh fruit, and fruit purchased for resale.
- The company sold several non-core assets, including its Gainesville nursery, Chancey Bay property, breeding herd, office building, trailers, and other properties. Six-month proceeds from property and equipment sales totaled $24.6 million.
- Approximately $4.45 million of debt was prepaid using asset-sale proceeds, and total principal debt declined by $6.7 million.
- The Alico 2.0 modernization program is intended to reduce expenses per acre from $3,314 in fiscal 2016 to $2,164 when fully implemented and reduce cost per pound solid from $2.14 to $1.56. Management cautioned that there is no assurance the anticipated savings will be achieved.
- The Tax Cuts and Jobs Act produced an approximately $10.1 million non-cash deferred-tax benefit year to date. This benefit was partly offset by an approximately $6.0 million valuation allowance against a capital-loss carryforward.
Cash Flow, Outlook, Risks and Unusual Items
- Operating cash flow was negative $0.3 million year to date, despite net income of $3.2 million, primarily reflecting seasonal working-capital needs and changes in deferred taxes.
- Investing activities provided $16.8 million, largely from asset-sale proceeds, while capital expenditures were $7.4 million, including $6.4 million for citrus tree development.
- Financing activities used $7.9 million, including $6.7 million of term-loan principal payments, $1.0 million of dividends, and $0.2 million of share repurchases.
- Management expects cash on hand, operating cash flow, asset sales, and available credit facilities to fund debt service, working capital, and capital expenditures for at least the next twelve months. This assessment depends on operating performance, asset-sale proceeds, and continued access to financing.
- Key risks include weather, citrus greening and other diseases, water availability, citrus pricing and volume pressure, interest-rate increases, debt and covenant restrictions, agricultural land values, labor disruptions, and the ability to realize Alico 2.0 savings.
- The South Florida Water Management District contract provides for potential annual payments of up to $12.0 million for conservation operations and maintenance, subject to annual funding approval and contract compliance.
- Subsequent to quarter-end, the company received approximately $0.7 million of initial Hurricane Irma insurance proceeds, funded approximately $1.0 million of its share of a Citree capital contribution, and sold the Gal Hog property for approximately $7.3 million.
- The company reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2018.
Investor Verification Items
- Verify the pace and economic impact of Hurricane Irma insurance recoveries and whether the estimated 40% to 45% production decline remains appropriate.
- Track citrus volumes, pound solids per box, realized pricing, and margins through the remainder of the 2017-2018 harvest.
- Assess whether Alico 2.0 achieves the stated cost-per-acre and cost-per-pound-solid targets.
- Confirm continued compliance with debt covenants and monitor maturities, variable-rate exposure, and the November 2019 revolving and working-capital facility maturities.
- Evaluate liquidity after asset sales, capital expenditures, seasonal working-capital requirements, dividends, and the Citree capital contribution.
- Review the recoverability of the approximately $24.6 million capital-loss carryforward before its September 30, 2018 expiration and the related valuation allowance.