Alico, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2018. The request metadata references 2017 Q4, but the filing is the FY2018 annual report, with FY2017 comparatives. Amounts are generally in thousands unless otherwise noted.
Business Context
Alico is a Florida agribusiness and land-management company owning approximately 117,000 acres, including approximately 45,000 gross acres of citrus land. Operations are reported in two segments: Alico Citrus and Water Resources and Other Operations. Citrus generated 96.1% of total operating revenue in FY2018. The company sold its breeding herd in January 2018 and now leases grazing rights to a third party.
Financial Performance and Position
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Operating revenue | $81,281 | $129,829 | (37.4%) |
| Gross profit | $25,593 | $8,930 | 186.6% |
| Income from operations | $10,535 | $(6,094) | Improved $16,629 |
| Net income attributable to common stockholders | $13,050 | $(9,451) | Improved $22,501 |
| Diluted EPS | $1.57 | $(1.14) | Improved $2.71 |
| Cash flow from operating activities | $19,055 | $28,229 | (32.5%) |
| Capital expenditures | $16,352 | $13,353 | 22.5% |
| Cash, cash equivalents and restricted cash | $32,260 | $3,395 | +$28,865 |
| Total debt and lines of credit | $177,034 | $186,476 | $(9,442) |
| Stockholders' equity | $177,595 | $165,369 | 7.4% |
FY2018 gross margin was approximately 31.5%, operating margin approximately 13.0%, and net margin attributable to common stockholders approximately 16.1%. Comparability is affected by Hurricane Irma insurance proceeds, asset-sale gains, impairments, and the FY2017 hurricane casualty loss.
- Alico Citrus: Revenue declined 36.7% to $78,121, while gross profit increased to $26,412 from $11,494. The improvement reflected lower production-related costs, lower harvesting costs, and approximately $9,429 of Hurricane Irma insurance proceeds, partly offset by lower crop volume and approximately $3,349 of inventory and long-lived-asset impairments.
- Water Resources and Other Operations: Revenue declined 50.5% to $3,160 and the segment reported a gross loss of $819. The revenue decline primarily reflected the sale of the cattle herd.
- Liquidity: Working capital was $50,742 versus $50,506, and the current ratio was 3.36 to 1. Management stated that cash on hand, operating cash flow, asset sales, and available credit should fund working capital, capital expenditures, and debt service for at least the next 12 months.
- Available credit: Approximately $57,015 was available under the $70,000 working-capital line and $25,000 was available under the $25,000 revolving line at September 30, 2018. Letters of credit of approximately $10,300 reduced availability under the working-capital facility.
- Dividends: The company declared $0.24 per common share for FY2018, or $1,972 of cash dividends paid during the year.
Material Changes Versus FY2017
- Hurricane Irma reduced FY2018 production to 4,827,000 boxes, down approximately 36.4% from 7,587,000 boxes. Processed boxes declined 35.2%, and pound solids declined 37.8%.
- Average pricing increased to $2.64 per pound solid for Early and Mid-Season fruit and $2.82 for Valencia fruit, versus $2.56 and $2.72, respectively, in FY2017.
- Revenue fell substantially, but operating results improved because FY2017 included approximately $13,489 of hurricane inventory casualty loss and approximately $9,346 of long-lived-asset impairments.
- FY2018 included approximately $11,041 of gains on sales of real estate, property and equipment and assets held for sale, compared with $2,181 in FY2017.
- Interest expense declined to $8,561 from $9,141 as debt was paid down.
- Operating cash flow decreased despite the return to profitability, while investing cash flow turned positive at $22,447 due primarily to asset-sale proceeds of approximately $39,780.
- The company planted more than 400,000 citrus trees and expects capital expenditures of approximately $16,000-$17,000 in FY2019, primarily for additional tree planting.
- General and administrative expense was essentially flat at $15,058 versus $15,024, although FY2018 included higher bonuses, stock compensation, tender-offer costs, and rent.
Outlook, Guidance, Risks and Unusual Items
- Production outlook: Management expects FY2019 production of approximately 6,300,000-6,600,000 boxes and a return to pre-hurricane production of approximately 7,900,000 boxes by FY2020. These are management expectations, not guarantees.
- Alico 2.0: The modernization program targets citrus expenses of $2,164 per acre and production costs of $1.56 per pound solid by 2020, compared with a cited baseline cost of $2.14 per pound solid. The filing cautions that expected savings may not be realized.
- Water project: The South Florida Water Management District contract provides for reimbursement of up to $4,000 and an annual fixed payment of $12,000 after construction, subject to compliance and annual funding approval. No revenue has been recognized. Additional local and federal approvals remained necessary, and construction had not begun as of the filing.
- Hurricane Irma recovery: Through November 30, 2018, the company had received approximately $9,429 of insurance proceeds. Additional claims were pending, and potential federal or state relief was uncertain.
- Customer concentration: Tropicana represented approximately 86.6% of FY2018 revenue. A loss or reduction of this relationship could materially affect revenue and cash flow.
- Industry risks: Weather, citrus greening and citrus canker, water availability, labor availability, commodity pricing, foreign competition, and Florida’s geographic concentration could materially affect results.
- Debt and interest-rate risk: Approximately $177,034 of debt was outstanding at September 30, 2018. A one-percentage-point increase in prevailing rates would have increased FY2018 interest expense by approximately $598. The company was in compliance with its stated debt covenants at year-end.
- Capital allocation: On October 3, 2018, after year-end, the company repurchased 752,234 shares for $25,576 at $34 per share, approximately 9.2% of outstanding shares. The transaction exceeded the originally announced $19,999 maximum because the company exercised an additional-share purchase provision.
- Management and litigation: In November 2018, CEO Remy Trafelet was placed on paid administrative leave while termination-for-cause proceedings were considered. Benjamin Fishman became interim president. Related Florida and Delaware litigation involving board control and the company’s largest stockholder remained unresolved.
- Ownership: 734 Investors beneficially owned approximately 43.0% of outstanding common stock as of December 3, 2018, creating significant shareholder-control and governance risk.
- Audit and controls: RSM US LLP issued an unqualified audit opinion and concluded that internal control over financial reporting was effective as of September 30, 2018.
Investor Verification Checklist
- Verify the sustainability of FY2018 profitability after excluding asset-sale gains and Hurricane Irma insurance proceeds.
- Assess whether FY2019 production guidance of 6.3-6.6 million boxes and the FY2020 recovery target are consistent with grove conditions, citrus disease trends, and weather exposure.
- Review debt maturities, variable-rate exposure, covenant compliance, and the effect of the October 2018 tender offer on liquidity and leverage.
- Confirm the status, funding approvals, remaining permits, construction timing, and economics of the water-storage project.
- Monitor the Florida and Delaware litigation, the CEO termination proceedings, interim management arrangements, and governance implications.
- Evaluate dependence on Tropicana, citrus pricing contracts, and the company’s ability to diversify customers.
- Determine whether Alico 2.0 achieves its targeted cost reductions without impairing production capacity or requiring additional capital.
- Reconcile the filing’s FY2018 annual results with subsequent quarterly filings and confirm the effects of the October 2018 share repurchase.