Cadiz Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited; financial amounts below are in U.S. dollars unless noted. Cadiz develops land, water supply, storage, conveyance and treatment assets, with current revenue mainly from agriculture and its ATEC water-filtration business.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.368 million | $0.599 million | $1.307 million | $0.927 million |
| Operating loss | $5.759 million | $4.444 million | $15.495 million | $11.620 million |
| Net loss | $6.936 million | $6.545 million | $24.691 million | $17.940 million |
| Net loss applicable to common stock | $8.201 million | $7.810 million | $28.509 million | $21.758 million |
| Basic and diluted loss per common share | $0.12 | $0.15 | $0.44 | $0.45 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $15.402 million | $13.374 million |
For Q3, cost of sales was $0.692 million against revenue of $0.368 million, implying a gross loss before operating expenses. G&A was $5.127 million and depreciation was $0.308 million. Net interest expense was $1.173 million, down from $2.097 million a year earlier. The filing does not present a separate margin percentage.
- Balance sheet at September 30: Cash and cash equivalents of $13.306 million; current assets of $16.626 million; current liabilities of $5.930 million; working capital of approximately $10.7 million; total assets of $114.455 million; total liabilities of $66.800 million; and stockholders’ equity of $47.655 million.
- Debt and other obligations: Long-term debt, including current portion, totaled approximately $37.6 million, versus approximately $49.1 million at December 31, 2022. Long-term related-party lease obligations were $22.333 million and are separate from that debt figure. The senior secured credit agreement bears 7% annual interest and matures June 30, 2026; interest on $15 million of convertible principal is paid in kind.
- Cash flows, nine months: Investing activities used $3.815 million, primarily for development of three wells. Financing activities provided $18.875 million. Cash, cash equivalents and restricted cash totaled $13.440 million at period end.
Changes versus the comparable periods
- Q3 revenue fell 39% year over year, while net loss widened by $0.391 million. Management attributed lower quarterly revenue primarily to the prior-year comparison; Q3 2023 included agricultural lease and alfalfa revenue and ATEC sales.
- Nine-month revenue rose to $1.307 million from $0.927 million, reflecting ATEC sales and agriculture. However, net loss widened to $24.691 million, driven chiefly by a $5.331 million debt-extinguishment loss and higher G&A and depreciation. The prior period included $6.144 million of net interest expense, compared with $3.637 million in 2023.
- G&A increased, excluding stock compensation, by $3.6 million for the nine-month period. Management cited $1.8 million of community water-quality and infrastructure investments and $1.0 million for corporate communications modernization. Q3 included $0.6 million and $0.4 million, respectively.
- The January 2023 registered direct offering generated approximately $38.5 million net proceeds and increased common shares outstanding. The company used $15 million of proceeds to repay debt; common shares outstanding increased from 55.8 million at December 31, 2022 to 66.6 million at September 30, 2023.
Outlook, commentary and risks
- Management said the offering proceeds and cash on hand were expected to fund short-term working capital needs. It expects agriculture and ATEC operations to be funded by existing capital and operating cash profits, but states additional capital will be needed longer term. No specific revenue, earnings or cash-flow guidance was provided.
- The company has not yet generated significant revenue from its water supply, storage or conveyance assets; current revenues do not cover its working-capital needs. Its plans depend on developing and financing water projects and securing contracts and permits. Management cautions that future financing availability and terms are uncertain and that inadequate funding could require expense reductions and impair execution of its business plan.
- ATEC was awarded a $10 million contract to provide filters for a Central Utah groundwater project; deliveries were expected to begin in Q1 2024. This is a contract milestone, not revenue reported in the period.
- On November 2, 2023, after quarter end, Cadiz amended its water-project MOU with San Bernardino County, Santa Margarita Water District and Fenner Gap Mutual Water Company. The amendment gives county-serving public water systems priority for project supply not already committed under binding contracts before water is exported for use outside the county.
- The February credit amendment extended maturity to June 2026, but included a $5.331 million accounting loss from the debt modification, repayment fee and debt-discount write-off. A conversion option permits lenders to convert up to $15 million of principal, plus applicable interest, into common shares at $4.80 per share.
- The Series A preferred stock carries an 8.875% cumulative dividend. The company declared a $1.265 million dividend for the quarter, paid October 14, 2023. Failure to pay dividends for six or more quarterly periods could give preferred holders rights to elect two directors.
- Cadiz reported no material changes to previously disclosed risk factors or legal proceedings and said disclosure controls were effective. It stated it was not aware of pending or threatened litigation expected to have a material adverse effect, while noting legal claims remain uncertain.
Important facts for investors to verify
- Progress on binding water-supply agreements, project-level permits, pipeline conversion and construction, and the timing and economics of water deliveries.
- Whether ATEC begins fulfilling its $10 million contract as expected and converts that award into recognized revenue and cash receipts.
- Cash burn, remaining offering proceeds, capital expenditure requirements and the company’s ability to raise additional capital without substantial dilution.
- Debt terms and conversion mechanics, including PIK interest accumulation, potential conversion dilution, maturity and repayment fees.
- Whether agricultural operations can improve profitability given the reported alfalfa cost adjustment and subdued West Coast market conditions.
- Preferred dividend obligations and the resulting cash demands; the filing reports the October 2023 payment after quarter end.