Cadiz Inc. — Q3 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2022. Cadiz is developing water storage and conveyance resources in California and operates agricultural assets; agricultural leases and alfalfa sales were its principal revenue sources. The Water Project had not yet generated significant revenue.
Financial performance and position
Amounts below are in millions, except per-share data and where stated otherwise.
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2022: $0.599; 2021: $0.142 | 2022: $0.927; 2021: $0.422 |
| Cost of goods sold | 2022: $1.163; 2021: $0 | 2022: $1.163; 2021: $0 |
| Operating loss | 2022: $4.444; 2021: $4.167 | 2022: $11.620; 2021: $13.701 |
| Net loss | 2022: $6.545; 2021: $7.839 | 2022: $17.940; 2021: $25.345 |
| Net loss per common share | 2022: $0.15; 2021: $0.22 | 2022: $0.45; 2021: $0.68 |
Margins and expenses. Cost of goods sold exceeded revenue, producing gross losses of approximately $0.564 million for Q3 and $0.236 million for the nine-month period. Reported operating losses remained substantial. Q3 net interest expense was $2.097 million, versus $2.000 million a year earlier; nine-month net interest expense declined to $6.144 million from $9.400 million, mainly reflecting lower interest on outstanding debt and deferred loan-cost amortization, partly offset by debt-discount amortization. Nine-month general and administrative expense was $10.911 million, down from $13.810 million, primarily due to lower noncash stock-award compensation.
Cash flow and liquidity. For the nine months, operating cash outflow was $13.374 million (2021: $9.643 million), investing outflow was $2.533 million (2021: $21.529 million), and financing inflow was $8.058 million (2021: $52.663 million). Cash, cash equivalents and restricted cash totaled $12.007 million at September 30, including $6.957 million of unrestricted cash; working capital was $7.1 million. The company reported total assets of $104.122 million and stockholders’ equity of $31.939 million.
Debt and preferred stock. Long-term debt, net, was $48.353 million, with a further $0.148 million current portion. The senior secured facility bears 7% interest, matures July 2, 2024, is secured by substantially all company assets, and had no scheduled principal payments before maturity. Cadiz said it was in compliance with debt covenants. The 8.875% Series A preferred stock carries cumulative dividends; $1.265 million was payable at quarter-end and was paid October 14, 2022.
Material changes and developments
- Revenue rose from a low base, including initial alfalfa crop sales, but 2022 cost of goods sold included $1.2 million of start-up costs for commercial production. Management described these costs as primarily nonrecurring for the initial short production year.
- Nine-month net loss improved by $7.4 million year over year, mainly because 2021 included higher stock-based compensation and interest expense. Q3 operating loss increased despite lower net loss, reflecting higher total costs and expenses.
- Common shares outstanding increased to 50.8 million at September 30 from 43.7 million at December 31, 2021, including a March 2022 direct offering that generated approximately $11.7 million net. After quarter-end, a November 14 offering of 5.0 million shares generated approximately $9.85 million net; shares outstanding were 55,823,810 on that date.
- In September 2022, a court ruling vacated federal rights-of-way for the Northern Pipeline across BLM-managed lands and returned them to the Bureau of Land Management. The company removed $3.3 million of related right-of-use assets and liabilities and said it would reapply and work with BLM on any additional environmental review.
- In November 2022, Cadiz acquired assets from water-filtration company ATEC Systems for consideration of up to $2.2 million; $0.75 million was paid at closing, with the balance payable in 2023 subject to business performance.
Outlook, risks and contingencies
Management said the March and November 2022 equity offerings provided approximately $21.5 million in net proceeds and, with cash on hand, were sufficient for short-term working-capital needs. It expects to need additional capital over the longer term for working capital and development expenditures; future financing availability and terms are not assured. Management warned that inability to raise funds could require reductions in operating or project-development spending and adversely affect execution of the business plan.
The Water Project requires additional permitting and regulatory processes to use the Northern Pipeline and build and operate the proposed Southern Pipeline. The vacated BLM rights-of-way create a material permitting and timing uncertainty. The company stated that it had not received significant water-development revenue and that agricultural returns did not fully fund working-capital needs. No specific revenue, earnings, or project-completion guidance was provided. The filing reported no material change to the risk factors in the 2021 Form 10-K and no litigation expected by management to have a material adverse effect, while noting that legal claims remain inherently uncertain.
Important facts for investors to verify
- Progress, timing, and requirements for reapplying for the Northern Pipeline rights-of-way, including any additional environmental review.
- Whether the Water Project secures additional permits, binding customer agreements, and financing, and how these affect the project’s development timeline and capital needs.
- Cash burn, unrestricted liquidity, and the expected duration of funding from the post-quarter November equity offering.
- Senior debt terms and covenant compliance, including the July 2024 maturity and potential refinancing or repayment needs.
- Whether alfalfa production generates sustained revenue and improves on the initial-period costs of goods sold.
- The final ATEC consideration and performance, and the dilutive effect of equity financing on existing shareholders.