Cadiz Inc. — Q2 2022 Form 10-Q
Business context and period. This unaudited report covers the three and six months ended June 30, 2022. Cadiz is developing California water and agricultural assets, including its Cadiz Valley Water Project; current revenue is principally agricultural lease income. The filing describes the Water Project as permitted to make an average of 50,000 acre-feet of water available annually for 50 years and to store imported water, but conveyance infrastructure still requires additional permitting and development.
Financial performance
Amounts below are in millions of dollars except per-share data. Margins are not meaningful given the company’s minimal revenue and ongoing development costs.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.185 | $0.141 | $0.328 | $0.280 |
| Operating loss | $(3.392) | $(6.337) | $(7.176) | $(9.534) |
| Net loss | $(5.483) | $(11.562) | $(11.395) | $(17.506) |
| Net loss applicable to common stock | $(6.771) | $(11.562) | $(13.948) | $(17.506) |
| Loss per common share | $(0.13) | $(0.30) | $(0.29) | $(0.46) |
| Net interest expense | $2.055 | $4.858 | $4.047 | $7.400 |
- At June 30, 2022, cash and cash equivalents were $13.239 million; current assets were $15.591 million and current liabilities $3.586 million, for working capital of approximately $12.0 million. Cash, cash equivalents and restricted cash totaled $19.577 million, including $6.338 million restricted.
- Six-month cash flow: operating activities used $7.550 million; investing activities used $1.848 million; financing activities provided $9.119 million. Cash, cash equivalents and restricted cash declined $0.279 million from year-end.
- Debt included $47.606 million long-term and $0.057 million current portion. The $50 million senior secured facility bears 7% interest, matures July 2, 2024, and has no scheduled principal payments before maturity. Cadiz reported compliance with its covenants. Long-term related-party lease obligations were $19.780 million.
- The company has 2,300 Series A preferred shares outstanding, with an 8.875% cumulative dividend. Preferred dividends charged against common shareholders’ results were $2.553 million for the first half; $1.288 million was payable at June 30 and paid July 15, 2022.
Material changes versus comparable periods
- First-half revenue increased $0.048 million year over year, while net loss narrowed by $6.111 million. Management attributed the lower 2021-period loss primarily to higher noncash stock-award compensation and higher interest expense.
- First-half general and administrative expense was $7.211 million versus $9.608 million; stock-based compensation was $0.856 million versus $3.440 million. Excluding stock-based compensation, management reported G&A of $6.3 million versus $6.2 million.
- First-half net interest expense fell to $4.047 million from $7.400 million. The prior-year period included $2.360 million of deferred loan-cost amortization and a $0.573 million unrealized warrant gain; 2022 included $1.160 million of debt-discount amortization.
- Investing cash use declined substantially from $20.436 million to $1.848 million, primarily because the prior-year period included pipeline-related spending. Six-month operating cash use increased from $5.999 million to $7.550 million.
- In March 2022, Cadiz issued 6,857,140 common shares at $1.75 per share, raising approximately $11.7 million net. Common shares outstanding increased from 43.656 million at December 31, 2021 to 50.770 million at June 30, 2022.
Outlook, risks and contingencies
- Management said the March equity offering and cash on hand were sufficient for short-term working capital needs, but expects to require additional capital longer term for working capital and project investment. Potential sources include equity or debt financing, asset dispositions, or cost reductions; availability and terms are not assured.
- Management identified liquidity and access to capital as important to development plans. If funding is unavailable, the company may need to reduce operating or project-development spending. The filing reports a $11.4 million first-half loss and $7.6 million operating cash use.
- Two lawsuits challenge federal permits for rights-of-way across approximately 58 miles of the Northern Pipeline on BLM-managed lands. BLM sought voluntary remand for additional review; after a May 5, 2022 hearing, the court had not ruled. Cadiz said the outcomes could not be predicted.
- Cadiz stated no material changes to the risk factors in its 2021 Form 10-K. It also cautioned that forward-looking statements involve risks, including its ability to develop its land and water resources and obtain financing.
- No numerical financial guidance was provided. The filing notes the company’s agricultural lease and farming returns do not currently support its working capital needs. A 99-year agricultural lease is expected to generate $420,000 annually over the next five years.
Important facts for investors to verify
- Progress on required permits, binding water-supply agreements, and construction or use of the Northern and Southern Pipeline facilities.
- Cash runway, projected development spending, and the amount, timing, and terms of any additional financing or asset sales.
- Developments in the BLM right-of-way litigation and any effect on pipeline access or project timing.
- Senior secured debt terms, covenant compliance, maturity and repayment provisions, and the ongoing cumulative preferred-dividend obligation.
- Whether agricultural and water-project activities produce material revenue; current reported revenue remains small relative to operating and financing costs.