Cadiz Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021. Cadiz is a natural-resources development company focused on water and agricultural projects in California. Its principal revenue source is agricultural leasing; the Water Project has not yet generated significant revenue and requires further contracts, conveyance arrangements, construction planning, and financing.
Financial results and position
- Revenue was $139,000, versus $114,000 in Q1 2020, primarily from agricultural lease income.
- Operating loss was $3.2 million, compared with $3.9 million. Net loss was $5.9 million, or $0.16 per share, versus $20.5 million, or $0.66 per share.
- General and administrative expense was $3.2 million, including approximately $146,000 of stock-based compensation; depreciation was $103,000. Net interest expense was $2.5 million.
- Operating cash use was $2.8 million; investing cash use was $0.7 million; financing provided $14.9 million, principally from ATM share sales. Cash and cash equivalents were $18.7 million at quarter-end.
- Working capital was $17.2 million. Total assets were $89.5 million and total liabilities were $102.6 million; stockholders’ deficit was $13.1 million.
- Long-term debt, net, was $78.9 million, with a $47,000 current portion. The company reported approximately $80.7 million of senior secured debt as of March 31. Related-party long-term lease obligations were $17.6 million.
- Operating margins are not meaningful given the very small revenue base and ongoing development-stage losses.
Changes versus prior period and unusual items
- The net loss narrowed from Q1 2020, largely because that period included a $12.4 million non-cash loss on extinguishment of debt. Q1 2021 also had lower stock-based compensation expense and lower equity-method investment losses.
- Cash increased from $7.3 million at December 31, 2020, helped by $14.9 million of net ATM proceeds. The company issued 1.37 million shares under the ATM during the quarter.
- On March 24, 2021, Cadiz modified 362,500 Apollo warrants, reducing their exercise price to $0.01 in exchange for a further debt maturity extension option. It reclassified warrant liabilities to equity and recorded $1.9 million of debt issuance costs. Apollo exercised the warrants on May 10, 2021.
- New operating leases increased right-of-use assets by $3.3 million, principally reflecting 29-year BLM pipeline rights-of-way.
Outlook, risks, and contingencies
- Cadiz intended to exercise its option to extend senior secured debt maturity from May 25, 2021 to May 25, 2022; a further option extends maturity to November 25, 2022. The company reported covenant compliance at March 31, 2021.
- A $19 million final payment for the remaining 124-mile Northern Pipeline segment was due to EPNG by June 30, 2021. Cadiz said it lacked adequate resources on hand to complete the acquisition and was seeking financing; failure to complete it would limit Northern Pipeline opportunities to the 96-mile segment already owned.
- Management expected available sources to cover near-term liquidity needs but cautioned that financing availability and terms are not assured. The company expects continued need for capital and may use equity or debt financing, asset dispositions, or spending reductions. Further equity issuance may dilute shareholders.
- The Water Project is approved to deliver up to 50,000 acre-feet annually for 50 years, but still requires participating-agency contracts, conveyance arrangements, construction planning, and financing. Southern Pipeline conveyance also requires additional authorizations, including an agreement with MWD and state authorization.
- The filing reported no material changes to previously disclosed legal proceedings or risk factors. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether Cadiz completed the $19 million Northern Pipeline acquisition payment by the June 30, 2021 deadline and secured funding for it.
- Whether the company exercised the first debt-maturity extension and the resulting terms and cash-interest requirements.
- Progress on water-agency contracts, conveyance approvals, construction arrangements, and project financing.
- Remaining capacity under the $30 million ATM agreement, subsequent share issuance, and the dilution impact of financing and warrant exercises.
- Liquidity runway relative to ongoing operating cash use, debt service, and development commitments.