Cadiz Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; financial statements are unaudited. Cadiz is a land and water-resource development company whose primary focus is the Cadiz Valley Water Project. Current revenue is limited to agriculture; the Water Project had not generated significant revenue.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Revenue | $4,000 | $4,000 |
| Operating loss | $2.648 million | $3.944 million |
| Net loss | $4.694 million | $7.439 million |
| Basic and diluted loss per share | $0.29 | $0.48 |
| Net interest expense | $2.045 million | $2.437 million |
| Cash used in operating activities | $4.434 million | $6.722 million |
| Cash and cash equivalents | $7.450 million | $11.887 million at Dec. 31, 2013 |
| Working capital | $7.1 million | Prior comparable value not stated |
| Long-term debt, net | $98.404 million | $96.417 million at Dec. 31, 2013 |
| Total assets / stockholders’ deficit | $60.197 million / $(41.162) million | $64.174 million / $(36.498) million at Dec. 31, 2013 |
Amounts are in U.S. dollars; financial statement amounts are shown in thousands except per-share data. Gross margin is not a meaningful performance measure given the very small revenue base. The filing reports no cash capital expenditures in Q1 2014.
Changes and key developments
- Net loss narrowed by $2.745 million year over year, mainly reflecting lower general and administrative expense, lower interest expense, and no repeat of the 2013 debt-extinguishment/refinancing loss. G&A fell to $2.588 million from $3.884 million, including lower litigation and stock-based compensation costs.
- Cash declined by $4.437 million during the quarter. Operating cash use improved year over year, while Q1 2013 financing included $17.5 million of debt proceeds.
- Debt carrying value increased from year-end. The company described $40 million of senior secured debt accruing interest at 8% and $53.5 million of convertible notes accruing at 7%; neither requires principal or interest payments before maturity. Reported carrying value is higher than these stated principal amounts.
- On May 1, 2014, after quarter-end, the court denied six CEQA petitions and upheld the Water Project’s environmental review and approvals. The ruling could be appealed; the company could not determine whether petitioners would appeal.
Outlook, risks and contingencies
- Management said existing cash of approximately $7.5 million was expected to fund working-capital needs through the end of Q1 2015. Additional working capital may be needed during 2015, depending partly on Water Project progress; no assurance was given that financing would be available on acceptable terms.
- Future funding may come from debt, equity, or asset sales. If the company cannot obtain needed funds, it may have to reduce spending, potentially impairing its business plan. Management said longer-term capital will also be required for development, capital expenditures, and debt maturities.
- The Water Project is designed to supply up to a long-term average of 50,000 acre-feet annually for 50 years; construction financing, final permitting/design, and definitive participant agreements remain important implementation needs. The company said approximately 80% of planned annual water was under an agreement or option.
- Management reported compliance with debt covenants at March 31, 2014. Debt bears fixed rates, limiting exposure to market interest-rate changes. The company had a full valuation allowance against deferred tax assets and reported substantial tax-loss carryforwards, whose use is subject to annual ownership-change limitations.
- The company reported no material changes to the risk factors in its 2013 Form 10-K. Water Project execution, litigation/appeals, financing availability, and the timing of development revenues remain significant uncertainties.
Important facts for investors to verify
- Whether the May 1, 2014 CEQA ruling was appealed and whether any subsequent action affected Water Project approvals.
- Cash burn and funding runway relative to management’s estimate through Q1 2015, including any financing completed after the reporting date.
- Debt principal, carrying value, maturity terms, accrued interest, and financing requirements for the Water Project.
- Progress in converting water-provider options into definitive agreements and securing required permits, project financing, and construction commitments.
- Potential dilution or asset dispositions if additional capital is required.