Alico, Inc. Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2023, filed May 4, 2023. Comparisons are to the corresponding periods ended March 31, 2022. Alico is a Florida agribusiness and land-management company owning approximately 73,000 acres and approximately 90,000 acres of mineral rights. Its segments are Alico Citrus and Land Management and Other Operations.
Financial performance and position
| Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Six months ended March 31, 2023 | Six months ended March 31, 2022 |
|---|---|---|---|---|
| Operating revenue | $21.3 million | $49.6 million | $31.9 million | $65.0 million |
| Gross profit (loss) | $(6.3) million | $4.0 million | $(10.1) million | $5.8 million |
| Income (loss) from operations | $(9.0) million | $1.5 million | $(15.3) million | $0.7 million |
| Net income (loss) | $(8.1) million | $20.6 million | $(11.3) million | $30.7 million |
| Net income (loss) attributable to Alico common stockholders | $(7.8) million | $20.7 million | $(10.9) million | $30.8 million |
| Diluted EPS | $(1.02) | $2.74 | $(1.44) | $4.08 |
Approximate consolidated gross margin was negative 29.7% for the quarter and negative 31.8% for the six-month period, compared with 8.1% and 8.9%, respectively, in the prior-year periods. Operating margin was approximately negative 42.2% for the quarter and negative 48.0% for the six-month period.
- Revenue concentration: Alico Citrus generated $20.9 million, or 98.3% of consolidated revenue, in the quarter. Citrus revenue declined 57.3% year over year in the quarter and 51.1% for the six-month period.
- Production: Six-month total citrus boxes harvested declined 45.2% to 2.3 million, while pound solids produced declined 46.5% to 11.1 million. Early and Mid-Season processed boxes declined 55.0%; Valencia boxes declined 33.4%.
- Cash flow: Operating activities used $7.1 million in the six months ended March 31, 2023, versus $8.8 million provided in the prior-year period. Investing activities used $4.1 million, compared with $26.0 million provided in the prior year, primarily because of lower land-sale proceeds. Financing activities provided $10.5 million, mainly from net revolving-credit borrowings.
- Liquidity: Cash and cash equivalents were $0.1 million at March 31, 2023, versus $0.9 million at September 30, 2022. Working capital was $22.7 million and the current ratio was 2.58 to 1.
- Debt: Principal debt under term loans and lines of credit was $126.3 million, up from $111.6 million at September 30, 2022. This included $103.6 million of term-loan principal and $21.1 million outstanding under the working capital line of credit.
- Availability: Approximately $48.6 million remained available under the $70.0 million working capital line, and the full $25.0 million revolving line of credit was available at March 31, 2023. Outstanding letters of credit reduced working-capital-line availability by approximately $0.2 million.
- Dividends: Cash dividends declared were $0.05 per share for the quarter and $0.10 per share for the six-month period, versus $0.50 and $1.00, respectively, in the prior-year periods.
Material changes versus the prior comparable period
- Hurricane Ian materially reduced crop production through increased fruit drop and an accelerated harvest. Management expects groves may require up to two full seasons or more to recover to pre-hurricane production levels.
- The termination of a third-party grove-management agreement eliminated approximately $7.2 million of revenue and $6.7 million of related expense in the six months ended March 31, 2022; no comparable revenue or expense was recorded in 2023.
- Lower production and higher fertilizer, herbicide, labor, fuel, harvesting and repair costs caused the Alico Citrus segment to report a gross loss of $6.6 million for the quarter and $10.6 million for the six-month period.
- Prior-year results benefited from $26.6 million of quarterly and $35.0 million of six-month gains on land and other asset sales. Current-period gains were $1.6 million and $4.8 million, respectively.
- Interest expense increased to $1.3 million for the quarter and $2.4 million for the six-month period, driven by higher borrowings and higher variable interest rates.
- The working capital line was amended in October 2022 to extend maturity to November 1, 2025 and convert its benchmark from LIBOR to SOFR. Certain principal payments on variable-rate term loans were deferred to maturity under a February 2023 agreement.
Guidance, outlook, risks and unusual items
- The filing does not provide formal financial guidance. Management expects fiscal 2023 Valencia box production and revenue to be lower than fiscal 2022, although it states that long-term damage to the citrus trees has not appeared significant.
- The company began treating citrus trees with oxytetracycline for citrus greening in January 2023 and had treated approximately 10% of its trees by March 31, 2023. Benefits are not expected to be measurable until the fiscal 2024 harvest.
- Alico received approximately $4.8 million of Hurricane Ian crop-insurance proceeds during the six months ended March 31, 2023. In April 2023, it received an additional approximately $8.9 million for crop claims and $0.8 million for property and casualty claims; additional claims remain pending.
- The company recorded a $1.6 million inventory net-realizable-value adjustment related to Hurricane Ian in the six-month period. It had recorded a $14.9 million casualty loss on unharvested crop inventory in fiscal 2022.
- Alico failed to meet the 1.10-to-1.00 minimum debt-service-coverage covenant for the quarter but obtained a waiver from Rabo. It reported compliance with its other financial covenants.
- Management identified continuing material weaknesses in internal control over financial reporting relating to income-tax-provision controls and the evaluation of financial-statement misstatements. Disclosure controls were therefore not effective as of March 31, 2023.
- The company disclosed a securities class action and a shareholder derivative action arising primarily from allegations concerning financial reporting and the December 2022 restatement. Management believes the claims are without merit and does not currently expect a material financial impact, but litigation outcomes remain uncertain.
- Other key risks include hurricanes and weather, citrus greening and disease, commodity and product pricing, labor and input costs, water and environmental regulation, variable-rate debt, debt-service capacity, seasonality, real-estate markets, and the company’s ability to continue paying dividends.
Most important facts for investors to verify
- Whether Hurricane Ian insurance recoveries and any future federal relief offset the expected multi-season production decline.
- The pace of citrus-grove recovery, fiscal 2023 Valencia production, and the effectiveness of the oxytetracycline treatment.
- Compliance with debt covenants after the disclosed waiver, the level of working-capital-line borrowings, and exposure to higher SOFR-based interest rates.
- Progress in remediating the two material weaknesses and whether further restatements, investigations or litigation costs arise.
- The sustainability of operating cash flow and dividends given cash of only $0.1 million, six-month operating cash outflows, and reliance on credit facilities and asset sales.
- The ultimate outcome of pending Hurricane Ian claims and the Sinder and Assad legal proceedings.