Alico, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2022, compared with the corresponding 2021 periods. The filing is for fiscal 2022 Q3, despite the request metadata indicating 2021 Q3. Alico owns approximately 74,000 acres of land and 90,000 acres of mineral rights in Florida and operates through Alico Citrus and Land Management and Other Operations.
Financial Results
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Nine months ended June 30, 2022 | Nine months ended June 30, 2021 |
|---|---|---|---|---|
| Operating revenue | $25.9 million | $34.9 million | $90.9 million | $104.6 million |
| Gross profit | $1.3 million | $8.5 million | $7.1 million | $24.1 million |
| Income from operations | $(1.2) million | $6.6 million | $(0.6) million | $17.0 million |
| Net income attributable to Alico common stockholders | $2.7 million | $27.1 million | $33.5 million | $35.8 million |
| Diluted EPS | $0.36 | $3.61 | $4.44 | $4.77 |
| Cash dividends per share | $0.50 | $0.50 | $1.50 | $0.86 |
- Gross margin declined to approximately 5.1% from 24.4% in the quarter and to 7.8% from 23.1% for the nine-month period.
- Operating margin was approximately negative 4.8% versus 18.9% in the quarter and negative 0.6% versus 16.3% for the nine-month period.
- Net margin attributable to Alico common stockholders was approximately 10.4% versus 77.7% in the quarter and 36.9% versus 34.3% for the nine-month period. The comparison was significantly affected by gains on land sales.
- Net cash provided by operating activities was $10.8 million for the nine months, down from $33.6 million. Investing activities provided $27.5 million, principally from land-sale proceeds, while financing activities used $29.7 million.
Financial Position, Debt and Liquidity
- Cash and cash equivalents were $6.9 million and restricted cash was $2.7 million at June 30, 2022, compared with $0.9 million of cash and no restricted cash at September 30, 2021.
- Working capital was $31.1 million, compared with $32.6 million at September 30, 2021; the current ratio was 2.47 to 1.
- Total assets were $433.6 million and total stockholders’ equity was $271.0 million.
- Principal term debt declined to $107.5 million from $126.3 million. The company prepaid approximately $15.6 million of a variable-rate term loan, which was fully satisfied after a scheduled payment.
- No amounts were outstanding on the $25.0 million revolving line of credit or the $70.0 million working capital line. Availability was approximately $25.0 million and $69.6 million, respectively, subject to borrowing conditions and approximately $0.4 million of letters of credit.
- Management stated that cash on hand, operating cash flow, asset-sale proceeds and available credit are expected to provide sufficient liquidity for at least the next twelve months. The company was in compliance with its debt covenants at June 30, 2022.
Material Changes Versus the Prior Comparable Period
- Total revenue declined 25.7% in the quarter and 13.1% for the nine months. Alico Citrus revenue declined 25.5% and 12.8%, respectively.
- Processed boxes harvested declined 19.9% in the quarter and 13.5% for the nine months. Pound solids produced declined 23.1% and 19.2%, respectively.
- Valencia revenue declined 22.6% in the quarter and 15.1% for the nine months. Management attributed lower production to fruit drop, disease and weather, including a late-January 2022 freeze.
- Grove management revenue declined 31.4% in the quarter and 14.6% for the nine months. A primary third-party grove owner terminated its agreement after exiting the citrus business; related services ceased June 10, 2022.
- Operating expenses declined 6.4% in the quarter but increased 4.4% for the nine months. Higher fertilizer and fuel costs and lower federal relief proceeds affected the nine-month comparison.
- General and administrative expense increased 33.8% in the quarter and 8.3% for the nine months, partly reflecting legal expense comparisons, stock compensation and employee vaccination incentives.
- Land-sale gains were $5.8 million in the quarter and $40.8 million for the nine months, compared with $30.3 million and $33.6 million, respectively, in the prior-year periods. These gains materially affected reported earnings.
Outlook, Risks and Unusual Items
- The business is seasonal, with most annual revenue historically generated in the second and third fiscal quarters. Quarterly results are therefore not necessarily indicative of full-year performance.
- Management expects the terminated grove-management relationship to reduce related revenue and reimbursed expenses unless replacement contracts are obtained.
- Inflation, fuel and fertilizer costs, labor and supply-chain constraints, the conflict in Ukraine, citrus disease, weather, water availability, commodity prices and changing interest rates are identified risks.
- The company expects to transition debt instruments referencing one- and three-month LIBOR to an alternative benchmark, potentially SOFR, during fiscal 2023. The financial impact was not yet clear.
- The company received $1.1 million of remaining Hurricane Irma-related crop insurance reimbursement during the nine months and expects to receive the remaining estimated amount in fiscal 2023.
- A below-market sale of 1,638 acres to the State of Florida generated a tax benefit. A charitable-contribution tax benefit of approximately $4.9 million was recognized after a valuation allowance.
- The CFO resigned effective May 31, 2022 for personal reasons and agreed to provide consulting services through December 31, 2022. The company was recruiting a successor.
- There were no material legal proceedings reported, no defaults, and no material changes in disclosure controls. Management stated that COVID-19 had not caused material adverse impacts to date, while warning that a resurgence could affect operations.
Investor Verification Checklist
- Verify that the relevant filing period is the quarter ended June 30, 2022 rather than 2021 Q3.
- Assess the sustainability of earnings excluding approximately $40.8 million of nine-month land-sale gains and related tax effects.
- Monitor citrus yields, pound solids per box, pricing, disease and weather impacts following the 2022 freeze.
- Determine whether replacement third-party grove-management contracts can offset the terminated relationship.
- Review debt maturities, LIBOR replacement terms, variable-rate exposure and compliance with financial covenants.
- Evaluate liquidity after dividends, capital expenditures, citrus-tree purchase commitments of approximately $6.3 million and future land-sale activity.