Alico, Inc. Form 10-Q Summary
Business context and reporting period
Alico, Inc. is a Florida agribusiness and land management company owning approximately 103,000 acres and holding mineral rights on approximately 90,000 acres. Its two operating segments are Alico Citrus and Land Management and Other Operations. This unaudited Form 10-Q covers the three months ended December 31, 2020, compared with the three months ended December 31, 2019. The company had 7,513,413 common shares outstanding as of February 2, 2021.
Key financial metrics
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Total revenue | $13.732 million | $11.005 million | +24.8% |
| Gross profit | $5.397 million | $5.614 million | -3.9% |
| Gross margin | 39.3% | 51.0% | Down 11.7 percentage points |
| Income from operations | $2.869 million | $2.854 million | +0.5% |
| Operating margin | 20.9% | 25.9% | Down 5.0 percentage points |
| Net income attributable to Alico common stockholders | $3.845 million | $0.791 million | +$3.054 million |
| Basic and diluted EPS | $0.51 | $0.11 | +$0.40 |
| Net cash used in operating activities | $5.109 million | $6.043 million | Use improved by $0.934 million |
Alico Citrus generated $12.926 million of revenue, up 27.0%, while Land Management and Other Operations generated $0.806 million, down 2.9%. Citrus segment gross profit declined 10.4% to $4.779 million, while Land Management gross profit increased 121.5% to $0.618 million.
The increase in net income was driven largely by a $3.364 million gain on sales of real estate, property and equipment and assets held for sale, compared with a $0.025 million gain in the prior-year quarter. Interest expense declined to $1.189 million from $1.544 million.
Cash dividends declared increased to $0.18 per share from $0.09 per share.
Material changes versus the prior comparable period
- Revenue growth primarily reflected approximately $3.092 million of grove management services revenue, compared with $0.305 million in the prior-year quarter. A new agreement covering approximately 7,000 third-party acres contributed approximately $2.869 million of revenue and $2.631 million of related operating expense.
- Early and Mid-Season citrus revenue increased 2.7% despite a 10.8% decline in boxes harvested, because price per pound solids increased 20.3% to $2.25. Pound solids produced declined 14.9%, and pound solids per box declined 4.7%.
- Fresh fruit revenue declined 44.4%, while fresh fruit boxes harvested declined 49.5%.
- Citrus operating expenses increased 68.3%, primarily because of the new third-party grove management services arrangement. The company also received $4.136 million of Hurricane Irma-related Florida Citrus Recovery Block Grant proceeds in the quarter, recorded as a reduction of operating expenses, compared with $4.466 million in the prior-year quarter.
- Land Management expenses declined 65.9%, primarily because the company stopped pursuing its dispersed water storage project following the sale of relevant ranch acreage.
- General and administrative expense declined 8.4% to $2.528 million, principally due to lower payroll and pension expense.
- The company purchased approximately 3,280 gross acres in Hendry County for $16.450 million on October 30, 2020.
Cash flow, debt and liquidity
- Operating cash flow was negative $5.109 million, reflecting seasonal working-capital needs, including a $5.575 million increase in inventories.
- Investing cash flow was negative $17.876 million, including $16.450 million for the citrus grove acquisition and $5.062 million of property and equipment purchases, partially offset by $3.425 million of asset-sale proceeds.
- Financing cash flow was positive $5.899 million. The company borrowed $23.449 million and repaid $14.187 million on revolving credit lines, paid $2.689 million of term-loan principal and paid $0.674 million of dividends.
- Cash and cash equivalents declined to $2.601 million from $3.163 million. Restricted cash of $16.524 million at September 30, 2020 was used in October 2020 to purchase a like-kind asset; total cash and restricted cash declined from $19.687 million to $2.601 million.
- Working capital increased to $39.781 million from $30.741 million, and the current ratio improved to 3.21-to-1 from 2.45-to-1.
- Principal outstanding on term loans and lines of credit was $157.766 million at December 31, 2020, compared with $151.193 million at September 30, 2020. This included $145.562 million of long-term debt principal and $12.204 million drawn on lines of credit.
- Available credit included approximately $57.560 million under the working capital line and $25.000 million under the revolving line. The company was in compliance with its financial covenants at December 31, 2020.
- Future debt maturities totaled $157.766 million, including $9.090 million due within one year. Debt facilities are secured by real property, current assets or other collateral and include LIBOR-based interest rates.
Outlook, commentary, risks and unusual items
Management stated that cash on hand, operating cash flow, asset sales and available credit are expected to provide sufficient liquidity for at least the next twelve months and over the long term. Management also cautioned that significant growth opportunities could materially reduce cash balances and require additional debt or equity financing.
The USDA projected a 19.8% decline in Florida’s 2020-21 orange crop. Alico expects its Early and Mid-Season crop decline to be approximately 20% to 25%, citing higher fruit drop and lower fruit quality. The business is seasonal, with the majority of annual revenue historically generated in the second and third fiscal quarters.
Alico reported no material adverse impact from COVID-19 through the filing date, but identified potential effects on demand, supply chains, labor availability, contractors and competitors. Other material risks include weather, citrus greening and citrus canker, pests, water availability, citrus pricing, agricultural land values, interest rates, debt-service requirements, financing availability, restrictive covenants, government land-use policies and changes in farm programs.
The State of Florida approved an option agreement under the Florida Forever program for the potential purchase of approximately 5,804 acres for approximately $14.6 million, subject to adjustments and exercise within the specified option period. The filing does not establish that the option was exercised by the reporting date.
The company had approximately $2.955 million of outstanding commitments for citrus tree purchases and approximately $0.236 million of standby letters of credit. Management reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
The company is evaluating the transition from LIBOR to alternative reference rates. It adopted several accounting updates effective October 1, 2020, with no material impact reported.
Important facts for investors to verify
- Whether the Florida Forever option for approximately 5,804 acres was exercised, extended or terminated after December 31, 2020.
- The sustainability of earnings excluding the $3.364 million real-estate gain and the $4.136 million Hurricane Irma-related relief reimbursement.
- The effect of the expected 20% to 25% citrus crop decline, fruit drop, lower pound solids per box and commodity pricing on full-year results.
- Whether increased third-party grove management revenue produces adequate margin, given management’s statement that its gross margin is lower than citrus production margins.
- Liquidity after the $16.450 million grove acquisition, the $12.204 million revolving-line balance and the $9.090 million of debt due within one year.
- Compliance with debt covenants and the availability of refinancing or additional financing if operating cash flow remains negative during seasonal periods.
- Future effects of LIBOR discontinuation on variable-rate debt and loan agreements.
- Continuation of the increased $0.18-per-share dividend policy, which management identifies as a forward-looking risk.