Alico, Inc. Form 10-Q Summary
Business Context and Reporting Period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 117,000 acres, including approximately 90,000 acres of mineral rights. Operations are reported through Alico Citrus and Water Resources and Other Operations. This unaudited filing covers the three months ended December 31, 2018, compared with the three months ended December 31, 2017. Results are seasonal, with the second and third fiscal quarters typically producing most annual revenue.
Key Financial Metrics
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Total revenue | $14.779 million | $17.533 million |
| Gross profit | $3.182 million | $0.582 million |
| Gross margin | 21.5% | 3.3% |
| Loss from operations | $0.268 million | $3.304 million |
| Operating margin | (1.8%) | (18.8%) |
| Net loss attributable to Alico common stockholders | $2.467 million | Net income of $8.746 million |
| Basic and diluted earnings per share | $(0.33) | $1.06 basic; $1.05 diluted |
| Cash dividends declared per share | $0.06 | $0.06 |
| Cash used in operating activities | $12.001 million | $9.689 million |
Alico Citrus revenue declined 18.6% to $13.897 million, while Water Resources and Other Operations revenue increased 94.3% to $0.882 million. Total gross profit improved primarily because citrus operating expenses declined 33.3% to $10.874 million. General and administrative expense decreased 11.2% to $3.450 million.
At December 31, 2018, cash and cash equivalents were $0.272 million and restricted cash was $7.002 million, for total cash and restricted cash of $7.274 million, compared with $32.260 million at September 30, 2018. Working capital was $27.470 million, down from $49.563 million. The current ratio declined to 1.97 from 3.31.
Principal debt, including term loans and lines of credit, was $193.956 million at December 31, 2018, compared with $177.034 million at September 30, 2018. Long-term debt principal, net of the current portion, was $166.342 million, and lines of credit outstanding were $22.314 million. Approximately $37.426 million was available under the working capital line and $25.000 million was available under the revolving line. The Company was in compliance with its financial covenants.
Investing activities used $3.884 million, including $3.458 million of capital expenditures. Financing activities used $9.101 million, including $25.576 million for the tender offer, partially offset by $26.577 million of revolving-line borrowings. Capital expenditures included $2.971 million for citrus tree development.
Material Changes Versus the Prior Comparable Period
- Total revenue decreased $2.754 million, or 15.7%, primarily because the current harvest season commenced later than the prior-year season.
- Alico Citrus harvested 1.097 million boxes, down 14.8%, and produced 5.138 million pounds of solids, down 15.3%. Early and Mid-Season price per pound solid declined 10.6% to $2.27, partly offset by a 3.4% increase in pounds solids per box.
- Citrus gross profit increased to $3.023 million from $0.784 million as operating expenses fell more rapidly than revenue.
- Water Resources and Other Operations generated $0.159 million of gross profit versus a $0.202 million gross loss, helped by a long-term grazing lease following the sale of the cattle herd in January 2018.
- Net results deteriorated from $8.746 million of attributable income to a $2.467 million attributable loss. The prior-year period benefited from an approximately $11.3 million non-cash tax benefit related to the Tax Cuts and Jobs Act and an approximately $1.8 million gain on the sale of the corporate office building.
- Cash used in operations increased by $2.312 million, reflecting the net loss and unfavorable working-capital changes, including reductions in accounts payable and accrued expenses.
- The Company repurchased 752,234 shares for $25.576 million in an October 2018 tender offer, reducing outstanding shares by approximately 9.2% from the pre-offer amount.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management increased its estimate for fiscal 2019 processed-box growth to approximately 52%–58% over fiscal 2018, compared with its previous estimate of 31%–37%. Management expects Early and Mid-Season harvesting to continue later in the fiscal year.
- The Company believes its Alico 2.0 modernization program could achieve approximately $2,164 of citrus total expenses per acre and $1.56 cost per pound solid when fully implemented in 2020. Management states that cost savings are not assured.
- The Company planted more than 400,000 trees in fiscal 2018 and intends to plant more than 400,000 in fiscal 2019. It believes current acreage could produce 10 million boxes annually on a sustained basis, including in an environment affected by citrus greening.
- Risks include hurricanes and other weather, citrus greening and pests, crop yields and prices, seasonality, water-supply restrictions, interest rates, debt covenant compliance, financing availability, agricultural land values, labor, government programs, tariffs and trade restrictions, and the ability to obtain annual funding approvals for water-retention projects.
- The South Florida Water Management District project could provide reimbursement of up to $4.0 million for implementation and annual payments of up to $12.0 million for operations and maintenance, subject to approvals, funding, permits, and other conditions. The filing does not establish that future annual payments are assured.
- Adoption of ASC 610-20 on October 1, 2018 increased opening retained earnings by $14.617 million and replaced the previously reported deferred gain on the sugarcane-land sale with derivative accounting. The Company recorded a $0.956 million fair-value loss in the quarter.
- Outstanding standby letters of credit totaled approximately $10.260 million, and citrus-tree purchase commitments totaled approximately $3.516 million at December 31, 2018.
- On February 11, 2019, after the reporting period, litigation involving President and CEO Remy Trafelet and shareholder-control matters was settled. Trafelet resigned as president, CEO, and director, and the Company entered into a consulting arrangement with an annual fee of $0.400 million for up to 24 months. Related options were generally forfeited, subject to limited vesting provisions.
- Management states that cash on hand, operating cash flow, asset sales, and borrowing availability should provide liquidity for at least the next twelve months, but the filing cautions that additional financing may be needed for significant growth or corporate opportunities.
Important Facts for Investors to Verify
- Whether projected fiscal 2019 production growth of 52%–58% is achieved and whether citrus prices and yields support improved profitability.
- The sustainability and timing of Alico 2.0 cost savings and the impact of citrus greening, weather, and harvest timing.
- Liquidity after the $25.576 million tender offer, including continued reliance on the working capital line and revolving credit facility.
- Debt maturities, interest-rate exposure, covenant compliance, and the approximately $10.260 million of outstanding letters of credit.
- The final economic effect of the sugarcane-land post-closing termination agreement and the $11.300 million escrow payment obligation described in the filing.
- The consequences of the February 2019 management and shareholder litigation settlements, including the consulting obligation, registration rights, and changes in governance or ownership concentration.
- Whether annual water-retention payments and potential Hurricane Irma relief or insurance proceeds are ultimately approved and received.