Alico, Inc. — Form 10-Q Summary
Business context and reporting period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 111,000 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, 2019, compared with the three months ended December 31, 2018.
Key financial metrics
| Metric | Q1 FY2020 | Q1 FY2019 | Change |
|---|---|---|---|
| Operating revenue | $11.005 million | $14.779 million | Down 25.5% |
| Gross profit | $5.614 million | $3.182 million | Up 76.4% |
| Gross margin | 51.0% | 21.5% | Up 29.5 percentage points |
| Income from operations | $2.854 million | $(0.268) million | Improved $3.122 million |
| Net income attributable to Alico stockholders | $0.791 million | $(2.467) million | Improved $3.258 million |
| Diluted earnings per share | $0.11 | $(0.33) | Improved $0.44 |
| Cash used in operating activities | $(6.043) million | $(12.001) million | Improved $5.958 million |
Alico Citrus revenue declined 26.8% to $10.175 million, while segment gross profit increased 76.5% to $5.335 million. Water Resources and Other Operations revenue declined 5.9% to $0.830 million, while gross profit increased 75.5% to $0.279 million.
At December 31, 2019, cash and cash equivalents were $5.546 million and restricted cash was $0.719 million. Working capital was $30.662 million, compared with $27.470 million at December 31, 2018. The current ratio was 2.33 to 1. Principal debt was $156.317 million, consisting primarily of term loans; no amounts were outstanding under the revolving credit facilities. Available borrowing capacity was approximately $69.6 million under the working capital line and $25.0 million under the revolving line.
Total assets were $405.069 million and total stockholders’ equity was $199.688 million at December 31, 2019. Capital expenditures were $3.541 million, primarily for citrus trees. Dividends declared were $0.09 per share, compared with $0.06 per share in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue decreased principally because citrus prices weakened amid excess domestic and international supply, and harvesting began later than in the prior year.
- Early and mid-season pound-solids prices declined 17.6% to $1.87, while fresh-fruit price per box declined 58.1% to $7.74. Total boxes harvested declined 11.1%, although pound solids per box increased 6.8%.
- Gross profit benefited substantially from approximately $4.466 million of Florida Citrus Recovery Block Grant proceeds related to Hurricane Irma, recorded as a reduction of operating expenses. The timing and amount of any remaining Part 3 proceeds had not been finalized.
- General and administrative expense declined 20.0% to $2.760 million, reflecting lower professional fees, lower rent following the nonrenewal of a New York office lease, and lower stock compensation expense.
- Other expense, net decreased to $1.595 million from $2.864 million. The prior-year period included a $0.956 million loss from changes in derivative fair value; interest expense also declined by approximately $0.373 million.
- Cash used in financing activities was $7.841 million, including $7.132 million of term-loan principal repayments and $0.238 million of treasury-stock purchases. In November 2019, the Company prepaid the $4.455 million Pru Note F.
- In October 2019, the revolving line of credit maturity was extended from November 1, 2019 to November 1, 2029. The Company was in compliance with its financial covenants at quarter-end.
- Alico adopted the new lease accounting standard on October 1, 2019, recognizing operating lease right-of-use assets and liabilities. The filing states that other pending accounting standards are not expected to have a material impact.
Guidance, outlook, commentary, risks and unusual items
Management expects production to meet the pounds solids delivered in the prior fiscal year, but anticipates that reduced citrus market prices may continue through the 2019–20 harvest season. The USDA projected Florida orange production of approximately 74.0 million boxes for the season, up from approximately 71.8 million boxes, while management attributed continued pricing pressure to excess supply.
Management believes cash on hand, operating cash flow, asset sales and available credit will provide sufficient liquidity for at least the next twelve months and over the long term. However, first-quarter cash flow is seasonally pressured by harvesting and working-capital requirements, and cash flows generally improve in the second and third fiscal quarters.
Key risks include citrus price and yield volatility, weather, citrus greening and other diseases, pests, water-supply disruptions, labor and input costs, interest-rate exposure, debt obligations and covenants, availability of financing, agricultural land values, regulatory and permitting requirements, and uncertainty over future Hurricane Irma relief and South Florida water-storage funding. The Company is evaluating the transition from LIBOR to alternative reference rates.
Unusual or potentially nonrecurring items include the $4.466 million Hurricane Irma relief proceeds, $0.088 million of citrus-tree impairment, $0.087 million of right-of-use-asset impairment, and the prior-year $0.956 million derivative fair-value loss. The Company had approximately $1.922 million of outstanding citrus-tree purchase commitments and approximately $0.399 million of standby letters of credit.
Important facts for investors to verify
- Whether citrus prices, fresh-fruit pricing and harvest volumes continue to pressure revenue and whether production reaches management’s expectation.
- The timing and amount, if any, of remaining Part 3 Florida Citrus Recovery Block Grant proceeds.
- Liquidity and covenant compliance in light of $156.317 million of principal debt and negative operating cash flow in the quarter.
- The sustainability of improved margins after excluding or normalizing Hurricane Irma relief proceeds.
- Progress, approvals, funding and annual payment authorization for the South Florida Water Management District water-storage project.
- Effects of the LIBOR transition on variable-rate debt and borrowing costs.
- Potential effects of the distribution of 3.173 million shares by former largest shareholder 734 Investors on ownership, trading liquidity and stock price.
- Seasonal results should not be annualized from this quarter; the filing states that the second and third fiscal quarters historically generate most annual revenue.