Alico, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2023, compared with the corresponding 2022 periods. The filing is for fiscal 2023 third quarter, despite the request metadata referencing 2022 Q3. Alico is a Florida agribusiness and land-management company with approximately 72,000 acres of land and 90,000 acres of mineral rights. Its two operating segments are Alico Citrus and Land Management and Other Operations.
Key financial metrics
| Metric | Three months ended June 30 | Nine months ended June 30 | ||
|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |
| Operating revenue | $7.3 million | $25.9 million | $39.2 million | $90.9 million |
| Gross profit | $15.5 million | $1.3 million | $5.4 million | $7.1 million |
| Income from operations | $12.6 million | $(1.2) million | $(2.7) million | $(0.6) million |
| Net income attributable to Alico | $11.8 million | $2.7 million | $0.9 million | $33.5 million |
| Diluted EPS | $1.56 | $0.36 | $0.12 | $4.44 |
| Operating cash flow | Not separately provided | Not separately provided | $(0.6) million | $10.8 million |
| Cash and cash equivalents | $1.6 million | $0.9 million at September 30, 2022 |
Reported three-month gross margin was approximately 213% and operating margin approximately 173%, reflecting approximately $16.6 million of Hurricane Ian crop-insurance proceeds recorded as a reduction of operating expenses. Nine-month gross margin was approximately 14% and operating margin approximately negative 7%. These margins are not representative of normalized agricultural operations.
Material changes versus the prior comparable period
- Total revenue declined 71.9% in the quarter and 56.9% for the nine-month period. Alico Citrus revenue declined 73.7% and 57.5%, respectively.
- Hurricane Ian materially reduced citrus production. Nine-month processed boxes declined 51.4%, pound solids produced declined 53.8%, and pound solids per box declined 3.9% versus 2022.
- The company completed the 2023 Early and Mid-Season and Valencia harvests earlier than usual to limit fruit drop. Management expects groves may require up to two full seasons or more to recover to pre-hurricane production levels.
- Grove-management revenue from a major third-party customer fell to zero for the nine-month period from $11.7 million in 2022 after the customer exited the citrus business.
- Despite lower production, citrus gross profit increased to $15.0 million in the quarter from $1.0 million, primarily because of crop-insurance proceeds, inventory effects and relief proceeds. Nine-month citrus gross profit declined to $4.4 million from $5.9 million.
- Land-management revenue increased 41.2% in the quarter but declined 22.1% for the nine-month period, primarily because ranch sales reduced acreage subject to grazing and hunting leases.
- Interest expense increased to $1.2 million for the quarter and $3.6 million for the nine-month period, from $0.9 million and $2.6 million, respectively, due to higher variable rates and increased working-capital borrowings.
- Land-sale gains were $2.6 million in the quarter and $7.4 million for the nine-month period, versus $5.8 million and $40.8 million, respectively, in the prior-year periods.
Cash flow, debt and liquidity
- For the nine months, operating cash flow was $(0.6) million, investing cash flow was $(5.7) million and financing cash flow was $7.1 million. Cash increased by $0.7 million to $1.6 million.
- Working capital increased to $32.3 million from $15.1 million at September 30, 2022; the current ratio improved to 3.10 from 1.91.
- Total principal amount of term loans and lines of credit was $122.8 million at June 30, 2023, compared with $111.6 million at September 30, 2022. The increase primarily reflects higher WCLC borrowings.
- The $70 million working-capital line had $17.9 million outstanding and approximately $51.8 million available. The $25 million revolving line had no borrowings and was fully available. Outstanding letters of credit were approximately $0.2 million.
- Variable-rate debt was based on SOFR following the transition from LIBOR. Reported rates at June 30, 2023 included 7.37% on the Met variable-rate term loans and revolving line and 7.66% on the WCLC.
- 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. The company was in compliance with its debt covenants at June 30, 2023.
- Capital expenditures were $12.9 million for the nine-month period. Citrus-tree purchase commitments totaled approximately $4.4 million.
Outlook, risks and unusual items
- Management expects continued effects from Hurricane Ian, citrus greening, weather, natural disasters, labor and input-cost inflation. The company reported higher fertilizer, herbicide, labor and fuel costs.
- The company received approximately $21.4 million of Hurricane Ian crop-insurance proceeds through June 30, 2023 and an additional $0.3 million in July 2023. It also received approximately $1.3 million of remaining Hurricane Irma recovery-grant proceeds during the nine-month period.
- Alico began applying oxytetracycline to address citrus greening and had treated more than 35% of its trees by June 30, 2023. The financial benefit will not be measurable until completion of the fiscal 2024 harvest.
- Details and eligibility for potential federal Hurricane Ian relief remained unclear. No specific relief amount was recognized for that program.
- The company recorded a prior-period deferred-tax correction that increased retained earnings by approximately $2.5 million. Certain 2022 equity balances are presented as restated.
- Disclosure controls were not effective because two material weaknesses continued: controls over the completeness and accuracy of income-tax provision information and controls over evaluating misstatements and their financial-statement impact. Management has implemented a remediation plan, but the weaknesses are not yet considered remediated.
- A securities class action and a related shareholder derivative action allege reporting and fiduciary-duty violations related to the company’s prior financial-statement restatement. Proceedings were stayed pending a motion to dismiss; management believes the claims are without merit and does not currently expect a material adverse effect.
- The company sold approximately 548 acres during the quarter for $2.7 million and recognized a gain of approximately $2.6 million. It also sold approximately 85 acres to its chief executive officer for approximately $0.4 million under a previously disclosed option arrangement.
Important facts for investors to verify
- Whether citrus production and grove economics recover as expected after Hurricane Ian and citrus greening.
- The sustainability of reported profitability excluding crop-insurance proceeds, federal relief, land-sale gains and other unusual items.
- Future interest expense and liquidity under higher SOFR-based borrowing rates and increased working-capital debt.
- Progress in remediating the two material weaknesses and any effects of the prior restatement or related litigation.
- The timing and amount of potential federal Hurricane Ian relief and the company’s eligibility for such programs.
- Whether the company can maintain dividends while operating cash flow is negative and capital requirements remain elevated.