Alico, Inc. Form 10-Q Summary
Reporting period: Quarterly and six-month periods ended March 31, 2020, compared with March 31, 2019. Although the request identifies “2019 Q2,” the filing is for fiscal 2020 second quarter. Alico is a Florida agribusiness and land-management company owning approximately 110,000 acres, including approximately 90,000 acres of mineral rights. Its segments are Alico Citrus and Water Resources and Other Operations.
Key Financial Metrics
| Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Six months ended March 31, 2020 | Six months ended March 31, 2019 |
|---|---|---|---|---|
| Operating revenue | $50.5 million | $48.5 million | $61.5 million | $63.3 million |
| Gross profit | $6.6 million | $16.3 million | $12.2 million | $19.5 million |
| Gross margin | 13.1% | 33.6% | 19.9% | 30.8% |
| Income from operations | $3.7 million | $11.7 million | $6.5 million | $11.4 million |
| Net income attributable to Alico common stockholders | $3.6 million | $7.5 million | $4.4 million | $5.1 million |
| Diluted EPS | $0.48 | $1.01 | $0.58 | $0.68 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $11.7 million | $6.1 million |
Second-quarter revenue increased 4.1%, but gross profit declined 59.4% and operating income declined 68.6%. Six-month revenue declined 2.8%, gross profit declined 37.3%, and operating income declined 42.8%. The six-month net income decline was 9.9%, partly because lower interest expense, a gain on asset sales and the absence of a prior-year derivative loss offset weaker citrus margins.
Financial Condition, Cash Flow and Debt
- Cash and cash equivalents were $80.4 million at March 31, 2020, compared with $18.6 million at September 30, 2019. Cash plus restricted cash was $84.1 million versus $23.8 million.
- Working capital increased to $92.5 million from $33.0 million; the current ratio improved to 4.91 from 2.14.
- Total assets were $472.3 million, compared with $417.4 million at September 30, 2019. Stockholders’ equity was $203.1 million.
- Principal debt, including lines of credit, increased to $220.3 million from $163.4 million. This included $66.7 million outstanding on revolving facilities, versus none at September 30, 2019.
- In March 2020, the Company drew $70.0 million as a precautionary liquidity measure related to COVID-19: $20.0 million on the revolving line of credit and $50.0 million on the working-capital line.
- Remaining availability was approximately $5.0 million under the revolving line and $22.9 million under the working-capital line, after approximately $399,000 of letters of credit.
- Six-month investing cash outflows were $7.0 million, including $10.0 million of capital expenditures. Financing activities provided $55.5 million, primarily from revolving-credit borrowings.
- Management stated that cash on hand, operating cash flow, asset sales and available credit should provide sufficient liquidity for at least the next twelve months. The Company was in compliance with its debt covenants at March 31, 2020.
Material Changes Versus Prior Period
- Alico Citrus revenue increased 4.1% in the quarter but declined 2.8% for six months. Valencia revenue rose 37.7% for both periods, while Early and Mid-Season revenue declined approximately 20%.
- Harvested boxes increased 34.3% in the quarter and 23.3% for six months, but prices per pound solids fell materially: Early and Mid-Season pricing declined 28.6% in the quarter and 26.0% for six months; Valencia pricing declined 20.9% in both periods.
- Citrus gross profit fell to $6.3 million from $16.2 million in the quarter and to $11.6 million from $19.3 million for six months. Higher harvesting and hauling costs and lower market prices were key factors.
- General and administrative expense declined 36.5% in the quarter and 29.5% for six months, largely due to lower professional fees, consulting and separation costs, and rent expense.
- The Company recognized a $2.8 million gain on the March 2020 sale of certain East Ranch sections. Net proceeds were approximately $3.0 million.
- Hurricane Irma relief proceeds of approximately $4.6 million were received during the six months and recorded as a reduction of operating expenses. The timing and amount of any remaining Part 3 funding had not been finalized.
- The Company prepaid the $4.5 million Pru Note F in November 2019, reducing required annual principal payments by approximately $220,000.
- The Board increased the quarterly dividend to $0.09 per share from $0.06 per share in the comparable quarter.
Outlook, Risks and Unusual Items
- Management reported no adverse COVID-19 impact through the filing date and expected the pandemic not to affect the remainder of the harvest season, anticipated to conclude in mid-May 2020. However, the filing identifies material risks involving customer operations, labor, trucking, agricultural inputs, supply chains and broader economic disruption.
- Management expected citrus market prices to remain pressured during the remainder of the 2019–20 season because of excess domestic and international supply. It anticipated lower Valencia boxes and revenue because of increased fruit drop and smaller fruit size.
- Management noted that increased consumption of not-from-concentrate orange juice could reduce inventories and support improved pricing in the 2020–21 harvest season; this is not a formal earnings forecast.
- The business is seasonal, with the second and third fiscal quarters generally producing most annual revenue. Quarterly results may not indicate full-year performance.
- Key operating risks include citrus greening and other diseases, weather, crop yields, commodity prices, water availability, labor, interest rates, debt covenant compliance, land values and governmental approvals for the water-storage project.
- The Company had approximately $2.3 million of commitments for citrus-tree purchases and $399,000 of outstanding standby letters of credit. No material adverse legal proceedings were reported.
- On May 4, 2020, after quarter-end, the Company purchased 334 acres of citrus grove property for approximately $2.9 million to facilitate like-kind reinvestment of East Ranch sale proceeds and defer substantially the related tax impact.
Investor Verification Checklist
- Verify the effect of lower citrus pricing, fruit drop and smaller fruit size on full-year production, margins and cash flow.
- Monitor COVID-19 effects on customers, labor, harvesting, transportation, agricultural inputs and demand.
- Assess the sustainability of liquidity after the $70.0 million revolving-credit draw and the resulting increase in interest expense.
- Review debt maturities, variable-rate exposure to LIBOR transition, borrowing availability and covenant compliance.
- Separate recurring operating performance from Hurricane Irma relief proceeds and the $2.8 million East Ranch gain.
- Confirm the timing and amount of any remaining Hurricane Irma Part 3 funding and annual approvals for the water-storage contract.
- Evaluate dividend sustainability in light of seasonal working-capital needs, capital expenditures and higher debt.