Alico, Inc. Form 10-Q Summary
Business context and reporting period
Alico is a Florida agribusiness and land-management company with approximately 121,000 acres of land and 90,000 acres of mineral rights. Its principal segments are Citrus Groves, Agricultural Supply Chain Management, Improved Farmland, Ranch and Conservation, and Other Operations.
The filing covers the three and nine months ended June 30, 2015, compared with the same periods in 2014. The request metadata identifies “2014 Q3,” but the filing itself is the June 30, 2015 Form 10-Q. Results are seasonal and are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Nine months ended June 30, 2015 | Nine months ended June 30, 2014 |
|---|---|---|---|---|
| Revenue | $68.8 million | $33.9 million | $140.1 million | $89.5 million |
| Gross profit | $19.8 million | $4.6 million | $33.0 million | $17.4 million |
| Income from operations | $16.2 million | $2.3 million | $20.1 million | $9.4 million |
| Net income | $7.8 million | $1.0 million | $18.3 million | $5.0 million |
| Diluted EPS | $0.94 | $0.14 | $2.29 | $0.68 |
| Operating cash flow | Not separately provided in the statements | Not separately provided in the statements | $25.9 million | $14.8 million |
Gross margin was approximately 28.8% for the quarter and 23.6% for the nine-month period, compared with approximately 13.6% and 19.4%, respectively, in the prior comparable periods. The nine-month effective tax rate was 37.4%, compared with 39.2% in 2014.
Cash and cash equivalents declined to $9.7 million at June 30, 2015 from $31.0 million at September 30, 2014. Working capital was $58.6 million, and the current ratio was 3.93. Term loans and lines of credit totaled $209.9 million, compared with $64.8 million at September 30, 2014. The Company reported compliance with all debt covenants.
The Company declared dividends of $0.06 per common share for the quarter and $0.18 per share for the nine-month period.
Material changes versus the prior comparable period
- Revenue increased 103.1% for the quarter and 56.5% for the nine-month period, driven primarily by the Orange-Co citrus acquisition completed in December 2014.
- Citrus Groves revenue increased 142.2% for the quarter and 133.0% for the nine-month period. Orange-Co contributed approximately $34.6 million of quarterly revenue and $72.2 million of nine-month revenue.
- Citrus production increased substantially, with nine-month boxes harvested up 149.6% and pound solids produced up 144.2% on the reported basis. Pro forma production, assuming the acquisition occurred at the beginning of the comparative period, showed boxes harvested up 5.0%, while total pound solids were approximately flat.
- The Company sold approximately 36,000 acres of sugarcane land in November 2014 for approximately $97.9 million. A net gain of approximately $13.6 million was recognized during the nine months, while $29.1 million remained deferred due to continuing involvement and potential post-closing price adjustments.
- Improved Farmland revenue declined 87.2% for the nine-month period because the Company exited sugarcane operations. The segment is no longer material to the business.
- Corporate, general and administrative expense increased 62.4% for the nine-month period, including approximately $5.5 million of professional and legal costs related to acquisitions, dispositions, and mergers.
- Interest expense increased to $5.7 million for the nine-month period from $1.3 million, primarily because of debt incurred for the Orange-Co acquisition.
- The Company completed a common-control merger with Silver Nip Citrus on February 28, 2015 and issued 923,257 common shares. Additional consideration of approximately 115,783 shares was estimated based on harvest proceeds through May 31, 2015; final June harvest pricing remained pending.
Cash flow, debt, liquidity, and outlook
- Nine-month operating cash flow was $25.9 million. Investing activities used $186.0 million, including $283.2 million for citrus acquisitions, partly offset by $97.2 million of sugarcane disposition proceeds. Financing activities provided $138.9 million, including $193.5 million of term-loan proceeds.
- At June 30, 2015, the Company had $55.2 million available for general use under working-capital lines and an additional $25.0 million revolving line of credit available, subject to borrowing conditions.
- The debt facilities include fixed-rate and variable-rate term loans, with substantial maturities extending beyond five years. Approximately $4.5 million of debt was due within one year, and total contractual debt maturities were $209.9 million.
- Management stated that cash on hand, operating cash flow, and available credit are expected to provide sufficient liquidity for at least the next 12 months and over the longer term. This assessment depends on operating performance, access to financing, covenant compliance, and seasonal cash flows.
- An SFWMD water-storage contract provides for reimbursement of implementation costs up to $4.0 million and potential annual operating payments of up to $12.0 million, subject to project compliance, legislative funding, and annual Board approval. State funding for the next fiscal year was not received, creating a risk of delay or termination.
- Management identified weather, citrus disease and pests, water availability, commodity prices, energy and interest rates, labor, land values, financing access, seasonality, restrictive debt covenants, acquisitions, divestitures, and concentrated ownership as material risks.
Unusual items, contingencies, and governance matters
- Adjusted EBITDA was $24.1 million for the quarter and $42.7 million for the nine-month period. Adjusted diluted EPS was $1.25 and $2.12, respectively. These are non-GAAP measures and exclude or adjust for items including transaction costs, acquired citrus inventory fair-value adjustments, consulting payments, and gains or losses on asset sales.
- The Orange-Co acquisition accounting remained preliminary and may be adjusted as valuation and liability analyses are completed.
- The IRS was auditing tax returns for fiscal years 2011 through 2013. The filing reports no reserve for uncertain tax positions at June 30, 2015.
- Two shareholder lawsuits were filed in connection with the Silver Nip merger, alleging fiduciary-duty breaches and related claims. The cases were consolidated in July 2015. Management stated that no current legal proceeding was expected to have a material adverse effect, although the complaints seek damages and other remedies.
- CEO Clayton Wilson, who held an interest in Silver Nip Citrus, is a related party to the common-control merger. The Company also disclosed consulting and separation arrangements with former executives and a proposed shared-services arrangement with an affiliate at an annual cost of approximately $400,000.
- The CFO resigned effective June 1, 2015, and John E. Kiernan was appointed CFO.
Important facts for investors to verify
- Whether the Orange-Co acquisition produces the expected recurring earnings and cash flow after adjusting for acquisition-related costs and fair-value inventory adjustments.
- The sustainability of cash balances and available borrowing capacity given the sharp increase in debt, seasonal working-capital needs, and variable-rate exposure.
- The final number of additional shares issuable to Silver Nip Citrus holders and the effect on dilution and related-party governance.
- The ultimate outcome and potential cost of the consolidated shareholder litigation.
- Whether SFWMD funding is approved and whether the water-storage project generates the disclosed implementation reimbursement and annual payments.
- The effects of citrus disease, weather, crop yields, fruit pricing, and statewide production trends on future margins.
- The potential tax impact of the IRS audit and the remaining deferred gain and post-closing obligations related to the sugarcane land sale.