Cadiz Inc. — FY2023 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2023; it is not a quarterly report. Cadiz is developing water supply, groundwater storage and conveyance assets in California’s Mojave Desert, and operates ATEC, a water-filtration business, alongside agricultural activities. Its planned water projects had not yet generated significant revenue at year-end.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $2.0 million | $1.5 million |
| Cost of sales | $2.9 million | $2.1 million |
| Operating loss | $20.9 million | $16.6 million |
| Net loss | $31.4 million | $24.8 million |
| Net loss per common share | $0.56 | $0.60 |
| Cash used in operations | $20.9 million | $18.6 million |
| Cash used in investing | $5.8 million | $4.1 million |
- Revenue increased about 33%, reflecting ATEC sales of $0.8 million, alfalfa sales of $0.8 million and agricultural lease income of $0.4 million. Segment revenue was $1.25 million for Land and Water Resources and $0.74 million for Water Filtration Technology.
- Cost of sales exceeded revenue by approximately $0.9 million, a derived gross loss; Cadiz attributed the alfalfa operating loss to higher diesel costs and weak West Coast alfalfa markets.
- Net loss widened primarily because of a $5.3 million loss on early extinguishment of debt. Net interest expense declined to $4.9 million from $8.3 million.
- At year-end, cash and cash equivalents were $4.5 million, working capital was $2.2 million, total assets were $107.4 million and stockholders’ equity was $40.0 million. Current assets were $8.0 million against current liabilities of $5.8 million.
- Reported debt was $37.9 million, including $21.2 million of secured debt and a $16.9 million convertible note instrument, net of discounts and issuance costs. Debt bears a 7% stated rate. The balance sheet also reports $22.9 million of long-term lease obligations with a related party; this is separate from reported debt.
- Cadiz paid $5.1 million in Series A preferred dividends. Common shares outstanding increased to 66.7 million at year-end from 55.8 million a year earlier.
Material changes versus FY2022
- Revenue rose from $1.5 million to $2.0 million, partly as ATEC sales began to contribute in 2023; ATEC had been acquired in November 2022.
- Operating loss increased by $4.4 million, while net loss increased by $6.7 million. The debt-extinguishment loss was a major unusual item in 2023.
- Operating cash use increased by $2.3 million, and cash and restricted cash together fell from $13.8 million to $4.6 million.
- Common stock issuance generated $38.5 million in net proceeds in 2023; $15 million of principal was repaid. The registered direct offering issued 10.5 million shares.
Outlook, developments and risks
- Water sales and infrastructure: In the first quarter of 2024, Cadiz announced agreements with multiple public water systems for 15,000 acre-feet per year, or 60% of the Northern Pipeline’s stated 25,000-AFY capacity. The contemplated 40-year take-or-pay supply arrangement is priced initially at an estimated net $850 per AFY to Cadiz, subject to annual adjustment. Agreements and construction remain subject to environmental review and project-level permits; the filing does not establish that deliveries or revenues have begun.
- Permits and construction: The BLM reissued the Northern Pipeline’s natural-gas right-of-way in December 2023, with no appeals filed during the appeal period. Cadiz expected to apply in 2024 for a new BLM water-conveyance right-of-way. Further permitting and approvals are also needed for pipeline conversion, facilities and water conveyance. A Southern Pipeline, if built, is planned for a 75,000–150,000-AFY capacity.
- ATEC: ATEC received a $10 million filtration-system contract in March 2023, with delivery expected to be completed in 2024. The filing does not provide a clear FY2023 revenue or profit contribution for this contract.
- Financing: On March 6, 2024, Cadiz amended its credit agreement, adding $20 million of senior secured convertible loans, extending existing loan maturities to June 30, 2027, and eliminating a repayment fee on the non-convertible loans. The filing says the transaction provided approximately $19 million of net proceeds and sufficient funds for short-term working capital needs, but says additional capital will be needed longer term. The existing approximately $16 million convertible loan became unsecured; $21.2 million of non-convertible loans remains secured. Interest is 7%, payable in cash on the non-convertible loans and in kind on the $36 million aggregate convertible principal described in the amendment.
- Principal risks: Cadiz continues to incur losses and rely on debt and equity financing while its main water-development assets remain pre-revenue. Project economics and timing depend on regulatory approvals, construction, customer commitments, available financing and potential opposition or litigation. Management identified liquidity assessment as a critical audit matter; it expects near-term funding to be adequate after the March 2024 financing, but future financing availability is not assured.
- Other disclosures: No material pending or threatened litigation was identified by the company. The 2023 goodwill assessment found no impairment. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements and did not provide an opinion on internal control.
Most important facts for investors to verify
- Whether the 15,000-AFY water agreements satisfy their conditions, receive required permits and lead to funded construction and actual deliveries.
- The scope, timing and cost of the Northern Pipeline conversion, the new BLM right-of-way, and Southern Pipeline and other conveyance approvals.
- Cash burn, liquidity runway and funding needs after the March 2024 credit amendment, including debt service and any further financing or dilution.
- ATEC’s performance, including recognized revenue, margins and completion and collection of the $10 million contract.
- Preferred-dividend obligations, convertible debt terms and potential dilution, as well as the company’s ability to reduce recurring operating losses.