Cadiz Inc. — 2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; it is not a standalone fourth-quarter filing. Cadiz is a California land and water-resource development company, with approximately 45,000 acres in the Mojave Desert. Its main prospective project is the Cadiz Water Project; current operating revenue is primarily rental income. The filing was signed March 13, 2020.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $441,000 | $440,000 |
| Operating loss | $12.0 million | $11.2 million |
| Net loss | $29.5 million | $26.3 million |
| Net loss per share | $1.11 | $1.09 |
| Cash used in operating activities | $13.7 million | $12.2 million |
| Cash used in investing activities | $2.5 million | $3.7 million |
| Cash provided by financing activities | $19.3 million | $15.4 million |
- General and administrative expense rose to $12.2 million from $11.4 million. Interest expense increased to $17.1 million from $15.3 million, reflecting debt costs and the absence of the prior-year unrealized warrant gain.
- At year-end, cash and cash equivalents were $15.7 million; working capital was $11.3 million. Total assets were $76.7 million and total liabilities were $158.8 million.
- Debt was approximately $137.6 million on the balance sheet ($72.3 million senior secured debt and approximately $65.5 million convertible notes, before applicable debt discounts and current portion). Senior debt accrued interest at 8% and convertible notes at 7%.
- Revenue was almost entirely rental income. The filing does not report a useful operating margin for a developed water business; Cadiz stated it had not generated significant development revenues and continued to incur operating losses.
Material changes and developments
- Net loss widened by $3.3 million year over year. The company attributed the increase chiefly to higher water-development and proxy-related general and administrative costs, higher interest expense, and a $490,000 equity-method investment loss related to the hemp joint venture.
- Financing cash flow included $19.4 million of net proceeds from common-stock issuance. Shares outstanding increased from 24.7 million at year-end 2018 to 28.5 million at year-end 2019.
- In July 2019, Cadiz formed a 50%-owned industrial-hemp joint venture. It recorded a $729,000 equity-method investment at year-end and a $490,000 share of JV losses.
- After year-end, holders exchanged $27.3 million payable on convertible notes for Series 1 Preferred Stock and converted $17.5 million into 2.6 million common shares; the filing says all remaining convertible notes were satisfied at maturity. Cadiz also obtained an option to extend the Apollo senior debt maturity from May 2021 to May 2022.
Outlook, risks and unusual items
- The Water Project is permitted for an average of up to 50,000 acre-feet annually for 50 years, with up to 150,000 acre-feet of carry-over storage. Estimated Phase I construction cost is approximately $310 million. Construction depends on final participant contracts, conveyance arrangements and additional design and permitting.
- Key remaining steps include agreements with the Metropolitan Water District for use of the Colorado River Aqueduct and review under California Water Code Section 1815 by the State Lands Commission. The Bureau of Land Management reaffirmed in February 2020 that the proposed Southern Pipeline use of the railroad right-of-way is within its scope, but court review remained expected.
- The company reported approximately $65.5 million of convertible-note principal and interest due in March 2020 at year-end; subsequent conversions and exchanges addressed those notes. The $72.3 million senior debt was due May 2021, subject to the new extension option. Cadiz said it had no near-term debt maturity obligations after the subsequent transactions.
- Cadiz lacked cash on hand for the additional $19 million payment to acquire the 124-mile Northern Pipeline segment. Failure to complete that purchase would limit opportunities to the 96-mile segment already owned. The water project’s estimated construction financing and the company’s ongoing working-capital needs also require additional capital; financing availability and terms are not assured.
- Major risks include permitting and regulatory uncertainty, third-party litigation, the need to finalize water-delivery arrangements, limited revenue, continuing losses, refinancing and liquidity needs, and potential dilution from equity financing. Cadiz reported compliance with debt covenants at December 31, 2019. Its auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether participant purchase agreements and Metropolitan conveyance terms are finalized, and the outcome and timing of State Lands Commission review and court proceedings.
- How the company will fund ongoing operations, the Water Project’s estimated $310 million build cost, and the $19 million Northern Pipeline payment if pursued.
- The final terms and effect of the March 2020 note exchanges, common-stock conversions, and Apollo maturity-extension option, including dilution and the amended warrant and prepayment terms.
- Whether agricultural leases, hemp operations, or conservation-bank credit sales generate material recurring cash flow; 2019 revenue was only $441,000.