Cadiz Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited consolidated results; amounts below are in millions unless stated otherwise. Cadiz is a land and water resource development company whose primary focus is the Cadiz Valley Water Project. Current revenue is limited to agricultural operations.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0.227 | $0.305 | $0.283 | $0.320 |
| Operating loss | $(3.651) | $(2.375) | $(10.120) | $(7.476) |
| Net loss | $(5.965) | $(4.566) | $(16.797) | $(13.775) |
| Net loss per share | $(0.33) | $(0.28) | $(0.95) | $(0.85) |
| Net interest expense | $2.313 | $2.190 | $6.744 | $6.296 |
- Cost of sales exceeded revenue by $64,000 in Q3 and by $8,000 for the nine-month period, producing negative gross margins. Management attributed lower revenue to a smaller raisin harvest.
- General and administrative expense was $3.515 million in Q3 and $9.914 million year to date. Management attributed the increase versus 2014 primarily to Water Project litigation costs; stock-based compensation was $0.721 million year to date.
- Cash and equivalents were $6.395 million at September 30, down from $16.206 million at December 31, 2014. Operating cash use was $9.433 million for the nine months; investing cash use was $0.351 million and financing cash use was $0.027 million.
- Total assets were $59.526 million and total liabilities $114.131 million; stockholders’ deficit was $54.605 million. Working capital deficit was $32.1 million.
- Reported debt was $36.933 million current and $73.186 million long-term, or approximately $110.1 million combined. The $36.9 million first mortgage was due March 2016; convertible notes were due March 2018. Debt carries fixed rates, and the company reported compliance with covenants at quarter-end.
Changes, outlook and material developments
- Year-to-date net loss increased by $3.022 million from 2014, while revenue declined $37,000. Higher litigation-related administrative costs and interest expense were significant factors.
- Management said existing cash was expected to fund working capital needs through the end of February 2016. The company was seeking refinancing, extension, or extinguishment of the first mortgage and expected to need additional working capital in 2016. No assurance of financing availability or terms was given. Failure to raise funds or refinance could result in default or substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, the BLM California office advised that the planned pipeline route along the Arizona & California Railroad right-of-way was outside the scope of that right-of-way and would require a new federal permit before construction. Cadiz disputed the finding and was pursuing reconsideration, while also considering permit applications and judicial remedies. Management anticipated delay; federal appropriations restrictions may constrain review of a route involving the project’s proposed groundwater-storage phase.
- Phase I construction was estimated at $225–$250 million, including approximately $35 million for the well field. Financing depends on project progress and definitive water purchase agreements. The project also requires resolution of pipeline access, water transportation arrangements with the Metropolitan Water District, and pending appeals of California environmental approvals.
- Cadiz reported a putative securities class action alleging inadequate project disclosures; the company considered the claims without merit. The potential loss was not estimable. Management also said the post-BLM stock-price decline could lead to a fourth-quarter goodwill impairment of up to the $3.813 million carrying value if the price did not recover.
- Other project risks include water-quality treatment requirements for naturally occurring chromium 6 in some wells, permitting and regulatory uncertainty, litigation, and the ability to secure construction and operating capital. Cadiz estimated that a new agricultural well field could cost approximately $35 million.
Key investor verification points
- Progress and terms of refinancing, extending, or extinguishing the $36.9 million mortgage before its March 2016 maturity, and the company’s liquidity beyond February 2016.
- Outcome and timing of BLM reconsideration, any federal right-of-way application or court action, and the resulting project route and schedule.
- Status of the California CEQA appeals, definitive water purchase agreements, and MWD conveyance arrangements.
- Whether goodwill impairment was recorded after quarter-end, and any material developments in the securities litigation.
- Actual project financing, construction costs, water-treatment costs, and the effect of any equity financing or asset transactions on existing shareholders and project execution.