Cadiz Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014; financial statements are unaudited. Unless stated otherwise, amounts are in millions of dollars.
Business context
Cadiz is a land and water resource development company focused primarily on developing its Cadiz Valley Water Conservation, Recovery and Storage Project. Its limited reported revenue came from agricultural operations. The proposed project is designed to supply up to 50,000 acre-feet of groundwater annually over 50 years, with a potential second phase offering about one million acre-feet of imported-water storage.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $0.305 | $0.182 | $0.320 | $0.190 |
| Operating loss | $(2.375) | $(3.107) | $(7.476) | $(9.922) |
| Net loss | $(4.566) | $(4.797) | $(13.775) | $(16.697) |
| Net loss per share | $(0.28) | $(0.31) | $(0.85) | $(1.08) |
| Net interest expense | $2.190 | $1.689 | $6.296 | $5.715 |
For the nine months, revenue less cost of sales was $38,000; for Q3 it was $23,000. Revenue remained immaterial relative to development and financing costs. Nine-month general and administrative expense declined to $7.324 million from $9.629 million, primarily reflecting lower Water Project litigation costs. Interest expense rose, largely because of the expanded working-capital facility. The 2013 nine-month comparison also included a $1.055 million debt-extinguishment/refinancing loss.
At September 30, cash was $3.365 million, working capital was $2.955 million, and total assets were $55.973 million. Total liabilities were $105.701 million, including $102.548 million of debt (current and long-term); stockholders’ deficit was $49.728 million. Nine-month operating cash use was $8.489 million, investing cash use $25,000, and financing cash use $8,000. Cash declined $8.522 million from year-end 2013. Debt bears fixed rates; no cash interest or principal payments are due before maturity.
Material changes and project developments
- Q3 revenue increased year over year due mainly to a larger raisin crop. Nine-month net loss improved year over year, mainly because 2013 included higher litigation costs and the debt-refinancing loss; interest expense increased in 2014.
- In September, the trial court entered judgments upholding the Water Project’s environmental review and approvals in six CEQA cases. Notices of appeal had been filed in four cases; whether the other two would be appealed remained unresolved at filing.
- Cadiz signed letters of intent with two water providers and two agricultural entities reserving up to 20,000 acre-feet annually at $960 per acre-foot delivered to the Colorado River Aqueduct, subject to satisfactory conveyance arrangements and supplemental environmental review. The company said its executed agreements and options exceeded project capacity.
- In April 2014, Cadiz acquired the 96-mile Cadiz-to-Barstow segment of an idle pipeline for $1 plus prior option payments. Conversion to water use would require further environmental review. The BLM was assessing the proposed project use of the separate railroad right-of-way under new guidance.
Outlook, risks and contingencies
Management said existing cash was expected to cover working-capital needs through the end of Q1 2015, with additional working capital required beginning in Q2 2015. Potential funding sources include debt, equity, or asset dispositions; availability and terms are not assured. The company stated that inability to raise funds could require substantial expense reductions and impair its business plan. It was in compliance with debt covenants at September 30, 2014.
Cadiz expects Phase I construction financing to come primarily from lower-cost senior debt secured by project assets, but construction financing and project implementation remain dependent on development progress, permits, conveyance arrangements, and capital availability. The CEQA judgments remain subject to appeals. The company reported no other material pending legal proceedings and no material changes to the risk factors in its 2013 Form 10-K.
Important facts for investors to verify
- Cash runway, timing and terms of financing needed in 2015, and potential effects of any equity issuance or asset sale.
- Status and outcome of the CEQA appeals, remaining regulatory steps, and BLM review of the railroad right-of-way use.
- Whether the project’s letters of intent and options convert to definitive agreements, and how oversubscribed project capacity will be allocated.
- Project construction financing, costs, schedule, and the company’s ability to meet debt maturities; reported debt was about $102.5 million.