Alico, Inc. Form 10-Q Summary
Business Context and Reporting Period
Alico is a Florida agribusiness and land-management company operating approximately 113,400 acres. Its principal segments are Citrus Groves, Agricultural Supply Chain Management, Improved Farmland, Ranch and Conservation, and Other Operations. This unaudited Form 10-Q covers the three months ended December 31, 2014, compared with the three months ended December 31, 2013. Results are seasonal, with greater revenue generally generated in the second and third fiscal quarters.
Financial Performance and Key Metrics
| Metric | Q1 FY2015 | Q1 FY2014 |
|---|---|---|
| Operating revenue | $16.2 million | $15.0 million |
| Gross profit | $3.1 million | $2.6 million |
| Loss from operations | $(2.3) million | $(1.0) million |
| Income before taxes | $9.5 million | $(1.3) million |
| Net income attributable to common shareholders | $5.8 million | $(0.7) million |
| Diluted earnings per share | $0.78 | $(0.10) |
| Operating cash flow | $(18.9) million | $(4.1) million |
| Capital expenditures | $2.0 million | $6.5 million |
- Citrus Groves revenue increased 129.0% to $12.9 million, primarily because of the Orange-Co acquisition. Citrus gross profit increased 63.6% to $2.8 million.
- Agricultural Supply Chain Management revenue declined 43.8% to $1.2 million as management reduced external fruit-handling activity.
- Improved Farmland revenue declined 83.3% to $1.1 million following the sale of the sugarcane land.
- Corporate general and administrative expense increased 52.5% to $5.4 million, including approximately $3.6 million of acquisition, disposition, legal, closing, and consulting-related costs.
- The $5.8 million net profit was driven principally by the $13.6 million recognized gain on the sugarcane land sale. The company also recorded a $0.9 million loss on extinguishment of debt and $0.9 million of interest expense.
Balance Sheet, Debt, and Liquidity
- Cash and cash equivalents were $1.8 million at December 31, 2014, down from $30.8 million at September 30, 2014.
- Working capital was $42.0 million, down from $96.4 million, and the current ratio declined to 2.74-to-1 from 7.14-to-1.
- Total assets increased to $411.4 million from $203.6 million, primarily reflecting the Orange-Co acquisition.
- Total debt principal outstanding was $197.3 million, compared with $34.0 million at September 30, 2014. Current debt maturities were $9.1 million, with $137.1 million due beyond five years.
- Debt facilities included $125.0 million of fixed-rate term loans, $57.5 million of variable-rate term loans, a $25.0 million revolving line of credit, and a $70.0 million working capital line. The working capital line had $17.3 million of outstanding letters of credit at quarter-end.
- Available credit was approximately $67.9 million in aggregate, although availability was reduced by outstanding borrowings and letters of credit.
- Management stated that cash, revolving facilities, and expected operating cash flow should provide sufficient liquidity for foreseeable working capital and capital expenditure needs.
Material Changes Versus the Prior Comparable Period
- On December 2, 2014, Alico acquired approximately 20,263 acres of citrus groves and related assets from Orange-Co for approximately $282.0 million of purchase consideration, including assumed and refinanced debt. The acquisition contributed approximately $7.0 million of revenue and $1.6 million of operating income during the quarter.
- On November 21, 2014, Alico sold approximately 36,000 acres of sugarcane land for approximately $97.9 million. It recognized a $13.6 million net gain and deferred $29.1 million because of continuing involvement and potential post-closing price adjustments.
- The sugarcane business was not classified as discontinued operations. Improved Farmland became immaterial to the company after the disposition.
- Operating cash use increased by $14.8 million year over year, primarily because of seasonal working-capital needs and the timing of operations.
- Financing cash flow changed from a $2.5 million use to a $159.5 million source, reflecting new term loans, revolving borrowings, debt refinancing, and related repayments.
- The company entered into a merger agreement to acquire Silver Nip Citrus. The transaction could require issuing up to 1,463,544 shares, with management estimating approximately 800,500 shares at closing based on then-current estimates, plus potential additional shares tied to harvest proceeds.
Guidance, Outlook, Risks, and Unusual Items
- Management expected its 2014/2015 citrus crop to be in line with or modestly above the USDA’s statewide forecast, which projected a 1.5% decline in Florida orange production from the prior year.
- A water-storage contract approved by the South Florida Water Management District has an eleven-year term, including up to $4.0 million of implementation reimbursement and potential annual operating and maintenance payments of up to $12.0 million, subject to compliance and annual funding approval. Future annual payments are not assured.
- Key risks include weather, citrus disease and pests, water availability, agricultural prices, labor disruptions, seasonality, interest rates, financing availability, debt covenants, land-use restrictions, agricultural land values, acquisitions and divestitures, and concentrated stock ownership.
- Debt agreements require compliance with financial covenants, including minimum debt-service coverage, tangible net worth, current ratio, debt-to-total-assets, and capital expenditure limits. The filing states the company was compliant with its prior debt covenants at September 30, 2014; it does not clearly state quarter-end compliance under the new facilities.
- Alico had approximately $13.4 million of remaining citrus purchase commitments for fiscal 2015 through 2016, all covered by sales agreements. Management expected the committed volume to be sold at cost or higher.
- No material legal proceedings, defaults, or changes to previously disclosed risk factors were reported. Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Validate the preliminary purchase-price allocation and final liabilities associated with the Orange-Co acquisition.
- Assess the sustainability of reported earnings excluding the $13.6 million sugarcane-sale gain and other acquisition or disposition-related items.
- Review debt covenant compliance, debt-service requirements, interest-rate exposure, letters of credit, and liquidity after the substantial increase in leverage.
- Monitor the deferred $29.1 million sugarcane-sale gain and the company’s continuing obligations and potential post-closing price adjustments.
- Confirm the closing terms, final share issuance, dilution, and acquired debt associated with the Silver Nip Citrus merger.
- Evaluate seasonal operating cash requirements, inventory growth, citrus production assumptions, and the availability of expected water-storage contract payments.