Cadiz Inc. (NASDAQ: CDZI, CDZIP) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial amounts below are in U.S. dollars; amounts from the statements are shown in millions unless stated otherwise.
Business context
Cadiz is developing water supply, storage, conveyance and treatment assets, while operating agricultural activities and its ATEC water-filtration business. The company reported two segments: Land and Water Resources and Water Treatment. Management says current revenue is limited and does not yet support working-capital needs; it relies on debt and equity financing while developing its assets.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0.809m | $0.185m | $0.939m | $0.328m |
| Cost of sales | $0.768m | — | $0.790m | — |
| Operating loss | $(5.584)m | $(3.392)m | $(9.736)m | $(7.176)m |
| Net loss | $(7.064)m | $(5.483)m | $(17.755)m | $(11.395)m |
| Net loss applicable to common stock | $(8.352)m | $(6.771)m | $(20.308)m | $(13.948)m |
| Basic and diluted loss per common share | $(0.13) | $(0.13) | $(0.31) | $(0.29) |
Revenue less cost of sales was $0.041m in Q2 and $0.149m for the six-month period; these are simple calculations from reported figures, not company-reported margin measures. Cash used in operations was $9.871m in the first half, versus $7.550m a year earlier; investing activities used $3.213m, versus $1.848m. Financing provided $19.961m, principally reflecting the stock offering, offset by debt repayment.
At June 30, cash and cash equivalents were $19.237m, restricted cash was $1.422m, and working capital was $17.4m. Current assets were $23.183m and current liabilities $5.768m. Long-term debt, net, was $36.924m, plus $0.128m current debt; long-term related-party lease obligations were $21.789m. Total liabilities were $68.223m and stockholders’ equity $52.634m.
Material changes versus prior periods
- Q2 revenue increased to $0.809m, primarily from alfalfa sales, agricultural rent and ATEC sales. ATEC contributed $0.430m in Q2; it was acquired in November 2022 and was not in the prior-year comparison. Q2 cost of sales was $0.768m.
- Q2 net loss widened by $1.581m year over year. Management cited higher general and administrative costs, including community partnership and communications spending; lower net interest expense partly offset the increase. First-half net loss widened by $6.360m, mainly due to a $5.331m loss on early extinguishment of debt.
- January’s registered direct offering issued 10.5m common shares at $3.84 per share, generating approximately $38.5m net proceeds. Common shares outstanding increased from 55.8m at year-end 2022 to 66.6m at June 30, 2023.
- Cadiz repaid $15m of senior secured debt in February and amended its credit agreement. The stated interest rate remains 7%; up to $15m of principal, PIK interest and accrued interest may be converted into common stock at $4.80 per share, subject to the agreement’s terms. Maturity was extended to June 30, 2026, following stockholder approval.
Outlook, risks and unusual items
- Outlook: Management said the offering proceeds and cash on hand were sufficient for short-term working-capital needs. It expects agricultural and ATEC operations to be funded by existing capital and operating cash profits. Longer-term working capital and capital expenditures will require additional capital; the filing gives no quantified financial guidance.
- Project development: Management describes discussions with public water systems about potential Northern Pipeline and water-supply arrangements; contracts, construction and permitting remain subject to further steps. ATEC received a reported $10m filtration-equipment contract in March, with deliveries expected to begin in Q4 2023.
- Liquidity and financing risk: The company reported first-half operating cash use of $9.9m and continuing losses. Management said near-term resources were sufficient but cautioned that future financing availability and terms are uncertain; inability to raise funds could require expense reductions and impair execution of its business plan.
- Debt and valuation items: The debt amendment produced the $5.331m early-extinguishment loss and a conversion-option derivative liability, which is remeasured and can affect reported earnings. The company also has $1.450m of contingent consideration tied to ATEC unit sales.
- Other items: Preferred dividends were $2.553m for the first half; the Q2 dividend of $1.288m was paid July 14, 2023. The filing reports no material changes to previously disclosed legal proceedings or risk factors, and says disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Reconcile the derivative-liability loss amounts: the income statement reports $0.350m for Q2 and $0.220m for the six-month period, although the quarterly amount exceeds the reported year-to-date amount.
- Review the credit agreement’s conversion provisions, stockholder-approval conditions, repayment terms and remaining debt maturity, including the treatment of PIK interest.
- Assess cash burn and future financing requirements against actual progress on water-project agreements, permits, construction and customer commitments.
- Track the ATEC contract’s delivery schedule, revenue recognition, costs and contingent purchase consideration.
- Evaluate dilution from the January equity offering and potential future equity issuance, as well as the cumulative 8.875% preferred-stock dividend obligation.