Business Context and Reporting Period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 110,000 acres, including approximately 90,000 acres of mineral rights. Its two operating segments are Alico Citrus and Water Resources and Other Operations. This unaudited Form 10-Q covers the three and nine months ended June 30, 2020, compared with the corresponding 2019 periods. The filing was signed August 6, 2020.
The company’s results are seasonal, with the second and third fiscal quarters generally producing most annual revenue. The filing states that COVID-19 had not caused a material adverse impact through June 30, 2020.
Financial Highlights
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $26.1 million, down 54.6% | $87.6 million, down 27.5% |
| Gross profit | $6.2 million; approximately 23.8% margin | $18.5 million; approximately 21.1% margin |
| Income from operations | $3.7 million | $10.2 million |
| Net income attributable to common stockholders | $2.1 million; $0.28 diluted EPS | $6.5 million; $0.86 diluted EPS |
| Cash provided by operating activities | Not separately provided | $21.1 million |
Alico Citrus generated $25.4 million of third-quarter revenue and $85.3 million for the nine-month period. Water Resources and Other Operations generated $0.8 million and $2.3 million, respectively. The nine-month effective tax rate was approximately 23.6%, compared with approximately 25.1% in the prior-year period.
At June 30, 2020, cash and cash equivalents were $80.4 million and total cash plus restricted cash was $81.2 million, compared with $23.8 million at September 30, 2019. Working capital was $89.0 million, versus $33.0 million at September 30, 2019, and the current ratio was 4.62 to 1.
Total assets were $469.9 million, compared with $417.4 million at September 30, 2019. Stockholders’ equity was $204.7 million, compared with $199.4 million. The company declared dividends of $0.09 per share for the quarter and $0.27 per share for the nine months.
Debt, Liquidity and Cash Flow
- Principal amount of term loans and lines of credit was $215.3 million at June 30, 2020, compared with $163.4 million at September 30, 2019.
- Long-term debt principal, including current maturities, was $150.9 million; revolving lines of credit totaled $64.4 million.
- In March 2020, the company drew $70.0 million as a precautionary COVID-19 liquidity measure: $50.0 million under the working capital line and $20.0 million under the revolving line.
- Remaining availability was approximately $5.0 million under the revolving line and $25.2 million under the working capital line, after consideration of outstanding borrowings and letters of credit.
- Operating cash flow declined to $21.1 million from $41.7 million. Investing cash use was $13.6 million, including $17.0 million of capital expenditures. Financing activities provided $49.8 million, principally because of the revolving-credit drawdowns.
- Outstanding letters of credit were approximately $0.4 million, and citrus-tree purchase commitments were approximately $1.8 million.
- The company reported compliance with all financial covenants at June 30, 2020. Management stated that cash, operating cash flow, asset sales and remaining credit availability should be sufficient for at least the next twelve months, although the filing highlights leverage-related constraints and risks.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because Valencia pricing fell amid excess domestic and international supply, and because fewer boxes were harvested. Nine-month processed boxes fell 7.5%, while nine-month pound solids declined 6.7% and price per pound solids declined 20.7%.
- Third-quarter Valencia revenue declined 55.7%, and third-quarter total Alico Citrus revenue declined 55.4%. The 2020 Valencia harvest was completed by mid-May, earlier than in the prior year.
- Nine-month gross profit decreased 59.4%, and income from operations decreased 70.7%. Net income attributable to common stockholders decreased 69.7%.
- Water Resources and Other Operations produced a 75.8% increase in nine-month gross profit despite a 0.9% revenue decline, principally because of lower water-project costs.
- Operating expenses benefited from approximately $4.6 million of additional Florida Citrus Recovery Block Grant proceeds received during the nine months. The amount and timing of any remaining Part 3 proceeds were not finalized.
- Other expense improved because of approximately $2.9 million of gains on asset sales, lower interest expense and the absence of the $1.0 million derivative fair-value loss recorded in 2019.
- General and administrative expense declined 23.3% for the nine months, primarily because of lower professional fees, consulting and separation charges, rent and director compensation.
- The company sold portions of East Ranch in March 2020 for net proceeds of approximately $3.0 million and recognized a gain of approximately $2.8 million. It used substantially all proceeds to acquire a like-kind citrus asset and defer substantially the associated tax impact.
Outlook, Commentary, Risks and Unusual Items
Management expected citrus market pricing to improve in the 2020-21 harvest season, citing increased consumption of not-from-concentrate orange juice and reduced inventory levels. The company completed its 2019-20 harvest in mid-May and reported no COVID-19 impact on that harvest.
On July 16, 2020, Alico entered into an agreement to provide grove caretaking and harvest-and-haul management services for approximately 7,000 acres owned by affiliated third parties. The company will be reimbursed for costs and receive a management fee; both revenue and related expenses are expected to increase as services are provided.
The company suspended permit-approval activities for its dispersed water-management project because of a State of Florida option to purchase approximately 10,700 acres. Management expected that transaction to close by the end of September 2020. The project’s annual payments remain subject to applicable approvals and funding decisions.
- Key operating risks include citrus pricing, crop yields, weather, citrus greening and other pests, labor and transportation availability, water supplies, agricultural land values, customer concentration, interest rates and debt service.
- COVID-19 risks include disruption to customers, vendors, contractors, harvesters, truck drivers and the broader economy. The filing does not provide a quantified COVID-19 financial impact.
- Floating-rate debt references LIBOR. The company was evaluating alternative reference rates and could not predict the replacement index or the effect of renegotiation.
- Hurricane Irma relief proceeds materially reduced operating expenses. No further property and casualty or crop insurance claims were pending, but the timing and amount of any remaining federal relief proceeds were uncertain.
- The company adopted lease accounting on October 1, 2019. It reported $0.3 million of right-of-use assets and $0.4 million of present-value operating lease obligations at June 30, 2020.
- No material litigation was reported, and management stated that disclosure controls were effective.
Most Important Facts to Verify
- Whether the $70.0 million liquidity drawdown is repaid or remains outstanding, and the effect on future interest expense and covenant headroom.
- Actual 2020-21 citrus pricing, harvest volumes, pound solids and margins relative to management’s expectation of improved pricing.
- Whether the State of Florida exercises its option for approximately 10,700 acres and how that affects the water-storage project and asset-sale proceeds.
- The timing and amount of any remaining Florida Citrus Recovery Block Grant Part 3 proceeds.
- Completion and economics of the 7,000-acre third-party grove-management agreement.
- Exposure to LIBOR transition terms, floating-rate debt and refinancing or maturity requirements, including approximately $59.0 million due between one and two years.
- The filing period: although the request metadata identifies “2019 Q3,” the submitted filing is the Form 10-Q for the period ended June 30, 2020, with June 30, 2019 as the comparable period.