Alico, Inc. Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2019, compared with the corresponding 2018 periods. The request metadata identifies “2018 Q2,” but the filing is for fiscal 2019 second quarter. Financial statements are unaudited.
Business Context
Alico is a Florida agribusiness and land-management company owning approximately 117,000 acres, including approximately 90,000 acres of mineral rights. Operations comprise Alico Citrus and Water Resources and Other Operations. Citrus production is seasonal, with the second and third fiscal quarters generally generating most annual revenue.
Key Financial Metrics
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $48.5 million, up 36.3% | $63.3 million, up 19.1% |
| Gross profit | $16.3 million; 33.6% margin | $19.5 million; 30.8% margin |
| Income from operations | $11.7 million | $11.4 million |
| Net income attributable to Alico common stockholders | $7.5 million; $1.01 diluted EPS | $5.1 million; $0.68 diluted EPS |
| Cash provided by operating activities | Not separately provided | $6.1 million |
- Alico Citrus generated $47.8 million of second-quarter revenue and $61.7 million for the six-month period. Citrus gross profit was $16.2 million and $19.3 million, respectively.
- Water Resources and Other Operations generated $0.7 million of second-quarter revenue and $1.6 million for the six-month period. Segment gross profit was $0.1 million and $0.2 million, compared with losses in the prior-year periods.
- General and administrative expense increased 51.4% to $4.7 million in the quarter and 16.5% to $8.1 million for six months, primarily due to litigation-related professional fees and $0.8 million of consulting and separation costs.
- Interest expense was $2.0 million for the quarter and $3.9 million for six months. The six-month period included a $1.0 million loss from changes in derivative fair value.
- At March 31, 2019, cash and cash equivalents were $0.6 million and restricted cash was $7.0 million. Working capital was $32.5 million, down from $49.6 million at September 30, 2018.
- Principal debt and lines of credit totaled $193.9 million, versus $177.0 million at September 30, 2018. Long-term debt, net of current portion and financing costs, was $162.1 million; lines of credit totaled $25.0 million.
- The company had approximately $44.6 million available under its working capital line and $25.0 million available under its revolving line of credit at March 31, 2019. Management stated that available liquidity, operating cash flow, asset sales and borrowing capacity should support requirements for at least the next twelve months.
- The company paid $0.9 million of dividends and declared dividends of $0.06 per share for the quarter.
Material Changes Versus Prior Comparable Period
- Revenue and profitability improved substantially, primarily because the prior-year citrus harvest was adversely affected by Hurricane Irma. Six-month processed boxes increased 34.5% to 4.4 million, while total boxes increased 34.6% to 4.5 million.
- Early and Mid-Season citrus revenue increased 63.2% for six months, while Valencia revenue declined 23.8%. Citrus prices per pound solid declined approximately 11% for Early and Mid-Season fruit and 15.8% for Valencia fruit.
- Cash from operations improved from a $0.3 million use in the prior-year six-month period to $6.1 million provided. Investing cash flow changed from $16.8 million provided to $9.8 million used, reflecting substantially lower asset-sale proceeds and higher capital expenditures.
- Financing cash use increased to $20.9 million, primarily because of the $25.6 million tender offer, the $11.3 million payment to terminate the Global Ag post-closing agreement and dividends, partly offset by increased revolver borrowings.
- The company repurchased 752,234 shares for $25.6 million in October 2018, reducing outstanding shares by approximately 9.2% from the pre-tender-offer amount.
- The company adopted ASC 610-20 on October 1, 2018, increasing opening retained earnings by $14.6 million before a $3.7 million deferred-tax adjustment. The related post-closing agreement with Global Ag was terminated in March 2019, eliminating future obligations under that agreement.
- Prior-year results included a significant tax benefit from remeasurement of deferred tax liabilities after the Tax Cuts and Jobs Act; therefore, the tax comparison is not representative of underlying operating performance.
Guidance, Outlook, Risks and Unusual Items
- Management increased its estimate for fiscal 2019 processed-box growth to approximately 70%–75% over fiscal 2018, compared with its earlier estimate of 31%–37%, based on harvest results through the second quarter.
- Through March 31, 2019, management stated that the Alico 2.0 modernization program remained on track to reach approximately $2,164 of citrus expenses per acre and $1.56 cost per pound solid when fully implemented in 2020.
- The company intends to plant more than 400,000 trees in fiscal 2019 and believes current acreage can produce approximately 10 million boxes annually on a sustained basis, even with pervasive citrus greening. These are management expectations and are not guaranteed.
- Key risks include weather, citrus greening and other diseases, crop yields, commodity prices, labor, water availability and allocations, interest rates, financing access, debt covenants, seasonality, international competition, agricultural regulation and the availability of state or federal funding.
- The company has approximately $3.2 million of outstanding commitments for citrus-tree purchases. It also had approximately $0.5 million of standby letters of credit outstanding.
- Litigation involving former CEO Remy Trafelet and related parties was settled on February 11, 2019. Mr. Trafelet resigned as CEO and director; the company recorded $0.8 million of consulting and separation expense and agreed to pay $0.4 million annually for up to 24 months under a consulting agreement.
- On April 11, 2019, the company announced that John E. Kiernan would become CEO and Richard Rallo would become CFO effective July 1, 2019. Benjamin D. Fishman is expected to become Executive Chairman, and Henry A. Slack is expected to step down as Executive Chairman while remaining a director.
Investor Verification Items
- Verify the fiscal-period mismatch between the request metadata and the filing’s March 31, 2019 reporting date.
- Assess whether the projected 70%–75% fiscal 2019 production increase is supported by final harvest volumes, realized prices and pound solids.
- Monitor liquidity after the tender offer, Global Ag termination payment, capital expenditures and seasonal working-capital needs.
- Review debt maturities, variable-rate exposure, covenant compliance and the November 2019 maturity of the revolving line of credit.
- Evaluate the sustainability of Alico 2.0 cost savings and the effects of citrus greening, weather and crop-price volatility.
- Confirm implementation of the July 1, 2019 management changes and any remaining obligations under the Trafelet settlement and registration-rights agreement.