Business Context and Reporting Period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 73,000 acres of land and approximately 90,000 acres of mineral rights. Its two reportable segments are Alico Citrus and Land Management and Other Operations. This unaudited Form 10-Q covers the three months ended December 31, 2022, the first quarter of fiscal 2023, compared with the three months ended December 31, 2021.
Key Financial Metrics
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Total operating revenue | $10.588 million | $15.337 million | Down 31.0% |
| Gross profit/(loss) | $(3.801) million | $1.811 million | Down $5.612 million |
| Loss from operations | $(6.310) million | $(0.773) million | Loss increased $5.537 million |
| Net income/(loss) | $(3.186) million | $10.080 million | Down $13.266 million |
| Net income/(loss) attributable to common stockholders | $(3.150) million | $10.131 million | Down $13.281 million |
| Diluted EPS | $(0.41) | $1.34 | Declined $1.75 |
| Net cash used in operating activities | $(9.665) million | $(9.608) million | Use increased $0.057 million |
| Cash and cash equivalents | $0.269 million | $0.865 million at September 30, 2022 | Down $0.596 million |
Gross margin was approximately negative 35.9% in Q1 FY2023 versus approximately 11.8% in the prior-year quarter. Interest expense increased to $1.148 million from $0.901 million, primarily reflecting higher variable interest rates. Other income was $2.041 million, including $3.189 million of gains on asset sales, compared with $7.553 million in the prior-year quarter, including $8.445 million of asset-sale gains.
Liquidity, Capital Resources and Debt
- Working capital was $27.330 million at December 31, 2022, compared with $15.091 million at September 30, 2022; the current ratio improved to 3.67-to-1 from 1.91-to-1.
- Principal amounts of term loans and lines of credit totaled $124.982 million, up from $111.624 million at September 30, 2022. Debt consisted primarily of $105.937 million of term loans and $19.045 million outstanding under the working capital line of credit.
- The $70 million working capital line had approximately $50.707 million available, and the $25 million revolving line of credit was fully available at quarter-end. Outstanding letters of credit totaled approximately $248,000.
- The working capital line was amended in October 2022 to extend its maturity to November 1, 2025 and convert its interest rate from LIBOR-based pricing to SOFR-based pricing. Other variable-rate facilities also transitioned to SOFR.
- Management stated that cash on hand, operating cash flow, asset sales and available borrowing capacity should provide sufficient liquidity for at least the next twelve months. However, first-quarter cash flow is typically negative because of harvest-related seasonality.
- The Company was in compliance with all stated financial covenants at December 31, 2022, including minimum debt service coverage, current ratio, tangible net worth and debt-to-assets requirements.
Material Changes Versus the Prior Comparable Period
- Alico Citrus revenue fell 30.4% to $10.268 million. Grove management revenue declined to $189,000 from $3.418 million because a major third-party grove owner group exited the citrus business and terminated services in June 2022.
- Early and Mid-Season revenue declined 7.6% to $9.586 million. Harvested boxes declined 2.7%, pound solids produced declined 7.1%, and pound solids per box declined 4.5%.
- Alico Citrus generated a $4.027 million gross loss versus $1.362 million of gross profit in the prior-year quarter. Citrus operating expenses increased 6.8% despite the loss of third-party grove-management costs, driven by higher grove-maintenance, fertilizer, herbicide, fuel, harvesting and cleanup costs.
- Land Management and Other Operations revenue decreased 45.7% to $320,000, principally because ranch sales reduced acreage subject to grazing and hunting leases.
- Cash used in investing activities was $496,000, compared with $4.079 million of cash provided in the prior-year quarter, primarily because of lower land-sale proceeds.
- Financing activities provided $9.565 million, reflecting increased net borrowings under the working capital line. Dividends paid were $3.793 million; the quarterly dividend declared was $0.05 per share versus $0.50 in the prior-year quarter.
- Prior-period retained earnings and equity balances were restated for an error in the calculation of deferred tax liabilities for fiscal years 2015 through 2019. The cumulative correction increased retained earnings by approximately $2.512 million.
Guidance, Outlook, Risks and Unusual Items
- No formal quantitative financial guidance was provided. Management expects fiscal 2023 Early and Mid-Season harvest revenue and operating cash flow to be lower than the prior year.
- Hurricane Ian affected approximately 48,900 gross acres of citrus groves. Management accelerated harvesting to limit fruit drop and expects groves may require up to two full seasons or more to recover to pre-hurricane production levels. The Company is pursuing potential insurance recoveries and government relief.
- The USDA projected Florida orange production for the 2022-23 harvest season to decline approximately 56% from the prior season, with Early and Mid-Season production forecast to decline 61.6%. Citrus disease, weather, crop yields, pricing, labor, input costs and water availability remain significant risks.
- The Company received approximately $1.3 million of remaining Florida Citrus Recovery Block Grant proceeds during the quarter and stated that all funds due under that program had been received. The availability and amount of potential Hurricane Ian relief remained unclear.
- During the quarter, Alico sold approximately 609 acres for approximately $3.3 million and recognized approximately $3.2 million of gains. This included an approximately 85-acre sale to President and CEO John E. Kiernan for approximately $438,900 pursuant to a previously disclosed option based on an independent appraisal.
- The Company had approximately $5.403 million of commitments for citrus tree purchases payable upon delivery. It reported no material adverse legal proceedings.
- Disclosure controls were not effective because two material weaknesses continued: controls over the completeness and accuracy of income-tax provision information and controls over evaluating misstatements and their financial-statement impact. Management implemented a remediation plan, but the weaknesses were not yet considered remediated.
- The Company stated that COVID-19 had not produced material adverse impacts to date, but warned that a resurgence could affect operations, labor, demand and supply chains.
Most Important Facts to Verify
- Whether Hurricane Ian causes additional reductions in citrus yields, fruit quality, revenue or inventory values beyond the first-quarter impact.
- The timing and amount of any crop-insurance proceeds and federal or state Hurricane Ian relief.
- Whether the loss of the major third-party grove-management customer can be offset by new customers or other citrus operations.
- Cash generation during the remainder of fiscal 2023 and the Company’s reliance on working-capital borrowings and land sales.
- Compliance with debt covenants as interest rates rise and the working capital line approaches its November 2025 maturity.
- Progress in remediating the material weaknesses in income-tax accounting and misstatement evaluation controls.
- Final citrus pricing and harvest results, given that revenue estimates under customer contracts include variable consideration and may be adjusted as market information becomes available.