Alico, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2015, filed May 11, 2015. Amounts are in thousands except per-share data. Alico is a Florida agribusiness and land-management company owning approximately 121,000 acres and operating citrus, farmland, ranch and conservation, agricultural supply-chain, nursery, mining royalty and oil-rights businesses. Results are seasonal, with revenue generally concentrated in the second and third fiscal quarters.
Key Financial Metrics
| Metric | Three months ended March 31, 2015 | Three months ended March 31, 2014 | Six months ended March 31, 2015 | Six months ended March 31, 2014 |
|---|---|---|---|---|
| Revenue | $55,122 | $40,642 | $71,300 | $55,631 |
| Gross profit | $10,079 | $9,973 | $13,175 | $12,770 |
| Gross margin | 18.3% | 24.5% | 18.5% | 22.9% |
| Income from operations | $6,698 | $8,139 | $3,881 | $7,148 |
| Operating margin | 12.1% | 20.0% | 5.4% | 12.9% |
| Net income | $2,794 | $4,697 | $10,525 | $3,992 |
| Net margin | 5.1% | 11.6% | 14.8% | 7.2% |
| Diluted EPS | $0.34 | $0.64 | $1.35 | $0.54 |
- Revenue increased 35.7% in the quarter and 28.2% for the six-month period, driven primarily by the Orange-Co citrus acquisition.
- Quarterly operating income declined 17.7% because higher corporate expenses, interest expense and acquisition-related costs more than offset revenue growth. Six-month operating income declined 45.7%.
- Six-month net income benefited from a $13,613 gain recognized on the sugarcane land sale. The gain was partly deferred; $29,140 remains recorded as deferred gain because of continuing involvement and potential post-closing price adjustments.
- Interest expense increased to $2,285 for the quarter and $3,588 for the six months, compared with $396 and $665, respectively, in the prior-year periods.
- Cash and cash equivalents were $2,775 at March 31, 2015, down from $31,020 at September 30, 2014. Working capital declined to $61,247 from $105,040.
- Net cash used in operating activities was $6,261 for the six months, compared with $4,626 provided in the prior-year period. Investing cash outflows were $183,908, including $264,586 for the Orange-Co acquisition and $23,239 of capital expenditures.
- Total term loans and lines of credit were $231,986 at March 31, 2015, versus $64,800 at September 30, 2014. Current debt maturities were $4,511, with $164,697 due beyond five years.
- The company reported $36,500 of available general-use working-capital line capacity and a fully available $25,000 revolving credit line. Management stated that liquidity should be sufficient for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Citrus expansion: Citrus Groves revenue rose 123.0% for the quarter and 124.3% for the six months. Orange-Co contributed approximately $30,625 of quarterly revenue and $37,625 of six-month revenue, along with $6,092 and $7,786 of gross profit, respectively.
- Production growth: Total citrus boxes harvested increased 137.4% for the quarter and 138.2% for the six months. Pound solids produced increased 138.9% and 139.0%, respectively. However, early- and mid-season price per pound solid declined 7.2% for the quarter and 3.6% for the six months.
- Business mix shift: Improved Farmland revenue fell 90.9% for the quarter and 88.0% for the six months following the sale of approximately 36,000 sugarcane acres. The company is no longer directly involved in sugarcane operations.
- Orange-Co acquisition: Completed December 2, 2014 for approximately $276,673, including assumed and refinanced debt. The acquisition added approximately 20,263 citrus-grove acres and resulted in preliminary goodwill of $1,146. Acquisition accounting remained subject to adjustment.
- Silver Nip merger: Completed February 28, 2015 as a common-control transaction. Alico issued 923,257 common shares and recorded the acquired assets and liabilities at carryover basis. Additional shares may be issued based on post-harvest citrus proceeds. The transaction included related-party ownership and control interests.
- Cost structure: Corporate general and administrative expense increased 84.4% for the quarter and 65.4% for the six months, partly because of acquisition, disposition and legal costs totaling approximately $4,353 for the six months.
Guidance, Outlook, Risks and Unusual Items
- Management expected its 2014/2015 citrus crop to increase 3% to 5% from the prior year, compared with the USDA forecast for a 2.6% decline in Florida orange production.
- A water-storage contract with the South Florida Water Management District provides for up to $4,000 of implementation reimbursement and a potential annual fixed payment of $12,000, subject to compliance and annual funding approval. The filing states that future annual payments are not assured.
- Debt facilities include financial covenants covering debt-service coverage, tangible net worth, current ratio, leverage and capital expenditures. Alico reported compliance with all covenants at March 31, 2015.
- The company had $17,499 of outstanding letters of credit that reduced availability under its working-capital facility. Variable-rate debt exposes the company to interest-rate risk.
- A putative shareholder class action was filed concerning the Silver Nip acquisition; a second related complaint was filed on May 6, 2015. The plaintiffs seek monetary and equitable relief, and the second complaint also seeks potential rescission and disgorgement. Management considers the claims without merit.
- The IRS was auditing the company’s fiscal 2013 tax return. The company reported no reserve for uncertain tax positions at March 31, 2015.
- Other unusual items included a $541 impairment loss on property held for sale, a $964 six-month loss on extinguishment of debt, acquisition and merger professional fees, and the partial recognition of the sugarcane-sale gain.
- Remaining citrus purchase commitments were approximately $6,758 for fiscal 2015 and 2016; management stated that the committed volume is covered by sales agreements and is expected to be sold at cost or higher.
Facts Investors Should Verify
- Whether Orange-Co’s preliminary purchase accounting, goodwill and acquired asset valuations change materially when finalized.
- The sustainability of citrus production, pricing and margins after the acquisition-related volume increase.
- Liquidity and covenant headroom given cash of only $2,775, negative operating cash flow and substantially higher leverage.
- The timing and amount of deferred sugarcane-sale gain recognition and potential post-closing price adjustments.
- The outcome and potential financial exposure from the Silver Nip-related shareholder litigation.
- Whether the water-storage contract receives annual funding approvals and produces the anticipated payments.
- The effect of related-party ownership, the Silver Nip merger’s potential additional share issuance and concentrated voting control.