Cadiz Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Cadiz develops land, water supply, storage and conveyance resources in Southern California and operates ATEC, a groundwater-filtration business. Its water project remains in development and has not yet generated significant water-supply, storage or conveyance revenue.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $1.121 million | $0.130 million |
| Cost of sales | $1.004 million | $0.022 million |
| Operating loss | $4.908 million | $4.152 million loss |
| Net loss | $6.850 million | $10.691 million loss |
| Net loss applicable to common stock | $8.115 million; $0.12 per share | $11.956 million; $0.19 per share |
| Net interest expense | $1.939 million | $1.336 million |
| Cash used in operations | $2.873 million | $4.069 million |
| Cash used in investing | $0.186 million | $2.206 million |
| Cash provided by financing | $17.769 million | $21.267 million |
- Revenue comprised approximately $0.5 million from ATEC, $0.5 million from alfalfa harvest and $0.1 million from agricultural lease income. The resulting gross profit was approximately $0.117 million, or about 10% of revenue.
- Cash and cash equivalents were $19.212 million at quarter-end, versus $4.502 million at December 31, 2023. Working capital was $16.0 million. Total assets were $125.507 million and total liabilities were $88.896 million.
- Long-term debt, net, was $54.229 million, with a further $0.171 million current portion. The balance sheet also included $23.452 million of long-term related-party lease obligations. Preferred dividends of $1.265 million were declared for the quarter and paid April 15, 2024.
Material changes and financing
- Revenue rose from $0.130 million, reflecting ATEC sales and alfalfa harvest in addition to agricultural lease income. Operating loss widened by $0.756 million, despite the much higher revenue, as cost of sales and general and administrative expense increased.
- Net loss narrowed year over year principally because Q1 2023 included a $5.331 million loss on early extinguishment of debt. Q1 2024 had no such charge. Stock-based compensation increased to $1.259 million from $0.326 million; net interest expense also increased.
- In March 2024, Cadiz amended its credit agreement, receiving a new $20 million senior secured convertible loan tranche from Heerema; the filing reports approximately $19 million of net proceeds. The new tranche bears 7% annual PIK interest, converts initially at $5.30 per share and matures June 30, 2027. Heerema also acquired secured non-convertible loans, increased to $21.2 million, while approximately $16 million of existing convertible debt became unsecured. Maturities for the existing loans were extended to June 30, 2027.
- In connection with the financing, Cadiz issued Heerema a warrant for 1 million shares at $5.00 per share, subject to adjustment, expiring June 30, 2027. The company also issued common shares for a lender consent fee. These terms and potential conversions create dilution risk.
Outlook, risks and notable items
- Management says the March financing proceeds and cash on hand are sufficient for short-term working capital needs; it expects agricultural and ATEC operations to be funded with existing capital and operating cash profits during 2024. No specific earnings or revenue guidance is provided.
- Management expects to need additional capital over the longer term for working capital and development expenditures. It may pursue debt or equity financing, asset transactions or cost reductions; availability and terms of future financing are not assured. The company says it currently expects near-term liquidity to be sufficient, but warns that inability to raise funds could impair its business plan.
- Cadiz reported agreements in Q1 with multiple public water systems for a cumulative 15,000 acre-feet per year of Northern Pipeline supply, described as 60% of pipeline capacity. The arrangements are for 40-year take-or-pay delivery at an estimated starting price of approximately $850 per acre-foot, subject to annual adjustment. Infrastructure costs are expected to be funded by participating agencies. Delivery and facility construction remain subject to environmental review and project-level permits.
- A new 26-year Bureau of Land Management right-of-way agreement for the Northern Pipeline resulted in recognition of a $1.9 million right-of-use asset and lease liability; annual rent is approximately $186,000, subject to inflation increases.
- Cadiz reported no material changes to the risk factors or legal proceedings described in its 2023 annual report. It stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Investor facts to verify
- The status, enforceability, permitting requirements and customer funding commitments for the reported water-supply agreements, including the distinction between binding agreements and term sheets.
- The timing and total capital required to convert the Northern Pipeline, build pumping facilities and advance the broader water project.
- Cash runway and financing needs, including actual cash generation from ATEC and agriculture and the impact of PIK interest and potential debt conversion on future obligations and share count.
- Whether water-project revenue and expected pricing materialize as planned; current operations still generate losses and do not fully support working capital needs.
- Ongoing preferred dividends, debt covenants and the terms and potential dilution associated with the Heerema financing and warrants.