Cadiz Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the filing does not provide standalone fourth-quarter results. Cadiz is developing water supply, storage, conveyance and treatment businesses, while agricultural leasing and farming remain its principal current revenue sources.
Business context
The company owns approximately 46,000 acres in California’s Mojave Desert and is developing a groundwater project designed to conserve an average of 50,000 acre-feet annually for 50 years and provide up to 1 million acre-feet of groundwater storage. The project is not yet operating, and significant revenues from its water assets have not begun. In November 2022, Cadiz acquired water filtration assets and formed ATEC Water Systems.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $1.501 million | $0.564 million |
| Cost of sales | $2.067 million | $0 |
| Gross profit (loss) | $(0.566) million | $0.564 million |
| Operating loss | $(16.562) million | $(17.512) million |
| Net loss | $(24.792) million | $(31.249) million |
| Net loss applicable to common stock | $(29.898) million | $(33.986) million |
| Basic and diluted loss per common share | $(0.60) | $(0.84) |
| Cash used in operating activities | $(18.599) million | $(15.274) million |
| Cash used in investing activities | $(4.122) million | $(23.472) million |
| Cash provided by financing activities | $16.647 million | $51.178 million |
FY2022 gross margin was approximately negative 38%, reflecting alfalfa start-up costs and fuel expense. Revenue rose mainly from agricultural leases and the first alfalfa harvest; alfalfa sales contributed $861,000. General and administrative expense, including stock compensation, was $15.342 million. Net interest expense was $8.263 million, down from $11.386 million. The net loss narrowed year over year, primarily as 2021 included higher stock-based bonus expense and interest expense; 2022 included higher cost of sales.
At year-end, cash and cash equivalents were $9.997 million, restricted cash was $3.785 million, and working capital was $6.8 million. Total liabilities were $76.564 million. Senior secured debt principal was $50 million, plus other loans; reported debt carrying value was $49.089 million. Total assets were $110.787 million and stockholders’ equity was $34.223 million. Preferred dividends required for FY2022 were $5.106 million; the Series A preferred stock carries an 8.875% cumulative dividend.
Changes, financing and outlook
- Revenue increased by $937,000, but the company continued to incur substantial operating and cash losses. Operating cash use increased by $3.325 million.
- Common shares outstanding increased from 43.7 million to 55.8 million during 2022, principally through direct offerings. A January 2023 offering issued 10.5 million additional shares and generated approximately $38.5 million net proceeds.
- After the January offering, Cadiz repaid $15 million of debt. The February 2023 credit amendment left $35 million of principal outstanding, at 7% interest; up to $15 million may convert to common stock at $4.80 per share subject to shareholder approval. Maturity was extended to June 2025, with a potential extension to June 2026 if specified conditions are met.
- Management said the November 2022 and January 2023 offerings, together with cash on hand, were expected to cover short-term working capital needs. It expects to need additional capital over the longer term for operations and project development. The filing gives no formal earnings or revenue guidance.
Projects, risks and unusual items
- Management is discussing a proposed 25,000 acre-feet-per-year Northern Pipeline arrangement with public water agencies. The contemplated long-term, take-or-pay terms and estimated starting price of approximately $850 per acre-foot are proposals, not completed contracts. The agencies are expected to fund pipeline conversion, estimated at $100–$130 million.
- The Northern Pipeline’s federal rights-of-way were remanded to the Bureau of Land Management (BLM) for reconsideration after litigation; Cadiz was reapplying. A Southern Pipeline is also proposed, with estimated construction costs of $400–$450 million, and requires additional conveyance arrangements and reviews.
- Although the core water project has prior environmental approvals, contracts, pipeline use and related facilities remain subject to further approvals, reviews and potential litigation. Delays, denials or unfavorable conditions could postpone or prevent project revenues.
- ATEC acquisition consideration was up to $2.2 million, including a $1.45 million contingent liability payable upon specified product sales. ATEC’s post-acquisition contribution to 2022 results was not material. It received a $10 million filtration-system contract in March 2023.
- The 50/50 hemp joint venture was dissolved in December 2022 after no 2022 planting due to poor market conditions; Cadiz recorded a $211,000 dissolution gain. Alfalfa operations recorded start-up and fuel costs.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end, excluding ATEC from the internal-control assessment under the acquisition transition provision. The auditor issued an unmodified opinion on the financial statements and identified liquidity assessment as a critical audit matter.
Important facts for investors to verify
- Whether public agencies execute binding water supply and storage contracts, and the final pricing, volume, term and financing arrangements.
- Progress and outcome of BLM rights-of-way applications, required environmental and regulatory reviews, and other pipeline approvals.
- Actual project capital requirements, timing to first material water revenues, and Cadiz’s ability to fund operations and development beyond its stated short-term runway.
- Debt repayment and conversion terms, shareholder approval for increased authorized shares, potential dilution, and the continuing cost of preferred dividends.
- ATEC’s sales, margins and cash contribution, including performance against its contingent purchase-price obligations and announced contract.