Cadiz Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 29, 2022. This is an annual report, not a standalone fourth-quarter report.
Business context
Cadiz is a California land, water-resource development and agribusiness company. It owns approximately 45,000 acres in the Mojave Desert. Its principal development initiative is the Cadiz Valley Water Conservation, Recovery and Storage Project; current revenue is mainly agricultural lease income. The company says its project permits allow average groundwater conservation and delivery of 50,000 acre-feet annually for 50 years, and storage of up to one million acre-feet of imported water. The project is not yet operating.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0.564 million | $0.541 million |
| Operating loss | $17.512 million | $11.754 million |
| Net loss | $31.249 million | $37.817 million |
| Net loss attributable to common stock | $33.986 million | $37.817 million |
| Basic and diluted loss per common share | $0.84 | $1.11 |
| Cash used in operating activities | $15.274 million | $13.428 million |
| Cash used in investing activities | $23.472 million | $9.838 million |
| Cash provided by financing activities | $51.178 million | $14.874 million |
- General and administrative expense was $17.653 million, including $4.747 million of stock-based compensation. Excluding stock-based compensation, management reported G&A of $12.9 million, up from $9.8 million in 2020, primarily due to legal fees and technical work on the Northern Pipeline.
- Net interest expense was $11.386 million. The company reported a $1.399 million loss on debt extinguishment in 2021, versus $12.394 million in 2020; the latter was primarily a noncash charge related to the 2020 debt conversion and exchange.
- Year-end cash and cash equivalents were $10.965 million; restricted cash was $8.891 million. Working capital was $10.7 million. Total assets were $112.493 million and stockholders’ equity was $40.609 million.
- Gross principal on the new senior secured debt was $50 million, plus other loans; the balance-sheet carrying amount of total debt was $46.584 million before current maturities. The $50 million loan bears 7% interest, is secured by substantially all assets and matures July 2, 2024. Debt maturities are concentrated in 2024.
- Series A preferred shares carry an 8.875% cumulative dividend. Preferred dividend requirements were $2.737 million in 2021. The company prefunded eight quarterly payments through approximately July 2023 in restricted cash.
Material changes versus FY2020
- Net loss narrowed by $6.568 million, mainly because the 2020 debt-extinguishment charge was much larger. Operating loss increased by $5.758 million as expenses rose faster than the small increase in rental revenue.
- Cash used in operations increased by $1.846 million; investing outflows rose substantially, mainly reflecting the $19 million Northern Pipeline acquisition and agricultural development spending.
- Cadiz refinanced prior secured debt in July 2021, repaying approximately $77.5 million of prior obligations with proceeds from a new $50 million secured loan and a preferred-share offering. It also completed common-stock offerings, including an at-the-market program.
- Common shares outstanding increased from 36.9 million at year-end 2020 to 43.7 million at year-end 2021. The March 2022 offering subsequently added 6.9 million shares.
Outlook, risks and unusual items
- Management said 2021 financing, cash on hand and a subsequent March 2022 common-stock offering generating approximately $11.8 million net proceeds provided sufficient funds for short-term working-capital needs. It expects to need additional capital longer term; no assurance is given that financing will be available on acceptable terms.
- Estimated construction of the Water Project facilities is approximately $450–$550 million. Converting the full Northern Pipeline for water conveyance is estimated at $100–$125 million. These projects require financing, final contracts and additional permits or approvals.
- Implementation depends on binding water-supply and storage arrangements, conveyance agreements, regulatory approvals and construction. Existing agency options and contracts are subject to board approval, further environmental review and other conditions. The filing provides no firm revenue or profitability guidance.
- Two federal lawsuits challenge Bureau of Land Management right-of-way permits for the Northern Pipeline. BLM sought voluntary remand to vacate the permits and require additional review; Cadiz opposed the motion, and a hearing was expected in May 2022. The company said it could not predict the outcome.
- Key risks include continuing operating losses and cash burn, financing needs, project delays or failure to secure permits and contracts, litigation, water-resource and environmental concerns, dilution from equity issuance, and the debt and cumulative preferred-dividend obligations.
- Hemp joint-venture losses were $0.942 million, down from $2.169 million in 2020; the filing cites oversupply and weak biomass prices. The company expected to plant fewer than 20 acres of hemp in 2022, focusing on research.
- The company reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2021. PwC issued an unqualified audit opinion; liquidity assessment was identified as a critical audit matter.
Important facts for investors to verify
- Current status and outcome of the Northern Pipeline permit litigation, including any remand, additional review or permit changes.
- Whether Cadiz has obtained binding customer contracts, conveyance agreements and required approvals, and the expected timing and economics of project execution.
- Funding plan and cost assumptions for the Water Project and pipeline conversion, including whether public-agency financing or private infrastructure debt is available.
- Cash runway, future capital requirements, secured-debt covenants and maturity/refinancing exposure, alongside cumulative preferred dividends and restricted-cash availability.
- Groundwater recharge, extraction and monitoring assumptions underlying the project’s permitted supply, and any material environmental or legal developments.
- Share-count changes and potential dilution from future financings, warrants and equity awards; also confirm the effect of the March 2022 offering and related-party participation.