Alico, Inc. Form 10-Q Summary
Business Context and Reporting Period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 121,000 acres, including approximately 90,000 acres of mineral rights. The filing covers the unaudited three months ended December 31, 2015, the first quarter of fiscal 2016, compared with the three months ended December 31, 2014.
Effective October 1, 2015, the company reported three segments: Orange Co., Conservation and Environmental Resources, and Other Operations. Results include Silver Nip Citrus on a retrospectively recast common-control basis.
Key Financial Metrics
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Operating revenue | $20.604 million | $19.070 million | 8.0% increase |
| Gross profit | $1.366 million | $3.272 million | 58.3% decrease |
| Loss from operations | $2.559 million | $2.212 million | Higher loss |
| Net income attributable to Alico common stockholders | $(3.011) million | $5.206 million | $(8.217) million |
| Diluted EPS | $(0.36) | $0.71 | Declined |
| Cash used in operating activities | $(14.781) million | $(16.446) million | $1.665 million improvement |
| Adjusted EBITDA | $2.384 million | $4.360 million | 47.3% decrease |
| Adjusted free cash flow | $(16.668) million | $(14.675) million | Higher cash outflow |
Gross margin was approximately 6.6%, compared with 17.2% in the prior-year quarter. Operating margin was approximately negative 12.4%, compared with negative 11.6%. Net margin attributable to common stockholders was approximately negative 14.6%, compared with positive 27.3%.
At December 31, 2015, cash and cash equivalents were $3.276 million, total assets were $468.982 million, and working capital was $64.476 million. The current ratio was 4.67 to 1. Total term loans and lines of credit were $227.913 million, including $25.132 million outstanding under the working capital line. Available borrowing capacity was approximately $30.884 million under that facility, plus an undrawn $25 million revolving line of credit. The company reported compliance with its financial covenants.
Cash flows from investing activities used $2.848 million, primarily for $2.988 million of capital expenditures. Financing activities provided $15.431 million, including approximately $24.986 million of working-capital borrowings. The company paid $3.750 million of additional Orange-Co acquisition consideration and $2.602 million for treasury-stock purchases.
Material Changes Versus the Prior Comparable Period
- Revenue increased $1.534 million, led by a $2.302 million increase in Orange Co. revenue and a $171,000 increase in Conservation and Environmental Resources revenue. Other Operations revenue declined $939,000 following the sugarcane land disposition.
- Gross profit declined $1.906 million. Orange Co. gross profit fell $1.092 million, while Conservation and Environmental Resources moved from $91,000 of gross profit to a $553,000 loss.
- Orange Co. revenue benefited from 110,000 additional fresh-fruit boxes, 66,000 additional resale boxes, and higher early- and mid-season pricing per pound solids. These benefits were offset by lower production, lower pound solids per box, and higher cost per box.
- General and administrative expense declined $1.559 million to $3.925 million because the prior-year quarter included approximately $3.6 million of acquisition, disposition, and merger costs. Current-quarter expenses included approximately $400,000 of shareholder-litigation costs, $400,000 related to an unsuccessful acquisition write-off, $304,000 for consulting and non-competition agreements, and executive bonuses.
- Other income in the prior-year quarter included a $13.613 million gain recognized on the sugarcane land sale. The current quarter included only a $142,000 real-estate gain and had $2.503 million of interest expense, $1.125 million higher than the prior year.
- Cash used in operations improved year over year, but working-capital changes consumed $16.519 million. Cash declined by $2.198 million during the quarter.
- The company repurchased 64,136 shares for $2.602 million and declared a quarterly dividend of $0.06 per share.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management revised its fiscal 2016 production estimate to approximately 85% of fiscal 2015 production. The USDA projected a 28.7% decline in the statewide Florida orange crop, and management expects higher price per pound solids to partially offset lower volume. Citrus Greening, premature fruit drop, smaller fruit, weather, pests, and horticultural conditions remain significant operating risks.
The business is seasonal: the second and third fiscal quarters generally produce most annual revenue, while working-capital needs are typically higher in the first and fourth quarters. The company stated that quarterly results are not necessarily indicative of full-year results.
A South Florida Water Management District contract could provide reimbursement of up to $4 million for implementation and annual operating and maintenance payments of up to $12 million for ten years. Funding is subject to Florida legislative funding and annual governing-board approval. The filing states that fiscal 2016 funding had not been received and that the district could terminate the contract if funding and other accommodations are unavailable.
The company has approximately $13.984 million of outstanding standby letters of credit. It also had approximately $3.709 million of remaining citrus purchase commitments for fiscal 2016, covered by sales agreements. A $3.750 million final Orange-Co acquisition payment was secured by a new letter of credit and was due June 1, 2016, subject to limitations.
Two shareholder lawsuits relating to the Silver Nip Citrus acquisition were consolidated. The parties reported an agreement in principle to settle, but formal documentation and court approval remained outstanding at the filing date. The company recorded approximately $400,000 of related litigation expense in the quarter.
The company identified no material changes to previously disclosed risk factors or market-risk disclosures. Key risks include agricultural production and pricing volatility, disease, weather, water availability, interest rates, debt covenant compliance, financing availability, land-use restrictions, seasonality, concentrated ownership, and the ability to realize anticipated benefits from acquisitions.
Important Facts for Investors to Verify
- Whether citrus production reaches management’s revised estimate of approximately 85% of fiscal 2015 production and whether higher pound-solids pricing offsets volume declines.
- The timing and amount of funding under the South Florida Water Management District contract.
- Liquidity after seasonal working-capital needs, including the maturity and availability of the working capital line and revolving line.
- Compliance with debt covenants and the company’s ability to fund scheduled principal payments, capital expenditures, dividends, and acquisition-related obligations.
- The final terms, approval, and financial impact of the shareholder-litigation settlement.
- Whether Orange Co. margins recover from the quarter’s approximately 8.7% segment gross margin, compared with approximately 16.4% in the prior-year quarter.
- Additional shares or consideration payable to former Silver Nip Citrus members based on subsequent proceeds from the 2014-2015 citrus harvest.
- The filing’s non-GAAP measures, including Adjusted EBITDA and Adjusted free cash flow, against reported GAAP results.