Cadiz Inc. — Q1 2023 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Cadiz is developing land, groundwater, storage, pipeline-conveyance and water-treatment assets in California’s Mojave Desert. Agricultural leases and farming were its principal current revenue sources; the company reported no significant revenue to date from its water projects or treatment business.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0.13 million | $0.142 million |
| Operating loss | $4.152 million | $3.785 million |
| Net loss | $10.691 million | $5.912 million |
| Net loss attributable to common stock / diluted loss per share | $11.956 million / $0.19 | $7.177 million / $0.16 |
| Net interest expense | $1.504 million | $1.991 million |
| Cash used in operations | $4.069 million | $3.222 million |
| Cash used in investing | $2.206 million | $0.630 million |
At March 31, 2023, cash and cash equivalents were $26.277 million, with restricted cash of $2.497 million. Working capital was $24.0 million. Total assets were $127.547 million and total liabilities were $66.725 million. Debt, including current portion, was approximately $36.751 million, compared with approximately $49.090 million at December 31, 2022. The company also reported $21.251 million of long-term related-party lease obligations. No scheduled principal payments on senior secured debt are due before maturity. The filing does not provide a meaningful gross margin measure given the company’s reported expenses and revenue presentation.
Material changes and unusual items
- Revenue declined by $12,000 year over year. General and administrative expense was $3.953 million, up from $3.806 million; depreciation rose to $329,000 from $121,000.
- Net loss increased by $4.779 million, primarily because of a $5.331 million loss on early extinguishment of debt. The charge related to the February debt amendment and repayment, including repayment fees and write-off of unamortized debt costs.
- On January 30, Cadiz issued 10.5 million common shares at $3.84 per share, generating approximately $38.5 million net proceeds. It used part of the proceeds to repay $15 million of debt. Shares outstanding rose from 55.8 million at year-end to 66.5 million at quarter-end.
- The February credit amendment permits lenders, subject to stockholder approval, to convert up to $15 million of principal, plus applicable interest, into common shares at $4.80 per share. Interest on that portion is paid in kind. The 7% annual interest rate remains unchanged; maturity was extended to June 30, 2025, and may extend to June 30, 2026 if specified conditions are met.
- Q1 cash increased by $14.992 million, mainly reflecting equity proceeds, partly offset by debt repayment, operating and investing outflows, and dividends.
Outlook, risks and contingencies
Management said the January offering, together with cash on hand, was expected to cover short-term working-capital needs. It expects to use remaining proceeds for project development, capital expenditures and working capital. Over the longer term, the company expects to need additional capital and may seek equity or debt financing, dispose of assets, or reduce costs; availability and terms are not assured. Management reported Q1 operating cash use of $4.1 million and a $10.7 million quarterly loss, while stating that current sources of capital were expected to meet near-term needs.
Cadiz is discussing potential water-supply and pipeline arrangements with public water agencies. The filing describes possible long-term supply and infrastructure plans, but does not report completed customer contracts or project revenues. Any contracts and construction remain subject to environmental review and permitting. The company’s plans therefore depend on financing, approvals, project execution and customer agreements.
Other items include a $1.45 million contingent consideration liability related to the ATEC acquisition and $750,000 of deferred revenue from Water Project participants, potentially refundable or creditable. The company said it knew of no other pending or threatened litigation expected to have a material adverse effect, while noting legal claims are inherently uncertain. It reported no material changes to the risk factors in its 2022 Form 10-K. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether stockholders approved the increase in authorized shares needed for the lender’s conversion right and possible maturity extension.
- Cash burn, remaining unrestricted liquidity, and the timing and terms of any additional financing.
- Progress toward binding water-supply agreements, project-level permits, and conversion and construction of the Northern Pipeline.
- Potential dilution from the 2023 offering, convertible loan, equity awards and other share-linked instruments.
- Debt amendment economics, including the conversion option, payment-in-kind interest, repayment provisions and any further debt reduction.