Alico(ALCO) - 2022 Q2 - Quarterly Report

Part I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements The company's unaudited condensed consolidated financial statements for Q1/Q2 2022 reflect increased assets and net income, primarily from real estate sales Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Total current assets | $70,582 | $54,913 | | Total assets | $452,912 | $433,217 | | Total current liabilities | $24,531 | $22,306 | | Total liabilities | $181,356 | $185,612 | | Total stockholders' equity | $271,556 | $247,605 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Total operating revenues | $64,978 | $69,676 | | Gross profit | $5,810 | $15,623 | | Gain on sale of real estate | $35,049 | $3,347 | | Net income attributable to Alico | $30,833 | $8,712 | | Diluted EPS | $4.08 | $1.16 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,798 | $25,626 | | Net cash provided by (used in) investing activities | $25,998 | $(24,598) | | Net cash used in financing activities | $(9,506) | $(10,344) | | Net increase (decrease) in cash | $25,290 | $(9,316) | Note 1. Description of Business and Basis of Presentation Alico, Inc. is a Florida-based agribusiness and land management company operating through Alico Citrus and Land Management segments - The company owns approximately 75,000 acres of land and 90,000 acres of mineral rights in Florida[22] - Performance is evaluated based on two operating segments: (i) Alico Citrus and (ii) Land Management and Other Operations[25] - The company has experienced no material adverse impacts from the COVID-19 pandemic to date[47] Note 2. Inventories Inventories, mainly unharvested fruit crop, decreased to $33.2 million by March 31, 2022, with $1.1 million in federal relief funds received Inventory Breakdown (in thousands) | Category | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Unharvested fruit crop | $32,278 | $42,117 | | Other | $905 | $1,260 | | Total inventories | $33,183 | $43,377 | - The company received approximately $1.123 million in federal relief proceeds from the CRBG program during the six months ended March 31, 2022, which are recorded as a reduction to operating expenses[52] Note 3. Assets Held for Sale The company continued its non-core asset disposal strategy, selling 6,286 acres of Alico ranch for $28.3 million and recognizing a $26.6 million gain - On March 15, 2022, the company sold approximately 6,286 acres from the Alico ranch for approximately $28.3 million, resulting in a gain of about $26.6 million[54] - In December 2021, the State of Florida purchased 1,638 acres of the Alico ranch for $5.7 million, leading to a gain of $5.6 million[56] Note 4. Property and Equipment, Net Net property and equipment slightly increased to $373.9 million by March 31, 2022, including a $1.45 million gain from a property condemnation Property and Equipment, Net (in thousands) | Category | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Net depreciable properties | $260,230 | $259,277 | | Land and land improvements | $113,633 | $113,954 | | Property and equipment, net | $373,863 | $373,231 | - In connection with a property condemnation by the State of Florida in October 2021, the company received and recognized a gain of approximately $1.45 million[60] Note 5. Long-Term Debt and Lines of Credit Total long-term debt decreased slightly to $119.9 million by March 31, 2022, with no outstanding revolving credit balances and compliance with financial covenants Long-Term Debt Summary (in thousands) | Debt Category | March 31, 2022 (Principal) | September 30, 2021 (Principal) | | :--- | :--- | :--- | | Met Fixed-Rate Term Loans | $70,000 | $70,000 | | Met Variable-Rate Term Loans | $36,656 | $38,094 | | Other Term Loans | $17,495 | $18,200 | | Total Long-Term Debt | $124,151 | $126,294 | - The company had no outstanding balance on its $25 million RLOC and $70 million WCLC as of March 31, 2022[64][71][75] - The company was in compliance with all financial covenants as of March 31, 2022[76] - The company is working with lenders to transition its LIBOR-based debt to an alternative reference rate, with the transition expected in fiscal 2023[79] Note 8. Earnings Per Common Share Diluted earnings per share significantly increased to $4.08 for the six months ended March 31, 2022, driven by net income from asset sales Earnings Per Common Share | Period | Diluted EPS (2022) | Diluted EPS (2021) | | :--- | :--- | :--- | | Three Months Ended March 31 | $2.74 | $0.65 | | Six Months Ended March 31 | $4.08 | $1.16 | Note 9. Segment Information For the six months ended March 31, 2022, Alico Citrus revenues decreased to $63.8 million with gross profit of $4.9 million, and Land Management also declined Segment Performance for Six Months Ended March 31 (in thousands) | Segment | Revenues (2022) | Revenues (2021) | Gross Profit (2022) | Gross Profit (2021) | | :--- | :--- | :--- | :--- | :--- | | Alico Citrus | $63,780 | $68,194 | $4,904 | $14,529 | | Land Management & Other | $1,198 | $1,482 | $906 | $1,094 | | Total | $64,978 | $69,676 | $5,810 | $15,623 | Note 11. Stockholders' Equity The company awarded over 12,000 restricted shares in H1 FY22, with certain performance-based stock options forfeited due to unmet price hurdles - On January 26, 2022, 7,256 restricted shares were awarded to employees[104] - In October and November 2021, a combined 4,724 restricted shares were awarded to the CEO and other executives[105] - The 2019 Option Grants and a majority of the 2018 Option Grants were forfeited as of December 31, 2021, because the required stock price hurdles were not achieved[109][112] Note 12. Commitments and Contingencies The company has $336,000 in standby letters of credit and $6.6 million in citrus tree purchase commitments, with no material adverse legal proceedings - As of March 31, 2022, the company had approximately $6.578 million in outstanding commitments for the purchase of citrus trees[120] - The company is not party to any legal proceedings that are expected to have a material adverse effect on its financial condition[118] Note 13. Related Party Transactions The company entered into an amended employment and bonus agreement with CEO John E. Kiernan, who also leased 93 acres of company land with a $480,000 purchase option - The company entered into a new employment and bonus agreement with CEO John E. Kiernan, effective April 1, 2022, with a term ending September 30, 2024[121] - CEO John Kiernan entered into a lease for 93 acres of company land with an option to purchase it for $480,000, exercisable through January 1, 2023[123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses decreased operating revenues and gross profit for H1 FY22 due to lower citrus volume, offset by substantial net income from ranch land sales, improving liquidity Recent Developments Recent developments include a new CEO employment agreement, significant ranch land sales, federal relief funds, and a freeze event impacting Valencia orange crop yield - On March 15, 2022, the company sold 6,286 acres of the Alico ranch for $28.3 million[136] - A freeze event in late January 2022 had a material adverse effect on the yield of the season's Valencia crop[138] - The company received $1.123 million from the Florida CRBG program in the six months ended March 31, 2022[137] Condensed Consolidated Results of Operations For H1 FY22, total operating revenues decreased 6.7% to $65.0 million and gross profit fell 62.8% to $5.8 million, though net income surged to $30.8 million from real estate sales Results of Operations for Six Months Ended March 31 (in thousands) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total operating revenues | $64,978 | $69,676 | (6.7)% | | Gross profit | $5,810 | $15,623 | (62.8)% | | Income from operations | $688 | $10,442 | (93.4)% | | Total other income, net | $33,288 | $1,081 | NM | | Net income attributable to Alico | $30,833 | $8,712 | NM | - The decrease in Alico Citrus revenue was due to a 11.0% decrease in processed box production and lower pound solids per box, partially offset by an 11.2% increase in price per pound solid[149][150][151] - The USDA forecasts the overall Florida orange crop to decrease by 27.9% for the 2021-22 season, while the company anticipates a smaller decline for its Valencia crop (12-15%) due to its grove management program[153] Liquidity and Capital Resources The company's liquidity significantly strengthened, with cash increasing to $26.2 million and working capital to $46.1 million, primarily from $36.7 million in real estate sales proceeds Liquidity Summary (in thousands) | Metric | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,176 | $886 | | Working capital | $46,051 | $32,607 | | Principal amount of term loans | $124,151 | $126,294 | - Cash from investing activities was a source of $26.0 million in H1 FY22, a major shift from a use of $24.6 million in H1 FY21, mainly due to higher proceeds from asset sales[184] - Cash used in financing activities decreased slightly to $9.5 million from $10.3 million, as lower principal payments on debt were partially offset by higher dividend payments[186] Quantitative and Qualitative Disclosures About Market Risk No material changes were reported in the company's market risk disclosures compared to the prior fiscal year's Annual Report on Form 10-K - No material changes were reported regarding market risk during the period[190] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of the end of the reporting period[191] - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[192] Part II - OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its financial condition or operations - There are no current legal proceedings expected to have a material adverse effect on the company[194] Risk Factors No material changes to risk factors were reported compared to those disclosed in the company's prior Annual Report on Form 10-K - No material changes to risk factors were reported for the period[195] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no sales of unregistered equity securities or issuer repurchases of its equity securities during the quarter ended March 31, 2022 - There were no sales of unregistered equity securities or issuer repurchases of equity securities during the reporting period[195] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and Sarbanes-Oxley Act certifications