Alico(ALCO) - 2023 Q2 - Quarterly Report

Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Financial performance declined significantly, with revenues falling, leading to a net loss and negative operating cash flow Condensed Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2023 (Unaudited) | September 30, 2022 | | :--- | :--- | :--- | | Total current assets | $36,973 | $31,616 | | Total assets | $411,561 | $409,255 | | Total current liabilities | $14,311 | $16,525 | | Total liabilities | $174,240 | $160,390 | | Total stockholders' equity | $237,321 | $248,865 | - Total stockholders' equity decreased from $248.9 million at September 30, 2022, to $237.3 million at March 31, 2023, primarily due to a net loss and dividend payments[11] - Lines of credit increased significantly from $4.9 million to $21.1 million, indicating increased reliance on short-term borrowing[11] Condensed Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $21,294 | $49,641 | $31,882 | $64,978 | | Gross (loss) profit | $(6,328) | $3,999 | $(10,129) | $5,810 | | Net (loss) income attributable to Alico | $(7,787) | $20,702 | $(10,937) | $30,833 | | Diluted EPS | $(1.02) | $2.74 | $(1.44) | $4.08 | - For the six months ended March 31, 2023, the company reported a net loss of $10.9 million, a significant downturn from the $30.8 million net income in the prior-year period, largely due to a 50.9% decrease in operating revenues[12] - Gain on sale of real estate, property and equipment decreased from $35.0 million in the first six months of fiscal 2022 to $4.8 million in the same period of fiscal 2023, significantly impacting other income and overall profitability[12] Condensed Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(7,110) | $8,798 | | Net cash (used in) provided by investing activities | $(4,111) | $25,998 | | Net cash provided by (used in) financing activities | $10,504 | $(9,506) | | Net (decrease) increase in cash | $(717) | $25,290 | - Cash from operations turned negative, with a net use of $7.1 million for the six months ended March 31, 2023, compared to a net provision of $8.8 million in the prior year, reflecting the sharp decline in net income[23] - Net proceeds from the sale of real estate and other assets decreased from $36.7 million to $4.9 million year-over-year, causing a significant swing in cash from investing activities[23] Notes to Condensed Consolidated Financial Statements Notes detail the business structure, accounting policies, and significant events including Hurricane Ian's impact and a debt covenant waiver - The company operates through two segments: Alico Citrus and Land Management and Other Operations[24][29] - Due to Hurricane Ian, the company recorded a $1.6 million adjustment to reduce inventory to net realizable value for the six months ended March 31, 2023; insurance proceeds of $4.76 million were received during the same period[51][53] - As of March 31, 2023, the company was not in compliance with its minimum debt service coverage ratio covenant but obtained a waiver from the lender, Rabo, for the quarter[78] - The company is a defendant in a class action lawsuit (Sinder v Alico, Inc) and a shareholder derivative complaint (Assad v Brokaw et al) related to its December 2022 financial restatement[122][123][125] - Subsequent to the quarter's end, in April 2023, the company received an additional $8.9 million in Hurricane Ian crop insurance proceeds and $838,000 for property damage claims[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes poor performance to Hurricane Ian's impact on citrus production and the termination of a key services contract Business Overview and Recent Developments - Hurricane Ian impacted a majority of the company's groves, affecting fiscal year 2023 fruit production, with recovery expected to take up to two full seasons[140] - The company began treating its trees with a new application of Oxytetracycline (OTC) in January 2023 to mitigate the impacts of citrus greening, with benefits not measurable until the fiscal 2024 harvest[142] - During the first half of fiscal 2023, the company sold approximately 888 acres of land for total proceeds of about $4.9 million[144][145] - The company received the final portion of Hurricane Irma federal relief funds, amounting to $1.266 million, in the first quarter of fiscal 2023[148] Condensed Consolidated Results of Operations Alico Citrus Segment Performance - Six Months Ended March 31 | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue (in thousands) | $31,205 | $63,780 | (51.1)% | | Total Boxes Harvested (in thousands) | 2,273 | 4,146 | (45.2)% | | Total Pound Solids Produced (in thousands) | 11,146 | 20,815 | (46.5)% | - The decrease in Alico Citrus revenue was driven by lower processed box production for both Early/Mid-Season (down 55.0%) and Valencia (down 33.4%) crops due to Hurricane Ian[156] - Grove Management Services revenue decreased by 93.0% for the six-month period, as a key group of third-party grove owners exited the citrus business in June 2022[151][158] - Land Management and Other Operations revenue decreased by 43.5% for the six-month period, primarily due to reduced grazing and hunting lease income resulting from the sale of portions of the Alico Ranch[165][168] - Other income, net, decreased by 92.9% for the six-month period, mainly because gains from real estate sales fell to $4.8 million from $35.0 million in the prior-year period[149][177] Liquidity and Capital Resources Working Capital Summary (in thousands) | Metric | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Total current assets | $36,973 | $31,616 | | Total current liabilities | $14,311 | $16,525 | | Working capital | $22,662 | $15,091 | - Management believes existing cash, cash from operations, asset sales, and credit lines will provide sufficient liquidity for at least the next twelve months[183][184] - As of March 31, 2023, the company had approximately $48.6 million available on its $70 million working capital line of credit and $25 million available on its revolving line of credit[185] - Net cash used in operating activities was $7.1 million for the first six months of fiscal 2023, a reversal from $8.8 million provided by operations in the prior year, mainly due to lower box production and the termination of a grove management contract[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its variable rate debt, with no other significant exposures - The company is subject to interest rate risk on its variable rate debt; a one-percentage-point increase in prevailing interest rates would have increased interest expense by approximately $100,000 for the three months ended March 31, 2023[196] - The company does not use derivative financial instruments for trading or speculative purposes[195] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to ongoing material weaknesses in internal control over financial reporting - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were not effective at a reasonable assurance level[201] - The ineffectiveness is due to two ongoing material weaknesses: one related to controls around the income tax provision and another related to the evaluation of misstatements' impact on financial statements[204][205] - A remediation plan has been designed and is being implemented to address these weaknesses, involving improved reconciliation, documentation, review, and approval processes for the tax provision and misstatement evaluations[204] Part II - OTHER INFORMATION Item 1. Legal Proceedings The company is defending a class action and a shareholder derivative complaint related to its 2022 financial restatement - A class action complaint (Sinder v Alico, Inc) was filed on February 17, 2023, alleging violations of the Exchange Act related to false and misleading statements regarding financial reporting and a subsequent restatement[208] - A shareholder derivative complaint (Assad v Brokaw et al) was filed on March 7, 2023, asserting breach of fiduciary duty and unjust enrichment based on similar allegations as the class action[209] - The company believes the claims in both legal matters are without merit and does not anticipate a material adverse impact on its financial condition[210] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported during the period - No material changes were reported in the company's risk factors from its most recent Form 10-K[211] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in unregistered equity sales or share repurchases during the quarter - There were no sales of unregistered equity securities or issuer repurchases of equity securities during the reporting period[212] Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosure Not Applicable Item 5. Other Information None Item 6. Exhibits This section lists exhibits filed with the report, including a debt modification agreement and officer certifications - Exhibits filed include an Option To Defer Principal Payments agreement with Metropolitan Life Insurance Company and certifications from the CEO and CFO[217]