Alico(US:ALCO)2023-08-02 16:00markdown [Part I - FINANCIAL INFORMATION](index=2&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) [Condensed Consolidated Financial Statements](index=2&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) Alico, Inc.'s unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2023, and 2022, are presented [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | **Total current assets** | $47,695 | $31,616 | | **Total assets** | $421,126 | $409,255 | | **Total current liabilities** | $15,389 | $16,525 | | **Total liabilities** | $171,474 | $160,390 | | **Total stockholders' equity** | $249,652 | $248,865 | - **Total current assets** increased primarily due to **higher inventories** (**$38.8 million** vs **$27.7 million**) and **accounts receivable** (**$4.4 million** vs **$0.3 million**) compared to September 30, 2022[14](index=14&type=chunk) - **Total liabilities** increased, driven mainly by a rise in borrowings on lines of credit from **$4.9 million** to **$17.9 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statement of Operations Summary (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total operating revenues** | $7,284 | $25,938 | $39,166 | $90,916 | | **Gross profit** | $15,502 | $1,311 | $5,373 | $7,121 | | **Income (loss) from operations** | $12,572 | $(1,246) | $(2,733) | $(558) | | **Net income attributable to Alico** | $11,832 | $2,706 | $895 | $33,539 | | **Diluted EPS** | $1.56 | $0.36 | $0.12 | $4.44 | - **Operating revenues** for the nine months ended June 30, 2023, **decreased significantly** to **$39.2 million** from **$90.9 million** in the prior year, primarily due to **lower citrus production**[15](index=15&type=chunk) - **Gross profit** for Q3 2023 was **substantially higher** at **$15.5 million** compared to **$1.3 million** in Q3 2022, largely due to the recognition of insurance proceeds which reduced operating expenses[15](index=15&type=chunk) - **Gain on sale of real estate**, property and equipment was **significantly lower** in the first nine months of 2023 (**$7.4 million**) compared to the same period in 2022 (**$40.8 million**)[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Nine Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | $(618) | $10,792 | | **Net cash (used in) provided by investing activities** | $(5,718) | $27,535 | | **Net cash provided by (used in) financing activities** | $7,063 | $(29,684) | | **Net increase in cash** | $727 | $8,643 | - **Cash from operations** turned **negative** for the nine months ended June 30, 2023, a **significant shift** from the **positive $10.8 million** in the prior year, mainly due to **lower net income** before non-cash items[25](index=25&type=chunk) - **Investing activities** used cash, driven by **lower proceeds from asset sales** (**$7.6 million** in 2023 vs. **$42.7 million** in 2022)[25](index=25&type=chunk) - **Financing activities** provided cash, **primarily from increased net borrowings** on revolving lines of credit[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company operates in two segments: **Alico Citrus** and **Land Management and Other Operations**[26](index=26&type=chunk)[31](index=31&type=chunk) - The company recognized **significant insurance proceeds** of **$21.4 million** in the nine months ended June 30, 2023, related to **Hurricane Ian** crop claims, which were recorded as a reduction in operating expenses[55](index=55&type=chunk) - The company sold approximately **1,436 acres** of land for total proceeds of approximately **$7.6 million** during the first nine months of fiscal 2023, recognizing a **gain of $7.4 million**[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - The company is involved in two **legal proceedings**, a **class action** (Sinder matter) and a **shareholder derivative complaint** (Assad matter), both of which management believes are **without merit**[118](index=118&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operating results, segment performance, liquidity, and capital resources [Recent Developments](index=26&type=section&id=Recent%20Developments) - **Hurricane Ian**, which made landfall in September 2022, **significantly impacted** fiscal year 2023 fruit production, with recovery to pre-hurricane levels potentially taking up to two full seasons[133](index=133&type=chunk) - As of June 30, 2023, the company has received approximately **$21.4 million** in crop insurance proceeds and **$0.8 million** in property damage claims related to **Hurricane Ian**[134](index=134&type=chunk) - The company began treating its trees with a new application of **Oxytetracycline (OTC)** in January 2023 to mitigate the impacts of citrus greening, with over **35%** of trees treated as of June 30, 2023[135](index=135&type=chunk) - The company received the final portion of **Hurricane Irma federal relief funds**, totaling **$1.3 million**, during the nine months ended June 30, 2023[141](index=141&type=chunk) [Condensed Consolidated Results of Operations](index=28&type=section&id=Condensed%20Consolidated%20Results%20of%20Operations) Consolidated Results of Operations (in thousands) | Metric | YTD 2023 | YTD 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total operating revenues** | $39,166 | $90,916 | $(51,750) | (56.9)% | | **Total gross profit** | $5,373 | $7,121 | $(1,748) | (24.5)% | | **Income (loss) from operations** | $(2,733) | $(558) | $(2,175) | NM | | **Net income attributable to Alico** | $895 | $33,539 | $(32,644) | (97.3)% | - The **significant decrease in revenue** for the nine months ended June 30, 2023, was **primarily driven by lower fruit production** due to **Hurricane Ian** and the termination of a major grove management services contract[149](index=149&type=chunk)[163](index=163&type=chunk) - Operating expenses decreased for the nine-month period, **largely due to inventory adjustments** made in late 2022 for **Hurricane Ian's** impact and the receipt of crop insurance reimbursements, which offset higher cultivation costs[154](index=154&type=chunk)[164](index=164&type=chunk) - **Net income** for the nine-month period **fell sharply**, primarily due to **significantly lower gains on the sale of real estate** compared to the prior year (**$7.4 million** in YTD 2023 vs. **$40.8 million** in YTD 2022)[168](index=168&type=chunk) [Segment Analysis](index=29&type=section&id=Segment%20Analysis) - **Alico Citrus**: Revenue for the nine months ended June 30, 2023, fell **57.5%** to **$37.9 million** from **$89.3 million** year-over-year, caused by a **51.4%** decrease in total boxes harvested due to **Hurricane Ian** and the termination of a major grove management contract[145](index=145&type=chunk)[149](index=149&type=chunk)[152](index=152&type=chunk) - The company's overall citrus production decrease of **51.4%** was **less severe** than the USDA's forecast for the entire Florida orange crop, which projected a **61.5%** decline for the 2022-23 season[153](index=153&type=chunk) - **Land Management and Other Operations**: Revenue for the nine months ended June 30, 2023, decreased by **22.1%** to **$1.2 million**, primarily due to reduced grazing and hunting lease revenue following sales of portions of the Alico Ranch[159](index=159&type=chunk)[161](index=161&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Working Capital Summary (in thousands) | Metric | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | **Working capital** | $32,306 | $15,091 | | **Current ratio** | 3.10 to 1 | 1.91 to 1 | - The company's primary sources of liquidity are cash from operations, asset sales, and credit facilities, which management believes are sufficient to meet needs for at least the next twelve months[173](index=173&type=chunk)[176](index=176&type=chunk) - As of June 30, 2023, the company had approximately **$51.8 million** available on its **$70 million** working capital line of credit and **$25 million** available on its revolving line of credit[177](index=177&type=chunk) - The company was in compliance with **all financial covenants** as of June 30, 2023[179](index=179&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate fluctuations on variable rate debt, with no exposure to foreign exchange, commodity, or equity risks - The company is subject to **interest rate risk** on its **variable rate debt**, where a **one-percentage-point** increase in interest rates would have increased interest expense by approximately **$100,000** for the three months ended June 30, 2023[190](index=190&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting - As of June 30, 2023, **disclosure controls and procedures** were deemed **not effective** due to **ongoing material weaknesses** in internal control over financial reporting[195](index=195&type=chunk) - The **material weaknesses** identified relate to controls around the completeness and accuracy of information used for the **income tax provision** and the design of effective controls for evaluating **financial statement misstatements**[198](index=198&type=chunk)[200](index=200&type=chunk) - Management has implemented a **remediation plan**, including enhanced reconciliation and review processes for the tax provision and formal documentation for the evaluation of any misstatements[198](index=198&type=chunk) [Part II - OTHER INFORMATION](index=38&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is a defendant in a securities class action and a shareholder derivative complaint, both believed to be without merit - A **class action complaint** (Sinder v. Alico, Inc.) was filed on February 17, 2023, alleging false and misleading statements related to the company's financial reporting and restatement[203](index=203&type=chunk) - A **shareholder derivative complaint** (Assad v. Brokaw et al.) was filed on March 7, 2023, with substantially similar allegations, and proceedings in this matter are **currently stayed**[204](index=204&type=chunk) - Management believes the claims in both legal matters are **without merit** and does not anticipate a **material adverse impact** on the company's financial condition[205](index=205&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the company's risk factors since the filing of its 2022 Annual Report on Form 10-K - **No material changes** have occurred in the company's **risk factors** since the filing of its 2022 Annual Report on Form 10-K[206](index=206&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) No unregistered equity securities were sold or repurchased by the issuer during the quarter ended June 30, 2023 - There were **no sales of unregistered equity securities** or **issuer repurchases of equity securities** during the reported period[207](index=207&type=chunk)