Alico(US:ALCO)2023-12-05 16:00PART I Business Alico, Inc. is a major Florida agribusiness focused on citrus production and land management, significantly impacted by Hurricane Ian and highly dependent on Tropicana - Alico operates two primary business segments: Alico Citrus (citrus production and management) and Land Management and Other Operations (leasing for grazing, hunting, mining, etc.)1718 - Hurricane Ian in September 2022 adversely impacted a majority of the company's groves, affecting the FY2023 fruit production. The company received $27.4 million in crop insurance proceeds and $0.8 million for property damage as of September 30, 20232021 - In September 2023, Alico agreed to sell 17,229 acres of the Alico Ranch to the State of Florida for approximately $77.6 million, with proceeds intended to repay variable rate debt19 - The company is testing a new application of Oxytetracycline (OTC) to mitigate the effects of citrus greening, with over 35% of its trees treated as of September 30, 20232324 | Land Holdings & Activities | Gross Acreage | | :--- | :--- | | Alico Citrus | | | Citrus Groves & Nursery | 48,949 | | Land Management & Other Operations | | | Ranch, Mining Lease, Other | 22,854 | | Total | 71,803 | - Tropicana is a significant customer, accounting for 81.3%, 79.7%, and 77.5% of consolidated revenue for fiscal years 2023, 2022, and 2021, respectively50 Risk Factors Alico faces significant risks from adverse weather, citrus diseases, high customer concentration, market volatility, and substantial indebtedness - Business Risks: - Weather & Natural Disasters: Geographic concentration in Florida makes the company highly vulnerable to hurricanes and tropical storms, which can destroy crops and affect production for multiple seasons, as seen with Hurricane Ian7274 - Citrus Disease: Citrus greening and citrus canker are widespread in Florida and exist in the company's groves, posing a significant threat to productivity and increasing costs, with no known cure for either disease757678 - Customer Concentration: High dependence on Tropicana (81.3% of revenue in FY2023) creates significant risk. The loss or a significant reduction in business from this customer would materially harm revenue and financial position8485 - Seasonality & Market Volatility: The citrus business is seasonal, with most revenue generated in the second and third quarters. Earnings are sensitive to unpredictable fluctuations in market supply and prices100103 - Financial & Corporate Risks: - Indebtedness: Significant debt ($129.3M as of Sept 30, 2023) requires substantial cash flow for debt service, reducing funds for other purposes and increasing vulnerability to economic downturns. Some debt is at variable interest rates, posing a risk in a rising rate environment128130 - Tax Classification: The company benefits from reduced real estate taxes due to the agricultural classification of its land. Changes in this classification could significantly increase tax liabilities114 Unresolved Staff Comments The company reports no unresolved staff comments - None134 Properties Alico owns approximately 72,000 acres in Florida, primarily for citrus groves and land management, with a significant portion encumbered by debt | Primary Use | Total Acreage | Key Counties | | :--- | :--- | :--- | | Alico Citrus | 48,949 | DeSoto, Hendry, Polk, Collier | | Citrus Groves | 48,927 | DeSoto (21,590), Hendry (8,900) | | Citrus Nursery | 22 | DeSoto (22) | | Land Management | 22,854 | Hendry, Collier, Glades | | Ranch & Other | 22,328 | Hendry (18,722), Collier (3,606) | | Mining | 526 | Glades (526) | | Total | 71,803 | | - Approximately 48,949 acres of the properties are encumbered by credit agreements totaling $216.5 million, with $104.6 million outstanding at September 30, 2023136 Legal Proceedings The company is not currently involved in material legal proceedings, as prior class action and shareholder derivative suits were dismissed - There are no current legal proceedings expected to have a material adverse effect on the company's financial position345 - A class action lawsuit and a shareholder derivative suit filed in early 2023 were both voluntarily dismissed by the plaintiffs in August 2023346347 Mine Safety Disclosures This item is not applicable to the company - Not Applicable139 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Alico's common stock trades on Nasdaq, with 394 holders of record, and the quarterly dividend was significantly reduced in December 2022 - The company's common stock trades on the Nasdaq Global Select Market under the symbol ALCO142 - The Board of Directors reduced the quarterly dividend to $0.05 per common share in December 2022, down from a previous $0.50 per share133146 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations FY2023 revenues declined significantly due to Hurricane Ian, impacting citrus and net income, with liquidity supported by operations and asset sales Consolidated Results of Operations Total operating revenues decreased 56.7% to $39.8 million in FY2023 due to Hurricane Ian, leading to a significant drop in net income | (in thousands) | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total operating revenues | $39,846 | $91,947 | (56.7)% | | Gross profit (loss) | $6,446 | $(14,765) | (143.7)% | | (Loss) income from operations | $(4,197) | $(24,844) | (83.1)% | | Net income attributable to Alico, Inc. | $1,835 | $12,459 | (85.3)% | Alico Citrus Segment Analysis Alico Citrus revenue plummeted 57.5% to $38.1 million in FY2023 due to Hurricane Ian, partially offset by insurance proceeds | Alico Citrus (in thousands, except per unit data) | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | $38,145 | $89,681 | (57.5)% | | Total Boxes Harvested | 2,689 | 5,540 | (51.5)% | | Total Pound Solids Produced | 13,288 | 28,790 | (53.8)% | | Price per Pound Solids (Valencia) | $2.75 | $2.68 | 2.6% | | Operating Expenses | $32,959 | $106,192 | (69.0)% | - The decrease in revenue was primarily due to increased fruit drop caused by Hurricane Ian, reducing the harvest of both Early/Mid-Season and Valencia fruit159 - Operating expenses were significantly reduced by the receipt of approximately $27.4 million in crop insurance and $0.8 million in property/casualty reimbursements for Hurricane Ian165168 Land Management and Other Operations Segment Analysis Land Management revenue decreased 24.9% to $1.7 million in FY2023, primarily due to reduced grazing and hunting lease income from ranch land sales | (in thousands) | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,701 | $2,266 | (24.9)% | | Operating Expenses | $441 | $520 | (15.2)% | - The decrease in revenue was mainly due to a reduction in grazing and hunting lease income following the sale of ranch land171 Liquidity and Capital Resources Working capital increased to $43.7 million in FY2023, with liquidity supported by cash, asset sales, and available credit lines despite cash used in operations | (in thousands) | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Working capital | $43,740 | $15,091 | | Total assets | $428,353 | $409,255 | | Principal amount of debt | $129,319 | $111,624 | | Debt ratio | 0.30 to 1 | 0.27 to 1 | | Cash Flows (in thousands) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(6,254) | $6,523 | | Net cash (used in) provided by investing activities | $(4,123) | $22,468 | | Net cash provided by (used in) financing activities | $13,204 | $(29,012) | - The company has a $70 million working capital line of credit and a $25 million revolving line of credit, with substantial availability under both as of September 30, 2023180 Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, inventory valuation (especially unharvested crops and casualty losses), and income tax estimates - Revenue Recognition: Revenue is recognized upon delivery, but initial amounts are often estimated based on contractual floor/ceiling prices and market conditions, requiring subsequent adjustments191 - Inventories: Costs of growing crops are capitalized. In the event of a casualty loss like a hurricane, management must estimate the fruit drop and expected production to determine any necessary write-down to net realizable value192 - Income Taxes: The company must assess the need for a valuation allowance against deferred tax assets, considering future taxable income and tax planning strategies. A valuation allowance of $4.2 million was recorded as of September 30, 2023194 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk on variable-rate debt, with no exposure to foreign exchange, equity price, or commodity price risks - The company is subject to interest rate risk on its variable-rate debt. A 1% increase in prevailing interest rates would have increased annual interest expense by approximately $438,000 for FY2023203 - The company has no exposure to foreign-exchange rate risk as all transactions are in U.S. dollars203 Financial Statements and Supplementary Data This section presents audited financial statements with an unqualified auditor's opinion, highlighting unharvested fruit crop inventory valuation as a critical audit matter - The independent auditor, RSM US LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of September 30, 2023212224 - A critical audit matter was identified concerning the net realizable value of unharvested fruit crop on trees, due to the significant management judgments involved in estimating future crop yield and citrus pricing217218 Note 2: Summary of Significant Accounting Policies Key accounting policies cover revenue recognition for fruit sales and services, inventory valuation (growing crops), property and equipment depreciation, and annual goodwill impairment testing - Revenue from fruit sales is recognized upon delivery, with the transaction price subject to variable consideration based on market prices, often within a contractual floor and ceiling252253 - Costs of growing crops are capitalized into inventory and expensed as cost of sales upon harvest. Inventories are valued at the lower of cost or net realizable value269 - The company's largest customer, Tropicana, accounted for 81.3% of total revenue in FY2023266 Note 3: Inventories Total inventories were $52.5 million as of September 30, 2023, with unharvested fruit crop significantly impacted by Hurricane Ian, leading to $28.2 million in insurance proceeds | Inventories (in thousands) | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Unharvested fruit crop on the trees | $50,699 | $26,717 | | Other | $1,782 | $965 | | Total inventories | $52,481 | $27,682 | - In FY2023, the company received insurance proceeds of approximately $27.4M for crop claims and $839k for property damage related to Hurricane Ian285 - The company also received $1.3M, $1.1M, and $4.3M in federal relief from the Hurricane Irma CRBG program in fiscal years 2023, 2022, and 2021, respectively287 Note 6: Long-Term Debt and Lines of Credit Total long-term debt and lines of credit amounted to $129.3 million as of September 30, 2023, including fixed and variable-rate loans, with variable rates increasing | Debt Summary (in thousands) | Sep 30, 2023 | | :--- | :--- | | Met fixed-rate term loans | $70,000 | | Met variable-rate term loans | $19,094 | | Pru loans A & B | $11,615 | | WCLC outstanding | $24,722 | | Total Future Maturities | $129,319 | - The company has a $70M working capital line of credit (WCLC) and a $25M revolving line of credit (RLOC), with $45.0M and $25.0M available, respectively, at year-end299 - Interest rates on variable-rate debt have transitioned from LIBOR to SOFR-based rates. The rate on the Met Variable-Rate Term Loans was 7.52% at Sept 30, 2023, up from 4.27% a year prior302 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None350 Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, having remediated a material weakness related to income tax provision processes - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023352 - The company has remediated a previously disclosed material weakness related to controls over the income tax provision and the evaluation of misstatements353 - Remediation measures included designing and implementing new controls for the income tax provision, hiring personnel with added expertise, and changing the process for evaluating misstatements354 Other Information Alico entered a material agreement to sell 17,229 acres of Alico Ranch to the State of Florida for approximately $77.6 million under the Florida Forever Program - On September 18, 2023, the company entered into an Option Agreement to sell 17,229 acres of the Alico Ranch to the State of Florida for approximately $77.6 million359 - The sale is part of the Florida Forever Program and proceeds are intended to be used to repay variable rate debt and for general corporate purposes359 PART III Directors, Executive Officers and Corporate Governance This section provides biographical information for directors and executive officers, with additional details incorporated by reference from the Proxy Statement | Name | Position(s) | | :--- | :--- | | John E. Kiernan | Director, President and Chief Executive Officer | | George R. Brokaw | Chairman | | Katherine R. English | Director | | Benjamin D. Fishman | Director | | W. Andrew Krusen, Jr. | Director | | Toby K. Purse | Director | | Adam H. Putnam | Director | | Henry R. Slack | Director | | Name | Position(s) | | :--- | :--- | | John E. Kiernan | Director, President and Chief Executive Officer | | Bradley Heine | Chief Financial Officer | | Danny Sutton | President of Alico Citrus | | James Sampel | Chief Information Officer | - The company has adopted a Code of Business Conduct and Ethics, which is available on its website377 Executive Compensation Executive compensation information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders379 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation arrangements under the 2015 Stock Incentive Plan, with 1,145,183 securities available for future issuance | Equity Compensation Plan Information | As of Sep 30, 2023 | | :--- | :--- | | Securities to be issued upon exercise of outstanding options | 38,000 | | Weighted-average exercise price of outstanding options | $33.75 | | Securities remaining available for future issuance | 1,145,183 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders382 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders383 PART IV Exhibits and Financial Statement Schedules This section lists financial statements and exhibits, including credit agreements, employment agreements, and the recent land sale option agreement - The Consolidated Financial Statements are included in Part II, Item 8 of the report385 - The Exhibit Index lists all documents filed or incorporated by reference, including credit agreements, employment agreements, and other material contracts387 Form 10-K Summary This item is not applicable - Not applicable393