Alico - Earnings Call - Q1 2021

Transcript

Speaker 0

Greetings and welcome to Aleco's First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, today's conference is being recorded. On the call today are John Kiernan, President and Chief Executive Officer and Rich Rollo, Chief Financial Officer. Earlier today, the company issued a press release announcing its results for the first quarter ended 12/31/2020.

If you have not had a chance to review the release, it is available on Investor Relations portion of the company's website at alicoincorporated.com. This call is being webcast and a replay will be available on Alico's website as well. Before we begin, the company would like to remind everyone that the prepared remarks today contain forward looking statements. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in these statements. Important factors that could cause or contribute to such differences include risk details in the company's quarterly reports on Form 10 Q, annual reports on Form 10 ks, current reports on Form eight ks and any amendments thereto filed with the SEC and those mentioned in earnings release.

The company undertakes no obligation to subsequently update or revise the forward looking statements made on today's call except as required by the law. During this call, the company will also discuss non GAAP financial measures and including EBITDA and adjusted EBITDA. For more details on these measures, please refer to the company's press release issued earlier today. With that, I would like to turn the call over to the company's President and CEO, Mr. John Keenan.

Please proceed, sir.

Speaker 1

Thank you, Latanya, and thank you, everyone, for joining us for OEKO's first quarter twenty twenty one earnings call this morning. As we begin our fiscal year 2021, we are encouraged by higher citrus fruit market prices per pound solid and that the downward pressure on citrus pricing experienced by the industry last year has subsided. Pricing for the early and mid season fruit is above $2 per pound solid compared to a year ago when market pricing was in the low $1 range. The increase in price is being driven by both an increase in consumption of knock from concentrate orange juice by retail consumers as well as tighter supplies of citrus fruit from Florida, Brazil and Mexico. These factors have led to decreased inventory supply levels at the citrus juice processors.

Robust consumption of not from concentrate orange juice by retail consumers continues to remain strong. Since March 2020, there has been double digit growth in consumption demand, and the latest published Nielsen data shows the double digit year over year increase in not from concentrate orange juice consumption is continuing to hold steady. We are confident that all of these factors will support higher Valencia market pricing for this season, which will begin to be harvested in the next couple of weeks. With respect to the 2021 harvest, which commenced in December 2020, we have seen, along with the entire Florida citrus industry, a decrease in processed box production of the early and mid season crop as compared to the same period last year. At the January, the USDA released its citrus crop forecast for the twenty twenty-twenty twenty one harvest season and indicated its expectation that the Florida orange crop will decrease by approximately 19.8% this year as compared to the prior year, with much of this decrease relating to the early and mid season crop, which is estimated to decline by approximately 32.6%.

We run a comprehensive growth management program backed by decades of operational knowledge and rigorous efficiencies, which we believe will allow our percentage decline in the early and mid season crop to be substantially lower than the USDA's forecast. Moving on to our business highlights in the quarter. Our new long term agreement to provide citrus grove management services, including harvest and haul responsibilities for approximately 7,000 acres owned by Barron Collier Companies, another top 10 Florida citrus grower, is going well. We entered into the agreement because we believe our operational philosophy for citrus growth management services aligns with that of the Barron Collier Companies. We've integrated our growth management programs and are realizing some operating economies of scale.

This line of business is a natural extension for us that allows us to monetize our operational knowledge and is an opportunity we seek to expand over the next fiscal year by focusing on targeted Grove operators that meet our criteria and where we feel we can add economic value. We continue to pursue strategic land sale opportunities for our ranch and announced in the quarter the State of Florida entered into an option agreement to purchase approximately 5,804 acres of Waco Ranch for approximately $14,600,000 If the state elects to exercise this option, we would expect to close in the beginning of the 2021. In addition, we have sold off certain smaller ranch parcels at premium prices in the first quarter ended 12/31/2020. We will continue to evaluate real estate opportunities and anticipate additional sales of the Aueco Ranch in the near future. On 10/30/2020, we purchased a well maintained citrus grove of 3,280 gross acres located in Henry County, which included substantial new plantings, which were completed in recent years.

While the grove has only been under our care for a short period of time, we've already begun additional plantings to increase the density of the citrus grove, which will result in improved production per acre. This, as part of our continued investment in our organic growth strategy, is in addition to the more than 1,300,000 new trees we have planted over the past four years, which are expected to begin positively impacting our production results in the next couple of years. We're encouraged to see citrus pricing on the rebound after a difficult year and believe we are in the best position in the industry to capitalize on this improvement of pricing and will continue to unlock long term value for our shareholders. With that, I will turn the call over to Rich to discuss our more detailed financial results.

Speaker 2

Thank you, John, and good morning, everyone. As this is our second earnings call, I would again like to remind everyone of the seasonality of our business. The majority of our citrus crop is harvested in the second and third quarters of the fiscal year, and the majority of our profit and cash flows are typically recognized in the second and third quarters as well. As such, the quarterly results for the first quarter are not indicative of our full year results. For the quarter ended 12/31/2020, total operating revenue was $13,700,000 compared to $11,000,000 in the same period of the previous fiscal year.

Citrus revenue was $12,900,000 and $10,200,000 respectively, for the quarters ended 12/31/2020 and 2019. The increase in revenue for the quarter ended 12/31/2020 compared to the same period in the prior year was primarily due to us generating greater revenue from our third party Grove management services. As John discussed earlier in the call, we entered into an agreement last year with an affiliated group of third parties to provide Citrus Grove caretaking and harvest and hold management services for approximately 7,000 acres owned by these third parties. Under the terms of this agreement, we are reimbursed by third parties for our cost incurred related to providing these services and we also receive a management fee based on acres covered under this agreement. We record both revenues and expenses when we provide these growth caretaking management services.

For the first quarter ended 12/31/2020, we recorded approximately $2,900,000 of operating revenue, including the management fee. During the quarter ended 12/31/2020, we saw a significant increase in the market price per pound solids for our early and mid season fruit. The increase in the price per pound solids is due to increased consumption of not concentrate orange juice along with tighter supplies, which has in turn led to reduced inventory levels and increased prices. As reported by the latest Nielsen data, naphtha concentrate orange juice consumption increased 14% for the twelve week period ended 12/26/2020, as compared to the similar twelve week period in the prior year. We expect based on this consumption trend that the market pricing for the upcoming harvest season of the Valencia fruit will also increase significantly over the prior year.

For the quarter ended 12/31/2020, fewer boxes were harvested and pound solids per box were lower compared to the same period in the prior year. While we harvested a greater percentage of our early and mid season crop through 12/31/2020, measured as a percentage of our estimated full year early and mid season crop as compared to the same period in the prior year, we along with the Florida industry in general are recording a smaller number of boxes harvested due to a greater rate of fruit drop occurring during the current harvest season as compared to the previous year. In addition, the internal quality of the fruit was not as strong as in the previous year resulting in lower pound solids per box. The USDA's citrus crop forecast for the twenty twenty-twenty twenty one harvest season indicates that the Florida orange crop will decrease to 54,000,000 boxes, down from approximately 67,300,000 boxes in the prior year. The USDA anticipates the majority of this decrease will relate to the early and midseason boxes as their forecast is a decrease of 9,700,000 boxes or a 32.6% decline.

We, through our comprehensive growth management program mentioned by John earlier, anticipate our decline in the early and mid season crop will be in the 20% to 25% range. The increase in operating expenses for the quarter ended 12/31/2020, as compared to the same period in the prior year, primarily relates to the third party Grove management services. As previously stated, we have an agreement to provide these services to an affiliated group of third parties and recorded approximately 2,600,000 of operating expenses in the quarter ended 12/31/2020. Additionally, the increase in operating expenses is attributable to the company harvesting a greater percentage of boxes in relation to the estimated total boxes to be harvested for the full season in the quarter ended 12/31/2020, as compared to the same period in the prior year, leading to a larger percentage of costs being allocated to cost of sales in the current period. We also received less proceeds under the Florida Citrus Recovery Block Grant program, which are recorded as a reduction of operating expenses during the quarter ended 12/31/2020 when compared to the quarter ended December 3139.

Partially offsetting this increase was a decrease in harvest and haul expenses resulting from a decrease in the early and mid season boxes harvested. Income from operations for the Land Management and Other Operations segment for the quarter ended 12/31/2020, improved by approximately $300,000 compared to the quarter ended December 3139. This improvement was primarily due to our decision to no longer pursue our dispersed water storage project. And as such, no water conservation expenses were incurred in the current quarter, and we do not anticipate any future expenses to be incurred relating to this project. General and administrative expenses for the quarter ended 12/31/2020, totaled approximately $2,500,000 compared to approximately $2,800,000 for the quarter ended December 3139.

The decrease is in large part due to a reduction in payroll expenses of approximately $200,000 relating to one of the senior managers leaving the company in December 2019 and a reduction in pension expense related to our deferred retirement benefit plan of approximately $100,000 as a result of the company terminating this plan and paying out each of the plan participants in August 2020. Other income, net of other expenses for the quarter ended 12/31/2020 was approximately $2,200,000 compared to other expense net of other income of approximately $1,600,000 for the quarter ended December 3139. The shift to other income net from other expense net is primarily due to us recording gains on the sale of real estate, property and equipment and assets held for sale of approximately $3,400,000 relating to the sale of approximately 700 acres from the Alico Ranch to several third parties in the quarter ended 12/31/2020. For the quarter ended December 3139, we only recorded a nominal gain on the sale of real estate, property and equipment and assets held for sale. Additionally, a reduction of approximately $400,000 in interest expense was realized primarily because of the reduction of our long term debt resulting from mandatory principal payments.

During the quarter ended 12/31/2020, we received approximately $4,100,000 of additional proceeds under the Florida Citrus Recovery Block Grant program relating to Hurricane Irma. To date, we have received approximately 24,200,000 under this program. For the fiscal quarter ended 12/31/2020, we reported net income attributable to Alico common shareholders of approximately $3,800,000 compared to net income attributable to Alico common stockholders of approximately $800,000 for the fiscal quarter ended December 3139. The company is affirming its fiscal year twenty twenty one guidance at this time. Our balance sheet remains strong and we expect as we move forward into the peak of our season, we will provide stronger cash flow in fiscal twenty twenty one.

Our working capital at 09/30/2020 was $39,800,000 representing a 3.21:one ratio. In addition, we have experienced a steady improvement in our debt to equity ratio. Our debt to equity ratio at December 2039 and 2018 were up 0.7:one, 0.78:one and 0.82:one, respectively. I would like to now pass you back to John to discuss our fiscal year twenty twenty one outlook.

Speaker 1

Thanks, Rich. Weko is the leading high quality, low cost producer of citrus in Florida and one of the largest citrus growers in The United States. We will continue to focus on controlling and managing costs and unlocking additional value for our shareholders to ensure that the legacy of Alico thrives for decades to come. After carefully considering the impact of lower production but higher prices this season, we are affirming our previously announced guidance for the fiscal year 2021. Our confidence is the result of a combination of our insight into the factors supporting increased market prices as well as our track record for continued stringent management of our operating and general and administrative expenses.

We continue to project net income of $7,500,000 to 10,000,000 adjusted net income of $4,500,000 to $6,900,000 EBITDA between $29,000,000 and $33,000,000 and adjusted EBITDA between $25,000,000 and $28,800,000 And with that, we will now open the line up to questions from industry analysts. Latanya?

Speaker 0

Thank you. At this time, we will conduct a question and answer session. Our first question comes from Gerry Sweeney with ROTH Capital. Please proceed with your question.

Speaker 3

Hey, good morning, John and Rich. Thanks for taking my call.

Speaker 1

Good morning, Gerry.

Speaker 3

I want to start out with just the harvest. Obviously, you talked a little bit about the early and mid and the size of the harvest. If we and some of the harvest in this first quarter was I think you harvested more acres in this quarter versus last quarter or last year in the first quarter. If we just combined the early and mid production from last year and sort of reduce that by the range that you provided, would that be sort of a good guidepost to potential production in the early and mid this year?

Speaker 1

Rich?

Speaker 2

Yes. So Jerry, I would say that would be the early and mid would be a fair assessment.

Speaker 3

Got it. And then pricing, obviously pricing looks very good. And as we move forward into the Valencia's, which I think we start to see some in the 2Q and then obviously in the third quarter, how does the early and mid had a substantial step up in pricing. Do we look at the pricing for Valencia? And how does that compare to early and mid?

I'm sure there's some nuances there. So I was just curious as to how that potentially may play out or some things we can keep an eye out for?

Speaker 2

Yes. So Jerry, as we've seen and mentioned, the consumption of naphthalm concentrate orange juice continues to be strong. So while we don't have specifics, we anticipate that this trend for the Valencia with respect to market pricing will be similar, if not a little bit stronger than what we've seen on the early midsize. So I think as we look forward, there's nothing here that says that trend would be anything different.

Speaker 3

Got it.

Speaker 1

Again, the harvest season hasn't started yet, but every indication is that the Valencia prices will be higher than what the market prices for early mids were this season,

Speaker 3

which

Speaker 1

will be a substantial increase over last year.

Speaker 3

Yes. And then what gives you confidence that obviously early and mids were lower, more fruit drop, etcetera. When you look at your acreage, it sounds like you have some confidence that as well as the Florida state, fluency should be less impacted or not had as nearly as much defined in the harvest. Can you go through what provides that confidence or the difference why early mid fall more decline versus potentially on the Valencia side?

Speaker 1

I'll take that, Rich. The I guess the facts to support that claim is really we're monitoring and working all of our groves every day. So it's under constant inspection. We saw the drop actually taper off in our early mids, and we believe that, that trend hopefully will continue as we go into the Valencia season. So at these lower drop levels, next drop landing out, that gives us great confidence as we forecasted our financial results for this current season.

Speaker 3

Got it. And then one more from me and I'll jump back in Grove Management, are you how is that moving and potential new customers, how is that moving along? Are you in discussions with other growths? Any sort of qualitative, quantitative view you can provide on that?

Speaker 1

Sure. It's all going to be qualitative. We don't have any quantitative we can at this point. We've discussed previously that we're very selective on the growth management services we would provide to potential customers. They have to meet a pretty stringent set of criteria.

So it's less than a dozen potential targets, and we've been in discussions with several of them. I don't have anything to report at this time on either the likelihood that we'll close in this current fiscal year. But when we do, it will be at profitable levels. But there are active discussions that we are having. Okay, perfect.

Speaker 3

I'll jump back in line. Thank you.

Speaker 1

Thanks, Gerry.

Speaker 0

At this time, there are no more questions in the queue. I would like to turn the call back over to Mr. John Kiernan for closing comments.

Speaker 1

I just want to thank everyone for joining our call today and for your support of Aleco. In addition, I want to send a special thank you to our dedicated employees and the rest of our management team for their continued efforts to make Aleco the best it can be. Our annual meeting will be held on Thursday, February 25 in Tampa, and we're strongly encouraging shareholders this year to mail in their proxy vote. We look forward to hosting another earnings call for our second quarter results in May. We hope everybody stays safe.

Thank you.

Speaker 0

Thank you, ladies and gentlemen. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.