Alico - Q1 2024

Transcript

Operator (participant)

Welcome to Alico's first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. As a reminder, today's conference is being recorded. Last night, the company issued a press release announcing its results for the first quarter, ended December 31, 2023. If you have not had the chance to view the release, it is available on the investor relations portion of the company's website at alicocorp.com. This call is being webcast and replay will be available on Alico's website as well. Before we begin, we would like to remind everyone that the prepared remarks today contain forward-looking statements. Such statements are subject to risk, uncertainties, and other factors 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, and annual reports on Form 10-K, current reports Form 8-K, and any thereto filed with the SEC, and those mentioned in the 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, including EBITDA, adjusted EBITDA, and net debt. 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 conference call over to the company's President and CEO, Mr. John Kiernan. Please go ahead.

John Kiernan (President and CEO)

Thank you, Kelsey, and thank you everyone for joining us for Alico's first quarter 2024 earnings call this morning. As previously announced, on September 18, 2023, Alico signed a contract with the State of Florida to sell the remaining 17,229 acres of the Alico Ranch. On December 21, 2023, we closed on the sale for $77.6 million in gross proceeds. A portion of the proceeds from this sale were used to repay the outstanding balance on our working capital line of credit and $19.1 million of MetLife variable rate term loans plus accrued interest. The remainder we retained in cash.

Results from our early- and mid-season harvest this season were disappointing, resulting in an inventory write-down of approximately $10.8 million in the first quarter of fiscal year 2024. We believe that the early- and mid-season box production was affected by the continued impacts of Hurricane Ian. We are cautiously optimistic that our Valencia crop, which we'll begin harvesting soon, will show a stronger rate of recovery. That harvest is expected to begin in another week or so. In January 2024, the company received funding from the Citrus Research and Field Trials Foundation to support our use of oxytetracycline to combat the effect of greening in the citrus trees.

Last year, beginning in January 2023, over 35% of our producing trees were treated with an OTC trunk injection, with the expectation that it would, it would improve fruit quality and decrease the rate of fruit drop. We expect that the full extent of the benefits of these prior year OTC treatments will not be measurable until the full 2023-24 harvest is completed. Also last month, we published our 2023 annual sustainability report, highlighting our approach to sustainability and progress with our environmental, social, and governance priorities. We believe that our balance sheet remains one of our greatest strengths as we continue to operate in a challenging citrus industry.

Because of the sale of the remaining acreage of Alico Ranch, we have been able to reduce our total debt by $44 million and our net debt by almost $62 million, representing a decrease of 34% in our total debt and a decrease of 48% in our net debt, in each case from September 30, 2023, to December 31, 2023. Even more importantly, we have the full $95 million available of undrawn credit, which is comprised of approximately $70 million on our working capital line, which matures in November 2025, as well as $25 million of undrawn credit on the revolving line of credit, which matures in November 2029.

We believe that these credit facilities provide Alico with ample liquidity while the company continues to recover from the impact of recent weather events. With that, I will turn the call over to Brad to discuss our more detailed financial results.

Brad Heine (SVP and CFO)

Thank you, John. Good morning, everyone. I'd like to remind everyone that our business is seasonal, and the majority of our citrus crop is harvested in the second and third quarters of the fiscal year, with the majority of our profit and cash flows also recognized in the second and third quarters. Full results for the first quarter are not indicative of our full-year results.

The $3.3 million increase in revenue for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, was primarily due to a 24.9% increase in pound solids, driven by a 30.1% increase in processed box production as we begin to recover from the effects of Hurricane Ian. Our fruit production for the three months ended December 31, 2022, was adversely impacted by the fruit drop caused as a result of the impact of Hurricane Ian in September 2022. Although Hurricane initially impacted the fiscal year 2023 harvest, we expect it to take another season or more for the groves to recover to pre-Hurricane production levels.

In addition, there was an increase in the price per pound solid of 3.4% for the three months ended December 31, 2023, compared to the same period in the prior year, as a result of more favorable pricing in one of our contracts with Tropicana. Total operating expenses were $28.2 million and $14.4 million for the fiscal first quarters ended December 31, 2023 and 2022, respectively.

The increase in operating expenses primarily relates to the $10.8 million adjustment to reduce our inventory to its net realizable value as a result of significantly lower than anticipated box production from our early- and mid-season crop due to the ongoing effects of Hurricane Ian, as well as an increase in harvest and haul costs driven by our increased box production, and approximately $1.3 million we received in the quarter ended December 31, 2022, which was the last installment of the Florida Citrus Block Grant Program for the 2017 storm, Hurricane Irma. General and administrative expenses for the three months ended December 31, 2023 and 2022, were $3.3 million and $2.5 million, respectively.

The increase was primarily due to an increase in salary and wages of $0.6 million and consulting fees principally related to real estate entitlement activities of $0.3 million. Other income expense net for the three months ended December 31, 2023 and 2022, was $75.5 million and $2 million, respectively. The increase is primarily due to the sale of 17,229 acres of the Alico Ranch to the state of Florida. For the first fiscal quarter ended December 31, 2023, the company reported net income attributable to common- attributable to Alico common stockholders of $42.9 million, compared to a net loss of $3.2 million for the first fiscal quarter ended December 31, 2022, driven by the aforementioned sale of the Alico Ranch. I will now pass the call back to John.

John Kiernan (President and CEO)

Thanks, Brad. Although the first part of our harvest season was off to a slow start, which we believe was because of Hurricane Ian, we remain cautiously optimistic that our upcoming Valencia harvest will show stronger improvement from the effects of Hurricane Ian. Alico has over 125 years of experience as a leader in Florida agriculture and land management. Since 2017, we've planted over 2.2 million new trees, and we remain committed to the Florida citrus industry for the long term. We plan to apply the OTC therapy to all of our producing trees in fiscal year 2024, and believe that this treatment, combined with the recent tree plantings that are maturing and consistent caretaking practices, should support a significant increase in fruit harvested next season.

In addition, Alico is continuing to evaluate all of our properties to determine their highest and best use to create long-term value for our shareholders. We strive to provide our investors with the benefits and stability of conventional agricultural investment, with the enhanced optionality that comes through active land management. With that, we'll now open the line up to questions from industry analysts. Kelsey?

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You'll then hear a three-tone prompt acknowledging your request, and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the 2. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. And your first question comes from Gerry Sweeney from Roth Capital. Please go ahead.

Speaker 3

Good morning, John and Brad. Thanks for taking my call.

John Kiernan (President and CEO)

Hi, Gerry. Good morning.

Speaker 3

Wanted to talk about the harvest. Obviously, you know, you said in the past it could take up to two years for the harvest to rebound. But, maybe a little bit below my expectations, which totally understandable, it is ag. But just curious, is this just wanted to talk about maybe the actual trees and orchards. You know, we've talked in the past that there was no structural damage to the trees. Is this just a longer rebound? Well, a rebound that's going to take two years, or is there any concern that there may have been some structural damage to the trees from the hurricane that would reduce output?

John Kiernan (President and CEO)

Thanks, Gerry. That's a great question. As we reported back in 2022, you know, we lost relatively few trees compared to our entire portfolio. You know, it's clear that 150-mile-an-hour winds for the sustained amount of hours that affected a majority of our groves definitely stressed the trees out. And we think that is directly attributable to why they have not rebounded from the effects of that storm as quickly as they did in the previous storm back in 2017, when Hurricane Irma hit. We don't think that there's permanent damage to the trees. We just think the trees are taking a little bit longer to come back. We did flag that it could take up to two years back in 2022.

We think our peers are suffering as well, that they're not seeing a robust rebound as quickly as we did previously. But we do not think that there is permanent structural damage to the trees themselves.

Speaker 3

Got it. And then you talked about OTC and, you know, you know, I think administering it to the rest of your orchards. I believe about 35% of your crop has been treated with it. Now, given the, you know, your results on the, or the early early and mids, can you see a difference between—and I know the harvest is down this year, obviously, but I was just curious if you're seeing a difference in the production where the OTC was administered to the early mids, as opposed to trees that have not been treated yet?

John Kiernan (President and CEO)

Another great question. Obviously, last year was the first year we kind of piloted the treatment once it was approved by the FDA last January. We definitely saw noticeable improvement from our control groups for the early mids in this past harvest season. We're just having a little trouble quantifying it. But we applied about three times as many applications to our Valencia trees last season as we did to the early mids, so we have a much larger sample size to compare against the control group. So we'd like to reserve until the end of this harvest season, you know, a full evaluation to quantify kind of what the improvement was. But it is, it is visible and noticeable.

Speaker 3

Cautiously optimistic, so-

John Kiernan (President and CEO)

Yes.

Speaker 3

Got it. Got it. Oh, that's fair. And then, final question. You know, obviously, contracts, I think, some of the, one of the, at least, larger percentage of some of your fruit is coming up for contract renewal this year. Just any comments on that front or, or around what you're looking at, or timing, or when we should hear when that would be completed?

John Kiernan (President and CEO)

So it is early days. You know, we are basically putting out the bid, the replacement for the current contract that expires at the end of this season for, I think it's three quarters of our acres, so it is material. But we anticipate that no later than when we release the third quarter 10-Q in August. I'll keep my fingers crossed. We may have some better news to report, that maybe we get it done by May.

Speaker 3

Mm-hmm.

John Kiernan (President and CEO)

but right now, we really have no details that we can share, other than we're actively in the bid process.

Speaker 3

Got it. And that contract would be for next year's harvest, not this, not this year?

John Kiernan (President and CEO)

Correct. That would-

Speaker 3

Got it.

John Kiernan (President and CEO)

Start November, December.

Speaker 3

Got it. Okay. Thanks. Thank you for taking my questions. I appreciate it.

John Kiernan (President and CEO)

Appreciate it, Gerry. Thank you very much.

Operator (participant)

Thank you. There are no further questions at this time. Mr. Kiernan, you can proceed.

John Kiernan (President and CEO)

I just wanna thank everyone for joining our call today and for your continued support of Alico. We look forward to speaking with you all about our second quarter results in May. Have a good day.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating, and as always, please disconnect your lines. Have a great day.