Alico - Q4 2023

Transcript

Operator (participant)

Good morning. Welcome to Alico's fourth quarter 2023 earnings conference call. At this time, all participants are in a 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 fourth quarter and full year ended September 30th, 2023. If you have not had a chance to review this, the release, it is available on the investor relations portion of the company's website at alicoinc.com. This call is being webcast, and a replay will be available on Alico's website as well. Before we begin, I 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-K, current reports on Form 8-K, and any amended statements 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 law. During this call, the company will also discuss non-GAAP financial measures, 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 will turn the call over to the company's President and CEO, Mr. John Kiernan. Please go ahead, sir.

John Kiernan (President and CEO)

Thank you, Melissa, and thank you everyone for joining us for Alico's fourth quarter 2023 earnings call this morning. During 2023, Alico was recovering from the aftermath of Hurricane Ian that occurred in September 2022, which damaged half of our crops intended for the 2023 harvest season, and our financial results were disappointing as expected. The overall decrease in box production for Alico was 51.5% for the 2022-2023 harvest season versus the prior year. USDA reported a 61.7% decrease in box production for the overall Florida orange crop as compared to the same period in the prior year.

The approximately $28.2 million of insurance proceeds that we received during the fiscal year were used to help maintain our grove caretaking programs for our approximately 49,000 citrus acres located across seven counties in Florida, so that Alico will be ready to harvest a healthy citrus crop in 2023, 2024. We continue to hope to receive federal disaster relief funds from the Consolidated Appropriations Act that was passed into law in December of 2022, although we cannot determine the amount of relief we may be eligible for or the timing of any possible relief fund payments. To that end, Alico continues to support Florida Citrus Mutual, our industry trade group, as well as government officials and agencies as they work to finalize federal relief programs for this 2022 storm.

Although our 2023-2024 harvesting activities are just beginning now, we are confident that Alico's crop recovery this season will be significant because of our exceptional caretaking practices and the maturity of over two million trees planted by the company since 2017. In addition, over 35% of our trees have now been treated with an oxytetracycline injection since January 2023 to combat citrus greening, with the goal to improve fruit quality and decrease the rate of fruit drop. The full extent of the benefits of that treatment will not be measurable until after the 2023-2024 harvest.

Alico is proud to share that in fiscal 2024, it has already partnered with another large citrus grower to manage approximately 3,300 acres of their citrus groves, with all expenses reimbursed and a management fee paid to us for our services. We believe that our balance sheet is one of our greatest strengths. Our working capital line of credit allowed us the financial flexibility to work through an extremely challenging year with significantly reduced revenues, while ensuring that we could continue to operate and invest in our business.

While our debt levels have increased approximately $18 million during the year ended September 30, 2023, we continue to have $70 million available of undrawn credit, which is comprised of approximately $45 million on our working capital line of credit, which matures in November of 2025, as well as $25 million of undrawn credit on the revolving line of credit, which matures in November of 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. During the year ended September 30, 2023, we sold approximately 2,255 acres of ranch land for approximately $12 million.

Also, in the current fiscal year, we closed on two very small citrus grove purchases that are contiguous with one of our groves. On September 18th, 2023, Alico signed a contract with the state of Florida to sell the remaining 17,229 acres of the Alico Ranch for approximately $77.6 million. The deal is anticipated to close by February 2024. Once closed, we will have sold a total of approximately 69,000 acres of the Alico Ranch for approximately $226 million to more than 25 buyers since 2018. Plans for the use of proceeds are being finalized, with reducing balances on our working capital credit line incurred during Hurricane Ian as a priority, as well as repayment of variable rate debt balances without penalty and for general corporate purposes.

It is possible that net operating losses incurred over the past two years will shield a significant amount of the expected gain on the pending ranch sale, and it is also possible that if the proceeds are used to repay variable debt balances, the company's net debt balances could range between $75 million and $80 million at the end of fiscal 2024, which is a substantial decrease from the $127.6 million net debt balance at September 30, 2023. Outside of our citrus operations, Alico recently concluded its work with land use planning professionals in Florida, evaluating the long-term potential highest and best use for our real estate assets.

To be clear, Alico will continue to conduct our regular citrus operations at all of our groves for years to come, but the work of those land planning professionals led to a decision by Alico to commence the multi-year entitlement process for a 4,500-acre grove near Fort Myers, here in Collier County. Finally, all Alico shareholder litigation related to the balance sheet restatement last year, last December, has been voluntarily dismissed without prejudice by all the plaintiffs. With that, I will turn the call over to Brad, who will discuss in more detail our financial results.

Brad Heine (SVP and CFO)

Thank you, John, and good morning, everyone. As our fourth quarter is not indicative of our full-year results due to the seasonal nature of our business, I will focus primarily on our full year 2023 results today. As a reminder, the majority of our citrus crop is harvested in the second and third quarters of the fiscal year, and as such, the majority of our profit and cash flows are also recognized in the second and third quarters. For the fiscal year ended September 30, 2023, total operating revenue was $39.8 million, compared to $91.9 million for the fiscal year ended September 30, 2022. Citrus revenue was $38.1 million and $89.7 million for the fiscal year ended September 30, 2023 and 2022, respectively.

The decrease in revenue for the fiscal year ended September 30, 2023, compared to September 30, 2022, was driven by a decrease in the amount of fruit harvested as a result of the fruit drop caused by Hurricane Ian, a decrease in pound solids per box, and a $10.7 million decrease in our grove management services revenue as a result of the termination of a property management agreement in June 2022. While the impact to our fiscal year 2023 crop was substantial, there does not appear to be long-term measurable damage to our citrus trees. The decrease in pound solids per box was mainly due to the internal quality of our fruit not being as strong as it was in the prior year.

In addition, we accelerated the harvesting of both the early and mid-season and Valencia crop to minimize the fruit drop as a result of the impact of Hurricane Ian, with the intent to maximize our box production, and as such, we realized a lower pound solids per box. Partially offsetting the decrease in processed box production and pound solids per box was an increase in the price per pound solids. The 2.6% improvement in our average realized price per pound solids for the year ended September 30, 2023, as compared to the prior year, was due to the overall lower production of citrus fruit. Total operating expenses were $33.4 million for the year ended September 30, 2023, as compared to $106.7 million in the same period in the prior year.

The decrease in operating expenses primarily relates to the $28.2 million of insurance proceeds received during the year ended September 30, 2023. Inventory adjustments recorded in fiscal year 2022's ending inventory balance as a result of the impact of Hurricane Ian, which effectively lowered the inventory to be expensed in fiscal year 2023, a reduction in harvest and haul expenses as a result of the lower box production, and a decrease in grove management services expense. The company realized an overall decrease in its harvest and hauling expenses. However, the harvesting cost per box increased for the year ended September 30, 2023, as compared to the prior year, due to an increase in the harvesting labor costs, as well as the increased time spent by the harvesters to fill the boxes as a result of the increased fruit drop.

These decreases were partially offset by additional costs incurred in relation to cleanup and repairs as a result of Hurricane Ian. The decrease in grove management services expense is directly related to the termination of the property management services by the grove owners in June 2022. The decision by the grove owners to exit the citrus business eliminated the need for the caretaking management services for the grove owners. As a result, caretaking expenses decreased significantly during the year ended September 30, 2023, compared to the prior year. General administrative expenses for the year ended September 30, 2023, were $10.6 million, compared to $10.1 million for the year ended September 30, 2022.

The increase was probably due to an increase in legal and professional fees as compared to the same period in the prior year. Other income net for the year ended September 30, 2023 and 2022 was $6.7 million and $37.8 million, respectively. The decrease in other income net is probably due to fewer land sales closing during the year, which resulted in lower gains in the sale of property and equipment. During the year ended September 30, 2023, the company sold approximately 2,255 acres of Alico Ranch and recognized a gain of approximately $11.4 million. By comparison, for the year ended September 30, 2022, the company recognized gains of $41.1 million related to the sale of property and equipment.

In addition, the company recognized an increase in interest expense of $1.6 million for the year ended September 30, 2023, as compared to the prior year, as a result of higher balance on the working capital line of credit and an increase in the overall interest rates on its variable rate term debt and the working capital line of credit. For the fiscal year ended September 30, 2023 and 2022, we reported net income attributable to Alico common stockholders of $1.8 million and $12.5 million, respectively. Our adjusted EBITDA was a loss of $16.1 million for the year ended September 30, 2023, as compared to income of $13.4 million for the prior fiscal year. Alico continues to maintain a strong balance sheet.

Our working capital was approximately $43.7 million at September 30, 2023, representing a 3.9-to-1 ratio, and we continued to maintain a solid debt-to-equity ratio of 0.3-to-1 and 0.27-to-1 at September 30, 2023 and 2022 respectively. I will now pass the call back to John.

John Kiernan (President and CEO)

Thanks, Brad. Although we've experienced a difficult harvest season, Alico has never lost our focus on caretaking for the fiscal year 2024 harvest. Alico continues to invest in its groves. We've applied the OTC therapy to over 35% of our trees, and since 2017, we've planted over 2 million trees. These investments, along with our tested, loyal, and best-in-class team members and exceptional caretaking practices, should support a significant increase in fruit harvested during the next season. Alico has over 125 years of experience as a leader in Florida agriculture and land management. We will continue evaluating all of our properties to determine their highest and best use to create long-term value for our shareholders. Alico strives to provide our investors with the benefits and stability of conventional agricultural investments, with the enhanced optionality that comes through active land management.

With that, we'll now open the line up to questions from industry analysts. Melissa?

Operator (participant)

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Gerry Sweeney with Roth MKM. Please proceed with your question.

Gerry Sweeney (Managing Director)

Hey, good morning, guys. Thanks for taking my call.

John Kiernan (President and CEO)

Morning, Gerry.

Gerry Sweeney (Managing Director)

Just wanted to start with the citrus side and then maybe go to the, you know, potential real estate side. But, obviously, we're coming into a new season. I just wanted to see, you know, when you would have some clarity on maybe the size, quality, and maybe the overall recovery aspect of the, of the trees after, you know, last year's Hurricane Ian.

John Kiernan (President and CEO)

So the simplest answer most likely would be in another couple of months, we will have been able to evaluate our early mid-season, and we'll be able to evaluate really the impact of kind of the OTC treatment on that season. And that will hopefully give us some sort of indication of what we might be able to expect for the Valencia crop that's gonna be harvested during the remaining part of the season.

Gerry Sweeney (Managing Director)

Just speaking, and OTC was my next question. It was, I'm gonna wrap up a couple questions in one comment, so I apologize.

John Kiernan (President and CEO)

Sure.

Gerry Sweeney (Managing Director)

But, you know, obviously, OTC big, it's a big deal with the citrus industry in Florida. I've heard varying commentary, you know, on the efficacy, all very positive, all from very positive to extremely positive. But would you be able to see some of the impacts with your early and mid? I mean, I believe it should help reduce some fruit drop, et cetera, just make the tree stronger and some benefits along those lines. So one, can you see some benefit today as you're going into the early to mid-season? And two, you know, do you have any commentary around maybe the efficacy of the treatment?

John Kiernan (President and CEO)

Can't really speak to the efficacy at this point. We'd like to evaluate that at the end of a complete season. But visually, you can see a noticeable difference between trees that have been treated with the OTC this past season and those that haven't. The ones that haven't look good, and the trees that have been treated with the OTC look better, is the simplest way. And when we have you come down to Florida, you can see for yourself.

The real test is how much of additional time the OTC treatment will allow that fruit to mature and stay on the tree longer by reducing the rate of the fruit drop, and hopefully, it's gonna improve the fruit quality enough that you get a little bit of extra juice out of that, which clearly is what we're looking for here.

Gerry Sweeney (Managing Director)

Got it. And then finally, can you give us just an update on your contracts? I think in your press release, you stated that you thought, I think, price per pound solids would be up year-over-year. I believe some of that has to do with the structure of your contracts. And then secondarily, when do some of the nearest contracts expire, or do you go into any contract negotiations in the near future?

Brad Heine (SVP and CFO)

Hey, Gerry, this is Brad. So, yeah, on the contracts, we renewed our MO two contract just over the summer, so that was renewed at a higher price point. So we expect to have, see some pickup there as far as what the, what we will realize under that contract. That contract runs until the 2024-2025 citrus year. Then we are in the final year of the other contracts with Tropicana, and those run till the end of this harvest season. So those contract negotiations will begin soon.

John Kiernan (President and CEO)

Across the board with all the processors here in the state.

Gerry Sweeney (Managing Director)

Yep, gotcha. Now, I'm gonna ask a question, probably can't answer it. I know, I know Brazil's top global orange, I think, production is down. That would imagine that puts you in good position for some of these contract negotiations coming up.

John Kiernan (President and CEO)

I mean-

Gerry Sweeney (Managing Director)

You can say no comment.

John Kiernan (President and CEO)

We've been working together a long time, Gerry. You, we're not gonna no comment you on a call like this. But I will say that the supply of oranges in Florida is expected to rebound, but it's at a slower rate than I'm sure the processors would hope for. So clearly, the need for imports is going to continue in the near-term foreseeable future. We feel good at Alico here that our ability to supply is gonna grow as we planted more trees, and those trees are reaching maturity, as well as hopefully the benefits of the OTC treatment on those trees and, you know, the caretaking practices that we spent a lot of money and time and resources to kinda improve year over year over year.

So we hopefully are gonna continue to be a very strong, consistent supplier. As the global supply maybe shrinks, and our supply basically increases, hopefully, we're gonna be able to take advantage of that on behalf of our shareholders to increase our revenues, which hopefully is gonna go straight to the bottom line and hopefully improve our profitability in the next set of contract terms.

Gerry Sweeney (Managing Director)

Got it. Two more quick questions. Obviously, you know, the real estate, land use planning commentary, I think is important and, you know, best use of land. And I think you're regarding a particular orchard near Fort Myers, what are sort of the next steps? What should we watch for as you go through that process? And are there any timelines on next steps or sort of key gates that are gonna be part of the decision-making process that we should be aware of?

John Kiernan (President and CEO)

Yeah, in the very near term, all that work is gonna be done internally with our you know retained consultants and contractors and professionals, because it's at the early planning stages. We haven't done anything externally with any of the county officials or any of the organizations that you know have strong interest in a project like this, because we're. It's really still on the drawing board. But we publicly acknowledge that it is on the drawing board, and it's something that we're looking towards, but we are gonna continue to run our citrus operations on that grove for the foreseeable future as business as usual.

Gerry Sweeney (Managing Director)

Got it. Obviously, you haven't 100% committed to the, you know, project on the drawing board, but knowing Florida, the growth in Florida, I would say, you know, at some point, being the location near Fort Myers, just looks like at some point, this is gonna move to a real estate operation, at least for that orchard. Is that a strong probability of moving to a real estate project in for that?

John Kiernan (President and CEO)

I think there is a very good probability of that in kind of the midterm, near term, long term, yes.

Gerry Sweeney (Managing Director)

Okay.

John Kiernan (President and CEO)

Um, yeah.

Gerry Sweeney (Managing Director)

All right. And then finally, grove management. Great to see that you picked up a new client. You know, what is the opportunity there? I mean, I know that's sort of been... I don't wanna say in the background, but you had a client, and I think you ended up closing down his grove eventually. But, as being the one of the operators with the best balance sheet, you know, most leverage around or most available equipment or expertise, can this grow a little bit more? How do we look at the growth management side?

John Kiernan (President and CEO)

We do see selectively that there are potential other customers for this third-party caretaking business that we've demonstrated some expertise with. We're just, again, selective on basically the opportunities that we're willing to take on board. You know, we have to get a competitive management fee, and there has to be, you know, an operation that's either large enough that it could be self-contained, or it has to be near to some of our existing groves, so we can move manpower and resources back and forth easily.

And this continues to demonstrate Alico's, you know, long-term commitment to the citrus industry, because not only are we focusing on kind of the planted acres that we take care of, but we just, you know, are going above and beyond to hopefully take care of another 3,300 citrus acres, and we think that's a very good thing on behalf of the industry overall.

Gerry Sweeney (Managing Director)

Is that 3,200, is that self-contained, or is that close to some of your operations?

John Kiernan (President and CEO)

That one is actually self-contained.

Gerry Sweeney (Managing Director)

Got it. Okay. I appreciate it. That, that's it for me.

John Kiernan (President and CEO)

Always good to talk, Gerry. Thank you.

Gerry Sweeney (Managing Director)

Thanks.

Operator (participant)

Thank you. That concludes our question and answer session. I'll turn the floor back to Mr. Kiernan for any final comments.

John Kiernan (President and CEO)

Thank you, Melissa. At this point, we would just like to thank everyone for your continued support of Alico. We wish everybody a Merry Christmas and happy holidays, and we look forward to speaking with you all about our first quarter results in February.

Operator (participant)

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.