Q4 2020 Alico Inc Earnings Call
Welcome to when we closed the fourth quarter for your 2020 earnings Conference call.
At this time all participants are in the listen only book.
The watch require operator assistance. Please press star zero on your telephone keypad.
As a reminder of today's conference is being recorded.
I would like to now turn the call over to your host Mr., John Mills I see our.
Thank you Carol good morning, and thank you for joining us for Alico its fourth quarter for your 2020 conference call on the <unk>.
For the your John Kernan, President and Chief Executive Officer, Richard <unk>, Chief Financial Officer.
Earlier this morning, the company issued a press release announcing its results for the fourth quarter in fiscal year ended September 30 of 2020.
If you have not had a chance to be of the release. The is available on the Investor relations portion of the company's website at Alico, Inc.
This call is being webcast and a replay will be available on the lead goes website as well.
For the again, we 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 the statements important factors that could cause or contribute to such differences include risks detailed in the companys.
Quarterly reports on form 10-Q annual reports on form 10-K current reports on form 8-K, and any amendments filed with the FCC and those mentioned in the earnings release.
The company undertakes no obligation to subsequently update or revise the forward looking statements made on todays call the 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 this morning.
With that I'd like to turn the call over the company's President and CEO Mr. John Turner.
Thank you John and thank you everyone for joining us for a week goes the inaugural earnings call. This morning.
Since this is our first earnings call together.
I'd like to start the bit of context.
A week goes rebounded well from a tough year.
Hi, drawing more than five years ago to help transform a week I went to a more competitive company.
In early 2017, we implemented a comprehensive modernization program called a week of 2.0 to improve our operational efficiencies and optimize our asset returns.
This initiative scrutinized every key aspect of our citrus and land operations, including our corporate and operational cost structures growth cost per.
Purchasing and procurement programs professional fees and human resources efficiency, we on.
Also identified non performing and underperforming assets.
The result was the combined our three legacy businesses into one efficient enterprise Alico citrus.
We eliminated certain cost that we believed would not negatively affect our citrus production.
Divested assets and lines of business the generated low rates of return.
And outsource parts of our operation that were not profitable we.
<unk> decreased operating cost by more than $16 million, which represented a 19% reduction and two years. After executing on this initiative. We continue to maintain the was reduced operating cost of levels.
At the end of 2018, we had substantially we completed these changes and began to concentrate our focus on improving our competitive position.
As a leader in the global citrus industry.
Good day. That's the result of these initiatives, we are the leading high quality low cost producer of citrus in Florida, and one of the largest citrus growers in the United States.
Well, we have completed our work under our a week or 2.0 modernization program.
We have continued to focus on controlling and managing costs and unlocking additional value for our shareholders to ensure that the legacy of of we'd go thrives for decades to come.
Over the course of fiscal two fiscal year 2020, we did just that.
Our board of directors has consistent we utilized our cash flow to enhance shareholder value.
The strategy has been reinforced by a week of its history of paying quarterly dividends as we have done for the past five decades uninterrupted.
Last year, the company increased a week of its dividend by 50% to nine cents per common share and today, we announced that the board of directors is raising a week goes dividend by another 100 per site to 18 cents per common share effective for the first quarter fiscal 2021.
We believe the successive dividend increases reflect our board of directors continued confidence that the business strategy. We have developed will support higher level of return of capital to our shareholders over the long term.
We repaid approximately $4.5 million of debt above and beyond our required mandatory principal payments of 10.7 million and improved our debt to equity ratio to <unk> 0.68 to one from point, a two to one a year ago.
Over the past five years, we have reduced our debt by 28%, making net principal payments of over $57 million.
We continue to evaluate our non citrus assets and Opportunistically sold off ranch when a premium price is to generate cash flow, which returns rates of return for our investors.
The week of ranch is the longer strategic to our business you know for.
The past fiscal year, we have sold off acres of this pristine land and reinvested in our primary business as well as return some proceeds to our shareholders.
Most recently in September we sold approximately 10700 acres for $28.5 million to the state of Florida under the Florida Forever program, marking the second cell we have completed with them under this program for an aggregate of approximately 16000 acres.
Because of those acres sold in September would of been critical for dispersed water management project.
We suspended those permit approval activities and rename that business unit land the management and other operations.
We continue to evaluate real estate opportunities and anticipate additional sales of smaller parcels of the week of ranch in the near future.
We continue to assess opportunities to acquire citrus acres at attractive prices and then that's true land acquisitions this fiscal year and.
In May 2020.
We purchased 330 for gross citrus acres, which are adjacent to one of our own citrus gross.
More significantly in October 2020.
We acquired approximately 3280 gross citrus acres for a purchase price of $16.45 million.
And by using proceeds from the sale of ranch went to the state, we're able to defer almost $4 million of gain from that sale.
These acquired citrus acres were well maintained and are close to other existing a week of gross and we believe that this new investment will allow us to further leverage the economies of scale for our group operations of back office.
Additional acquisitions remain an option.
The at our excess cash deployment strategy. However.
However, we will continue to be highly selective.
And disciplined and we'll seek to on we act on well sized well maintained and strategically located properties. So that we can operate at the low cost high producing citrus leader at the whatever competitive returns for shareholders.
In May 2020, we announced two new for your citrus fruit supply agreements with our largest customer Tropicana.
As the result of our leadership position within the Florida, Citrus industry and the respect for professional relationship developed with Tropicana in recent years, we struck an arrangement, which has mutually beneficial terms for both parties. These.
These contracts, which replaced a week of citrus supply agreement that expired in September of this year per.
Provide certain protections against significant market price steps such as the one the citrus industry experience in this last fiscal year and the.
Also certain provisions, which protect Tropicana true market pricing increase substantially which was last seen after hurricane or about 2017.
These long term contracts, which when combined with our existing continuing agreements commit substantially all of the week goes free to Tropicana for the next several years and will enable the company to realize competitive margins for at least the next for years.
In August 2020.
We announced a new long term agreement to provide citrus growth management services, including harvest and haul responsibilities for approximately 7000 acres on by Baron Collier companies. Another top 10, Florida citrus grower.
This business was the natural extension for us because we have been conducting third party caretaking services for many years, albeit on a smaller scale with the our largest growth for many smaller customers the.
This is the business that allows us to monetize decades of operational knowledge.
Especially the efficiencies we of refined for a week or 2.0 modernization program.
We will manage these 7000 acres justice, we manage our own 35000, net citrus acres, including fruit sales.
On our paid a management fee on top of all out of pocket cost and expenses.
We look to expand this new business segment over the next fiscal year by focusing on companies with significant sized gross near our existing gross who of good operations, but where we can add economic value.
In addition to those inorganic growth initiatives executed this year.
Also continued to invest heavily in our business for organic growth.
Because of our strategic decision to replace trees, Boston Hurricane Harbor and increase the density of our citrus gross a week. It was planned the more than 1.3 million new trees over the past for years.
This level of planting has been substantially higher than the normal level of tree attrition.
We will continue to evaluate the density throughout our gross and determine the appropriate tree plantings moving forward.
Typically.
Citrus trees become for bearing approximately for years after the planting and begin to peak around seven to eight years. After planting we anticipate seeing the positive impact of those recent tree plantings in the next couple of years.
Now briefly to discuss our fiscal year results.
As expected and previously announced our fiscal year results were negatively impacted by citrus pricing pressure with market prices at the lowest level in the past 10 years.
We saw our average blended price per pound solid fall by 23% from $2.42 last fiscal year for $1.86 cents. This fiscal year, we along with the rest of the Florida Citrus industry also experienced a decrease in production.
However, due to our rigorous cross controls and the pricing protections provided by our long term supply contracts.
For more fortunate.
We were more fortunate than many of our competitors.
The downward pressure on citrus pricing is not expected to persist in the next fiscal year.
Consumption for an F.C. not for concentrate Orange juice has remained strong in 2020.
We suspect that the reasons for that are because consumers have increased their focus on health and wellness as well the spending more time at home enjoying breakfast.
The surge in demand for NFC Orange juice since March 2020 has not abated.
We do not believe that this has been a case of panic buying.
Rather a sustained the level of increase consumption the.
Nielsen data reports reflect an F.C. orange juice consumption, increasing 14% for the 52 week per.
Period ended September 26 [noise].
On paired with the prior year.
On an increase of approximately 19% the latest for week period ended October 30, Onest 2020.
How does this impact the we go well indirectly.
The increase in demand has driven down inventory levels at Florida, Citrus processors, which we suspect should bode well for market pricing for the next year.
Additionally, the harvest season for both Brazil, and Mexico, the top exporters of citrus fruit into Florida.
Our forecast it to be substantially down from the previous year.
Brazil's for crop, which is currently being harvested is forecasted to be down anywhere from 25% to 30% for the prior year Mexico's crop, which is just beginning to be harvested is expected to be down in the 50 per cent range from the prior year.
Well, we go is well positioned to benefit significantly from the shifting dynamics as prices rise because we have one of the lowest cost structures of the citrus industry and very strong long term supply contracts in place.
The higher marketing pricing for citrus.
We anticipate the we'd go will realize improved margins for our company. During the next this fiscal year and be positioned to utilize our strong cash flow to increase the long term value of our company.
With that I'll turn the call over to rich.
To discuss our more detailed financial results.
Thank you John and good morning, everyone.
As this is the first earnings call the many years.
We would like to remind everyone of the seasonality of our business.
The majority of the boss citrus crop is harvested in the second and third quarter the of on fiscal year.
And the majority of our profit and cash flows I typically recognized in the second and third quarters as well.
Based on the aspect today will focus primarily on full year results of on business.
For the fiscal year 2020, total operating revenues was $92.5 million compared to $122.3 million for the previous fiscal year.
Interest revenues were $89.4 million compared to $119 million for the previous fiscal year.
For the fiscal year ended September Thirtyth 2020.
We harvested approximately 7.6 million boxes of fruit.
The decrease at 6.6% from the prior fiscal year.
The decrease in process box production was the result of greater fruit drop and small the food side and the current harvest season as compared to the prior harvest season.
As mentioned previously by John the average blended price per pound dollar decreased from $2 from 42 cents and the price fiscal year to $1.86 cents in the current fiscal year.
The decrease was primarily due to Florida, citrus crop being greater than expected in the 2018 2019 on the C.
Leading to high inventory levels at Florida, citrus juice processes.
Beginning of the 2019 2020 harvest season.
The price of has also impacted by the continued inflow of imported orange juice the.
Though at low levels than the prior year.
As we look ahead into fiscal year 2021, we do expect an improvement in pricing due to increased consumption of not from concentrate on orange juice by retail consumers, which in turn is resulting in low inventory levels.
This inventory trend has us well positioned for the upcoming harvest season, which recently commenced.
The increase in operating expenses for the fiscal year 2020, as compared to the fiscal year 2019.
Currently relates to the company receiving less that are released proceeds.
Which are recorded as the reduction of operating expenses through.
Through the flautist interest recovery block grants relating to hurricane armor during fiscal year 2020, as compared to fiscal year 2019.
The company received federal really proceeds of approximately 4.6 million and 15.6 million of during the fiscal years ended September Thirtyth 2020, and 2019, respectively.
The company also recorded the additional growth managed services expense of approximately $3 million.
Partially offsetting the decrease in operating expenses was a reduction in harvest in Hong Kong being recorded by the company as a result of few of process boxes being harvested during the fiscal year ended September Thirtyth 2020, as compared to the same period in the prior year.
Regarding growth management services expense in July 2020, the company executing the agreement with Aaron calling for companies to provide citrus growth cared kicking in August and whole management services for approximately 7000 acres.
Under the terms of this agreement lead goes to be reimbursed by balance <unk> for all costs incurred.
Related to providing these services and is on since the receipt a management fee based on acreage covered under this agreement.
As we provide the citrus growth Caretaking management services we.
We will be recording both an increase in revenues and expenses.
For the fourth quarter ended September Thirtyth 2020, the company recorded approximately $3.3 million of operating revenue, including the management fee.
And approximately $3 million of operating expenses relating to this arrangement.
With regard to to the current COVID-19 pandemic. We believe it is important to point out that on harvesting activities will not materially impacted by the pandemic.
And there were no disruptions in delivering fruit to the process is this past year.
Additionally to date the company has not experienced any material challenges to its operations from COVID-19.
Our land management and other operations, which was previously called water resources in other operations comprised of a small percentage of on operating revenue and expenses.
The segment includes lease income from raising rights leases hunting leases if on lease at least to a third party in the aggregate mine leases the bit of oil extraction rights and other miscellaneous income.
As the result of the decision to no longer pursue permit approval activities for the water disbursed starts Roger the company renamed the segment land management other operations to better reflect the components of the SEC.
Revenue.
Revenues the land management other operations for the fiscal year ended September Thirtyth 2020.
The increased slightly this year as compared to the prior year.
Primarily due to a reduction in the least acreage relating to a cattle grazing leagues.
The reduction in lease acreage was due to a certain acres, which were included under the leased agreement being sold in September 2019.
General and administrative expenses for the fiscal year ended September Thirtyth, 2020 decreased 27% to $11 million compared to $15.1 million for the fiscal year ended September Thirtyth 2019.
The decrease was primarily due to professional fees relating to a corporate litigation matter of of.
The cost me $2.3 million being incurred in fiscal year 2019.
This litigation was set on no for their expenses were incurred relating to this matter of during the fiscal year ended September Thirtyth 2020.
Additionally, as part of the settlement the company record of consulting and separation fees of approximately $800000. During the fiscal year ended September Thirtyth 2019.
The company also recognized reductions from.
Eight to a one time pension expense related to its the for every time and benefit plan of approximately $1 million in fiscal year 2019.
The reduction in payroll expenses for the fiscal year ended September Thirtyth 2020 of approximately $300000 relating to one of the senior managers resigning the December 2019, and the reduction in bonuses granted the senior management.
A decrease in stock compensation expense of approximately $200000 as the result.
Of certain stock option expense being accelerated and fiscal year September Thirtyth 2019.
And on the small of decreases in rent consulting board of director fees aggregating approximately $400000.
Partially offsetting these decreases were reductions in stock compensation expense of approximately $800000 recognized in fiscal year September Thirtyth 2019, as the result of a form of senior executive of Orphaning his stock options as settled litigation.
And the increase in directors and officers insurance of approximately $200000.
Other income for the fiscal years ended September Thirtyth, 2020, and 2019 was approximately $24.5 million and approximately $5 million respectively.
The increase in other income was primarily due to the company recording the higher gain on sale of real estate dropping the equipment assets held for sale in the fiscal year 2020, as compared to fiscal year 2019.
In fiscal year 2020, we recorded a gain of approximately $30.4 million, which was generated primarily from the sale of land on on the West branch in September 2022 of the state of Florida.
For the fiscal year ended September 30 of 2019, the company recorded a gain of approximately $13.2 million.
Additionally, the company recognized the reduction of approximately $1.2 million in the interest expense as the result of.
The reduction of its long term debt attributable to making its mandatory principal payments.
The paying approximately 4.5 million on its debt obligations.
And the reduction in interest rates.
As mentioned during the fiscal year ended September Thirtyth 2020, we received approximately $4.6 million of additional proceeds under the Floridas interest recovery block Grant program relating to Hurricane Hermine damage sustained in September 2017.
To date the company has received approximately $20.2 million of proceeds under this program.
Which represented reimbursements on the part one and part two of the program.
The timing of the amounts to be received on the par three of this program has yet to be finalized.
For the fiscal year ended September Thirtyth 2020, the company reported net income attributable to Alico common stockholders of approximately $23.7 million.
Compared to net income attributable to Alico common stockholders of approximately $37.8 million for the fiscal year ended September Thirtyth 2019.
The net income for the fiscal year ended September Thirtyth 2020 was in line with the company's most recent net income guidance of 22 millions of $24 million.
Additionally for the fiscal year ended September Thirtyth 2020.
The company's EBITDA of $51.8 million was in line with the company's eat, but I'd guidance of 49.5 million to $52.5 million.
We continue to show strength in our balance sheet expect stronger cash flows in fiscal year 2021.
Our working capital at September Thirtyth, 2020 was $30.7 million, representing a 2.5 to one ratio.
In addition, we have experienced day steady improvement in on debt to equity ratio for the past the years.
In 2000, 22019 and 2018 the ratio is 1.68 to 1.82, the one and one to one respectively.
As part of our acquisition in October 2020 of the 3280 gross acres previously.
Previously mentioned, we utilize a portion of the proceeds from the sale of approximately 1700 acres of the state of Florida in September 2020 to fund the purchase which was structured to allow us to the for approximately $4 million of taxes related to the gain on sale.
We also announced today, a doubling of our dividend to 18 cents per share compared to nine cents per share.
The 18 cents per share dividend will be paid to our stockholders of record as of December 20 for 2020.
As of September Thirtyth 2020 for the company had term debt, including lines of credit net of cash and cash equivalents and restricted cash cash of approximately $131.5 million down from $139.6 million for the same period last year.
I would like now to pass the call back to John to discuss.
You discussed on fiscal year 2001 outlook.
Thank you rich.
Well, we can do is the leader in the Florida, citrus industry with huge cost and scale advantages.
We believe the we have transformed the company into a low cost producer with strong margins and are well positioned for long term growth within the 27 billion dollar global industry.
We havent experienced stable management team for.
The first on growing the business and returning capital to our shareholders.
We have invested heavily in our business the fuel organic growth through the strategic decision to increase the density of her citrus gross by plant the more than 1.3 million new trees over the past for years.
Which we expect to be for bearing in the next couple of years.
We are also fueling growth inorganically by constantly evaluating opportunities to acquire well managed neighboring citrus gross and deploying capital thoughtfully when we see a strategic acquisition at an attractive price.
Additionally.
We have expanded into fee generating lines of bit related businesses.
As you saw this past fiscal year with the growth of our third party management service.
The increased confidence we have in the rebound of market pricing the next fiscal year.
The along with our control of our cost structure.
Well allow us to provide some guidance as to net income.
Adjusted net income.
EBITDA.
And the adjusted EBITDA for the upcoming fiscal year.
We are projecting net income of 7.5 million to $10 million.
Adjusted net income.
Of 4.5 million $6.9 million.
EBITDA between 29 million and $33 million.
And adjusted EBITDA between 25 million and $28.8 million.
These projections do not include any gains from asset sales.
In the event the assets sales are realized a low.
We go may decide to update these projections.
We believe that we have built a we go into a low cost high margin company dedicated to unlocking value for our shareholders and believe our fiscal year results and accomplishments.
Demonstrate our commitment to being the long term citrus for either.
I'd like to end now by thanking our 250 or so dedicated employees and our management team for their incredible work this past fiscal year.
Thank you everyone on the phone today for their continued support of Alico.
We look forward to speaking with every one of gun on our first quarter, Inc. First quarter earnings call in February.
Thank you that does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
They have a great day.