Q2 2021 Alico Inc Earnings Call
Good morning.
Welcome to all because second quarter 2021 earnings conference call.
At this time, all participants are in a listen only mode and so.
Minder today's conference is being recorded.
Earlier today, the company issued a press release announcing its results for the second quarter ended March 31st 2021 if you've ever had not had a chance to view the release. It is available on the Investor relations portion of the company's website and.
Alico, Inc. Dot com.
This call is being webcast and a replay will be available on Ali cause 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 risks uncertainties and other factors that may cause actual results to differ materially from those expressed or implied and these statements important factors that could.
Cause or contribute to such differences include risks detailed in the company's quarterly reports on form 10-Q annual reports on form 10-K current reports on form 8-K, and the amendments thereto filed with the SEC and those mentioned in the earnings release the.
Company undertakes no obligation to subsequently update and revise the forward looking statements made on today's call except as required by law.
During this call. The company will also get 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'd like to turn the call over to the company's President and CEO, Mr. John Kiernan.
Thank you Debbie and.
Thank you everyone for joining us for a weaker second quarter 2021 earnings call. This morning.
Remain encouraged by the higher citrus fruit prices per pound solid and up.
Continued throughout the 2021 harvest season.
Pricing for the early and mid season fruit and finished the season at $2.14 per pound solid more than double the market pricing from a year ago, which was in the low $1 range.
We're still harvesting the Valencia crop for a few more weeks, but expect a similar type of increase and pricing by seasons and.
The increase and price is driven by both on a continued increase in consumption of not from concentrate orange juice by retail consumers as well as tighter supplies of citrus fruit from Florida, Brazil and Mexico.
The increased consumption of not from concentrate orange juice commenced in March of last year with the outbreak of the pandemic and its continued strongly since then.
We along with the entire Florida Citrus industry have continued to Inc. Experienced a decrease and process box production of both the early and mid season, and Valencia crop as compared to the prior year harvest.
The U S D. A now estimates and approximate 23, 3% decline of the total Florida Orange crop for the current harvest season as compared to the prior year.
Well, we are also expecting a decline we don't anticipate it to be as steep as the usda's estimate.
We expect our production decline to be and a range of 15% to 20% with production falling to approximately $6 3 million boxes.
With.
Respect to our growing cost and general and administrative costs. We continue to maintain stringent controls, which has allowed us to realize improvements and these costs through the first six months of fiscal year 2021.
Moving on to our business highlights.
Earlier this year.
And I'm, sorry earlier today, and our press release.
And we announced that as of May one 2021, we had modified our fixed rate term loans with metlife to be interest bearing one way and the principal balance fixed until maturity in November of 2029, when a balloon payment will be do where the balance will be refinanced.
As part of this modification, we also reduced our annual interest rate on this debt from 4.15% to 385%.
And April 2021.
Prior to executing the modification, we prepaid deposits of approximately $10 $3 million without penalty.
Reducing the principal balance to $70 million.
Oh and nominal fees, but no penalties were incurred to modify these loans.
We expect these modifications to reduce our debt service between 5 million and $6 million annually.
Yeah.
Last month, we previously announced the completed sale of 5734 acres of ranch went on to the state of Florida for approximately $14 $4 million and.
Net balance net of taxes on these funds were used to prepay a portion of the Metlife fixed term loans before the principal balance was fixed through 2029.
Over the past four years, we have sold more than 26000 acres of non core ranch land and adjacent farmland for more than $72 $7 million and proceeds.
Earlier today and the same press release announcing our modified debt terms, we also announced that a week ago is under contract to sell.
Or in final negotiations to sell approximately 15000 additional acres of the weaker ranch to approximately 10 different parties.
Once these transactions close.
Approximately 33000 acres of the illegal ranch and adjacent farmland remaining to be sold.
Okay.
Cash flow is expected to increase substantially in the near term once these pending asset sales are completed.
After tax proceeds from the proposed sale of the 15000 acres and other assets are expected to retire the balance of our $40 million of variable rate term loans.
Which when combined with the impact of the fixed rate term loan modifications already made.
We'll improve subsequent annual cash flow by as much as $9 $5 million annually.
Following these transactions along with repaying another term loan which matures in September 2021 day.
Debt components of our capital structure should remain fixed true.
2029.
Company has a history of increasing its quarterly dividend.
Since fiscal year 2019, our common quarterly dividend has tripled from six cents a share to 18 cents a share.
Our board of directors feels confident that the debt modifications and prepayments discussed earlier and the proceeds from pending land sales could support a significantly higher dividend.
However.
There will not be any change to our dividend policy until most of those transactions have closed.
We believe that any increases to our quarterly dividend policy will still need to enable a we go to pursue opportunities to acquire additional citrus acres at attractive prices reach.
Repurchase common shares make other acquisitions or even consider special dividends and the future as asset sales continued to be realized.
And looking at our tree plantings by the end of fiscal 2021, a week or will have planted approximately 1.5 million new trees since 2018.
This level of planting substantially exceeded our rate of tree attrition and has increased the overall density of our citrus groves.
While we continue to evaluate the optimal density levels at our individual citrus groves. We believe we are approaching maximum density and therefore plan to decrease the number of tree plantings and fiscal 2022 to be between 225000 and 275.
And trees.
As an approximate estimate of the maintenance investment required to meet attrition among the company's approximately 5 million total trees.
The reduction in annual tree plantings could reduce our annual cash capital expenditures by approximately one 5 million to $2 million. However, at a lower level of tree plantings.
Smaller portion of our growing costs will be capitalized and instead there'll be expensed each year when the fruit is harvested.
With our accelerated tree plantings over the last four seasons, we anticipate starting to realize increased production from these plantings and the 2022 harvest season.
Citrus fees typically take approximately four years after planting.
Generate meaningful production and usually reach mature production after seven or eight years.
With our approximately $1 5 million trees planted over the last four years, we believe we have the potential and the long term to return to the company's annual citrus production level of approximately 10 million boxes and that level was last experienced by our company and fiscal 2015.
Lastly, I will discuss our third party care, taking management services and.
In July 2020, we entered into an agreement with a top 10, citrus grower with more than 7000, and citrus acres to provide citrus growth management services.
<unk> is reimbursed for all of its out of pocket costs.
And receives an annual fee based on acres managed.
This line of business is performing well.
And now contributes approximately $1.5 million and fees annually.
We are continuing to pursue similar third party care, taking management services.
For other large growers and believe we can increase and this line of business substantially each year beginning in fiscal 2022.
With that I'll turn the call over to our CFO rich Rollo to discuss our more detailed financial results.
Thank you John and good morning, everyone.
As mentioned on previous calls our business is seasonal and the majority of our citrus crop is harvested and the second and third quarters of the fiscal year.
With the majority of our profit and cash flows also recognized and the second and third quarters.
As such and quarterly results for the second quarter and are not indicative of our full year results.
Total operating revenue for the quarter ended March 31, 2021 was $55 $9 million compared to $55 million for the quarter ended March 31 2020.
Interest revenues were.
55, $3 million and $49 8 million for the quarters ended March 31, 2021, and March 31 2020, respectively.
The increase in revenues for the three months ended March 31, 2021 compared to the same period and the prior year was primarily due to an increase and the revenue generated from our growth management services and the Valencia fruit harvest it.
We.
Generation greater revenue from our growth management services, we provided to third parties.
In July 2020, we entered into an agreement to provide these services for over 7000 acres.
As mentioned on our previous earnings call, we record both and increase in revenues and expenses. When we provide these growth management services.
For the three months ended March 31, 2021 under this agreement we recorded approximately $4 7 million of operating revenue relate.
Relating to these growth management services, including the management fee.
Yeah.
The increase in revenues from the Valencia fruit harvest has been driven by an increase and the market price per pound solids as a result of increased consumption and tighter inventory supply.
Partially offsetting this increase is and pricing is fewer Valencia box is being harvested as well as pound solids per box being lower for the three months ended March 31, 2021 compared to the three months ended March 31 2020.
While we have harvested a greater percentage of our Valencia crop through March 31 2021.
As a percentage of our estimated full year Valencia crop.
And as compared to the same period and the prior year.
We are recording a smaller number of boxes harvested as a result of a greater rate of fruit drop during the current harvest season as compared to the previous year.
In addition, the internal quality of the fruit has not been as strong as it was and the previous year, resulting in lower pound solids per box.
The USDA and its April nine 2021, citrus crop forecast on the 2020 'twenty one harvest season <unk>.
Indicated its expectation is that the Florida Orange crop will decrease from approximately 67 4 million boxes for the 2019 'twenty crop year to approximately $51 7 million boxes for the 2000 2021 crop year, a decrease of 23, 3%.
As mentioned earlier by John we anticipate a leak or decline will be and the range of 15% to 20%, which is substantially less and that forecasted by the USDA.
The increase in operating expenses for the three months ended March 31, 2021 as compared to the three months ended March 31 2020.
Primarily relates to our growth management services.
And as previously stated we entered into an agreement to provide these services to more than 7000 acres and July 2020, and recorded approximately $4 2 million of operating expenses and the three months ended March 31 2021.
Additionally, the increase in operating expenses is attributable to our legal purchasing additional citrus acres and May and October 2020, whereby we reported operating expenses relating to these growth in the current fiscal year.
Partially offsetting these increases was a reduction and harvest and haul expenses related to the decrease and box is harvested.
General and administrative expense for the quarter ended March 31, 2021, and March 31, 2020 will approximate $2 $7 million and $3 million respectively.
The decrease was due in large part to a reduction and stock compensation expense of approximately $300000 pertaining to certain stock options that vested and January 2020, resulting in an acceleration of expense and that quarter.
A reduction and pension expense related to <unk> deferred retirement benefit plan of approximately $100000 as a result of the company terminating such plan and.
And paying out each of the planned participants in August 2020.
And a reduction and legal fees of approximately $100000 relating to SEC and other corporate matters.
Partially offsetting this decrease was the company incurring approximately $200000 and corporate advisory fees and the three months ended March 31 2021.
Other expenses net of other income for the three months ended March 31, 2021 was approximately $1 million $100000 as compared to other income net of other expenses of approximately $1 $4 million for the three months ended March 31 2020.
And the shift to other expense net some other income net is primarily due to <unk> recognizing a sale of real estate property and equipment and assets held for sale of approximately $2 8 million for the three months ended March 31 2020.
For the three months ended March 31, 2021, we recorded a nominal loss on sale of real estate property and equipment and assets held for sale.
Additionally, a decrease in interest expense of approximately 400000 balance for the three months ended March 31 2021.
As compared to the three months ended March 31 2020.
Was realized primarily because of the reduction of long term debt, resulting from mandatory principal payments.
For the quarter ended March 31, 2021, and March 31, 2020, we reported net income attributable to <unk> common stockholders of approximately $4 9 million at approximately $3 $6 million respectively.
We are updating our guidance for the fiscal year ended September 32021 to reflect significantly lower anticipated box production. This season.
The sale of ranch land to the state of Florida last month for approximately $14 4 million and other pending ranch land sales transactions that are targeted to close before the end of fiscal year 2021.
The company is now projecting net income to increased on its initial projection of between $7 5 million and $10 million to between $33 million and $38 $5 million.
Fiscal year 2021, adjusted net income after adjusting out for certain of the expected nonrecurring items is expected to decrease from the initial projection of between $4 5 million and $6 $9 million to $1 3 million and $3 $8 million.
The company is projecting EBITDA to increase from its initial projection of between $29 million and $33 million.
And to between $64 million and $72 million.
Fiscal year 2021, adjusted EBITDA again after adjusting out certain of the expected nonrecurring items is expected to decrease from the initial projection of between $25 million and $28 $8 million.
To between $21 7 million and $25 $7 million.
Our legal continues to demonstrate financial strength within its balance sheet.
Working capital was approximately $27 9 million at March 31, 2021, representing a better than two to one ratio.
We continue to maintain a solid debt to equity ratio at.
At March 31, 2021 September 30th 2020, and September 32019, the ratios.
Six two to $1 68 to one and.
Eight two to one respectively.
Additionally, we made a prepayment of approximately $10 $3 million on a fixed rate term loans, which will further improve our overall debt to equity ratio.
I will now pass you back to John.
Thanks Rich.
We've made great progress so far this year executing on our operational initiatives, which we believe will generate greater returns for our shareholders.
We reduced the principal of our debt by approximately $10 3 million.
Favorable we modified the terms of our fixed rate term debt.
Sold or and the process of selling over 20000 acres of non core land sales this year and if.
We continue to make headway, reducing our expenses.
And with that we'll now open the lineup to questions from our industry analysts Debbie.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble on.
Foster.
Our first question comes from Gerry Sweeney with Roth cap Roth capital. Please go ahead.
Hey, good morning, John and rich Thanks for taking my call.
Good morning.
Quick question on pricing, John You mentioned, I think and the prepared remarks pricing was up from a dollar or.
And I will assume about $1 last year to $2 and change for sure I didn't catch all of it but two questions.
And that was the industry pricing I believe.
But could you just go over that but more importantly, as we move into <unk>.
The third quarter.
Do we anticipate pricing staying in that range or is there any variability where potential variability to that pricing as we move forward.
Sure. So for the early mid season fruit that was already harvested.
And I think we'll wrap that up in February so clearly the number that we stated for that.
Is locked and done.
We haven't we haven't really announced kind of where our pricing is coming out.
And kind of gave you some guidance that market prices right now for <unk> is with three or four weeks to go and the remaining part of the season or substantially higher as well.
Rich you might be able to get into a little more specifics on that but we definitely think we can back up the claims that it's going to be substantially higher than it was last season and <unk>.
Why does the new contracts that were negotiated and other contracts that we do hold.
Got it and did the Valencia is carry a higher price generally and the early the myths correct. They do so it's 1% to 40 cents higher typically.
20 to 40.
Typically yes, yes.
Yes.
And yes.
Got it that's helpful. I appreciate that and then obviously.
The last several years you as you mentioned $1 5 million trees planted.
Yeah.
Beginning I believe you said in 2018, one was the pace of those plantings just.
And I just wanted double check our model and.
And.
With similar amount each year or was it a little bit more of a bell curve just.
I wanted to touch upon that sure we actually graph that and some of our investor presentations. Richard do you want to pull that up we'll talk about what we did and 17 18 19 and 20.
Most of those years it was around 400000 plus trees.
Okay.
Rich.
And I can fill up too yes, okay.
Okay, yes so.
Jerry and 2018 it it was just over three.
300000, and then we move to 400000.
Pretty much subsequent to give and take a little bit subsequent to that.
Got it and then preparing for years and then they kind of mature over the next three to four years to full production right.
Got it that is correct got it and got it and then we can.
And back.
Back into how many of those.
And those trees produced by some of the comments you made.
And.
And then final question timing.
No. This is a little open not open and it but maybe a little bit difficult to tell.
And now down but just curious.
And then.
Transactions that remain out there.
Do you have a sense of.
When they're well completed I think I believe by the end of this fiscal year, but I just wanted to confirm that.
Yes.
Gonna be staggered between now and the end of September So we should see a handful in June.
And then the remainder would be the rest of the summer no later than September.
Got it and.
The final land.
And that remains I think its 33000 acres.
Is it fair to say.
And that land similar quality location value as of as compared to some of the other sales you've made and the last several years.
Yes, I think Thats fair to say our.
Prices are clearly strong and Florida for open real estate like the.
And the ranch and our holding.
And substantially higher than it was even two years ago and interest is very strong. So we're showing parcels of the property a couple of times a week and I was actually just out there a day or so ago.
And interest remains strong.
We are opportunistically.
And entertaining offers a we're not in any rush whatsoever to dispose of these assets.
Moving out for good prices.
And for buyers that really do have a conservation focus because we'd love to see it kind of all of that.
Maine and friendly handset support.
Kind of the ESG movement and wanted wanted wanted to take care of it as stewards just as we have done for 120 years.
Got it so lots of demand for the land.
So.
You can.
Youre not pressed to sell it and obviously the curve.
Correct Thats correct got it.
Alright, that's it for me I really appreciate it and.
Thank you.
Thank you Jerry.
Thank you.
We have reached and today's question and answer session I would like to turn the call back over to Mr. Kieran and for any closing remarks.
Thank you Debbie and I want to thank everyone today for joining our call and for also your support of a week ago.
Rich and I are available all day and and going forward.
And if theres any additional questions. We can answer one on one about the public information, we just disclosed today and.
And we look forward to speaking with all of you again about our third quarter results and August. Thank you very much.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Sure.