Q3 2021 Alico Inc Earnings Call
Please standby we're about to begin.
Welcome to <unk> third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. As a reminder, today's conference is being recorded.
Earlier today, the company issued a press release announcing its results for the third quarter ended June 30th 'twenty 'twenty..1 if you have not had a chance to view the release. It is available on the Investor Relations portion of the company's website at El Rico, Inc. Dot com.
This call is being webcast and a replay will be available on <unk> 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 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 amendments 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 measure measures, including EBITDA and adjusted EBITDA.
For more details on these measures please refer to the company's press release issued earlier today.
Consumption of not from concentrate orange juice by retail consumers since March of 2020, which resulted in decreased inventory supply levels at Florida, Citrus juice processors, and thus help to increase prices for our for this past season.
Our average realized blended price per pound solid rose from $1.86 and the prior fiscal year.
To $2.45 and the current fiscal year, an increase of 31.7%.
We are further encouraged because right now consumption of not from concentrate orange juice is remaining strong and processor inventories for Jews are lower than normal levels. So we believe that market prices next year should remain near or.
Or above recent levels.
In June 2021, we entered into new citrus supply agreements with peace River citrus products, covering 3614 growth citrus acres, which repurchased in May and October of 2020.
With these latest supply agreements approximately 99% of our fruit is under contract through the 2023 and 2020 for harvest seasons with the largest portion being under contract through the 2020 for harvest season.
These contracts will continue to enable the company to realize competitive margins for their duration.
We continue to close we manage our growing costs in general and administrative expenses and these cost after backing out 1 time non-recurring items.
Remain in line with our budget and expectations.
And our 2021 fiscal year, we've been proud of our third party care, taking management services.
We have now been engaged for more than a year with the top 10, Florida citrus grower.
Who has more than 7000 citrus acres and the relationship has been profitable for both parties.
Entered into this line of business with minimal financial risk to us as we are reimbursed for all out of pocket costs and we receive an annual fee based on acres managed.
This year, our third party care, taking management services will contribute close to $2 million in net fees.
We continue to pursue similar arrangements with other large growers and believe that we can increase this line of business substantially annually beginning in fiscal 2022.
Moving on to our business highlights.
And the third quarter, we implemented several measures that we believe will improve our current and future shareholder returns.
Some of these actions included.
We successfully completed our that modification in may of 2021 in which we converted to amortizing loans into interest only loans, which mature in November of 2029.
As part of this modification, we also reduced our annual interest rate on this debt from 4.15 per cent to 385%.
This modification will improve annual cash flow by approximately 5 million to $6 million.
In June 2021.
Our board of directors approved a considerable increase to our quarterly dividend raising it to 50 per common share from.
From 18 cents per common share previously.
Our board of directors felt with the debt modifications the proceeds from land sales and the expected financial benefits and the upcoming harvest seasons from the 1.5 million new trees, which we planted over the last for years.
<unk> will be able to support and maintain the significantly higher common dividend.
And the third quarter.
Our program of selling non-core land assets continued and we sold approximately 18500 acres of parcels from the eco ranch to various third parties hi.
Highlighted by another sale to the state of Florida.
As well as the sale of approximately 11700 acres that had been encumbered by an easement restrictions since 2013.
After these sales we still have approximately 35000 acres of ranch land now none of which is encumbered or restricted.
Net proceeds from future sales a week of assets will be used to maximize shareholder returns by either acquiring additional citrus acreage at attractive prices.
Prepaying variable rate turn that without penalties.
Repurchasing common shares.
Diversifying our business through other acquisitions and or paying special dividends.
We have also continued to move forward with our environmental social and governance initiatives and most recently formed a board committee, which is now actively participating in these ESG initiatives.
We launched a new a week go sustainability page on the company's corporate web site and publishes sustainability policy a vendor code of conduct a safety manual on that sustainability page.
We completed a materiality assessment and develop the sustainability framework to guide future ESG activities. We've also joined the UN global compact to support Universal sustainability principles of environmental responsibility labor and human rights and anti corruption.
As a result of these actions we have seen some improvements in our ESG scores by institutional shareholder services.
We are also in the final stages of completing our 3 year sustainability roadmap and.
And anticipate completing our initial annual sustainability report by December of 2021.
With that I'll turn the call over to rich Rollo to discuss are more detailed financial results.
Thank you John and good morning, everyone.
Due to the seasonal nature of our business quarterly results for a third quarter are not indicative of a full year results.
The majority of us 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 and the second and third quarters.
Total operating revenue for the quarter ended June 30th 2021 was $34.9 million compared to $26.1 million for the quarter ended June 30th 2020.
Interest revenue was $34.3 million and $25 for a million dollars for the quarters ended June 30th 2021 in June 30th 2020, respectively.
The increase in revenue for the 3 months ended June 30th 2021 compared to the 3 months ended June 30th 2021.
Was primarily primarily due to an increase in the revenue generated from growth management services and the Valencia for harvest it.
We generated greater revenue from the growth management services, primarily as a result of executing an agreement with an affiliated group of third parties in July 2022.
To provide citrus growth caretaking and harvest and home management services for approximately 7000 acres owned by such third parties.
As a reminder, a lico records, both an increase in revenues and expenses as and when the company provides these growth management services for.
For the 3 months ended June 30th 2021, Ah Lico recorded approximately 5 point.
$5.1 million of operating revenue relating to these growth management services, including its management fee.
The increase from the Valencia fruit harvest was driven by an increase in the market price per pound solids as compared to the prior year.
As mentioned earlier by John the increase in the price per pound solids was due to increased consumption of non from concentrate orange juice as well as Titus supplies of citrus fruit, which in turn led to reduced inventory levels.
Partially offsetting this increase in pricing was the effect a few up Valencia box is being harvested and low accounts out for box for the 3 months ended June 30th 2021 compared to the 3 months ended June 30th 2020.
Ah Lico, along with the Florida industry in general recorded a smaller number of boxes harvested primarily because of greater fruit drop during the current harvest season as compared to the previous year.
USDA in its latest citrus crop forecast for the 2000.2021 harvest season indicated the Florida Orange crop decreased from approximately 67.4 million boxes for the 2000.1920 crop year, 2 approximately 52.8 million boxes for the 2000.2021 crop year.
A decrease of approximately 21.7% in comparison through all continued comprehensive growth management program, we managed a more favorable decline in the current harvest season, a 15.9%.
The increase in operating expenses for the 3 months ended June 30th 2021 as compared to the 3 months ended June 30th 2020, primarily relates to growth management services.
As previously stated we entered into an agreement to provide these services for more than 7000 acres and recorded approximately $4.5 million operating expenses and the 3 months ended June 30th 2021.
Additionally, the increase in operating expenses is attributable to illegal purchasing additional citrus acres in may and October of 2020, which resulted in cost of sales relating to these growth and the current fiscal year.
Partially offsetting these increases was a reduction in harvest and haul expenses a.
Attributable to a decrease in the early and mid season and Valencia box is harvested.
General and administrative expenses for the quarter ended June 30th 2021 in June 30th 2020 was approximately $1.9 million and $2.6 million respectively. The.
The decrease in large part is due to a reduction in legal expenses, resulting from the receipt of insurance proceeds.
For the reimbursement of legal fees and the amount of approximately $700000. During the day quarter ended June 30th 2021 relating to corporate legal matters.
Other income net of other expense for the 3 months ended June 30th 2021 was approximately $29 for a million dollars as compared to other income net of other expense of approximately $1.4 million for the 3 months ended June 30th 2020.
The ship to other income net from other expense net is primarily due to illegal recognizing a significant gain on sales of real estate property and equipment and assets helped the sale of approximately $33 million for the 3 months ended June 30th 2021.
For the 3 months ended June 30th 2020 to company recorded a nominal gain on sale of real estate prop.
Property and equipment and assets held for sale.
Additionally, a decrease in interest expense of approximately $700000 for the 3 months ended June 30th 2021 as compared to the 3 months ended June 30th 2020 was realized primarily due to a reduction of a long term debt from making mandatory principal payments in certain prepayments.
In addition, we maintain low balances on a working capital and revolving line of credits, which also contributed to the reduced interest expense.
But the fiscal quarter ended June 30th 2021 in June 30th 2020.
We reported net income attributable to a lethal common stockholders of approximately $27.1 million in approximately $2.1 million respectively.
Our adjusted EBITDA was $9.8 million for the quarter ended June 30th 2021, as compared to $7.4 million for the quarter ended June 30th 2020, representing a 31.8 per cent increase.
With respect to our financial guidance, we are reaffirming previously updated guidance for the fiscal year ended September 30th 2021.
This guidance calls for net income to be in the range of 33 million to $38.5 million.
Adjusted net income after adjusting out for certain of the expected non-recurring items to be between $1.3 million and $3.8 million.
EBITDA to be in the range of 64 million to $72 million.
And adjusted EBITDA at the gang after again adjusted out for certain of the expected non-recurring items to be between $21.7 million and $25.7 million.
Ah leakers balance sheet remains strong.
Working capital was approximately $27.9 million at June 30th 2021, representing a 2.1921 ratio.
I'll get to <unk>, our debt to equity ratio continues to improve.
At June 30th 2021 September 30th 2020, and September 30th 2019, the ratio is what 0.522.1.6821, and <unk> 8221, respectively.
This improvement has been driven by continued mandatory payments on a long term debt as well as certain prepayments being made including approximately $10.3 million in April 2021 on a fixed rate term loans.
I would like to know past the call back to John.
Thanks Rich.
During the third quarter, we made longterm does business decisions, such as significantly increasing our quarterly dividend modifying our debt structure and continuing to sell off non-core assets, which we believe will generate greater returns for our shareholders.
We continue to generate cash flow, we will continue to evaluate the best ways to deploy it to continue to drive shareholder returns.
And with that 1.
Now open the lineup to questions from industry analysts Katie.
Thank you if you would like to ask a question you may signal by Prescient Star 1 on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Once again star 1 for questions.
Take a question from Jerry Sweeney with Roth capital.
Hey, commodity Gianna rich thanks for taking my call.
Morning, Jerry.
A lot of the harvest or the harvest that done for the share may.
You could take the opportunity and discuss the macro environment, obviously, Brazil budget for the reserve oranges going through pretty significant trout.
I think for inventories in Florida are down.
25.30 per cent from.
This year vs. This time last year.
Any thoughts comments on how this for sort of setting up the playing field for next year.
Not just next year I think the near term you're seeing obviously a contraction in the supply base.
You know the the output from Brazil, as can be a little higher year over year, but it's lower than it normally is expected to be next year, they've got some weather conditions like a drought that is affecting basically with our forecast.
An inquiry, where you saw some weather related in some greening related impacts to the Florida crop. This past season, where you had.
I think a historically bad drop right are there was just 50.
52.7 million boxes of fruit.
That was able to be produced.
So the supply bass clearly has shrunk.
The other side of that on the demand side as demand clearly rebounded during the COVID-19 years, and it's somewhat holding steady.
And most likely is going to erode.
A bit, but it's well above the pre COVID-19 levels at this point.
So where does that position a week ago <unk> has been significantly investing.
And the density of our growth. So we just have.
More trees for years ago them more.
More trees now than we did for years ago, because we've been aggressively planting.
Those trees are bearing fruit starting next season.
And we believe.
It goes going to solidify its leadership position.
As a as a grower because of those investments and relative to the competition both here and in Brazil, We think our market share position is going to continue to increase.
Simply because we're a stronger stronger than anybody and we've actually we've been making investments too.
Generate.
Greater for going forward.
Okay got it.
Switching gears the care, taking obviously.
It's been in place for a good solid year.
I'm pretty confident on your ability to grow that business day.
You have some metrics in terms of cost savings are you ready to present to other grows as you can.
For the selling process and maybe explain.
For the opportunity I think that potentially life in that business.
I'll start and then ritual jump in.
I think we've walk you through and I think we've discussed at some of our investor conferences.
We're very selective of.
Potential partners for the care, taking business they have to meet some criteria, it's gotta be sizeable enough scale.
And it's going to be somewhat adjacent are large enough to have its own critical mass, where we can conduct a profitable operations because what we really do as we step in and we kind of run their business end to end.
You know.
Most always we take their employees on board they become a week go employees, we get reimbursed for all those costs and it sounds like a daunting task.
But where it starts really is we take basically our financial operations information and we sit down and go line by line and compare that with the prospective customer and show them base.
Basically dollar for dollar where they could save if they were under our roof from the labor side chemicals fuel fertilizer, just because we've got better economies of scale most likely.
We walk through kind of our horticultural practices, we work with their kind of existing managers and supervisors and really get them for.
Fully on board with how we're going to conduct a business and.
More often than not we're able to do it much more economically even with an additional management fee on top of that.
And it's a win win we think Thats, what Baron call here.
It has experienced over the last year or so and that really is kind of a rule of thumb is we look at new businesses.
If someone's as competitive as we are.
Stepping in and getting a management fee is going to be incremental costs for them, they're going to be a little worse off.
So that's probably not a customer that's going to work with us, but more often than not when we're sitting and talking it's customers that have cost structures that are a little looser and a little bigger than we have and we're able to instill that discipline in arcata corporate practices and.
Certainly the levers that we get from our back office and the data that we drive.
To create a value proposition for those customers.
Rich anything to add their got it.
No <unk> I think you've covered it I I think 1 of the things Jerry tune to report on John talked about we sit with our partners and go through cost you do know that during 2017th 19. We did go through the modernization program I'm really looked it up program.
And as we work with our partners here, we get to see that we are in fact, 1 of the low cost.
Producers.
And can be very successful at it I I will add that all partnership has been together a year now and it is very strong and dulling solid. So it has really turned out from both sides to be very beneficial.
And as much as you can see on this front, obviously you're out there you saw on this program.
Any any commentary on.
Leads in the pipeline.
There was it theirs.
There's.
Confidence in your.
Projections for growing just curious about that how do we look at sure as much as you can stay on that from.
Yep.
So it is a relatively short list of perspective customers and we're talking to a handful at any given time and usually there's long lead time.
Particularly season to season, but we can't go into any more specific detail.
As I said previously this tends to be a lumpy business to a kind of announcement when.
Since we're talking about thousands and thousands of acres at a time as opposed to just rolling up smaller customers a few acres here in a few acres there.
Got that for.
Final question for me and Ah jump back in the lineup landfills obviously.
Been very good this past year.
Florida Forever.
But as importantly, you've taken.
Great care to highlight but all of it for the land that romance at 35000 acres.
All of Us unencumbered and none of it is wetlands anymore does this change the value proposition of that land vs. What you discussed.
Other that remaining lamp vs words for discussed.
Sure Uhm as we've said in a restaurant presentations previously I think when we've discussed the hypothetical or potential net asset value.
Historically, we've given them ranges on the ranch when that management estimates were potentially realizable the 11006.11700 acres.
That was under that restricted easement.
It was factored in there so we kind of had a lower average price point with those acres now in the hands of a catalog razor is going to do a great job with that property. He knows the land very very well and he's going to put it to good use and and really keep it.
And the same pristine condition that we've been trying to do for the last 100 years or so.
We think the average price for the remaining 35000 acres that we have is going to be significantly higher than the range that we had stated previously because we've taken that restricted wind out of the picture.
Got it okay.
I'll jump back from 9 thank you for.
We have reached standard for today's question and answer session I would like to turn the call back to over to Mr. Kiernan for closing remarks.
Thank you and thank you everyone for joining our call today and for your support of a week ago.
Look forward to speaking with you again about our fourth quarter and our fiscal year end results in December.
Yeah.
And we appreciate your time today very much.
This concludes today's conference you mean disconnect your lines at this time. Thank you for your participation have a great day.
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