Q4 2021 Alico Inc Earnings Call
Welcome to <unk> fourth quarter, and full year 2021 earnings conference call.
At this time all participants are in a listen only mode. As a reminder, today's conference is being recorded.
Today, the company issued a press release announcing this yourself for the fourth quarter and full year ended September 30th 2021.
If you've not had a chance to view the release, it's available on the Investor Relations portion of the company's website at <unk>, Inc. Dot com.
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 measures, including EBITDA and adjusted EBITDA from our information for more details on these measures. Please refer to the company's press release issued earlier today.
With that I would like to turn the call over to the company's President and CEO Mr. John Kiernan. Please go ahead.
Thank you Rob and thank you everyone for joining us for <unk> fourth quarter and fiscal year ended September 32021 earnings call. This morning.
Overall, we are pleased with our financial results for fiscal year 2021.
We saw a significant increase in our adjusted EBITDA over the prior year, increasing 41% as a result of the increased fruit market prices the expansion of our care, taking management initiative and.
They continued stringent control over our expenses.
Pacifically, our general and administrative expenses, which declined by approximately 8% over the prior year when excluding nonrecurring items.
These results were achieved despite box production and average pound solids per box disappointments.
Largely due to the higher drop rate for citrus in Florida. This past season.
And the quality of the fruit not being as strong as in the previous year.
Market prices significantly improved in fiscal year 2021 do.
Due to the steady consumption of not from concentrate orange juice throughout the fiscal year.
As a result of this improved level of consumption.
Bind with lower quantities of citrus fruit grown last season in Florida.
As well as in Brazil, and Mexico.
We recognize the current processor inventories for not from concentrate orange juice were lower than normal levels.
We are encouraged that consumption of not from concentrate orange juice is continuing to remain strong in fiscal year 2022.
And the latest Nielsen data shows consumption now at levels last seen in 2016.
Based on these trends for consumption demand and local and global supplies.
We believe market prices for fiscal year 2022 should remain near.
We're above those recorded in the 2000 2021 harvest season.
Along with the improved financial results there were other significant actions we executed throughout the fiscal year.
We believe will improve our future shareholder returns.
These actions consisted of the following.
Our board of directors approved a considerable increase in our quarterly dividend raising it to <unk> 50 per common share from <unk> 18 per common share.
We believe this latest increase reflects our boards continued confidence.
But our financial strength and business strategy will support this increased dividend level for the foreseeable future.
We successfully improved our balance sheet.
Converting to fixed rate amortizing term loans.
Interest only debt, which will continue to mature in November 2029.
This modification improves our annual cash flow by approximately 5 million to $6 million.
Additionally.
As part of this modification.
We were also able to reduce our interest rate from 4.15% to 385% for that tranche of debt.
We repaid approximately $22 million of debt.
Which included a prepayment of $10 3 million on our fixed rate term loans.
Higher to the debt modification.
As of September 30th 2021, we have improved our debt to equity ratio from 0.51 to one.
It was <unk> six eight to one a year ago.
Over the past five years, we have reduced our debt balances by 36%, having made principal payments of approximately $71 million.
We acquired approximately 3280 gross citrus acres using proceeds from a previous sale of ranch went to the state of Florida.
Which enabled us to defer almost $4 million of gain from that sale.
These acquired citrus acres were well maintained.
And close to our existing grows.
Which is allowing us to further leverage the economies of scale for our Grove operations and back office.
Since making this acquisition we.
We have planted over 100000 trees at this location to increase its density.
And are confident that this investment will generate positive cash flow in the years to come.
We entered into new citrus supply agreements with peace River citrus products covering 3614 gross citrus acres purchased in May and October of 2020.
With these new supply agreements along with our existing agreements with Tropicana.
Approximately 99% of our fruit is under contract through the 2023 and 2024 harvest seasons.
With the largest portion.
Under contract through the 2024 harvest season.
These contracts will continue to enable the company to realize competitive margins for their duration.
We continue to evaluate our non citrus assets and Opportunistically sold off ranch land at premium prices to generate cash flow, which.
Which improves rates of return for our investors.
During the fiscal year of 2021, we closed on the sale of approximately 19800 acres of ranch with most.
Most recently last week actually we closed the sale of an additional 1638 acres for approximately $5 7 million to the state of Florida under the Florida Forever program, making this the fourth sale, we have completed with them under this program for an aggregate of approximately.
24000 acres.
We still have approximately 32000 acres of ranch with for potential sale.
And interest from buyers continues to be high.
Net proceeds from future sales of we'd go assets will be used to maximize shareholder returns by either acquiring additional citrus acres at attractive prices pre.
Prepaying variable rate term debt without penalties.
Repurchasing common shares.
Diversifying our business through other acquisitions.
And or paying special dividends.
We planted approximately 400000 trees in fiscal year, 2021, and our plants at approximately $1 5 million new trees since 2018.
With anticipated production from the first of those plantings expected in fiscal year 2022.
We believe our tree planting strategy over the last four years as the long term potential to enable the acres, we now own to return box production close to our historic 10 million box level.
We've also continued to move forward with our environmental social and governance initiatives.
As previously communicated.
We have formed a board committee.
Our sustainability page on the company's corporate website, which includes our sustainability policy.
Vendor code of conduct and safety manual.
Completed a materiality assessment that helped inform our sustainability framework to guide future ESG activities.
Joined the UN global compact to support Universal sustainability principles.
Environmental responsibility.
Labor and human rights and anti corruption.
We are also in the final stages of completing our inaugural annual sustainability report.
Which we plan to publish.
This week.
As we look ahead to fiscal year 2022.
We are providing guidance as follows.
Net income is projected to be between $10 7 million and $12 7 million.
Adjusted net income after adjusting for certain non expected nonrecurring for certain expected nonrecurring items.
Is projected to be between $5 4 million and $7 1 million.
EBITDA is projected to be between $33, seven and 37 1 million.
And adjusted EBITDA.
After adjusting for certain expected nonrecurring items is projected to be between 26 and $29 million.
The above guidance only includes estimates of gains from asset sales for sales transactions that have closed in fiscal year 2022 to date.
In the event that any additional significant gains on asset sales are realized.
We may decide to revise the company's guidance.
The above guidance reflects improved adjusted net income and adjusted EBITDA as compared to prior fiscal year financial results.
With that I'll turn the call over to rich Robalo, who will discuss our more detailed financial results.
Rich.
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 2021 results today.
As a reminder, the majority of our citrus crop is harvested in the second and third quarters of the fiscal year.
With the majority of our profit and cash flows also recognized in the second and third quarters.
For the fiscal year ended September 32021.
Operating revenue was $108 $6 million compared to $92 $5 million for the fiscal year ended September 32020.
Interest revenue was $105 8 million and $89 $4 million for the fiscal years ended September 32021, and 2020, respectively.
The increase in revenue for the fiscal year ended September 32021, compared to the fiscal year ended September 32020.
It was due to an increase in revenue generated from our growth management services and our Valencia fruit harvest it.
We provide a growth management services, which includes citrus Grove, Caretaking and harvest and home management services to approximately 7400 acres owned by third parties.
Of which approximately 7000 acres are serviced under a long term agreement we entered into in July 2020, with a top 10 grower.
As part of these agreements we are reimbursed for all cost incurred related to providing these services and receive a management fee based on acreage covered from the third parties.
As a reminder, we record both an increase in revenues and expenses.
As and when we provide these services.
For the fiscal year ended September 32021.
We recorded approximately $17 million of operating revenues from growth management services.
As compared to approximately $4 $6 million in the fiscal year ended September 32020.
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.
Our average blended price per pound solid increase from $1 $80 86 in the prior fiscal year to $2 46 for the current fiscal year.
The increase as mentioned earlier was due to increased consumption of non some concentrate orange juice as well as tighter supplies of citrus fruit, which in turn led to reduced inventory levels.
Largely offsetting this increase in pricing was the effect of fewer Valencia box is being harvested and lower pound solids per box for the fiscal year ended September 32021 compared to the prior year.
We along with the entire Florida industry in general recorded a smaller number of boxes harvested as a result of greatest fruit drop during the current harvest season as compared to the previous year.
In addition, the internal quality of the fruit was not as strong as in the previous year, resulting in lower pound solids per box.
The USDA and its final citrus crop forecast report for the 2020 'twenty one harvest season.
Indicated that the Florida Orange crop decreased by 21, 7% to approximately $52 eight.
A million box system, approximately $67 4 million boxes in the prior harvest season.
In comparison, we managed a more favorable decline and the current harvest season up 16, 1%.
The increase in operating expenses for the fiscal year 2021, as compared to fiscal year 2020, mostly relates to our growth management services.
As previously stated we entered into an agreement with a top 10 growing to provide care, taking management services covering approximately 7000 acres.
For the fiscal year ended September 32021, we've recorded approximately $15 1 million of operating expenses from growth management services.
As compared to approximately $3 $8 million in the fiscal year ended September 32020.
Additionally, in May and October 2020, we purchased additional citrus acres.
Which which resulted in cost of sales relating to these acres being realized in fiscal year 2021.
Partially offsetting these increases was a reduction in harvest and haul expenses attributable to a decrease in early and mid season and Valencia boxes harvested.
General and administrative expenses for the fiscal year ended September 32021 were approximately $9 $5 million compared to approximately $11 million for the fiscal year ended September 32020.
The decrease was attributable to a reduction in legal expense of approximately $800000, primarily resulting from the receipt of insurance proceeds for the reimbursement of legal fees and the amount of approximately $700000. During the fiscal year ended September 32021.
Relating to corporate legal matters.
A reduction in stock compensation expense of approximately $200000 pertaining to certain stock options that had vested in January 2020.
Which in turn resulted in acceleration of expense in that fiscal year.
A reduction in payroll expenses of approximately $300000 relating to the resignation of a senior manager in fiscal year 2020, and the reduction in other administrative personnel made in fiscal year 2021.
And a reduction in pension expense related to our deferred retirement benefit plan of approximately $200000. As a result of terminating this plan and paying out each plan participant in August 2020.
Partially offsetting this decrease was approximately $200000 incurred corporate advisory fees and fiscal year ended September 32021.
Other income net for the fiscal years ended September 32021, and 2020 was approximately $31 $9 million and approximately $24 5 million respectively.
The increase in other income net was primarily due to the recording of higher gains on sales of real estate property and equipment and assets held for sale in fiscal year 2021, as compared to the previous fiscal year.
For the fiscal year ended September 32021, we recorded gains on sales of real estate property and equipment and assets held for sale of approximately $35 $9 million relating to the sale of approximately 19800 acres for the illegal ranch to several third parties.
By comparison for the fiscal year ended September 32020, we recognized gains on sales of real estate property and equipment and assets held for sale of approximately $34 million.
Additionally, a decrease in interest expense of approximately $2 million for the fiscal year ended September 32021, as compared to the fiscal year ended September 32020 was realized due to the reduction of our long term debt.
Making the making of mandatory principal payments along with other prepayments and.
In addition, we maintained lower balances on our working and revolving line of credits, which also resulted in reduced interest expense.
During the fiscal years ended September 32021, we received approximately $4.3 million of additional proceeds under the Florida Citrus recovery block grants program related to Hurricane Irma damage sustained in 2017.
Through September 32021.
We have received approximately $24 $5 million of proceeds under this program.
These federal relief proceeds are included as a reduction to operating expenses in the consolidated statement of operations.
The remaining portion of funds that are due under this program relates to the reimbursement of certain crop insurance expenses incurred.
I ask that are estimated to be approximately $2 million.
In October 2021, we received the first portion of this crop insurance expense reimbursement in the amount equal to approximately $1 million and we expect to receive the remaining portion and the early part of fiscal year 2023.
Yeah.
For the fiscal years ended September 32021, and September 32020.
We reported net income attributable to illegal stockholders up approximately $34 9 million and approximately $23 $7 million respectively.
Representing a 47, 3% increase.
Our adjusted EBITDA was approximately $25 $3 million for the fiscal year ended September 32021, as compared to approximately $17 $9 million for the fiscal year ended September 32020.
Representing a 41, 2% increase.
We continue to strengthen our balance sheet.
Our working capital was approximately $32 $6 million at September 30th 2021, representing a 2.46 to one ratio.
Our debt to equity ratio continues to improve.
At September 30th 2021 September 30th 2020 and September 32019.
The ratio is 1.5 to 1.68 to one and a two to one respectively.
This improvement has been driven by continued mandatory payments of long term debt as well as certain prepayments made including approximately $10 3 million in April 2021.
On our fixed term loans.
I would like to now pass the call back to John.
Yeah.
Thank you rich.
As stated fiscal year 2021.
It was a good year for a week ago.
Saw improvement with our financial results.
<unk> to the prior year.
And we're also able to execute on several other business strategies, which we feel will have long term benefits for both a week ago and its shareholders.
Looking ahead to fiscal year 2022, we believe we have positioned ourselves for continued leadership in the citrus industry and are cautiously optimistic that we can continue to grow our financial results. This season.
And with that we will now open the line up to questions from industry analysts Rob.
Thank you well now be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue do.
You May press star two if he would like to remove your question from the queue.
For Christmas that are using speaker equipment may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions and once again Thats Star one.
Thank you. Our first question comes from the line of Gerry Sweeney with Roth Capital. Please proceed with your question.
Hey, good morning, John and rich Thanks for taking my call.
Good morning, Gerry How're you doing today.
Doing well thanks.
A question on volumes and not just even next year, but even referring to some of your comments about <unk>.
Potentially getting back to that.
<unk> historical rate of 10 million boxes.
I think you said you were planning at about $1 5 million trees, obviously, they take some time to mature. There's some you made a small acquisition.
And then you have sort of mother nature.
Waves or hand over all this.
Given year.
What type of production could we look at next year and potentially how long would it take to get to that.
$10 million, we'll call it an aspirational goal 10 million boxes.
And would you need additional acquisitions to get there.
So a couple of questions all wrapped up into one but yeah.
I think you can get.
Sure I'll, let our rich dig into the details of that but that that this is basically just organic.
We're not going to require any additional but this is on 49000 acres of citrus that we currently own and operate.
You know we have been planting we'd have in excess of 5 million trees in the ground right. Now are the younger trees are developing quite nicely and you know we havent made any sort of detailed long term forecast other than kind of year to year. So we're gonna be reluctant to actually put opinion in the ground.
When potentially we could get back to that 10 million number, but we have been at 10 million in recent past.
Rich you want to take it any further.
Yeah. So Jerry I just mentioned as you mentioned, we planted $1 5 million trees, just a reminder for everyone.
We really don't see any production that production doesn't really commence until year, four and really doesn't peak till year seven and eight so as you look at over the next several years will have all of these trees be coming into production and slowly but surely continuing to produce.
Greater production.
So I just wanted to point that out so you can see in several years, how that buildup is going to work out.
Got it okay.
And then acquisitions.
Some small portrait acquisitions, how does that pipeline look I match obviously.
The biggest.
Top two or three in the state.
How are some of those discussions pipelines going what sort of the feel your or what are you seeing out there.
How active could you be in that space are wanna be or.
Or willing sellers are there.
Sure.
We can't really speak to the mindset of potential sellers, but you know it has been difficult to compete in the citrus industry here in Florida over the past several years.
Pricing has been a challenge certainly production has been a challenge input costs are becoming more expensive by the day, particularly on the fertilizer side.
But a weaker was blessed because over 120 year history.
We built a bullet proof balance sheet and we have access to capital.
As a public company that honest, we are our competitors can't really kind of measure up against so in the event that there are willing sellers at reasonable prices. We go should be the first call.
To basically strike a deal we've demonstrated our long term commitment to the citrus industry. You know, we've demonstrated our ability to commit assets and resources.
To put more trees in the ground you know we have a very strong highly competent management team.
But in an even stronger and more competent.
Workforce that basic we care takes our acres day in and day out how we think they're the best in the state.
We we just you know value and respect them.
And we're committed to staying in the citrus industry for generations to come so in the event that there is going to be consolidation with citrus, we believe that a week ago is going to be participating in that.
That's the phone ever ring I'm, just curious I mean are you do you get the opportunity to kick tires or is it or.
Or is it just quiet right now.
And it really isn't quiet quiet you know.
We acquire small parcels here and there and you know in an opportunistic fashion. If it makes good economic sense for us typically adjacent to existing properties you know.
Oh, we have not had.
Significant serious conversations with very large competitors, because I think they are evaluating their own strategy and we respect them as competitors, they they're running their business and.
Frankly, we would like to see the citrus industry in Florida stronger than it is today. So anything that we can do to kind of.
Promote the strength of the industry you know, we're all about that but no. We're not in active discussions right now with any large parties. Okay. Yeah got it small, but not much I got it and then.
Inflation right.
And a little bit even on fertilizer, theres, probably harvest and hauling costs.
Anything to for us to keep an eye out on that front.
We do know fertilizer prices.
Sure headed up different.
Just curious across the board.
So you know some of the input costs are we think are probably eight titled would've been more to the supply chain headaches as opposed to just the general overall inflation and certainly we're competing globally now for input costs, you know fertilizer coming abroad and such.
We're very sensitive to kind of waver.
We need people working every day.
We believe we've got our bases with labor covered you know we did have a wage increase.
With with our workforce. This year, we have secured ample labor over the next several seasons already.
For our harvest and hauling activities as well as some certain care taking activities that we're gonna be using some third party waiver for as well.
So we kind of have derisked the labor issue.
At least for the next couple of years and all of those kind of wage increases are factored in to the guidance that rich and I actually we have already shared with you. So we're forecasting financial improvement despite a higher inflationary environment.
Got it just a couple more.
If anyone else online but.
Land management.
I think you run the 7000 acres that you run for a large a large company how are the discussions on that front in terms of adding to that our opportunity.
Not just thousands, but new new customers I should say I apologize sure no no no. So you know that third party caretaking customer, we we still value very highly our you know we're in discussions with them every day from a communication perspective.
You know they have a diversified business overall, so you know I think they appreciate us being able to kind of manage their citrus resources are with our citrus assets and you know.
No.
Personnel.
You know with the expertise that we bring to the table.
And we certainly we are in discussions with a few other parties.
At any given time, but.
You know as we said at the beginning we're very discriminating.
On you know, which customers, we would entertain doing kind of broad large scale caretaking business for because it has to make economic sense for the customer.
But we also want to make sure that the quality of fruit that we'd be working with you know kind of is in line with kind of our quality because when we when we sell it at the end of the day it's.
Gotcha.
Yeah.
So we basically are little discriminating on that side, we do see it as a growth Avenue.
That is the counterbalance or if somebody decides they are having difficulty in citrus as an operator.
And.
Want to explore kind of third party care, taking some times, we can actually provide them economic advantages that they could not do on their own just based on our economies of scale that that certainly is a very strong alternative as opposed to just selling out and disposing of land that maybe have been in their family for generations.
Yeah.
So those talks are ongoing but again nothing too significant to report at this time got.
Gotcha, and then obviously land sales I think.
Florida Forever, it's been.
Our big.
Uh huh.
Acquisition opportunity.
The state of Florida anything else.
This last purchase was a little smaller than some of the purchases in years past just curious if that helps.
Those talks are going with the state of Florida, and then just the general tone and tenor across the board rather.
So the state of Florida, obviously, we closed on that sale last week, we had been in talks and in that.
Transaction have been kind of in process since last winter.
So it took a little bit longer basically because of some some tallahassee approvals.
Relative to Cabot meetings, and such that got delayed and deferred for a few.
It proceeded without a hitch and we think it was at a good value that I think they're very satisfied buyers.
That was the fourth act.
Acquisition that we had basically we completed with the state they acquired from us by the way, where we didnt acquire from them but.
It's a good feeling to know that the that that land that's been in with a we'd go for.
Decades.
Is going to be able to be part of our wildlife preserve state Park, it's going to be for the greater good for the overall citizens of Florida and it'll be you know kept intact for conservation purposes, We think that's wonderful.
We have done some smaller transactions as well.
Over the last couple of quarters with some private buyers that against share that same mindset.
<unk> kind of recreational hunters.
Who want to get out there and basically just enjoy.
The remaining acreage that we have on the ranch land for all its beauty and.
Hopefully keep it intact as well, we think that bodes very well with kind of the themes that we'll be sharing with everyone in our under our first sustainability report, which should be coming out this week.
But there is a scarcity factor, particularly for our contiguous ranch went in southwestern Florida.
Got about 32000 acres remaining.
You know most of that is over on the east side of our ranch now which is somewhat contiguous.
And you know we are entertaining discussions.
With potential buyers all the time, we're showing that property constantly we're just holding out for her good you know are at or better market prices that you know.
You know if we're going to generate higher returns for shareholders once we realize them.
Got it okay perfect well.
Great Nice a great year and wrap up and I. Appreciate your time so thanks.
Thanks, Jerry we appreciate the support.
The next question is from the line of Marco Rodriguez with Stonegate capital. Please proceed with your question.
Good morning, Thank you for taking my question.
Good morning Marco.
Most of my questions have actually been asked and answered but I did have one quick follow up if I might just kind of along the lines.
Your expectations for pricing and inflation.
Maybe you can provide a little bit more color on some of these inflationary pressures and how you might be thinking about that as it relates to any potential impact on consumption and then any sort of supply dynamics.
Sure.
We are not experts in kind of a retail consumption dynamics, we sell the inputs right. We saw the orange is themselves.
So relative to kind of what consumers can expect.
And Theres supermarket shelves, we're really not in a position to comment on that.
However, as we mentioned earlier.
99% of our fruit is now under kind of a long term.
You know offtake agreements some contracts.
A couple of parties Tropicana being the most dominant and those are actually structured within kind of a coward arrangement. We believe we're probably at the higher end of the collar for the foreseeable future. So we'll be looking at kind of maximum revenues do we potentially could for gain and at the end of the 2023 and 2024.
For harvest seasons, those contracts would be up for renewal.
And would be reset obviously, if there was still a higher inflationary environment at higher prices.
And last one just wanted to clarify some of the commentary you had on the selling noncore assets it kind of sounds like that.
The market's not terribly active theres some activity, but perhaps.
Should we be thinking about this coming fiscal year, as maybe being a little bit.
Lower level of activity in terms of sales and acquisitions versus the prior year.
Yeah. So I think that's a fair statement you know as opportunistic sellers of a very precious resource, which is our ricoh a week old ranch land.
We're really not in a rush in and the board is not holding us accountable for disposing of this ranch when it on any sort of timetable.
So last year I think we did what $37 million rich of of asset sales.
I would expect that's going to be substantially lower this year, although we just realized a ranch sale last week.
Got it appreciate it thank you.
Of course.
Thank you we've reached the end of today's question and answer session I would like to turn the call back over to Mr. Kiernan for closing remarks.
Thank you and thank you everyone for joining us on our call today and also for your support of a weaker throughout the year.
We really look forward to speaking with you about our first quarter results in February and wish everyone a Merry Christmas.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.