Q2 2022 Alico Inc Earnings Call

Okay.

Okay.

Welcome to our little second quarter 2022 on your conference call. At this time all participants are in radiation oncology.

As a reminder, ballpark.

Got it.

Today, the company issued a press release that now its results for the second quarter ended March 31st 2022.

If you have not had a chance to view the release it is available on the bathroom relations portion of the company's website at all linked co Inc. Dot calm.

This call is being webcast and a replay.

He will be available on a lethal website as well.

Before we begin we would like to remind everyone that the prepared remarks today contain forward looking statements.

So it just statement is subject to risks uncertainties and other factors that may cause actual results to differ materially from those.

Glass or implied in those statements.

Important factors that could cause or contribute to such difference it could raise some details in the company's quarterly reports on Form 10-Q, and all reports on forms 10-K currently reports on form 8-K, and Andy I may limit it there.

Filed with the US is C and those mentioned in the earnings release because.

The company undertakes no obligation just to be sequentially up and be offered by 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 included that and adjusted our beat that.

For more details on those 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.

Go ahead.

Thank you operator, and thank you everyone for joining us for a weaker second quarter 2022 earnings call. This afternoon.

Current citrus harvest season has been a disappointing one for legal.

What was the entire industry in Florida in late January 2022.

Freeze event negatively impacted the current year Valencia harvest.

This is in addition to a harvest season that was already anticipated to produce western fruit than in the prior year.

Fewer pieces of fruit available on the citrus trees as well as greater fruit drop.

We used to be called by disease and weather.

USDA is forecasting a 33, 9% decline in the current year Valencia crop as compared to the same period in the prior year with a significant portion of it.

To the freeze event.

We are anticipating our decline to be approximately 12% to 15% year over year.

We believe this substantially lower rate of decline as compared to the USDA forecast is because of our efficient growth management program as well as certain aggressive and sustained precautionary measures. We took during and after the freeze event.

We are also encouraged that there does not appear to be long term measurable damage to our trees.

Our production could see a recovery next season.

But we will need to continue to evaluate tree health through the summer.

We remain pleased.

Consumption from not from concentrate orange juice by retail consumers has remained strong and this combined with lower fruit production lower production of citrus fruit has inventory supply at lower than normal levels at Florida, Citrus juice processors.

This trend has led to further improve market pricing for both the early and mid season and Valencia fruit in the current harvest season as compared to the prior year.

Our pricing per pound solids for the early and mid season fruit improved to $2.56 for the current harvest season, which was 28 cents better than a year ago.

Based on the initial market pricing released for the whole entire fruit.

We anticipate that our pricing per pound solids will also be higher by approximately 24 to 28 cents. This season.

We have increased our group density with our existing acreage and have now planned at approximately 1.7 million trees and these acres since 2018.

While we cannot predict precisely predict what the future production levels will be we remain confident in our strategy of increasing density and believe that the first trees planted in 2018.

You'd start to produce meaningful fruit in fiscal 2023.

Higher levels of production for their useful lives.

We are continuing to pursue opportunistic route.

Including <unk>.

Our non core and at attractive prices.

And our latest ranch land sales transaction, which occurred in April 2022.

We received $5400 per acre, which we believe is the highest price per acre the company has ever realized for a ranch land.

We continue to garner strong interest for our remaining approximate 25000 acres of ranch wind and believe.

Activity that these remaining acres can realized prices per acre in line with our most recent sales.

As previously communicated we entered into a purchase option agreement with a third party E. R. Jonna Industries, Inc. For the sale of approximately 899 citrus acres for approximately $11500 per acre.

The acreage subject to this purchase option agreement, which are currently part of the Companys Polk County Citrix grows.

Consist of 340 Netsuite just acres.

130 acres of cane.

209 acres of pasture land and 220 support acres.

If this option is exercised at closing illegal will lease back most of these acres, including the 340 net citrus acres for Dominion and the lease payments to continue our citrus operations there until it is no longer commercially practical.

We also exercised a writer first.

This approach.

Undeveloped acres near the previously owned a leeco plant World, which had been sold by <unk> in 2017 for approximately $2.4 million.

Commercial and residential development in this area has been robust the company will use proceeds as part of a section 10 31 exchange to finance this purchase.

Our overall growing cost and general and administrative costs continue to remain in line with our expectations we.

We continue to maintain stringent controls and look for efficiencies that will allow us to continue to see improvements regarding these costs.

With that I will turn the call over to Richard Hello to discuss our more detailed financial results.

Yeah.

Thank you John and good good afternoon, everyone.

Due to the seasonal nature of our business the quarterly results for the second quarter are not indicative of our full year results.

A 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 flow is also recognized in the second and third quarters.

Total operating revenue for the quarter ended March 31, 2022 was $49.6 million compared to $55 $9 million for the quarter ended March 31 2021.

Citrus revenue was $49 million and $55.3 million for the quarters ended March 31, 2022, and 2021, respectively.

The decrease in revenue for the three months ended March 31, 2022 compared to the three months ended March 31 2021.

It was primarily due to a decrease in the early and mid season, and Valencia fruit harvest it and to a lesser extent a decrease in revenue generated from Grove management services.

The decrease in early and mid and Valencia fruit harvested was primarily driven by a decrease in process box production and a decrease in pound solids per box.

The process box production decrease was due to greater store drop believe can be attributed to two disease and weather conditions and in late January 2022, our growth along with many of the other groves and Florida were impacted by a freeze event spin.

Specifically, our Valencia box production, which was anticipated to perform better than the early and mid season box production.

On a year over year comparable basis as indicated in the U S. G. A 2021 2022 forecast.

Published prior to the freeze event was negatively impacted by the freeze event.

Because our early and mid season harvest was substantially complete at the time of the freeze there was no material impact to our early and mid season box production.

As John mentioned previously while our Valencia crop was adversely impacted by the freeze event. There does not appear to be any long term measurable damage to our citrus streams.

The decrease in pound solids per box was mainly due to the internal quality of our food not being as strong as it was in the previous year.

In addition, we accelerated the harvesting of the Valencia crop in an effort to help minimize the impact of the freeze event and maximize our box production and as a result, we did realize lower pound solids per box.

Partially offsetting the decrease in process box production in pound solids per box was an increase in the price per pound solids.

The improvement in the price per pound sold was due to continued strong consumption of not from concentrate orange juice, along with the overall lower production of citrus fruit, which has led to reduced inventory levels.

While consumption has dropped from its highest levels when the COVID-19 pandemic initially started back in March 2020 <unk>.

Consumption as reported by Nielsen data on April nine 2022 has increased approximately seven 4% for the 24 week period ended March 26, 2022 as compared to the similar 24 week period prior to the COVID-19 pandemic.

The USDA in its April eight 2022, citrus crop forecast for the 2021 22 harvest season indicated it expects the overall, Florida Orange crop will decrease from approximately 53 million boxes.

The 2020, 'twenty, one crop year to approximately $38 2 million boxes, or the 2021 22 crop year, a decrease of approximately 27, 9%.

With respect to the early and mid season crop USDA forecast at a 19, 8% decline.

Our early and mid season crop for the season was down 13, 7%.

Regarding the Valencia crop as John mentioned, the USDA is forecasting a 33, 9% decline with a significant portion of that decline being attributed to the freeze event.

We are anticipating a 12% to 15% decrease in our Valencia crop as compared to the same period last year.

Total operating expenses were $45 $5 million for the three months ended March 31, 2022, and March 31 2021.

We did incur a slight increase in the cost of sales due to us harvesting a greater percentage of boxes in relations to the estimated total boxes to be harvested for the full season.

During the three months ended March 31st 2022, as compared to the same period in the prior year.

Leading to a larger percentage of cost being allocated to cost of sales in the current quarter.

Offsetting this increase was a reduction in our harvesting and hauling expenses directly related to the decrease in box is harvested in the three months ended March 31st 2022 as compared to the same period in the prior year.

General and administrative expenses for the three months ended March 31, 2022, or approximately $2 $5 million compared to approximately $2 $7 million for the three months ended March 31 2021.

The decrease was attributable in large part to reduced payroll expenses of approximately $100000.

Primarily relating to the reduction in administrative personnel made during the latter half of fiscal year ended September 32021, and during the six months ended March 31 2022.

And a reduction in consulting.

Expense, resulting from the company incurring approximately 200000 in corporate advisory fees in the three months ended March 31 2021.

Partially offsetting these decreases were increases in professional fees of approximately $100000 primarily relating to additional cost cost incurred with regard to real estate activities and human resource matters.

Other income net of other expense for the three months ended March 31, 2022 was approximately $25 $7 million as compared to other expense net of other income of approximately one point and $1 million.

The ship to other income from other expense is mainly due to gains on the sale of real estate.

Property and equipment and assets held for sale of approximately $26 $6 million primarily relating to the sale.

During the quarter of approximately 6286 acres from the illegal ranch.

By comparison for the three months ended March 31, 2021, we had minimal activity relating to the sale of real estate property and equipment and assets held for sale.

Additionally, a decrease in interest expense of approximately $200000 for the three months ended.

March 31, 2022 as compared to the three months ended March 31, 2021 was realized primarily because of.

The reduction of its long term debt attributed to making its mandatory principal payments and certain prepayments.

For the quarter ended March 31, 2022, and March 31, 2021, we reported net income attributable to our legal common stockholders of approximately $27 million and approximately $4 9 million respectively.

With respect to our financial guidance, we are reaffirming our previously updated guidance for the fiscal year ended September 30th 2022.

This guidance calls for net income to be in the range of 35.6 to $38 $9 million.

Adjusted net loss after adjusting out certain of the expected nonrecurring items to be between 4.1 and $2.3 million.

EBITDA to be in the range of 59, and $64 $2 million and adjusted EBITDA. After again adjusting out certain of the expected nonrecurring items to be between 13 and $16 million.

Illegal continues to demonstrate financial strength within its balance sheet working capital was approximately $46 $1 million at March 31, 2022, representing a 2.88 to one ratio.

We continue to maintain a solid debt to equity ratio.

At March 31, 2020 to September 30th 2021, and September 32020, the ratios what 0.46 to one.

Five one to one and 0.68 to one respectively.

Additionally, we made a prepayment of approximately $15 $6 million.

One of our variable rate term loans in April 2022, which will further improve our overall debt to equity ratio.

With that I would like to turn the call back to John .

Thanks Rich.

While this has been a difficult harvest season for us as well as for most Florida Citrus growers, we believe that we have taken the appropriate steps, especially our citrus tree replanting program to generate greater box production in the years ahead at.

At the same time, we are pleased to see that we have continued to maintain our momentum of opportunistic ranch land sales and that the sales.

Acre have increased to the best levels, we've embarked on or divest on divesting a ranch went back in 2018.

And with that we would now open the lineup for questions from industry analysts operator.

Oh tells me we're not allowed to have the question and answer session. If you have a question. Please press star.

One.

And our fifth question comes from Gary.

At work capital.

Good afternoon, John and rich Thanks for taking my call.

Good afternoon, Jerry Thanks for taking the time today.

Just a question obviously around.

The Oh, I should say the environment and for a lot of citrus growers. So it's been very challenging you guys, obviously are holding up relatively well but.

Does that environment create any opportunities for either due to acquire some ranch land or to move some of your management services onto other ranch's since your performance has been.

Better than I think.

The average that you highlighted.

So we believe that we were always more competitive.

You're facing a year, where we've seen fertilizer costs to skyrocket. So the economics overall as we're seeing from our results are not astronomically, great. This particular season, and we think a lot of our smaller competitors are facing tremendous economic pressure this year.

But we are always on the lookout.

To expand our services for that third party caretaking, we just have not seen a lot of activity.

Of people requesting our services for that.

On the other hand, we are uraeus on how are you.

There may be some potential to acquire some citrus growths that are in very good shape.

From some parties that no longer wish to be in the citrus industry. So we're cautiously optimistic that we may be able to expand.

We would do that obviously at attractive prices it would have to be somewhere that we could generate superior returns for our shareholders but.

And we certainly are ready willing and able and we've got the firepower.

To be able to do that.

What we are finding is as some of our competitors are kind of pulling back a little bit we are.

Finding that we have access to some of their experience the labor force.

Some people that have spent their careers in citrus and if other operations are starting to kind of cut back.

We have the ability to kind of step in and we can get some very good season hands, obviously, a fair wages and they're paid competitively with along with the rest of our lico team.

But we're getting good access to good experience waiver that way, so a little bit of a silver lining in that cloud.

Got it and then.

Obviously real estate prices are up as highlighted in the commentary.

How is activity for potential ranch land sales.

Remaining is robust.

Hi.

Been in the past or in the last couple of quarters.

So we've been pleasantly surprised that it's sustained itself.

It does not appear to be kind of interest rate sensitive. So these are typically not people borrowing money to acquire these ranch lands, it's more often than not someone taking 10 31 money.

And moving it back into ranch land.

And we have a somewhat of a scare space of acres remaining.

But I think it's a little bit to the price increases that we've seen but our ranch wind is still very very competitive its pristine.

And we're seeing private buyers now the state has no longer really pursuing any acres. So these are all private buyers competing for.

For some of the remaining acres that we do have.

Got it and then a final question health of the trees I believe you're cautiously optimistic but tracking some results I think through this summer.

We'll have a visibility on the health of.

The citrus trees by third quarter results or do you think it would be a little bit further out even into the fall.

Sure.

You know I have my fingers.

<unk> crossed that by the first week of August when we do our third quarter results, we should have.

A high confidence level on being able to make a call right now all systems with good all indications are that the trees do appear to have sustained the freeze with no long term damage.

And we're watching that very very carefully every day.

So hopefully in about three more months, we have a little bit more information a little bit more data and you know.

Fingers crossed we hopefully will be able to come out and give you some update there.

Okay I appreciate it thanks for taking my call.

Okay.

Excuse me.

We tend to end up the question and answer session I would like to turn the call back over to Mr. Tim go for closing remarks.

Go ahead.

Thank you.

And thank you everyone for joining our call today and for your support of <unk>.

We look forward to speaking with you about our third quarter results in early August .

And again rich and I are available for any questions and answers.

Just want to contact us directly sometime later on today or tomorrow. Thank you very much.

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

And have a great day.

Yeah.

[music].