Q3 2022 Alico Inc Earnings Call
[music].
Okay.
Welcome to <unk> third quarter 2022 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 2022.
You have not had a chance to review the release it is available on the Investor relations portion of the company's watched the website I Alico, Inc. Dotcom.
This call it is being webcast and replay 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 and uncertainties and other factors that may cause actual results to differ material from those expressed or implied in these statements.
Factors that could cause or contribute to such differences include risks detailed in the company's quarterly reports on Form 10-Q annual.
Annual reports on Form 10-K.
Current reports on form 8-K, and any amendments thereto filed with the S. E C 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 law.
During this call. The company will also discuss non-GAAP financial measures, including EBITDA and adjusted EBITDA.
For more details on these measures please refer to the company's press release issued earlier today.
With that I would now like to turn the call over to the company's President and CEO , Mr. John Kiernan.
Thank you Anna and thank you everyone for joining us for <unk> third quarter 2022 earnings call. This afternoon.
During this past harvest season, which is now complete we along with the entire Florida citrus industry experienced several significant challenges, which resulted in disappointing financial results we.
We experienced a greater rate of fruit drop than in previous years and.
In late January 2022, we were hit with a freeze event, which was at an intensity, which we believe had not occurred in Florida for almost 20 years.
That freeze event contributed to lower production for our Valencia crop.
The freeze also contributed to fruit failing to mature to its fullest levels as normally occurs throughout the season, resulting in lower than anticipated pound solids.
Because of these challenges we have revised our fiscal year 2022 financial guidance to reflect the disappointing harvest season.
Although this past harvest was a difficult one we are optimistic for the 2022 23 harvest season.
Nearly all of our trees showed no indication of any long term damage from the freeze event and would be aggressive planting strategy. We undertook in the beginning of 2018 we.
We expect to have more citrus trees, producing fruit into 2022 23 harvest season.
The USDA in its July 12, 2022, citrus crop forecast for the 'twenty one 'twenty two harvest season indicated the overall, Florida Orange crop decreased from approximately 53 million boxes for the 'twenty, one 'twenty 2021 crop year to approximately 41 million boxes.
For the 'twenty, one 'twenty two crop year, a decrease of approximately 22, 7%.
A portion of this decline was directly related to the freeze event.
By comparison the company experienced a decline in total box production for this current harvest season of only 12, 9%.
We believe this lower rate of decline as compared to the rest of the Florida citrus industry is due to the company's comprehensive growth management program as well as certain precautionary measures we implemented during the freeze events in our growth.
Since 2020, we have managed the citrus operations for a third party growth owner's properties and call you and Henry counties in exchange for a per acre management fee. After we were reimbursed for all care taking cost incurred.
During the third quarter of 2022, this long time grow our decided to exit the citrus business.
<unk> has signed three agreements to reach approximately 2100 of these citrus acres from this third party growth owner and secured the rights to harvest the crop on these acres for a one year term for approximately $200000 with an option to extend longer if we choose to.
Do so.
These leases expand our citrus production acreage next season by around 6% to approximately 37000 net citrus acres, which should also drive incremental box production for a week ago and the 2022 23 harvest season.
As we continue to pursue opportunistic real estate sales, we have been selling parcels of our noncore ranch land at attractive prices our.
Our latest ranch land sales transactions this quarter totaled approximately 1200 acres at an average price per acre of approximately $5000 per acre and.
In recent weeks certain ranch land sales transactions, which were targeted to close before the end of fiscal 2022 have been pushed out and are now expected to close in early fiscal 2023.
Interest from potential buyers remained steady.
We will continue to own and operate what we believe to be the most productive and profitable citrus groves in Florida.
Whenever prudent we will also continue to acquire productive citrus land.
As the company looks towards the future we are broadening our mission.
To produce superior long term returns for shareholders.
We will seek to increase earnings and asset values by integrating our successful agricultural operations with extensive entitlement activities that can accelerate real estate value appreciation.
The company prepared its first land development program in 1948 with the goal of purposes, our land for its most profitable use.
Over the next few years, we will work with land use planning professionals to frame a strategy that optimizes long term potential values for our real estate real assets.
The timing and commitment to these initiatives is informed by the current dramatic pace of development across Florida, and the related changes in real estate values across the state.
<unk> wants to provide investors with the benefits and stability of conventional agricultural investment with the enhanced optionality that comes with active land management.
Let's turn now to the detailed financial results for the quarter.
Due to the seasonal nature of our business the quarterly results for our third quarter.
Not indicative of our full year results the.
The majority of our citrus crop is harvested in the second and third quarters of the fiscal year and the majority of our profit and cash flows are also recognized in the second and third quarters.
Total operating revenue for the quarter ended June 32022.
<unk> was $25 9 million compared to $34 nine for the $4 million for the quarter ended June 32021.
Our citrus revenue was $25 5 million and.
$34 3 million for the quarters ended June 32022, and 21, respectively.
The decrease in revenue for the three months ended June 32022, compared to the three months ended June 32021 was primarily due to a decrease in the Valencia fruit harvested and to a lesser extent a decrease in revenue generated from growth management services.
The decrease in the Valencia fruit harvested for the three months ended June 32022 was primarily driven by a decrease in process box production and a decrease in pound solids per box.
Process box production for the three months ended June 32022 decreased by 19, 9% as compared to the same period in the prior fiscal year, mainly due to greater fruit drop which is attributable to disease and weather conditions, including the freeze event, which occurred in late January 2022.
As a result of this freeze event, 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. According to the USDA 2021, 2022 forecast published prior to the freeze event.
That was negatively impacted by the freeze event.
All our <unk> crop was adversely impacted by the freeze event as mentioned earlier, there does not appear to be long term measurable damage to nearly all of our citrus trees.
The decrease in pound solids per box of 4% during the remarks ended June 32022.
Compared to the prior year's three months ended June 32021 was mainly due to the internal quality of the fruit not being as strong as it was in the previous year.
In addition, we accelerated the harvesting of our Valencia crop in order to maximize the box production and avoid additional fruit drop as a result of the freeze event.
The decrease in Grove management services is due to our primary third party growth owner for who we were providing care taking services for deciding to exit the citrus business and therefore terminate their property management agreement with US as a result of this action all services relating to this.
<unk> care, taking management services began to decrease during the third quarter and ceased as of June 10, 2022, with the exception of the management fee, which was paid through June 32022.
Total operating expenses were $24 5 million and $26 2 million for the three months ended June 32022 at June 32021, respectively, respectively.
The decrease in operating expenses for the three months ended June 32022, as compared to the three months ended June 32021 was primarily due to the reduction in care, taking management services expense as previously mentioned our primary third party Grove owner decided to exit the citrus business in.
Exit the property management agreement with us during the third quarter ended June 32022, resulting in a decrease of expenses to a lesser extent the company recognized a decrease in harvest and holding expenses for the quarter ended June 32022, when compared with the same period in the prior year due to a smaller number.
Valencia box is being harvested as compared to the same period in the prior year.
General and administrative expenses for the three months ended June 32022 were approximately $2 6 million compared to approximately $1 9 million for the three months ended June 32021 the.
The increase in legal expense was due to a decrease in legal expenses in the nine months ended June 32021, when compared to the nine months ended June 32022, which was related to a reimbursement of approximately $700000 from insurers for our corporate legal matter from 2018 that was <unk>.
Received during the nine months ended June 32021.
Other income net for the three months ended June 32022, and for June 32021 was approximately $4 9 million and approximately $29 4 million respectfully.
The decrease in other income net is primarily due to us recognizing a significant gain on sales of real estate property and equipment and assets held for sale of approximately $30 3 million for the three months ended June 32021, when compared to the gains recognized on sales of real estate property plant and equipment and <unk>.
Assets held for sale of approximately $5 8 million for the three months ended June 32022.
For the fiscal quarter ended June 32022 in June to June 32021, we reported net income attributable to <unk> common stockholders of approximately $2 7 million and approximately 27, $7 1 million respectively.
With respect to our fiscal guidance, our financial guidance, we are revising our guidance for the fiscal year ended September 32022 to reflect this past season's lower than anticipated internal quality of the Valencia fruit, primarily resulting from the freeze event in <unk>.
Additionally, certain ranch land sale transactions, which were targeted to close before the end of fiscal year 2022 are now expected to close in fiscal year 2023.
Our revised guidance calls for net income, which was previously projected to be between $35 6 million and $38 9 million to be in the range of $30 7 million and $33 3 million.
Adjusted net loss.
After adjusting out certain of the expected nonrecurring items to.
To decrease from the previous production of $4 1 million and $2 3 million to be between $5 5 million and $4 1 million.
EBITDA, which was previously projected to be between $59 million and $64 2 million to be in the range of $52 6 million and $56 6 million.
And adjusted EBITDA again, after adjusting out certain of them expected nonrecurring items. The decrease from the previous production of $13 million and $16 million to be between $11 million and $13 million.
<unk> continues to demonstrate financial strength within its balance sheet.
Our working capital was approximately $31 1 million at June 32022, representing a 247 to one ratio.
We continue to see improvement in our debt to equity ratio.
At June 32020 to September 32021, and September 32020, the ratios were <unk> four to one <unk>.
Five one to one and <unk> 68 to one respectively.
To wrap up I want to close by saying that with the conclusion of this year's difficult harvest season, a weaker with focused and ready for the next one.
We believe that we have taken the appropriate steps, including our increased tree planting strategy since 2018.
And we sing of approximately 2100 acres of well maintain citrus groves to generate greater box production in the year ahead.
We continue to maintain momentum of opportunistic ranch land sales to.
To produce superior long term returns for shareholders.
<unk> will seek to increase earnings and asset values by integrating our successful agricultural operations with extensive entitlement activities that can accelerate real estate value appreciation.
<unk> wants to provide investors with the benefits and stability of conventional agricultural investment with the enhanced optionality that comes with active land management.
And with that we'll now open the lineup for questions from industry analysts Emma.
Thank you. Your question today comes from the line of Gerry Sweeney with Roth Capital. Your line is now open.
Hey, good afternoon, John Thanks for taking my call Hi, Jerry.
I wanted to start is sort of top of the income statement you have.
I think you mentioned that 2018 planting program, how many trees or acres do you think it's going to head into maturity next year.
Hmm.
300 400000 potentially.
I Gotta go about easier acres.
Our.
<unk> <unk> okay. Okay.
Got it.
And then.
This is sort of related also but.
Third party caretaking that 'twenty 100 acres I know there is no average and a great but do you know what sort of production box production that is done in the past.
We haven't commented on with that level of granularity. Okay really haven't commented to you on any of kind of our individual growth. So we don't want to start yet but.
It's attractive enough that we're deciding to Lisa.
Got it.
The track that means $200000.
There appears to be a very cheap price so.
Imagine theirs.
There is some good opportunity there for at least for next year.
We believe so.
Got it.
And then just talking about contracts, obviously inflation on the tip of everybody's Tom do you have any.
What are the status of <unk>.
Contracts for offtake agreements for the Orange <unk> and at.
And what are if any estimate deflation.
Escalators embedded in the contracts sure.
Nearly all of our fruit is currently still under long term contracts.
<unk>.
And about 25% of it is going to be coming up for a new contract at the end of next season, which will obviously be renewing into a higher inflationary environment.
The remaining 75% and it goes out for a season after that to two more years and that actually has some inflation escalators built into into pricing.
Got it.
And how does that work with dealers.
With costs being I assume.
Hopefully.
Inflation.
Moderates by that at that point, obviously, but with the higher cost.
Embed it maybe in the future how does that operate in terms of the contracts is that just the negotiation process.
Or just curious curious how you work that into the contract.
Well one of the contracts we have the one thats renewing next season is actually a cost plus that takes into account kind of evolve our growth management costs. So inflation would be a direct impact to if we had a new contract under that structure.
Okay.
Okay.
And then.
CFO search.
Has been ongoing since very early June its been.
Illuminating and productive.
Met with.
Several very qualified candidates.
And that search process is still ongoing.
So hopefully we'll have an announcement in the near future, but no decisions have been made at this point.
Got it.
And that's it for me so I appreciate you taking the taking my call. Thank.
Thank you Jerry.
We have reached the end of today's question and answer session I would like to turn the call back over to Mr. Kieran for closing remarks.
We look forward to speaking with you about our full year results in December .
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
[music].
Thanks.
[music].
Okay.
Yes.
Yes.
[music].
Okay.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Sure.
Yes.
[music].
Yes.
Yes.
Thank you.
Thank you.
[music].
Yes.
[music].
Okay.
[music].
[music].
Yes.
Sure.
Yes.
Yes.
Sure.
[music].
Okay.
Yes.
Okay.
[music].
Okay.
[music].
Thanks.
Thank you.
[music].
Yes.
[music].
Yes.
Yes.
Yes.
[music].
Sure.
Okay.
[music].
Okay.
[music].
Thank you.
[music].
Yes.
[music].
Yes.
Yes.
Yes.
Okay.
Okay.
[music].
Okay.
[music].
Yes.
[music].
Okay.
Okay.
Thank you.
[music].
Okay.
Yes.
[music].
Yes.
Yes.
[music].
Yes.
[music].
Okay.
[music].
Yes.
Okay.
Thank you.
[music].
[music].
[music].
Okay.
Okay.
[music].
Yes.
Okay.
Okay.
[music].
Sure.
Sure.
[music].
Yes.
[music].
Okay.
Yes.
[music].
Okay.
Sure.
[music].
Sure.
Yes.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Sure.