Q1 2025 Alico Inc Earnings Call
Bradley Heine Who Is The Sparkle in Your Heart
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Thank you. Good morning, everyone. And thank you for joining us for ALECA's first quarter fiscal year 2025 conference call.
Speaker Change: On the call today are John Kiernan, President and Chief Executive Officer, and Brad Heine, Chief Financial Officer.
Speaker Change: By now, everyone should have access to the first quarter fiscal year 2025 earnings release, which went out yesterday at approximately 4 p.m. Eastern Time.
Speaker Change: 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 alekoinc.com.
Speaker Change: This call is being webcast and a replay will be available on ALEKA's website as well.
Speaker Change: Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements. Such statements are subject to risk, uncertainties, and other factors that may cause the actual results to differ materially from those expressed or implied in these statements.
Speaker Change: Important factors that could cause or contribute to such differences include risk detail 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.
Speaker Change: 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 may also discuss non-GAAP financial measures, including adjusted EBITDA and net debt.
Speaker Change: For more detail on these measures, please refer to the company's press release issued yesterday. And with that, it is my pleasure to turn the call over to the company's president and CEO, Mr. John Kiernan.
Thank you, John.
John Kiernan: Good morning, everyone, and thank you for joining us for Alico's first quarter of fiscal year 2025 earnings call.
I'm going to spend most of my prepared marks.
John Kiernan: Updating you about our strategic transformation, which we announced in early January, and how we are already executing on this new strategy balancing alternative agricultural operations with strategic land monetization opportunities.
John Kiernan: We have decided not to spend further material capital on our citrus operations after the current crop is harvested in the first half of calendar year 2025, with the exception of a few grows that will be harvested for one more year in our consolidated investment in citry.
John Kiernan: We will focus our resources on creating new opportunities for profitable growth while also acting prudently on behalf of our shareholders.
John Kiernan: By winding down our capital-intensive citrus production, we believe we are strengthening our financial position.
John Kiernan: For over a century, Oeco has been proud to be one of Florida's leading citrus producers and a dedicated steward of its agricultural land.
John Kiernan: But now, we must reluctantly adapt to changing environmental and economic realities.
Speaker Change: Oliko owns approximately 53,371 acres of land across eight counties in Florida, as well as approximately 48,700 acres of oil, gas, and mineral rights in the state.
John Kiernan: and we believe that our strategic transformation creates a tremendous opportunity to unlock the value in these assets for our shareholders.
John Kiernan: Management believes that approximately 75% of current Aleko acres can remain agriculturally related and approximately 25% can be transitioned and entitled for non-agricultural purposes.
John Kiernan: We expect to maintain our commitment to the Florida agricultural industry through diversified profitable non-citrus operations following this wind down and also expect to entitle certain parcels of our land for commercial and residential development.
John Kiernan: The company believes our strategic transformation will improve our ability to provide investors with a greater return on capital that includes the benefits and stability of a conventional agricultural investment with the optionality that comes with active land management.
John Kiernan: This strategic transformation beyond citrus production will allow Olico to maintain our agricultural heritage while creating new opportunities for profitable growth while also acting prudently on behalf of shareholders.
John Kiernan: Management and the board believe that the steps taken to launch our strategic transformation in January
went smoothly and efficiently.
John Kiernan: and we are now well positioned to turn our attention to driving profitability, which begins with harvesting our Valencia crop in early March and should continue through April.
John Kiernan: We have been consistently transparent about how our citrus operations have faced increasing financial challenges from citrus greening disease and environmental factors for many seasons.
John Kiernan: As a result of citrus greening and multiple hurricanes, our citrus production has declined approximately 73% over the last 10 years, despite significant investments in land, trees, and citrus disease treatments.
John Kiernan: and potentially for the damage that Hurricane Milton, which struck in 2024, did to the crops this year.
John Kiernan: We've explored many available options to restore our citrus operations to profitability, but the long-term production trend and the cost needed to combat citrus greening disease no longer support our expectations for recovery.
John Kiernan: During our first fiscal quarter, operational results reflected these ongoing challenges in our citrus division, with lower levels year-over-year of pound solids being produced.
John Kiernan: As the three months end to December 31st, 2024, we harvested approximately 4 million pound solids compared to 4.7 million pound solids in the comparable prior fiscal year.
John Kiernan: The decrease in pound solids harvested was driven by fruit drop caused by Hurricane Milton.
John Kiernan: However, due to a 38.9 percent increase in the price per pound solid that we received as a result of our new Tropicana agreement,
John Kiernan: We had a $2.5 million increase in revenue related to the early and mid-season harvest.
John Kiernan: An adjusted EBITDA was $700,000 in the first fiscal quarter ended December 31st, 2024 compared to a loss of $2.3 million in the first fiscal quarter ended December 31st, 2023.
John Kiernan: Current season production trends indicate that our total harvest volume for fiscal 2025 will likely be lower than fiscal 2024.
John Kiernan: These continued production challenges reinforced our recent strategic decision to wind down OECO's citrus operations as they are no longer economically viable.
John Kiernan: Looking ahead to the remainder of fiscal 2025, we expect to complete our final significant citrus harvest while positioning the company for our next chapter.
John Kiernan: We are also in the process of closing several land sales which are expected to generate approximately 20 million dollars in proceeds this fiscal year based upon transactions that are under option agreements or have been negotiated and are expected to close soon.
John Kiernan: These expected proceeds and cash generated by the Valencia harvest which will begin next month are expected to fund operations through fiscal 2027.
John Kiernan: AWECO also has an additional $73.5 million in borrowings under its credit facilities, available if needed.
John Kiernan: We have a proven track record of monetizing certain non-core assets over the past decade.
John Kiernan: which we use to repay all of our outstanding borrowings under our line of credit, which was originally borrowed due to the impact of Hurricane Ian.
John Kiernan: and the $19.1 million balance on our MetLife variable term rate debt, thereby strengthening our balance sheet and reducing our required principal payments through fiscal 2029 to less than $1.5 million per year.
John Kiernan: We believe that the revolving line of credit provides us with ample liquidity, should we need it, to manage significant weather events, as well as to ensure that we have time and capital to realize the long-term highest and best use for our real estate assets.
John Kiernan: Since our announcement in early January, management has been evaluating inquiries from developers, brokers, agents, and principals about possibly acquiring parcels of our citrus acres after this current harvest season.
John Kiernan: We've also begun selling selected rolling stock and are continuing to evaluate offers to acquire other fixed assets, such as trucks and tractors.
John Kiernan: Supported by these positive factors, the company reiterates that as a result of our cash flow being positive since January, we expect to end the fiscal year with enough cash to meet our operating expenses for fiscal years 2026 and 2027.
John Kiernan: Rico has also been discussing lease arrangements with many agricultural operators in Florida about possible sod production, expanding sand mining activities,
John Kiernan: and potentially growing seasonal crops such as corn, sugarcane, vegetables such as green beans, and fruits such as watermelon, berries, on some of the company's parcels.
John Kiernan: Details about these opportunities will be disclosed once contracts are finalized.
John Kiernan: As part of OECO's strategic transformation, we continue to evaluate all of our properties to determine what will create the highest and best use for our shareholders.
John Kiernan: Instrumental in that process is evaluating all opportunities where we can leverage conservation programs to simultaneously create value and enhance environmental outcomes.
John Kiernan: WECO identified five properties ranging in size from 348 acres to 7,789 acres for a total of 10,484 acres.
John Kiernan: as case studies to explore the opportunities provided under Florida's Rural and Family Lands Protection Program.
John Kiernan: Those applications were submitted to FDACS prior to the January 2029 deadline and will be evaluated over the coming months.
John Kiernan: While not all the properties may ultimately be a fit for the program, we look forward to coordinating with the Florida Department of Agriculture and Consumer Services to analyze these properties fit within the Florida Rural and Family Lands Protection Program, as well as our Strategic Transformation Framework.
John Kiernan: In the past, OECO has successfully returned capital for optional debt repayments, a tender offer, share buyback programs, as well as paying a quarterly common dividend for more than 50 years.
John Kiernan: As our cash balances rise, whether through land sales or our non-citrus agricultural activities becoming more firmly established, we intend to discuss more specific plans to return capital to investors.
John Kiernan: Under this new strategy, Aleco will become a diversified land company and most of its properties are expected to create profitable agricultural revenues that are not citrus related.
John Kiernan: The company expects to recognize positive cash flow for the remainder of the current fiscal year after land sales that have already been negotiated close.
Severance and restructuring costs are paid and harvesting activities conclude.
John Kiernan: Management estimates that the present value of our current land holdings could be worth approximately 650 million to 750 million dollars.
John Kiernan: even with approximately 75 percent of these acres valued for agricultural usage.
John Kiernan: and assuming 10% of those acres are entitled for development within the next five years.
Our entitlement work in Collier and Highlands counties
John Kiernan: is proceeding on schedule, and we expect to provide our investors with a briefing on our development plans for our Corkscrew Grove once public applications have been filed.
John Kiernan: Overall, I am very excited about the opportunity this strategic transformation creates to unlock value for our long-term shareholders, and we look forward to updating you on our progress throughout the fiscal year.
Speaker Change: And with that, I'll now turn the call over to Brad Heine.
Brad Heine: Thank you, John, and good morning everyone. While we typically harvest most of our crop in the second and third quarters, generating the bulk of our profit and cash flow during this period, this year's harvest will be concentrated in the first and second quarters. This shift will push our peak working capital requirements into the third and fourth quarters of the fiscal year.
Brad Heine: Alico Citrus revenue was $16.3 million compared to $13.6 million in the prior year period.
Brad Heine: The $2.7 million increase in revenue was primarily due to an increase in the price per pound solid, partially offset by a decrease in pound solids produced by the early and mid-season harvest.
Brad Heine: Approximately four million pound solids were harvested for the three months ended December 31st at a $3.69 average price per pound solid.
Brad Heine: compared to 4.7 million pound solids at a $2.66 average price per pound solids in the prior year period.
Brad Heine: First quarter harvest yields declined after Hurricane Milne's severe winds drove an increase in fruit drop rates.
Brad Heine: The increase in price was a result of more favorable pricing in one of our contracts with Tropicana.
Land Management and Other Operations Revenue increased 45%
Brad Heine: to $0.6 million compared to $0.4 million in the prior year period. This was primarily the result of an increase in rock and sand royalty income and sod sales, partially offset by lower farm, grazing, and hunting lease revenues due to the sale of the Aleko Ranch.
Brad Heine: Total operating expenses were $25.1 million and $28.2 million for the three months ended December 31, 2024 and 2023, respectively.
Brad Heine: The decrease in operating expenses primarily relates to the inventory adjustments recorded at September 30, 2024 on the ending inventory balance as a result of the continued weak recovery from Hurricane Ian and the ongoing effects of citrus screening, which effectively lowered the inventory to be expensed.
in fiscal year 2025.
Brad Heine: General administrative expenses for the three months ended December 31st, 2024 and 2023 were $2.6 million and $3.3 million, respectively.
Brad Heine: Other income expense net for the three months ended December 31st, 2024 and 2023 was a loss of $0.6 million and income of $75.5 million, respectively.
Brad Heine: The decrease is primarily due to there being no land sales in the three months ended December 31st, 2024, as compared to gains of $77 million during the prior year period.
Brad Heine: driven by the sale of the Alico Ranch to the state of Florida.
Brad Heine: We recognized an income tax benefit of $2.2 million and an income tax provision of $15.6 million for the three months ended December 31, 2024 and 2023, respectively.
Brad Heine: The income tax benefit for the three months ended December 31st, 2024, was partially due to a change in the valuation allowance on our deferred tax assets.
Brad Heine: This valuation allowance is required primarily due to the planned accelerated book depreciation on citrus-producing assets, which is anticipated to result in a cumulative three-year loss during the fiscal year ending September 30, 2025.
Brad Heine: compared to net income of $42.9 million for the first fiscal quarter ended December 31, 2023, driven by the aforementioned sale of the Ilico Ranch.
Brad Heine: For the three months ended December 31, 2024, the company had a loss of $1.20 per diluted common share compared to earnings of $5.64 per diluted common share for the three months ended December 31, 2023.
Brad Heine: Adjusted EBITDA was $0.7 million in the first fiscal quarter ended December 31st 2024 compared to a loss of $2.3 million for the first fiscal quarter ended December 31st 2023
Brad Heine: as of December 31st, 2024, compared to $13.2 million through December 31st, 2023.
Brad Heine: At quarter end, we had $73.5 million of remaining availability on our line of credit and there were no significant debt maturities until 2029.
Brad Heine: Total debt was $104.9 million and net debt was $100.5 million as of December 31st, 2024, compared to $92.1 million and $89 million, respectively, at the end of fiscal year 2024.
Brad Heine: Now I'd like to turn the call back to John to discuss our fiscal year 2025 outlook. Thank you, Bradley. Turning to our guidance, we expect harvest volumes in 2025 to be lower compared to 2024 levels due to the effects of greening and Hurricane Milton.
John Kiernan: We expect to realize approximately $20 million in land sales in fiscal 2025 based upon transactions that are under option agreements or have been negotiated and are expected to close soon.
John Kiernan: Our entitlement work in Collier and Highlands counties are proceeding on schedule and we expect to provide our investors with a briefing on our development plans for our corkscrew grove once public applications have been filed.
John Kiernan: We expect to end fiscal year 2025 with enough cash to meet our operating expenses for fiscal years 2026 and 2027.
John Kiernan: I'm very pleased with the launch of our strategic transformation and the opportunity it creates for our shareholders and look forward to updating you in May on our second fiscal quarter call.
Speaker Change: And with that, we'll now open the line up to questions from industry analysts. Marjorie?
Speaker Change: Thank you very much. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypads. You may withdraw yourself from the queue at any time by pressing star 2. And once again, that is star 1 for a question. We'll pause for a moment to allow the questions to enter the queue.
Speaker Change: And again, that is star one if you'd like to ask a question.
Speaker Change: And at this time, we have no questions. I'd like to turn the call back over to John Kiernan for any closing remarks.
Speaker Change: In closing remarks, I just want to say thank you to everyone for joining our call today and for your continued support of Aweco.
Speaker Change: We look forward to speaking with you about our second quarter results in May.
Have a good day.