Alico Inc

NASDAQ:ALCO

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Alico's Third Quarter 2024 Conference Call. [Operator Instructions] As a reminder today's conference is being recorded.

Last night, the company issued a press release announcing its results for the third quarter ended June 30, 2024. If you have not had a chance to review the release, it is available on the Investor Relations of the company's website at www.alicoinc.com. This call is being webcast, and a replay will be available on Alico's website as well.

Before we begin, we would like to remind everyone that 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 difference, such differences include risk details in company's quarterly report on Form 10-Q, annual results on Form 10-K, current reports on Form 8-K and those 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 law. During the call, the company may also discuss non-GAAP financial measures, including EBITDA, adjusted EBITDA and net debt. For more details on the measures, please refer to the company's press release issued yesterday.

With that, I would like to turn the call over to the company's President and CEO, Mr. John Kiernan.

[John Kiernan, executive]

Thank you, Britney, and thank you, everyone, for joining us for Alico's Third Quarter 2024 earnings call this morning. I wanted to thank our investors who checked in with us over the weekend as Hurricane Debby approached the Florida coast line. Alico and my fellow employees had a wet weekend, and we expect rain to continue each day for the rest of the week, but we did not sustain any damage from Debby. Our thoughts are with all of our fellow Floridians who were impacted by the storm yesterday and everyone else who's facing tropical storm today. Alico has been through dozens of storms over the past century, and we take everyone seriously. Thank you again for your concern.

During the past quarter, Alico finished harvesting the last fruit in our 2023-'24 season. Fruit quality was poor at the beginning of both our early mid and Valencia crop harvest but improved. However, the rate of fruit drop accelerated during post harvests.

Lower levels of production for the early and mid-season and Valencia harvest this season resulted in lower levels of pound solids being sold, which has led to a total inventory write-down of $28.5 million in fiscal year 2024. We believe that the Early and mid-season and Valencia box production was affected by the continued impact of Hurricane Ian. We've managed our cost aggressively over the past year, but the lower revenue base was out of our control for the second year in a row. We have several reasons to be more optimistic about our production next season.

First, since 2017, Alico has planted 2.2 million trees and nearly all of them are now producing fruit. Second, Alico began treating its citrus trees in January 2023 with an oxytetracycline product via trunk injection as a citrus greening therapy. In 2023, we were able to treat over 35% of our producing trees with OTC. And in 2024, we treated approximately 4.5 million producing trees.

Alico received $1.8 million of grant money from the Florida Citrus Research and Field Trial Foundation in January 2024 that covered substantially all of the costs of the 2023-'24 harvest season OTC applications and $1.1 million was received in June that will cover approximately 34% of the 2024-'25 harvest season OTC applications. Although the small crop harvested this past season was not impressive, we believe that the continued recovery from Hurricane Ian was the most significant factor impacting fruit production quality. We remain cautiously optimistic that being another year removed from the hurricane along with the combination of a second round of injections or previously treated trees and a first round of injections for trees that were not treated in 2023 will show more significant improvements, not just in yield, but also in reduced fruit drop.

In fact, in July, it was reported that the Florida Department of Agriculture and Consumer Services approved a label change for the OTC product to remove the restriction that the product cannot be applied for more than 2 years in a row. This change will enable us to apply the OTC treatment in calendar year 2025 to the trees that we started treating back in 2023, which will be a relief to Alico in the Florida citrus industry overall.

Third, as Alico's production recovers next season, we will sell our fruit at higher prices. As we previously announced, the Company and Tropicana have extended our relationship for another 3 years. With our new contract to supply Tropicana with fruit, Alico will realize significantly higher prices per pound solid, which better reflect current market pricing with price increases in the second and third years. This new contract covers production of approximately 65% of our acres. The remainder of our acres are covered by a contract with Tropicana, which expires at the end of 2024-'25 season, but which also has higher pricing than the expiring contracts.

As the Atlantic hurricane season becomes more active over the next few months, Alico is prepared and focused on managing its world-class citrus operations just as it has for more than 125 years. One of our greatest competitive advantages as we face potential weather uncertainties is our balance sheet liquidity. Our relationships with our vendors remain strong, and we have approximately $94.8 million of undrawn capacity under a combination of a revolving line of credit, which matures in November of 2029 and a working capital line of credit, which matures in November of 2025 to provide ample liquidity as our trees continue to recover from Hurricane Ian.

Our $70 million of term debt does not amortize and is not due for repayment until 2029. We have access to -- we have steady access to workers and contractors and our employee base is stable.

Outside of our citrus operations, Alico continues to invest resources as it evaluates the long-term highest and best use of our real estate assets. To be clear, Alico will continue to conduct our regular citrus operations at nearly all of our groves for years to come. We will continue evaluating all of our properties to explore creative solutions to enhance and extract value. We seek to provide our investors with the benefits and stability of a conventional agricultural investment with the optionality that comes with active land management.

Last year, after evaluating the direct hit it took from Hurricane Ian in 2022, we made a difficult decision to transition our TRB Grove in Charlotte County from proprietary citrus operations to a mix of third-party mining, vegetable and fruit crop leasing activities. This year, we evaluated another grove and have decided to also move beyond citrus there to realize its highest and best use.

In 2022, Alico entered into a purchase option agreement with a third-party E.R. Jahna Industries, for the sale of approximately 899 acres of land at a price of -- approximately $11,500 per acre on our 2x6 grove located in Hendry County, which expires in January of 2025. It is expected that this option agreement will be exercised by the end of December 2024. It is understood that Jahna plans to conduct sand mining operations on the land once regulatory approval has been obtained, and Alico have the right to lease back most of these acres, including 340 net citrus acres for de minimis lease payments.

In April of 2024, we entered into an agreement to sell another approximately 798 acres of land at the 2x6 Grove to a third party for approximately $7.2 million, which is $9,000 per acre, and that includes an option to purchase another 680 acres within 10 months from the closing date of the sale at the same price per acre, and Alico will continue to grow citrus on those 680 acres for the next harvest season. This previously announced transaction, which closed at the end of June 2024, illustrates our strategy of monetizing citrus groves on a case-by-case basis to redeploy capital to generate better returns for our shareholders.

In addition to our citrus operations, Alico has been pursuing a diversified real estate strategy since early 2022, which began with a comprehensive analysis of our land holdings portfolio. That process encouraged us to begin the entitlement process for our 4,500-acre grove in Collier County. In May, we recruited Mitch Hutchcraft to lead our real estate activities to accelerate the entitlement activities that Corkscrew as well as develop a comprehensive analysis of highest and best use for remaining properties and create a road map to execute these strategic initiatives. Alico is continuing to evaluate every acre for its highest and best use against its near-term potential for continued cash flow generation from our existing agricultural operations.

I'm also pleased to announce that as part of our succession planning process, Current Board member, Adam Putnam has been selected to be appointed Chairman of the Board of Alico following our next Annual General Meeting, which will be held in 2025. Adam will succeed George Brokaw, who has served as Chairman since February 2022 and as a director since November 2013. George will continue to serve Alico as a Director of the company.

Adam has served on the Alico Board of Directors since August 2020 and has extensive knowledge and experience in the areas of agriculture, sustainability, government affairs, supply chain, business leadership and finance. Adam has served as the Chief Executive Officer of Ducks Unlimited, a U.S. not-for-profit organization dedicated to conservation of wetlands and associated upwind habitats for waterfowl, other wildlife and people since April of 2019.

Prior to joining Ducks Unlimited, he served as Florida's Commissioner of Agriculture from 2011 to 2019, where we focused on fostering the growth of Florida agriculture and protecting the state's water supply among other issues and was a U.S. Congressman for 5 terms from 2001 until 2011, where he engaged on issues such as agriculture, water and energy. He was also the House Republican Chair from 2007 to 2009. With public policy and public service experience, Adam brings to the Board expertise in understanding and navigating the physical and transition risks and opportunities of climate change together with his knowledge of sustainability, water supply and agriculture operations within Florida's regulatory environment.

With that, I'll turn the call over to Brad to discuss our more detailed financial results.

[Bradley Heine, executive]

Thank you, John, and good morning, everyone. As our business is seasonal, the majority of our citrus crop is typically harvested in the second and third quarters of the fiscal year, and the majority of our profits and cash flows are also recognized in the second and third quarters. However, due to the timing of the current year harvest, more of the citrus crop was harvested in the first and second quarters of this fiscal year. As such, the quarterly results for the third quarter are not indicative of our full year results.

For the 3 and 9 months ended June 30, 2024, Alico citrus harvested approximately 0.8 million and 3.1 million boxes of fruit, respectively, compared to 0.4 million and 2.7 million boxes of fruit in the same periods of the prior fiscal year. The increases in boxes harvested was primarily driven by the timing of the harvest for the 3 months ended June 30, 2024, and as a result of our production beginning to recover to pre-hurricane levels for the 9 months ended June 30, 2024.

The early and mid-season and Valencia harvests are complete. And for the 9 months ended June 30, 2024, pound solids produced were up 17% and 7.6% compared to the prior year, respectively, while pound solids per box were down 4% and 3.1%, respectively. Additionally, we realized an increase in the price per pound solids of 3.8% and 4.1%, respectively, in the 9 months ended June 30, 2024, compared to the same period in the prior fiscal year as a result of more favorable pricing in one of our contracts with Tropicana.

Our average realized/blended price per pound solids for the 9 months ended June 30, 2024, increased 3.9% as compared to the same period in the prior year. As a result of our signing of the new contract with Tropicana, the company expects that our prices per pound solid will increase more significantly next year.

General and administrative expenses decreased $0.1 million for the 9 months ended June 30, 2024, compared to the 9 months ended June 30, 2023, primarily due to lower depreciation, legal and insurance costs, partially offset by increased employee costs.

Other expenses net for the 9 months ended June 30, 2024, increased $75.2 million compared to the 9 months ended June 30, 2023, primarily due to the sale of 17,229 acres of the Alico Ranch to the State of Florida and the sale of 798 acres of citrus land during the 9 months ended June 30, 2020. By comparison, for the 9 months ended June 30, 2023, we recognized gains on sales of property and equipment of approximately $7.4 million related to the sale of 1,436 acres in the aggregate from the Alico Ranch to several third parties.

For the 3 and 9 months ended June 30, 2024, the company reported a net loss attributable to Alico common stockholders of $2 million and net income attributable to Alico common stockholders of $25.1 million, respectively, compared to net income attributable to Alico common stockholders of $11.8 million and $0.9 million for the 3 and 9 months ended June 30, 2023, respectively. The decrease in our net income attributable to Alico common stockholders for the 3 months ended June 30, 2024, was driven by Hurricane Ian and insurance proceeds of $17.5 million received during the 3 months ended June 30, 2023, which were recorded as a reduction of operating expenses. Partially offsetting this is a gain of $4.4 million from the sale of citrus land in the 3 months ended June 30, 2024.

The increase in our net income attributable to Alico common stockholders for the 9 months ended June 30, 2024, compared to the 9 months ended June 30, 2023, was driven by a gain of $74.9 million on the sale of the remaining 17,229 acres of the Alico Ranch on December 21, 2023, and a gain of $4.4 million from the sale of Citrus land on June 28, 2024, partially offset by inventory adjustments recorded at September 30, 2022, on the ending inventory balance as a result of the impact of Hurricane Ian, which effectively lowered the inventory to be expensed in fiscal year 2023 as well as $21.4 million of insurance proceeds and a $9.4 million increase in the tax provision for the 9 months ended June 30, 2024.

For the 3 and 9 months ended June 30, 2024, the company had a loss of $0.27 and earnings of $3.29 per diluted common share, respectively, compared to earnings of $1.56 and $0.12 per diluted common share for the 3 and 9 months ended June 30, 2023, respectively.

I will now pass the call back to John.

[John Kiernan, executive]

Thanks, Brad. Although the harvesting season was disappointing, which we believe is a result of the continuing recovery from Hurricane Ian, Alico has a strong balance sheet and is continuing to make investments in its groves, which we believe will help us grow next season as we will be another year removed from the hurricane. Alico has over 125 years of experience as a leader in Florida agriculture and land management. Since 2017, we have planted over 2.2 million new trees. We remain committed to the Florida citrus industry for the long term.

In addition, Alico is continuing to evaluate all of our properties to determine their highest and best use to create long-term value for our shareholders. We strive to provide our investors with the benefits and stability of a conventional agricultural investment with the enhanced optionality that comes through active land management.

And with that, we will now open the line up to questions from industry analysts. Britney?

[Operator]

[Operator Instructions] And it appears we have no questions on the line today. I will turn the program back over to Mr. Kiernan.

[John Kiernan, executive]

I just want to say thank you to everyone for joining our call today and for your continued support of Alico. We look forward to speaking with you about our year-end results in November. Operator?

[Operator]

This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Have a great day.