Alico, Inc. (NASDAQ:ALCO) Q2 2023 Earnings Call Transcript May 6, 2023

Operator: Ladies and gentlemen, welcome to Alico’s Second Quarter 2023 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 second quarter ended March 31, 2023. If you have not had a chance to view the release, it is available on the Investor Relations portion of the company’s website at 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 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. 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.

John Kiernan: Thank you, Jenny. Thank you, everyone, for joining us for Alico’s second quarter 2023 earnings call this morning. Alico, along with the Florida citrus industry, has experienced significant reductions in revenue due to having less fruit available for sale as a result of the impacts of Hurricane Ian. The April 11, 2023 USDA citrus crop forecast estimates a 61% decline in the Florida orange box production as compared to the prior year. As we enter the second half of our fiscal year, with the 2022-2023 harvest season behind us, the Alico management team is focused on the caretaking of our groves and preparing them for the 2023-2024 harvest. Based upon prior experience with storms of this nature, we anticipate it may take up to two full seasons or more for our growth to recover to pre-hurricane production levels.

As we have reported previously, we maintained crop insurance on all of our groves and in addition to the approximately $4.8 million received in the quarter ended March 31, 2023. In the month of April, we have received additional crop insurance proceeds of approximately $8.9 million. We have additional claims pending and have been working closely with our insurers and adjusters to determine the remaining amount of insurance recovery we may be entitled to. We have also received approximately $0.8 million in property and casualty insurance proceeds in April 2023. In December 2022, the federal government passed into law the Consolidated Appropriations Act, and funds were earmarked for disaster relief. However, the mechanism of the funding is still unclear and additional legislation has been introduced to allow the funding to follow the mechanism established for Hurricane Irma relief funds.

We continue working with Florida Citrus Mutual, the industry trade group, and government agencies on the federal relief programs available under the act. However, we cannot determine the amount of any relief the company may be eligible for. Alico has been able to navigate through the impacts of Hurricane Ian and unseasonably warm and dry weather over the past several months only through the investments and actions that the company has taken over the past several years. The company continues to engage with interested third-parties on certain parcels of ranch land at prices we continue to believe are competitive. Through March 31, 2023, we have sold approximately 888 acres for net proceeds of approximately $4.9 million. The company has approximately 19,000 acres of the Alico ranch remaining.

Also in April 2023, we purchased a very small citrus grove that is contiguous with one of our groves in Arcadia. In 2022, we began testing a new application of the citrus greening therapy Oxytetracycline, or OTC, which is used in citrus and other crops. After a review of the new application method by the U.S. Environmental Protection Agency, the Florida Department of Agriculture and Consumer Services granted a special local need registration on October 8, 2022. We began treating our trees on January 16, 2023 as the product and application devices became available and have treated approximately 10% of our trees as of March 31, 2023. The extent of any benefit of the OTC application will not be measurable until the completion of the next fiscal year 2024 harvest.

Although not a cure for citrus greening, this OTC application mitigates some of the impacts of citrus greening and has shown to decrease the rate of fruit drop and improved fruit quality. For the three months ended March 31, 2023, the company reported net loss attributable to Alico common stockholders of approximately $7.8 million as compared to net income attributable to Alico common stockholders of approximately $20.7 million for the same period in the prior year. The second quarter 2023 results were negatively impacted by the timing of the gains on sale of real estate, property and equipment and assets held for sale and due to the decreased revenue resulting from the increased fruit drop from the impacts of Hurricane Ian on both our Early and Mid-Season and Valencia crops.

The company maintains ample liquidity with approximately $74 million available of undrawn credit, which is comprised of approximately $49 million on its working capital line of credit, which matures in November of 2025 as well as $25 million of undrawn credit on the revolving line of credit, which matures in November 2029. With that, I’ll turn the call over to Perry Del Vecchio to discuss our more fully detailed financial results.

Perry Del Vecchio: Thank you, John, and good morning, everyone. Due to the seasonal nature of our business, the quarterly results for our second quarter are not indicative of our full year results. 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. Total operating revenue for the quarter ended March 31, 2023, was $21.3 million compared to $49.6 million for the quarter ended March 31, 2022. Our citrus revenue was $20.9 million and $49 million for the quarters ended March 31, 2023 and 2022, respectively. The decrease in revenue for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, was primarily due to a decrease in both the Early and Mid-Season and Valencia fruit harvested and, to a lesser extent, a decrease in revenue generated from growth management services.

The decrease in Early and Mid-Season and Valencia fruit harvested was primarily driven by a decrease in processed box production and a decrease in pound solids per box. The processed box production decrease was due to the greater fruit drop as a result of the impacts of Hurricane Ian. The USDA, in its April 11, 2023, citrus crop forecast for the 2022 and 2023 harvest season indicated we expect the overall Florida orange crop will decrease from approximately 41.2 million boxes for the 2021/2022 crop year to approximately 16.1 million boxes for the 2022/2023 crop year, a decrease of approximately 61%. With respect to the Early and Mid-Season crop, the USDA forecasted a 66.5% decline. Our Early and Mid-Season crop for the season was down 55%. Regarding the Valencia crop, the USDA is forecasting a decrease of 56.4%.

And although as of March 31, 2023, our Valencia box production was down 33.4%. We expect that a decrease in Valencia box production will be closer to the projected year-over-year box decline in the USDA estimate. While there was an impact to our fiscal year 2023 crop, there does not appear to be long-term measurable damage to our citrus trees. The decrease in pound solids per box was mainly due to the internal quality of our fruit not being as strong as it was in the previous year. In addition, we accelerated the harvesting of both the Early and Mid-Season and Valencia crop to minimize the fruit drop as a result of the impact of Hurricane Ian with the intent to maximize our box production. As a result, we realized a lower pound solid per box.

Partially offsetting the decrease in processed box production in pound solid per box was an increase in the price per pound solid. The 5.1% improvement in the blended price per pound solids for the three month period ended March 31, 2023 as compared to the same period in the prior year was due to the overall lower production of citrus fruit, which has led to reduced inventory levels. Total operating expenses were $27.5 million for the three months ended March 31, 2023, as compared to $45.5 million in the same period in the prior year. The decrease in operating expenses primarily relates to the inventory adjustments recorded in fiscal year 2022’s ending inventory balance as a result of the impact of Hurricane Ian, which effectively lowered the inventory to be expensed in fiscal year 2023.

The company experienced significant cost increases in fertilizer, herbicide, labor and fuel in maintaining its groves. These cost increases, coupled with the timing of the harvest and the lower box production for both its Early and Mid-Season and Valencia harvest resulted in a higher cost of sales per box for the three months ended March 31, 2023 as compared to the same period in the prior year. The company realized an overall decrease in its harvest and hauling expenses. However, the harvesting cost per box increased for the three months ended March 31, 2023 as compared to the same period in the prior year due to an increase in the harvesting labor cost as well as the increased time spent by the harvesters to fill the boxes as a result of the increased fruit drop caused by Hurricane Ian.

During the three months ended March 31, 2023, the company received approximately $4.8 million in hurricane insurance proceeds. The company also incurred additional costs related to the cleanup and repairs of Hurricane Ian. The decrease in grove management services expense is directly related to the termination of the grove management services by the grove owners in June 2022. As previously mentioned, the decision by the grove owners to exit the citrus business eliminated the need for caretaking management services for the grove owners. As a result, caretaking expenses decreased significantly during the three months ended March 31, 2023, when compared to the same period in the prior year. General and administrative expenses for the three months ended March 31, 2023, was approximately $2.667 million compared to approximately $2.538 million for the three months ended March 31, 2022.

The increase was primarily due to increase in legal and professional fees as compared to the same period in the prior year. Other income net for the three months ended March 31, 2023 and 2022 was approximately $0.3 million and $25.7 million, respectively. The decrease to other income net is primarily due to the timing of the gains on sale of real estate property, equipment and assets held for sale. During the quarter ended March 31, 2023, the company sold approximately 279 acres in the aggregate from the Alico ranch to several third-parties and recognized gains of approximately $1.6 million. By comparison, for the three months ended March 31, 2022, the company recognized gains of approximately $26.6 million relating to sale of real estate property and equipment and assets held for sale.

In addition, the company recognized an increase in interest expense of approximately $0.4 million for the three months ended March 31, 2023 as compared to the same period in the prior year as a result of a higher balance on the working capital line of credit and an increase in the overall interest rates on its variable rate term debt and the working capital line of credit. For the fiscal quarter ended March 31, 2023 and 2022, we reported net loss attributable to Alico common stockholders of approximately $7.8 million and income attributable to Alico common stockholders of approximately $20.7 million, respectively. Our adjusted EBITDA was approximately a loss of $7.8 million for the second quarter ended March 31, 2023 as compared to a positive $5.3 million for the same period in the prior fiscal year.

Alico continues to maintain a strong balance sheet. Our working capital was approximately $22.7 million at March 31, 2023, representing a 2.58:1 ratio. We continue to maintain a solid debt-to-equity ratio. At March 31, 2023, September 30, 2022 and September 30, 2021, the ratios were 0.53:1, 0.45:1 and 0.50:1, respectively. I will now pass the call back to John.

John Kiernan: Thanks, Perry. The citrus industry and Alico have experienced a challenging harvest season. With our harvest season being completed in late April, we are now focused on the fiscal year 2024 harvest. The new OTC therapy has shown initial promise for an improvement in the quality of the fruit for the next harvest season. We’ve planted over 2 million trees since 2017, which should support increased quantities of fruit next season. We have a stable workforce, long-term supply contracts and precision caretaking practices, which all position the company well for the next harvest season. As we have previously mentioned, we’ve been working with land use planning professionals to blend a conventional agriculture investment with the ability to optimize the returns on our real assets. This work has progressed and is expected to be completed later in the year. And with that, we will now open the line up to questions from industry analysts. Jenny?

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] There are no further questions at this time. Please proceed.

John Kiernan: Thank you. Thank you, Jenny, and thank you, everyone, for joining our call today and for your continued support of Alico. We look forward to speaking with you about our third quarter results in August.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for participating. You may all disconnect.