Alico Q2 2024 Earnings Report

Alico EPS Results

• Actual EPS: $0.25
• Consensus EPS: -$0.15
• Beat/Miss: Beat by +$0.40
• One Year Ago EPS: N/A

Alico Revenue Results

• Actual Revenue: $18.11 million
• Expected Revenue: $40.60 million
• Beat/Miss: Missed by -$22.49 million
• YoY Revenue Growth: N/A

Alico Announcement Details

• Quarter: Q2 2024
• Date: 5/6/2024
• Time: N/A
• Conference Call Date: Tuesday, May 7, 2024
• Conference Call Time: 8:30AM ET

Alico (NASDAQ:ALCO), together with its subsidiaries, operates as an agribusiness and land management company in the United States. The company operates in two segments, Alico Citrus, and Land Management and Other Operations. The Alico Citrus segment engages in planting, owning, cultivating, and/or managing citrus groves to produce fruit for sale to fresh and processed citrus markets, including activities related to the purchase and resale of fruit and value-added services, which include contracting for the harvesting, marketing, and hauling of citrus. The Land Management and Other Operations segment is involved in the activities related to native plant sales, grazing and hunting leasing, management, and/or conservation of unimproved native pastureland; and activities related to rock mining royalties and other insignificant lines of business, as well as in the activities related to owning and/or leasing improved farmland. The company was incorporated in 1960 and is based in Fort Myers, Florida.

Alico Q2 2024 Earnings Call Transcript

[Operator]

Welcome to OLEKO's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, today's conference is being recorded. Last night, the company issued a press release announcing its results for the Q2 ended March 31, 2024. 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 alicoenc.com.

[Operator]

This call is being webcast and a replay will be available on Aliko'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 and may cause actual results to differ materially from those expressed or implied in these statements. Important factors such as or contribute to such differences include the risks detailed in the company's quarterly reports on Form 10 Q, annual reports on Form 10 ks, current reports on Form 8 ks 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.

[Operator]

During this call, the company will also discuss non GAAP financial measures, including EBITDA, adjusted EBITDA and net debt. For more details on these measures, please refer to the company's press release issued yesterday. With that, I would now like to turn the call over to the company's President and CEO, Mr. John Kernan.

[Speaker 1]

Thank you, Jenny, and thank you, everyone, for joining us for Aliko's Q2 2024 Earnings Call this morning. I, along with nearly everyone else involved in the Florida citrus industry, am disappointed and frustrated with the production realized this past season. Fruit quality was poor at the beginning of both crop harvests, but improved then the rate of fruit drop accelerated. Lower levels of production for 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 $28,500,000 for the fiscal year 2024. We believe that the early and mid season and Valentia box production was affected by the continued impacts of Hurricane Ian.

[Speaker 1]

We managed our costs aggressively over the past year, but the lower revenue base was out of our control for the 2nd year in a row. ALLEICO began treating at citrus trees in January 2023 with an oxytetracyte green product via trunk injection as a citrus greening therapy. In 2023, we treated over 35% of our trees with OTC, which was expected to mitigate some of the impacts of citrus greening and also decrease the rate of fruit drop and improve fruit quality. Although the small crop harvested this season was not impressive, when measured against control groups in each grove, ALLEICO trees that received an initial OTC application therapy did show measurable improvement in yield. However, quality improvements in reduced fruit offset OTC treatments in 2024 have encouraged OLEKO to double the number of trees that will treat before our next harvest season, and we do remain optimistic that production will increase next year.

[Speaker 1]

Although some of our significant contracts to supply Tropicana with fruit are expiring shortly, OLEKO is confident that a new multiyear contract at higher prices per pound solid will be finalized soon and should better reflect current market pricing. Our relationships with our lenders remain strong, and we have approximately $95,000,000 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, both to provide ample liquidity as our trees continue to recover from Hurricane Ian. We have steady access to workers and contractors and our employee base is stable. WeCo has over 125 years of experience as a leader in Florida Agriculture and Land Management. Outside of our citrus operations, Oweco continues to invest resources as it evaluates the long term highest and best use of our real estate assets.

[Speaker 1]

To be clear, Alika 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 a proprietary citrus operation to a mix of 3rd party mining, vegetable and fruit crop leasing activities. This year, we evaluated another struggling growth and have decided to also move beyond citrus there to realize its highest and best use.

[Speaker 1]

In 2022, we entered into a purchase option agreement with a third party, ER Jana 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, Florida, which expires in January 2025. It is expected that this option agreement will be exercised by the end of December 2024. It is understood that Yana plans to conduct sand mining operations on the land once regulatory approval has been obtained. Enewico will have the right to lease back most of these acres, including 3 40 net citrus acres for de minimis lease payments. In April 2024, we entered into an agreement to sell another approximately 780 acres of land at the 2x6 Grove to a 3rd party for approximately $7,000,000 or $9,000 per acre and that includes an option to purchase another 6 80 acres within 10 months from the closing date of the sale at the same price per acre.

[Speaker 1]

But a week ago will continue to grow citrus on those 6 80 acres for the next harvest season. This new transaction, which is expected to close by the end of July 2024, illustrates our strategy of monetizing underperforming citrus groves on a case by case basis to redeploy capital to generate better returns for our shareholders. With that, I will turn the call over to Brad to discuss our more detailed financial results.

[Speaker 2]

Thank you, John, and good morning, everyone. As our business is seasonal and the majority of our citrus crop is harvested in the 2nd 3rd quarters of the fiscal year with the majority of our profit and cash flows also recognized in the 2nd 3rd quarters, The quarterly results for the 2nd quarter are not indicative of our full year results. The 14.9% decrease in revenue for the 3 months ended March 31, 2024 as compared to the 3 months ended March 31, 2023 was primarily due to a combination of the timing of the Valencia harvest, which started later than in the prior year to allow the fruit more time to mature and an acceleration of the harvest in the prior year as a result of Hurricane Ian to try to mitigate the fruit drop, partially offset by an increase in Grove Management Services revenue as a result of Citrus Grove Management Agreement we entered into on October 30, 2023 with an unaffiliated group of third parties to provide Citrus Grove caretaking services for approximately 3,300 acres owned by such parties. The 0.7% increase in revenue for the 6 months ended March 31, 2024 as compared to the 6 months ended March 31, 2023 was primarily due to an increase in the price per pound solids for both the early and mid season and Valencia crops as a result of more favorable pricing in one of our contracts with Tropicana and an increase in Grove Management Services revenue as a result of the new Grove Owners Agreement, partially offset by a decrease in pound solids for the 6 months ended March 31, 2024 as compared to the prior year period.

[Speaker 2]

The 31.3% 53.6 percent increase in operating expenses for the 3 6 months ended March 31, 2024 as compared to the 3 months ended March 31, 2023 was primarily driven by insurance proceeds of $4,800,000 for crop insurance claims received during the 3 months ended March 31, 2023, which was recorded as a reduction of operating expenses and a combination of the 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 and the $4,800,000 of proceeds from crop insurance claims received in the prior year period respectively. General and administrative expenses increased 0 point $4,000,000 for the 6 months ended March 31, 2024 compared to the 6 months ended March 31, 2023, primarily due to increased employee costs. Other income expense net for the 6 months ended March 31, 2024 increased $72,600,000 compared to the 6 months ended March 31, 2023, primarily due to a gain of $74,900,000 on the sale of 17,229 Acres of the Aliko Ranch to the State of Florida during the 6 months ended March 31, 2024. By comparison, for the 6 months ended March 31, 2023, we recognized gains on the sale of property and equipment of approximately $4,800,000 relating to the sale of 888 acres in the aggregate from the Aliko Ranch to several third parties.

[Speaker 2]

For the 2nd fiscal quarter ended March 31, 2024, we reported a net loss attributable to Aliko common shareholders of $15,800,000 compared to a net loss of $7,800,000 for the 2nd fiscal quarter ended March 31, 2023, driven by the timing of revenue in the current quarter and insurance proceeds of $4,800,000 for crop claims received during the 3 months ended March 31, 2023. For the 6 months ended March 31, 2024, we reported net income attributable to Aliko common stockholders of $27,100,000 compared to a loss attributable to Aliko common stockholders of $10,900,000 driven by the gain of 74.9 $1,000,000 on the sale of the remaining 17,229 acres of the Aliko Ranch on December 21, 2023, partially offset by the 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. A $12,200,000 increase in the tax provision for the 6 months ended March 31, 2024 and the $4,800,000 of proceeds from crop insurance claims recognized in the prior year. I will now pass the call back to John.

[Speaker 1]

Thank you, Barrett. Although the harvest season was disappointing, which we believe is a result of the continuing recovery from Hurricane Ian, OECO has a strong balance sheet and is continuing to make investments in its growth, which we believe will help us turn the corner next season as we will be another year removed from the hurricane. ZECO has over 125 years of experience as a leader in Florida Agriculture and Land Management. Since 2017, we've planted over 2,200,000 new trees. We remain committed to the Florida citrus industry for the long term.

[Speaker 1]

We plan to apply the OTC therapy to substantially all of our producing trees in fiscal year 2024. And we believe that these treatments, combined with the recent tree plantings that are maturing in consistent caretaking practices, should support a significant increase in fruit harvested next season. In addition, Aweco 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 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.

[Speaker 1]

Jenny?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your question comes from the line of Gerry Sweeney from ROTH Capital. Please ask your question.

[Speaker 3]

Hey, guys. Thanks for taking my call. I apologize for sort of multitasking. I have another call going on in the background. So if I ask a question, it was already sort of covered the box, I apologize.

[Speaker 3]

But John, you touched briefly on the OTC side. I just want to get a little bit better maybe understanding of the impact on the trees. Did it help the fruit? Did it help the quality of fruits? And generally speaking, my high level understanding is improvement can continue not just in year 1, but year 2, year 3.

[Speaker 3]

So if you could maybe give a little bit more commentary on that, that would be great.

[Speaker 1]

Thank you, Jerry. That's a great question. Obviously, OTC is an important part of our strategy going forward for our citrus operations. This was the 1st year we harvested fruit that had been treated with OTC, which we applied in beginning in January 2023. We did see against control groups in each of our groves material and substantial improvement in production.

[Speaker 1]

So we got more fruit, which was great and certainly met our expectations. It was just coming from a low base. So it did not look spectacular this year, but we were encouraged by that. We did not see this 1st year improvements in quality. So we didn't get a lot more juice because of that.

[Speaker 1]

But we did actually recognize when we started this therapy that it was going to be probably a multiyear sequential improvement program. So we've already started basically doing the trunk injections. And again, I think we said nearly all of our producing trees for the next harvest season are underway with this OTC treatment. So we're even more optimistic that the second year we should get additional benefits and results from that.

[Speaker 3]

Got it. And I believe you're working on a renewal for your citrus program with 1 of your off takers. Could you provide an update on that front if you're available to?

[Speaker 1]

Yes. So we have sold over the most recent years nearly all of our fruit to Tropicana under multiyear contracts. We've got a couple of significant contracts that are expiring now that the season the harvest season has concluded. We're in the process of renewing negotiations. We've approached all of the processors in the state and we hopefully are going to get a multiyear agreement that is at or better than current market pricing today.

[Speaker 1]

So we think that should be higher prices for us over the next several years on those new contracts. Obviously, we think that will lift the average price that we would sell against contracts that we are still going to have in place next year as well. So we are cautiously optimistic that we should close those very soon. We just don't have anything to report at this time that's finalized and formal yet.

[Speaker 3]

Got you. And then final question on the debt side. I think you've been targeting $75,000,000 to $80,000,000 of net debt by year end. I think you're sitting around in that range right now. Does that sort of change your perspective on the balance sheet, at least in the near term?

[Speaker 3]

And offsetting that, obviously, you do have some real estate sales that are coming up. But can you comment on that?

[Speaker 2]

Hey, Jerry, this is Brad. Thanks. So on that front, first, I'd want to stress that we do not see any liquidity concerns there at all coming from any of these transactions. As we noted, we have over 95 about $95,000,000 in lines of credits available to us and the pending land sales. That being said, as a result of the impairments it is difficult for us to forecast exactly what our net debt position will be and we would not expect it to be in that same range.

[Speaker 2]

Unfortunately, we just can't provide an updated guidance as we need to see how everything shakes out still.

[Speaker 3]

Got you. I appreciate it guys. Thanks and apologize if I was

[Speaker 1]

a little disorganized here, but I appreciate it. Sorry, thanks for your support.

[Operator]

Thank you. We have reached the end of today's question and answer session. I would like to turn the call back over to Mr. Kiernan for closing remarks.

[Speaker 1]

Thank you, Jenny, and thank you, everyone, for joining our call today and also for your continued support of ALLEICO. We look forward to speaking with you about our 3rd quarter results in August.