Alico [ALCO] Conference call transcript for 2021 q4
2022-02-03 13:17:10
Fiscal: 2022 q1
Operator: Welcome to Alico’s First Quarter 2022 Earnings Conference Call. As a reminder, today’s conference is being recorded. Earlier today, the company issued a press release announcing its results for the first quarter ended December 31, 2021. 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 the 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 report on Form 10-K, current reports on Form 8-K and any amendments that are 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, Peter and thank you everyone for joining us for Alico’s first quarter 2022 earnings call this morning. Almost 2 years after the COVID-19 pandemic began in March of 2020, we remain encouraged that consumption of not from concentrate orange juice by retail consumers has remained strong. This trend has led to further improve market pricing for early and mid season fruit in the current harvest season as compared to the prior year. Pricing for the early and mid season fruit is estimated to be between $2.55 and $2.60 for the current harvest season, which would be between $0.25 and $0.30 higher than a year ago. We are confident this trend will also be beneficial to Valencia market pricing for this season. With respect to the 2022 harvest, which commenced in December of 2021, we have seen along with the entire Florida citrus industry, a decrease in process box production of the early and mid season crop as compared to the same period last year. The USDA is forecasting a 22.9% decline for the early and mid season crop. We are anticipating a 12% to 15% decrease for early and mid season crop as compared to the same period last year. We believe that this lower rate of decline as compared to the state forecast is due to the efficiencies of our comprehensive growth management program. Harvesting for our early and mid season crop is almost complete. In the last week of January of 2022, certain areas where our citrus trees are located experienced below freezing conditions that are expected to have a material adverse effect on the yield of this season’s Valencia crop. We are still in the process of assessing the extent of the damage and the impact on our current financial position, results of operations and cash flows and to the extent to which there maybe any long-term effects. We have increased our growth density within our existing acreage and have planted approximately 1.5 million trees in these acres since 2018. While we cannot determine what the future production levels will be, particularly as we assess the impact of the freeze on our existing citrus groves, we remain confident in our strategy of increasing density and believe that the first plantings of these trees from 2018 should start to generate meaningful production in fiscal 2023 and support higher levels of production for their useful lives. We continue to pursue strategic sales opportunities for our ranch land and sold approximately 1,900 acres of ranch land, including a sale to the state of Florida for 1,638 acres in the quarter ended December 31, 2021. We are also engaged with multiple private parties for other ranch land sales transactions, which are either under contract or in final negotiations. And looking at our most recent sales, we have seen an increase in the prices paid per acre of ranch land. This is attributable to some of our prior sales, either being encumbered with easements or having significant wetlands as well as buyer interest for real estate, including our ranch land acres intensifying within the state of Florida. Our remaining 32,000 acres of ranch land is premium property. And we believe based on our recent activity that these remaining acres will realize the same or greater price per acre as compared to our most recent sales. Regarding labor, we believe our labor force is stable. We continue to explore ways to strengthen the connection our employees have with our company. Most recently, we awarded each employee with over a year of service restricted shares of our common stock. In addition as required, we will continue to utilize outside third-parties to provide us with H2A waiver to support our agriculture operations. With respect to our overall growing costs in general and administrative costs, they have remained in line with our expectations. We continue to maintain stringent controls and look for efficiencies that will allow us to continue to see improvement regarding these costs. We continue to move forward with our environmental, social and governance initiatives and most recently published our inaugural sustainability report in December 2021, which is available on our website. Upon publication, we saw an improvement in our ISS scores. With that, I will turn the call over to Rich who will discuss in more detail our financial results.
Richard Rallo: Thank you, John and good morning everyone. As our business is seasonal and 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, the quarterly results for the first quarter are not indicative of our full year results. Total operating revenue for the quarter ended December 31, 2021 was $15.3 million compared to $13.7 million for the quarter ended December 31, 2020. Our citrus revenue was $14.7 million and $12.9 million for the quarters ended December 31, 2021 and 2020 respectively. The increase in revenue for the 3 months ended December 31, 2021 compared to the 3 months ended December 31, 2020 was primarily due to an increase in revenue generated from our early and mid season harvest. This increase was driven by an increase in the market price per pound solids, which is due to decreased production of citrus fruit and continued strong consumption our not-from-concentrate orange juice, which has led to reduced inventory levels. While consumption has slightly dropped from its highest levels when the COVID-19 pandemic initially started back in March 2020, consumption as reported in the latest Nielsen data has increased approximately 11% for the 12-month period ended January 1, 2022 as compared to similar 12-month period prior to the COVID-19 pandemic. Additionally, we saw a slight increase in the early and mid season boxes harvested for the 3 months ended December 31, 2021 compared to the 3 months ended December 31, 2020. This was a result of us harvesting a greater percentage of our early and mid season crop through December 31, 2021 measured as a percentage of our estimated full year early and mid-season crop as compared to the same period in the prior year. Overall, we along with the Florida industry in general, anticipates recording a smaller number of boxes during the current harvest season, which is believed to be caused by both disease and weather as compared to the previous year. As John mentioned, we do anticipate that our decline in box production will be lower than that forecasted by the USDA. Partially offsetting this increase in revenues was a decrease in pound solids per box during the 3 months ended December 31, 2021 as compared to the 3 months ended December 31, 2020 mainly because the internal quality of the fruit was not as strong as it was in the previous year. Total operating expenses were $13.5 million and $8.3 million for the 3 months ended December 31, 2021 and 2020 respectively. The increase in operating expenses for the 3 months ended December 31, 2021 as compared to the 3 months ended December 31, 2020 primarily relates to Alico receiving less proceeds under the Citrus Recovery Block Grant program during the 3 months ended December 31, 2021 when compared to the 3 months ended December 31, 2020. Through the end of fiscal year 2021, the reimbursement under this program was substantially complete, with the exception of funds that are due relating to certain crop insurance expenses. The amount to be received for this crop insurance reimbursement is estimated to be approximately $2 million, of which approximately $1 million was received in October 2021. By comparison, in the 3 months ended December 31, 2020, we received $4.1 million in proceeds under the Citrus Recovery Block Grant program. The increase in operating expenses is also in part attributable to us harvesting a greater percentage of boxes in relation to the estimated total boxes to be harvested for the full season during the 3 months ended December 31, 2021 as compared to the same period in the prior year, leading to a larger percentage of cost being allocated to cost of sales in the current period. General and administrative expenses for the 3 months ended December 31, 2021 totaled $2.6 million compared to approximately $2.5 million for the 3 months ended December 31, 2020. The increase was due in large part to an increase of approximately $100,000 relating to a company-sponsored incentive for employees to obtain the COVID-19 vaccine, an increase in stock compensation expense of approximately $110,000 relating to restricted stock unit awards to certain executives and senior managers, and consulting expenses of approximately $100,000 relating to our environmental sustainability and governance implementation strategy and related work. Partially offsetting these increases were decreases related to payroll and payroll associated expenses of approximately $140,000 primarily relating to the reduction and administrative personnel made during the fiscal year ended September 30, 2021 and a reduction in legal expenses of approximately $70,000, which is mainly the result of us having incurred additional legal expenses in the 3 months ended December 31, 2020 relating to the acquisition of a citrus grove in October 2020. Other income net for the 3 months ended December 31, 2021 and 2020 was approximately $7.6 million and approximately $2.2 million respectively. The increase in other income net was primarily due to gains on sale of real estate, property and equipment and assets held-for-sale of approximately $8.4 million relating to the sale of approximately 1,900 acres from the Alico ranch to several third-parties. For the 3 months ended December 31, 2020, we recognized gains of approximately $3.4 million relating to the sale of real estate, property and equipment and assets held-for-sale. Additionally, the improvement was in part due to a decrease in interest expense of approximately $300,000 for the 3 months ended December 31, 2021 as compared to the 3 months ended December 31, 2020, which resulted from the reduction of our long-term debt attributable to making mandatory principal payments and certain prepayments. During the quarter ended December 31, 2021, we sold certain acres of land to the state of Florida at a below market value, which resulted in us taking a charitable deduction for tax purposes. This charitable contribution is estimated to generate a net tax benefit of approximately $4.9 million. For the fiscal quarter ended December 31, 2021 and December 31, 2020, we reported net income attributable to Alico common stockholders of approximately $10.1 million and approximately $3.8 million, respectively. As John mentioned, in the last week of January 2022, certain areas where our citrus trees are located experienced below freezing conditions. We are in the process of assessing the extent of the damage and the impact on our current financial position, results of operations and cash flows. At this time, given these uncertainties, and the lower anticipated box production and the average pound solids per box expected to season before the recent freeze, we are withdrawing our previously issued guidance for net income, EBITDA, adjusted net income and adjusted EBITDA for fiscal year 2022. And we expect to update our guidance once we can evaluate more complete information about the impact of the freeze. We believe with the strength of our current balance sheet, that we will be able to endure the potential loss from the damage caused by the freeze event and continue to pay our current level of dividends and other operational costs without issue. I will now pass the call back to John.
John Kiernan: Thanks Rich. While the Florida citrus industry has faced challenges with respect to box production over the last couple of harvest seasons, we remain confident that our strategy of increasing our plantings within our groves will yield increased production. We are pleased to see that we have maintained our momentum of opportunistic ranch land sales in fiscal year 2022. And we will look to deploy these proceeds in a manner that brings greater returns to our stockholders. We will now open the line up to questions from industry analysts. Peter?
Operator: Thank you. At this time, we will be conducting a question-and-answer session. We have our first question from Gerry Sweeney with ROTH Capital. Please go ahead.
Gerry Sweeney: Hey. Good morning, John and Rich. Thanks for taking my call.
John Kiernan: Hi, Gerry. How are you?
Gerry Sweeney: I am doing well. Thanks. I just want to get – a couple of questions on clarity. So, that USDA report came out prior to the freeze. So, that report basically saying State of Florida is down about 23% and you were saying Alico down 12% to 15%. That was one event. And then the separate event was the freeze at the last week of January. So, just putting them together, obviously, just to be clear, that 12% to 15% down in box production was prior to the freeze, then you are assessing the freeze damage, correct?
John Kiernan: Correct. And keep in mind, those numbers that you just described, we have talked about earlier, are only for the early and mid-season crop. There is about 40% of our production is tied to early and mid season.
Gerry Sweeney: Got it. So, that USDA report that was the other part, getting to encompass the entire production – your production including the royalty, it was just early and mids?
John Kiernan: Yes. They forecasted the entire crop was is to be down substantially. We just reiterated the numbers and the freeze came at the very, very tail end of harvesting for early-mids. So, the impact on early being somewhat negligible.
Gerry Sweeney: Okay, yes. I got that. Yes. Okay. Understood. And then the pricing, you were looking at last year was 225, this year 255 to 260. That’s for early and mids. If we look at Valencia, is it the same sort of step change into Valencia that additional $0.30, or how do we look at that?
John Kiernan: Very good question, it’s going to be complicated a little bit, because it’s all going to be post-freeze, no Valencia are being sold right now. So, it’s tough to say what the market will be, but Rich unless you feel. Otherwise, I think it’s safe to say that you will – we will see an incremental step-up year-over-year in Valencia pricing.
Gerry Sweeney: And part of it is pounds per solid, how the fruit comes out with that, correct?
John Kiernan: Definitely the quality of fruit is going to be determining, a key part of the pricing itself. It doesn’t meet minimum standards is not going to be sold for anything.
Gerry Sweeney: Got it. And then the final question just for my end, just wanted to –was there any damage to the actual trees, or is this just increased fruit drop and maybe quality of fruit? So, short-term hiccup, long-term assets…?
John Kiernan: Absolutely. So, we are reluctant to be very specific because we are literally inspecting every part of every growth right now. And it’s going to take another couple of weeks. But the first indications that we have seen, does not appear that Alico has suffered any significant amount of any significant tree damage from the freeze. It is going to be basically related to seasonal fruit, which unfortunately, is what we are preparing to harvest right now. But long-term, it does not look like this is going to be that substantial. But again, we have two more weeks that we have to do our homework on. As soon as we know all that, we are going to put out another release to inform the shareholders.
Gerry Sweeney: Got it. And then when will Valencia start hitting the market, in terms of pricing, the earliest they start to, so we get a view to that?
John Kiernan: I think the first loads are expected to be sold within the next few days. And you should see some indications of market pricing shortly after that.
Gerry Sweeney: Got it. Okay. Perfect. Alright. That’s it for me. I appreciate it. Thanks.
John Kiernan: Thanks, Gerry. Have a great day.
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.
John Kiernan: Thanks again, Peter. And thank you everyone for joining our call today and for your continued support of Alico. Rich and I both look forward to speaking with you at the second quarter results, which we will hold in May. And again, we intend to have another release that goes out when we have got some updated financial guidance as soon as we are able to do our evaluations and our homework relative to the recent weather event. Thank you very much.
Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for participation and have a great day.
