Alico [ALCO] Conference call transcript for 2022 q1
2022-05-09 21:23:10
Fiscal: 2022 q2
Operator: Welcome to Alico's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. Earlier today, the Company issued a press release, announced its results for the second quarter ended March 31, 2022. 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 those statements. Important factors that could cause or contribute to such differences include risks and details in the Company's quarterly report 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 those 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. Please go ahead.
John Kiernan: Thank you, operator, and thank you, everyone, for joining us for Alico's second quarter 2022 earnings call this afternoon. The current citrus harvest season has been a disappointing one for Alico as well as the entire industry in Florida. In late January 2022, a freeze event negatively impacted the current year of Valencia harvest. This is in addition to a harvest season that was already anticipated to produce less fruit than in the prior year, with fewer pieces of fruit available on the citrus trees as well as greater fruit drop, which is believed to be caused by disease and weather. USDA is forecasting a 33.9% decline in the current year of Valencia crop as compared to the same period in the prior year, with a significant portion attributed to the freeze event. We are anticipating our decline to be approximately 12% to 15% year-over-year. We believe the substantially lower rate of decline as compared to the USDA forecast is because of our efficient grove management program as well as certain aggressive and sustained precautionary measures we took during and after the freeze event. We are also encouraged that there does not appear to be long-term measurable damage to our trees. Our production could see a recovery next season, but we will need to continue to evaluate tree health through the summer. We remain pleased that consumption from not-from-concentrate orange juice by retail consumers has remained strong. And this, combined with lower fruit production -- lower production of citrus fruit, had inventory supply at lower-than-normal levels at Florida citrus juice processors. This trend has led to further improved market pricing for both the Early and Mid-Season and Valencia fruit in the current harvest season as compared to the prior year. Our pricing per pound solids for the Early and Mid-Season fruit improved to $2.56 for the current harvest season, which was $0.28 better than a year ago. Based on the initial market pricing released for the Valencia fruit, we anticipate that our pricing per pound solids will also be higher by approximately $0.24 to $0.28 this season. We have increased our growth density with our existing acreage and have now planted approximately 1.7 million trees in these acres since 2018. While we cannot precisely predict what the future production levels will be, we remain confident in our strategy of increasing density and believe that the first trees planted in 2018 should start to produce meaningful fruit in fiscal 2023 and to higher levels of production for their useful lives. We are continuing to pursue opportunistic real estate transactions, including selling portions of our noncore ranch land at attractive prices. In our latest ranch land sales transaction, which occurred in April 2022, we received $5,400 per acre, which we believe is the highest price per acre the Company has ever realized for our ranch land. We continue to garner strong interest for our remaining approximate 25,000 acres of ranch land and believe activity that these remaining acres can realize prices per acre in line with our most recent sales. As previously communicated, we entered into a purchase option agreement with a third party, E.R. Jahna Industries, Inc., for the sale of approximately 899 citrus acres for approximately $11,500 per acre. The acre is subject to this Purchase Option Agreement, which are currently part of the Company's Polk County citrus groves, consists of 340 net citrus acres, 130 acres of cane, 209 acres of pasture land and 220 support acres. If this option is exercised at closing, Alico will lease back most of these acres, including the 340 net citrus acres, for de minimis lease payments to continue our citrus operations there until it is no longer commercially practical. Alico also exercised the right of first refusal to purchase 85 undeveloped acres near the previously owned Alico Plant World, which had been sold by Alico in 2017 for approximately $2.4 million. Commercial and residential development in this area has been robust. The Company will use proceeds as part of a Section 1031 exchange to finance this purchase. Our overall growing costs and general and administrative costs continued to remain in line with our expectations. We continue to maintain stringent controls and look for efficiencies that will allow us to continue to see improvements regarding these costs. With that, I will turn the call over to Rich Rallo to discuss our more detailed financial results.
Rich Rallo: Thank you, John, and good afternoon, everyone. Due to the seasonal nature of our business, the quarterly results for the 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, 2022, was $49.6 million compared to $55.9 million for the quarter ended March 31, 2021. Our citrus revenue was $49 million and $55.3 million for the quarters ended March 31, 2022 and 2021, respectively. The decrease in revenue for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was primarily due to a decrease in the Early and Mid-Season and Valencia fruit harvested and, to a lesser extent, a decrease in revenue generated from Grove Management Services. The decrease in early and mid- 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 greater fruit drop believed to be attributed to disease and weather conditions. And in late January 2022, our groves, along with many of the other groves in Florida, were impacted by a freeze event. Specifically, our Valencia box production, which was anticipated to perform better than the Early and Mid-Season box production on a year-over-year comparable basis, as indicated in the USDA 2021-2022 forecast published prior to the freeze event, was negatively impacted by the freeze event. Because our Early and Mid-Season harvest was substantially complete at the time of the freeze, there was no material impact to our Early and Mid-Season box production. As John mentioned previously, while our Valencia crop was adversely impacted by the freeze event, there does not appear to be any 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 the Valencia crop in an effort to help minimize the impact of the freeze event and maximize our box production. And as a result, we did realize lower pound solids per box. Partially offsetting the decrease in processed box production and pound solids per box was an increase in the price per pound solids. The improvement in the price per pound solids was due to continued strong consumption of not-from-concentrate orange juice, along with the overall lower production of citrus fruit, which has led to reduced inventory levels. While consumption has dropped from its highest levels when the COVID-19 pandemic initially started back in March 2020, consumption, as reported by Nielsen data on April 9, 2022, has increased approximately 7.4% for the 24-week period ended March 26, 2022, as compared to the similar 24-week period prior to the COVID-19 pandemic. The USDA, in its April 8, 2022, citrus crop forecast for the 2021-'22 harvest season, indicated it expects the overall Florida orange crop will decrease from approximately 53 million boxes for the 2020-'21 crop year to approximately 38.2 million boxes for the 2021-'22 crop year, a decrease of approximately 27.9%. With respect to the Early and Mid-Season crop, the USDA forecasted a 19.8% decline. Our Early and Mid-Season crop for the season was down 13.7%. Regarding the Valencia crop, as John mentioned, USDA is forecasting a 33.9% decline, with a significant portion of that decline being attributed to the freeze event. We are anticipating a 12% to 15% decrease in our Valencia crop as compared to the same period last year. Total operating expenses were $45.5 million for the three months ended March 31, 2022 and March 31, 2021. We did incur a slight increase in the cost of sales due to us harvesting a greater percentage of boxes in relations to the estimated total boxes to be harvested for the full season during the three months ended March 31, 2022, as compared to the same period in the prior year, leading to a larger percentage of costs being allocated to cost of sales in the current quarter. Offsetting this increase was a reduction in our harvesting and hauling expenses directly related to the decrease in boxes harvested in the three months ended March 31, 2022, as compared to the same period in the prior year. General and administrative expenses for the three months ended March 31, 2022, were approximately $2.5 million compared to approximately $2.7 million for the three months ended March 31, 2021. The decrease was attributable in large part to reduced payroll expenses of approximately $100,000, primarily relating to the reduction in administrative personnel made during the latter half of fiscal year ended September 30, 2021, and during the six months ended March 31, 2022, and a reduction in consulting expense resulting from the Company incurring approximately $200,000 in corporate advisory fees in the three months ended March 31, 2021. Partially offsetting these decreases were increases in professional fees of approximately $100,000, primarily relating to additional costs incurred with regard to real estate activities and human resource matters. Other income, net of other expense for the three months ended March 31, 2022, was approximately $25.7 million as compared to other expense, net of other income of approximately $1.1 million. The shift to other income from other expense is mainly due to gains on the sale of real estate, property and equipment and assets held for sale of approximately $26.6 million, primarily relating to the sale during the quarter of approximately 6,286 acres from the Alico Ranch. By comparison, for the three months ended March 31, 2021, we had minimal activity relating to the sale of real estate, property and equipment and assets held for sale. Additionally, a decrease in interest expense of approximately $200,000 for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was realized primarily because of the reduction of its long-term debt attributable to making its mandatory principal payments and certain prepayments. For the quarter ended March 31, 2022 and March 31, 2021, we reported net income attributable to Alico common stockholders of approximately $20.7 million and approximately $4.9 million, respectively. With respect to our financial guidance, we are reaffirming our previously updated guidance for the fiscal year ended September 30, 2022. This guidance calls for net income to be in the range of $35.6 million to $38.9 million; adjusted net loss, after adjusting out certain of the expected nonrecurring items, to be between $4.1 million and $2.3 million; EBITDA to be in the range of $59 million and $64.2 million; and adjusted EBITDA after, again, adjusting out certain of the expected nonrecurring items, to be between $13 million and $16 million. Alico continues to demonstrate financial strength within its balance sheet. Our working capital was approximately $46.1 million at March 31, 2022, representing a 2.88:1 ratio. We continue to maintain a solid debt-to-equity ratio. At March 31, 2022, September 30, 2021, and September 30, 2020, the ratios were 0.46:1, 0.51:1 and 0.68:1, respectively. Additionally, we made a prepayment of approximately $15.6 million on one of our variable rate term loans in April 2022, which will further improve our overall debt-to-equity ratio. With that, I would like to turn the call back to John.
John Kiernan: Thanks, Rich. Well, this has been a difficult harvest season for us as well as, for most part, our citrus growers. We believe that we have taken the appropriate steps, especially our citrus tree replanting program, to generate greater box production in the years ahead. At the same time, we are pleased to see that we have continued to maintain our momentum of opportunistic ranch land sales, and that the sales per acre have increased to the highest levels since we embarked on divesting our ranch land back in 2018. And with that, we would now open the line up to questions from industry analysts. Operator?
Operator: And our first question comes from Gerry Sweeney, ROTH Capital.
Gerry Sweeney: Just a question, obviously, around the -- I should say, well, the environment for a lot of citrus growers has been very challenging. You guys are obviously holding up relatively well. But just does that environment create any opportunities for either you to acquire some ranch land or to move some of your management services on to other ranches since your performance has been better than, I think, the average that you've highlighted?
John Kiernan: So we believe that we are always more competitive, but you're facing a year where we've seen fertilizer cost to skyrocket. So the economics, overall, as we're seeing from our results, are not astronomically great this particular season, and we think a lot of our smaller competitors are facing tremendous economic pressure this year. But we are always on the lookout to expand our services for that third-party caretaking. We just have not seen a lot of activity of people requesting our services for that. On the other hand, we are curious on how there may be some potential to acquire some citrus groves that are in very good shape from some parties that no longer wish to be in the citrus industry. So we're cautiously optimistic that we may be able to expand. We would do that, obviously, at attractive prices. It would have to be somewhere that we could generate superior returns for our shareholders. But we certainly are ready, willing and able, and we've got the firepower to be able to do that. What we are finding is, as some of our competitors are kind of pulling back a little bit, we are finding that we have access to some of their experienced labor force, some people that have spent their careers in citrus. And if other operations are starting to kind of cut back, we have the ability to kind of step in, and we can get some very good, seasoned hands. Obviously, we have fair wages, and they're paid competitively, along with the rest of our Alico team. But we're getting good access to good, experienced labor that way. So a little bit of a silver lining in that cloud.
Gerry Sweeney: Got it. And then, obviously, real estate prices are up, as highlighted in the commentary. How is activity for potential ranch land sales? Is it remaining as robust as it has been in the past or in the last couple of quarters?
John Kiernan: So we've been pleasantly surprised that it sustained itself. It does not appear to be kind of interest rate sensitive. So these are typically not people borrowing money to acquire these ranch wins. It's been, more often than not, someone taking 1031 money and moving it back into ranch land. And we have a somewhat of a scarce base of acres remaining. But I think it's a little bit to the price increases that we've seen. But our ranch land is still very, very competitive. It's pristine. And we're seeing private buyers now. The state is no longer really pursuing any acres. So these are all private buyers competing for some of the remaining acres that we do have.
Gerry Sweeney: Got it. And then the final question, health of the trees. I believe you're cautiously optimistic about tracking some results, I think, through this summer. Do you think we'll have a -- had visibility on the health of the citrus trees by third quarter results? Or do you think it would be a little bit further out even into the fall of next year or this year?
John Kiernan: I have my fingers -- yes, I have my fingers crossed that by the first week of August when we do our third quarter results. We should have a high confidence level on being able to make a call. Right now, all systems look good. All indications are that the trees do appear to sustain the freeze with no long-term damage. And we're watching that very, very carefully every day. So hopefully, in about three more months, we have a little bit more information, a little bit more data. And fingers crossed, we hopefully will be able to come out and give you some update there.
Operator: Excuse me, 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. Please go ahead.
John Kiernan: Thank you. And thank you, everyone, for joining our call today and for your support of Alico. We look forward to speaking with you about our third quarter results in early August. And again, Rich and I are available for any questions and answers, if you just want to contact us directly some time later on today or tomorrow. Thank you very much.
Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.
