Alico Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 4 speakers on the call.

Operator

Welcome to Elico's Third 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 3rd Quarter ended June 30, 2023. If you have not had a chance to view the release, it is available on the Investor Relations portion of the company website, at alicohinc.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 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, including risk details 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 to the forward looking statements made on today's call, except as required by law.

Operator

During this call, the company will also discuss non GAAP financial measures, including EBITDA For more details on these measures and for reconciliations of these non GAAP financial measures For the most directly comparable GAAP financial measures, please refer to the company's press release issued earlier today. With that, I'd like to turn the call over to the company's President and CEO, Mr. John Kiernan.

Speaker 1

Thank you, Mark. Thank you everyone for joining us for Aleko's Q3 2023 earnings call this morning. The 2022 2020 Citrus harvest season has been a difficult one for OECO because of the impacts from Hurricane Ian last September, But we are looking forward to the upcoming season with guarded optimism. Historically, it has taken 2 or more seasons for citrus to recover from such a devastating storm, but our consistent growth caretaking practices combined with the new Citrus greening therapy we began to apply this year gives us confidence that OEKO's production will substantially increase for the 20 20 three-twenty twenty four citrus harvest season as compared to the 2022-twenty 23 harvest season. Of the millions of trees we have planted beginning in 2017, many are now mature enough to produce meaningful quantities of fruit this season and help support a level of expectation for a better upcoming harvest for OLEKO.

Speaker 1

We have reported the overall decrease in box production for OLEKO was 51.4% The 2022, 2023 harvest season versus the prior year. Although this is better And a 61.5% decrease in box production for the overall Florida orange crop forecasted by the USDA As compared to the same period in the prior year, this lower level of production was insufficient meet our operating cash flow requirements, but Aweco had the balance sheet strength to weather this temporary impact to our business. Because lost production is always a weather related risk, OECO maintains crop insurance on all of our groves. Through June 30, 2023, we have received approximately $21,400,000 in crop insurance proceeds And another $300,000 of crop insurance proceeds was received in July. We suffered minimum damage, but did receive approximately $800,000 for property and casualty claims we filed after Hurricane Ian.

Speaker 1

Nearly all of our citrus trees appear to have made it through the storm with no permanent damage, but one of our groves near Punta Gorda Sustained a direct hit for hours with 150 mile an hour per winds and a significant number of the trees there were lost. We filed a claim for that damage Under our tree insurance coverage with our insurer, finally, the Federal REIT is still pending. The Consolidated Appropriations Act, which was passed into law in December of 2022, has federal funds earmarked for disaster relief. We hope that these funds eventually follow the funding mechanism previously established for the disbursement of the Hurricane Irma relief funds. We continue to support Florida Citrus Mutual, our Industry Trade Group and government agencies as they work to finalize federal relief programs available under the act.

Speaker 1

However, we cannot determine the amount, if any, A federal relief the company may be eligible for related to the damage Hurricane Ian caused us. One highlight For the overall Florida citrus industry this past year has been the use of oxytetracycline as a government approved citrus greening therapy. We began treating our trees in January 2023 with the new application of an OTC product Via trunk injections as a citrus screening therapy following its approval by the Florida Department of Agriculture and Consumer Services in It is applied once a year and through June 30, 2023, we've treated more than 35% of our trees. We expect this treatment to mitigate some of the impacts of citrus greening, decrease the rate of fruit drop as well as improve fruit quality. The extent of any benefits of the OTC application therapy will not be measurable until the completion of the fiscal year 2024 harvest.

Speaker 1

Everyone in the industry is hopeful that OTC helps improve the 2023, 2024 citrus harvest. Currently, Lueko expects the pricing next season will be in line with the past season. We have the majority of our fruit under contract for the 2023, 2024 harvest season and have extended one of our contracts with Tropicana For the next fiscal year at this time, we are observing lower market prices for some of our required fertilizer and chemicals. Labor and fuel remain critical resources for us. And although we utilize both as efficiently as possible in our daily operations, Inflation over the past few years has increased the base level of those operating expenses.

Speaker 1

Our relationships with our Lenders remain strong and we have $76,800,000 of undrawn capacity on our revolving line of credit, Which matures in November of 2029 and our working capital line of credit, which matures in November of 2025 to provide Ample liquidity as Aweka recovers from Hurricane Ian. Through June 30, 2023, we have sold approximately 1436 acres of ranch land for net proceeds of approximately 7 $600,000 The company is actively engaged with 3rd parties interested in certain parcels of additional ranch land and prices we continue to believe are competitive. Also, in the current fiscal year, We acquired 2 very small citrus grow purchases that are contiguous with 1 of our growths. Our approximately 49,000 500 Citrus Acres are located throughout the state of Florida, and we are continuing to work with land use planning professionals

Speaker 2

To evaluate how to optimize

Speaker 1

the long term potential value for all of our real assets. For the 3 months of approximately $2,700,000 for the same period in the prior year. Q3 2023 results were primarily impacted As a result of receiving approximately $17,500,000 in crop and property insurance proceeds during the 3 months ended June 30, 2023, partially offset by the decrease in gross profits for the Valentia crops when excluding insurance proceeds received as a result of impacts With that, I'll turn the call over to Perry to discuss For more detailed financial results.

Speaker 3

Thank you, John, and good morning, everyone. Due to the seasonal nature of our business, 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 June 30, 2023 was approximately 7 point $3,000,000 compared to approximately $25,900,000 for the quarter ended June 30, 2022. Our citrus revenue was approximately 6 $7,000,000 $25,500,000 for the quarters ended June 30, 2023, 20 The decrease in revenue for the 3 months ended June 30, 2023 compared to the 3 ended June 30, 2022 was primarily due to a decrease in the Valencia fruit harvested and to a lesser extent, a decrease in revenue generated from The decrease in the Valencia fruit harvested was primarily driven by decrease The USDA in its July 12, 2023 citrus crop forecast for the 20 22, 2023 harvest season indicated it affects the overall Florida orange profitable decrease from approximately 41,200,000 boxes for the 2021, 2022 prop year to approximately 15.9 Inboxes for the 2022, 2023 crop year, a decrease of approximately 61.5 With respect to the early and mid season crop, the USDA forecasted a 66.5% Midseason crop for the season was down 55%.

Speaker 3

Regarding the Valencia crop, the USDA is forecasting a decrease 55% and our Valencia box production

Speaker 2

was down 49%. While there was

Speaker 3

an impact to our fiscal year 2023 crop, there does not appear The decrease in pound solids per box was mainly due to the internal to minimize the fruit drop as a result in the impact of Hurricane Ian with the intent to maximize our box production. As a result, we realized a lower pound solids per box. Partially offsetting the decrease in processed box production in pound solids per box was The 4.4% improvement in the price per pound solids for the 3 months ended June 30, 2023 as compared to the same period in the prior year was due to the overall lower production of citrus which has led to reduced inventory levels. Total operating expenses were approximately Negative $8,200,000 for the 3 months ended June 30, 2023, as compared to $24,600,000 in the same period in the prior year. The decrease in operating expenses primarily relates to the insurance proceeds received during the quarter ended June 30, 2023.

Speaker 3

Inventory adjustments recorded in fiscal year 20 22'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 and a reduction in harvest and haul expense As a result of the lower box production, the company experienced significant cost increases in fertilizer, herbicide labor and fuel and maintaining its growth. These cost increases coupled with the timing of the harvest and the lower box production for both this early in the season and Valencia harvest Resulted in a higher cost of sales per box for the 3 months ended June 30, 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 costs per box increased for the 3 months ended June 30, 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 harvesters to fill the boxes as a result of the increased fruit drop caused by Hurricane Ian. During the 3 months ended June 30, 2023, the company received approximately $17,500,000 in hurricane leading crop and property insurance proceeds.

Speaker 3

The company also incurred additional costs related to the cleanup and repairs as a result of Hurricane Ian. Increasing Grove Management Services expense is directly related to the termination of the Grove Management Services by the Grove Owners in June of 2022. As mentioned above, the decision by The Grove owners to exit the citrus business eliminated the need for caretaking management services for The Grove owners. General and administrative expenses for the 3 months ended June 30, 2023 or approximately $2,900,000 compared to approximately $2,600,000 for the 3 months ended June 30, $1,400,000 $4,900,000 respectively. The decrease to other income net is primarily due to the timing of the gains on Sale of Real Estate, Property and Equipment and Assets held for sale.

Speaker 3

During the quarter ended June 30, 2023, the company sold approximately 5 48 acres from the Elijo Ranch recognized a gain of approximately $2,600,000 By comparison For the 3 months ended June 30, 2025, the company recognized gains were approximately $5,800,000 relating to the $4,000,000 for the 3 months ended June 30, 2023, as compared to the same period in the prior year as a result of higher balance on the working capital line 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 June 30, 2023, 2022, we reported net income attributable to ALLETECO common stockholders of $8,000,000 $2,700,000 respectively. Our adjusted EBITDA was approximately a loss of $1,300,000 for the 3rd quarter ended June 30, 2023 as compared to $2,800,000 for the same period in the prior fiscal year. ALLETEQ continues to maintain a strong balance sheet. Our working Capital was approximately $32,300,000 on June 30, 2023, representing a 3.1:one ratio.

Speaker 3

We continue to maintain a solid debt to equity ratio at June 30, 2023, September 30, 2022 and September 30, 20 The ratios were 0.49:one, 0.45:one and 0.5:one respectively. I will now pass the call back to John.

Speaker 1

Thanks, Perry. Aliko, along with the rest of the Florida citrus industry, is focused on our caretaking For our respective groves for the next harvest, we are guardedly optimistic that the consistent grove caretaking practices we perform Every day combined with the anticipated benefits from the new citrus green therapy utilizing OTC trunk injections over 35% of our trees and the millions of new trees we have planted since 2017, some of which are now mature, Support our expectations of a substantial increase in our harvested fruit next season. Progress Sales of parcels of the Uygho Ranch continues and our balance sheet remains strong. We are grateful that our insurance providers paid our crop, property and casualty claims quickly and expect that our limited tree damage claims To be paid soon. We are patiently awaiting decisions from Congress regarding the funding mechanism for Hurricane Ian relief funds.

Speaker 1

Our work with land use planning professionals to optimize the long term potential value for our real assets As expected to conclude later this calendar year and as we have reiterated for more than a year now, Alika wants To provide 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. Mark?

Operator

Thank And we We have a question on the line from Gerry Sweeney of ROTH Capital. Please go ahead. Your line is open.

Speaker 2

Hey, good morning, John and Perry. Thanks for taking my call.

Speaker 1

Good morning, Jerry. Good morning.

Speaker 2

A couple of questions. I'm going to start with the 'twenty three, 'twenty four harvest. I know it's a little bit early. I think you alluded to it at least in the prepared remarks about How the harvest is taking shape or the quality of the trees. So one, I just wanted to Circle back to that and just see, as of today, what your initial take is on the trees and harvest?

Speaker 2

And 2, when will you get a better view as as to how this is shaping up.

Speaker 1

Sure. It is too early for us to actually make any sort of forecast on 2023, 2024, we really won't start harvesting until late November, early December. But the inspection of the trees right now, there appears not to be any permanent damage from the storm From Hurricane Ian last September. And as you drive around, the trees look good. But again, it is too early for us to make any sort of forecast.

Speaker 1

So we don't have reason for concern, but we can actually quantify for you potentially what next season looks like.

Speaker 2

Got it. Will you be able to have like a forecast sometime in the early fall preharvest or

Speaker 1

Yes. Probably based on recent years, it makes sense to wait later as we get closer to harvest Before we should really try to estimate and quantify.

Speaker 2

How big is the I know it's probably not, but just curious of the size.

Speaker 1

Total acres, I think, is around 1,000.

Speaker 2

Okay. Got it. And then switching gears to OTC, Obviously, this is probably the bigger news out there and I know you've been touching on 35% of your fortune I'm just curious as to any thoughts on, 1, when you will There is any testing that has been done in terms of deals and deals and have better than to again, I know it's probably a little bit early, but some of our checks have indicated that the average cost, I think, per tree is less than $1 Now I'm not sure if that Is it dollar per dose or dollar sort of per treatment per year? So if you could

Speaker 1

Thank you. That's a very, very good question and I'll try to do my best to Sure. It is as transparently as we can make it. OLEKO doesn't have Carry testing data that we can share. We did some trials last year.

Speaker 1

Unfortunately, the damage from the hurricane Prevented us from being able to actually measure kind of the benefits of what we had tried. There is some publicly available information The state of Florida and some of the research facilities, and there are some other statistics in the press. But it is clear from everything that we've seen and some anecdotal evidence from some of our friends and peers and competitors That there are some meaningful and measurable benefits of doing this trunk injection Application of OTC and it basically is once a year and you do it per tree. So you had asked a question of kind of how So it goes, we start about 35% of our trees in all the different groves that we own. So it's spread throughout the state.

Speaker 1

And as far as the cost per tree goes, Originally, I think the estimates were somewhere between $2.50 $3 a tree. I think just from sheer Your economies of scale that has probably gotten below $1 but we don't have any specific Statistics we can give you, but less than $1 per application per tree is Not a bad figure to start with.

Speaker 2

Got it. Final question, again, this was maybe a follow-up It was a contract. You mentioned that one of your Tropicana contracts had been extended the 'twenty four, 'twenty five season. Could you just Walk us through maybe the laddering of the contracts when they expire and roughly the size of them, if you have that

Speaker 3

Thanks, Sherry. As it relates to the contracts, this contract is one of the smaller contracts with Tropicana. And the larger contracts do come up for expirations next year at the end of next year's harvest?

Speaker 2

At the end of Fiscal 'twenty four? Yes. Okay. Got it. And then historically, You have reviewed them, I would say, a good amount of time before the end of the part of this part.

Speaker 2

Is that the way Looking at it.

Speaker 1

Yes. I mean, we typically don't do it within a year of when the expiration comes out. And Right now, we've been doing it among shorter durations. So they're shorter term contracts. And I just think in the middle of next season, we'd We'll be negotiating to renew those contracts that are expiring at the

Speaker 2

end of next

Speaker 1

Jerry, thank you again. I just want to say thank you to everyone for joining our call today and for your support of ALLETEO. We look forward to speaking with you on our Q4 call Okay, Mark. I just want to say thank you to everyone for joining our call today and for your support of Allego. We look forward to speaking with you about our 4th quarter and full year results in December.

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Earnings Conference Call
Alico Q3 2023
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