The following discussion and analysis should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and related Notes
thereto.
Cautionary Statement Regarding Forward-Looking Information
We provide forward-looking information in this Quarterly Report on Form 10-Q,
particularly in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Any statements in this Quarterly Report on Form 10-Q that are
not historical facts are forward-looking statements. Forward-looking statements
include, but are not limited to, statements that express our intentions,
beliefs, expectations, strategies, predictions or any other statements relating
to our future activities or other future events or conditions. These statements
are based on our current expectations, estimates and projections about our
business based, in part, on assumptions made by our management and can be
identified by terms such as "plans," "expect," "may," "anticipate," "intend,"
"should be," "will be" "is likely to," "believes," and similar expressions
referring to future periods. Alico believes the expectations reflected in the
forward-looking statements are reasonable but cannot guarantee future results,
level of activity, performance or achievements. Actual results may differ
materially from those expressed or implied in the forward-looking statements.
Therefore, Alico cautions you against relying on any of these forward-looking
statements. Factors which may cause future outcomes to differ materially from
those foreseen in forward-looking statements include, but are not limited to:
changes in laws, regulation and rules, including tax laws and tax rates; climate
change; weather conditions that affect production, transportation, storage,
demand, import and export of fresh product and their by-products, such as the
freeze in the last week of January 2022; increased pressure from diseases
including citrus greening and citrus canker, as well as insects and other pests;
disruption of water supplies or changes in water allocations; market pricing of
citrus; pricing and supply of raw materials and products; market responses to
industry volume pressures; pricing and supply of energy; changes in interest
rates; availability of refinancing; availability of financing for land
development activities and other growth and corporate opportunities; onetime
events; acquisitions and divestitures; ability to make strategic acquisitions or
divestitures; ability to redeploy proceeds from divestitures; ability to
consummate selected land acquisitions; ability to take advantage of tax deferral
options; seasonality; labor disruptions; inability to pay debt obligations;
inability to engage in certain transactions due to restrictive covenants in debt
instruments; government restrictions on land use; changes in agricultural land
values; impact of the COVID-19 outbreak and coronavirus pandemic on our
agriculture operations, including without limitation demand for product, supply
chain, health and availability of our labor force, the labor force of
contractors we engage, and the labor force of our competitors; other risks
related to the duration and severity of the COVID-19 outbreak and coronavirus
pandemic and its impact on Alico's business; the impact of the COVID-19 outbreak
and coronavirus pandemic on the U.S. and global economies and financial markets,
including without limitation related legislative and regulatory initiatives;
access to governmental loans and incentives; any reduction in the public float
resulting from repurchases of common stock by Alico; changes in equity awards to
employees; whether the Company's dividend policy, including its recent increased
dividend amounts, is continued; expressed desire of certain of our stockholders
to liquidate their shareholdings by virtue of past market sales of common stock,
by sales of common stock or by way of future transactions designed to consummate
such expressed desire; political changes and economic crises; ability to
implement ESG initiatives; competitive actions by other companies; increased
competition from international companies; changes in environmental regulations
and their impact on farming practices; the land ownership policies of
governments; changes in government farm programs and policies and international
reaction to such programs; changes in pricing calculations with our customers;
fluctuations in the value of the U.S. dollar, interest rates, inflation and
deflation rates; length of terms of contracts with customers; impact of
concentration of sales to one customer; and changes in and effects of crop
insurance programs, global trade agreements, trade restrictions and tariffs; and
soil conditions, harvest yields, prices for commodities, and crop production
expenses. These forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in the forward-looking statements due to
numerous factors, including those Risks Factors described in our Annual Report
on Form 10-K for the fiscal year ended September 30, 2021, and our Quarterly
Reports on Form 10-Q.
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Business Overview
Business Description
Alico, Inc., together with its subsidiaries (collectively, "Alico", the
"Company", "we", "us" or "our") generates operating revenues primarily from the
sale of its citrus products, providing services to citrus groves owned by third
parties, and grazing and hunting leasing. The Company operates as two business
segments, and all its operating revenues are generated in the United States. For
the three and six months ended March 31, 2022, the Company generated operating
revenues of approximately $49,641,000 and $64,978,000, respectively, income from
operations of approximately $1,461,000 and $688,000, respectively, and net
income attributable to common stockholders of approximately $20,702,000 and
$30,833,000, respectively. Net cash provided by operating activities was
approximately $8,798,000 for the six months ended March 31, 2022.
Business Segments
Operating segments are defined in the criteria established under the Financial
Accounting Standards Board - Accounting Standards Codification ("FASB ASC")
Topic 280 as components of public entities that engage in business activities
from which they may earn revenues and incur expenses for which separate
financial information is available and which is evaluated regularly by the
Company's chief operating decision maker ("CODM") in deciding how to assess
performance and allocate resources. The Company's CODM assesses performance and
allocates resources based on its operating segments.
The Company has two segments as follows:
• Alico Citrus includes activities related to 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; and
• Land Management and Other Operations includes 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. Also included are
activities related to owning and/or leasing improved farmland. Improved
farmland is acreage that has been converted, or is permitted to be
converted, from native pasture and which may have various improvements
including irrigation, drainage and roads.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company's financial condition and results of
operations is based upon its unaudited condensed consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires it to make certain estimates
and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. Alico bases these estimates on historical experience, available
current market information and on various other assumptions that management
believes are reasonable under the circumstances. Additionally, the Company
evaluates the results of these estimates on an on-going basis. Management's
estimates form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
See Note 1. "Description of Business and Basis of Presentation" to the condensed
consolidated financial statements in Item 1 of Part I of this Form 10-Q for a
detailed description of recent accounting pronouncements. There have been no
material changes to the Company's critical accounting policies and estimates
from those reflected in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2021, as filed with the SEC on December 7, 2021.
The COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the current novel
coronavirus outbreak ("COVID-19") to be a global pandemic. In response to this
declaration and the rapid spread of COVID-19 within the United States, federal,
state and local governments throughout the country have imposed varying degrees
of restrictions on social and commercial activity to
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promote social distancing in an effort to slow the spread of the illness. These
measures have had a significant adverse impact upon many sectors of the economy,
including certain agriculture businesses.
Since the commencement of COVID-19 in March 2020, the Company took steps to
allow and encourage greater social distancing for both our employed and our
contracted field workers and has worked with its harvesters, haulers, and
suppliers to minimize close interactions.
To date, the Company has experienced no material adverse impacts from this
pandemic.
Recent Developments
Employment and Bonus Agreement
On April 1, 2022, the Company entered into an amended and restated employment
agreement with John E. Kiernan (the "Employment Agreement"). At the same time,
the Company and Mr. Kiernan entered into an annual performance and long-term
bonus agreement (the "Bonus Agreement"). Pursuant to the Employment Agreement,
Mr. Kiernan will remain President and Chief Executive Officer of the Company,
for a term commencing on April 1, 2022, and ending on September 30, 2024,
subject to extension and termination pursuant to the provisions of the
Employment Agreement. The Bonus Agreement sets forth the terms under which Mr.
Kiernan would be eligible and entitled to short-term and long-term incentive
cash and equity bonuses. For further details of this Employment and Bonus
Agreement, please see the Form 8-K filed by the Company on April 5, 2022.
Sale and Purchase of Land
On March 15, 2022, the Company sold approximately 6,286 acres of Alico ranch to
third parties at an average sales price of $4,500 per acre, realizing
approximately $28,288,000 of gross proceeds.
On December 3, 2021, the State of Florida purchased, under the Florida Forever
program, approximately 1,638 acres of the Alico ranch for approximately
$5,675,000 pursuant to an option agreement entered into between the State of
Florida and the Company on September 21, 2021. The acres were intentionally sold
at a price below market value, which resulted in a charitable contribution and
related charitable deduction for tax purposes. As a result of this charitable
contribution, the Company generated a tax benefit.
Federal Relief Program
The Company was eligible for Hurricane Irma federal relief programs for block
grants that were being administered through the State of Florida. During the
fiscal years ended September 30, 2021 and 2020, the Company received
approximately $4,299,000 and $4,629,000, respectively, under the Florida Citrus
Recovery Block Grant ("CRBG") program. The remaining portion of the funds that
the Company anticipates receiving under the Florida CRBG program relates to
certain crop insurance expenses incurred by the Company and is estimated to be
approximately $2,250,000 in the aggregate. For the six months ended March 31,
2022, the Company received a portion of this crop insurance expense
reimbursement in an amount equal to approximately $1,123,000 and anticipates
receiving the remaining portion in fiscal year 2023. These federal relief
proceeds are included as a reduction to operating expenses in the Condensed
Consolidated Statements of Operations.
Freeze Event
In the last week of January 2022, certain areas where the Company's citrus trees
are located experienced below freezing conditions that had a material adverse
effect on the yield of this season's Valencia crop. Although the Company's
Valencia harvest will be smaller this season as a result of this freeze event,
the Company believes there should not be long-term measurable damage to its
citrus trees.
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