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, including, but not
limited to, changes due in part to the deadly conflict in Ukraine; 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; ability to retain executive officers and to replace departed executive
officers; ability to replace the Company's primary third party grove management
customer and even further expand the third party grove management program;
ability to complete and implement land use planning activities, including adding
to entitlements applicable to owned real estate; 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 land values, agricultural or otherwise; the extent to which
real estate value appreciates; 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
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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.
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 nine months ended June 30, 2022, the Company generated operating
revenues of approximately $25,938,000 and $90,916,000, respectively, loss from
operations of approximately of $(1,246,000) and $(558,000), respectively, and
net income attributable to common stockholders of approximately $2,706,000 and
$33,539,000, respectively. Net cash provided by operating activities was
approximately $10,792,000 for the nine months ended June 30, 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.
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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 imposed varying degrees of
restrictions on social and commercial activity to promote social distancing in
an effort to slow the spread of the illness. These measures had a significant
adverse impact upon many sectors of the economy, including certain agriculture
businesses. While epidemiological conditions in the United States have improved
as of June 30, 2022, and certain restrictions on social and commercial activity
have been relaxed, a resurgence of the virus, such as variant BA.5, could cause
epidemiological and macroeconomic conditions to deteriorate and more severe
restrictions to be put in place. It is not possible for the Company to predict
the duration or magnitude of any adverse effects due to a resurgence at this
time. We will continue to monitor the COVID-19 pandemic and its impacts on our
business, financial condition, and results of operations.
To date, the Company has experienced no material adverse impacts from this
pandemic.
Recent Developments
Departure of Chief Financial Officer
On May 17, 2022, Richard Rallo notified the Company of his decision to resign
from his role as the Company's Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) effective as of May 31, 2022. Mr.
Rallo's decision to resign was for personal reasons to eliminate extensive
travel and/or avoid relocation to Florida and is not related to any disagreement
with the Company or its independent registered public accountants on any matter
relating to the Company's financial or accounting operations, policies, or
practices. Mr. Rallo has agreed to provide consulting services to the Company
through December 31, 2022. The Company is in the process of searching to
identify and recruit a new candidate for the role of Chief Financial Officer.
For further details of this announcement, please see the Form 8-K filed by the
Company on May 23, 2022.
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.
Termination of the Citrus Grove Management Agreement
In June 2022, the Company was notified by a primary third-party grove owner for
which the Company was managing groves that the third-party grove owner was
terminating the management relationship under the Property Management Agreement
with the Company as the third-party grove owner decided to exit the citrus
business As a result, all services relating to this caretaking management
initiative and the accompanying management fee and reimbursed costs associated
with performing caretaking management services began to decrease earlier in the
three months ended June 30, 2022, and have ceased as of June 10, 2022.
Prepayment and Restructure of Fixed-Rate Term Loans
On April 29, 2022, the Company made a prepayment on one of its Met Variable-Rate
Term Loans in an amount of approximately $15,625,000 and the loan, after also
considering a final scheduled principal payment made on May 2, 2022, was fully
satisfied.
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Sale of Land
During the three months ended June 30, 2022, the Company sold approximately
1,187 acres from the Alico Ranch to third parties for approximately $5,997,000
and recognized a gain of approximately $5,616,000. One of these sales
transactions, consisting of approximately 142 acres, was sold to an employee of
the Company for approximately $651,000.
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 after the fiscal year ended September 30, 2021
under the 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 nine months ended June 30, 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 was 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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