Alico, Inc.

Welcome to ILICO's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, today's conference is being recorded. I would like to now turn the call over to your host, Mr. John Mills with ICR.

Thank you, Darrell. Good morning, and thank you for joining us for Alico's fourth quarter and full year 2020 conference call. On the call today are John Kernan, President and Chief Executive Officer, and Rich Rallo, Chief Financial Officer. Earlier this morning, the company issued a press release announcing its results for the fourth quarter and fiscal year ended September 30, 2020. 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 Alico, Inc. 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 risk, 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 include risk details in the company's quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, and any amendments 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 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 this morning. With that, I'd like to turn the call over to the company's president and CEO, Mr. John Turner.

Thank you, John, and thank you, everyone, for joining us for Alico's inaugural earnings call this morning. Since this is our first earnings call together, I'd like to start with a bit of context. Alico has rebounded well from a tough year. I joined more than five years ago to help transform Alico into a more competitive company. In early 2017, we implemented a comprehensive modernization program called Alico 2.0 to improve our operational efficiencies and optimize our asset returns. This initiative scrutinized every key aspect of our citrus and land operations, including our corporate and operational cost structures, growth costs, purchasing and procurement programs, professional fees, and human resources efficiency. We also identified non-performing and underperforming assets. The result was to combine our three legacy businesses into one efficient enterprise, Alico Citrus. We eliminated certain costs that we believed would not negatively affect our citrus production, divested assets and lines of business that generated low rates of return, and outsource parts of our operation that were not profitable. We decreased operating costs by more than $16 million, which represented a 19% reduction, and two years after executing on this initiative, we continued to maintain these reduced operating cost levels. At the end of 2018, we had substantially completed these changes and began to concentrate our focus on improving our competitive position as a leader in the global citrus industry. Today, as a result of these initiatives, we are the leading high-quality, low-cost producer of citrus in Florida and one of the largest citrus growers in the United States. While we have completed our work under our Alico 2.0 modernization program, we have continued to focus on controlling and managing costs, and unlocking additional value for our shareholders to ensure that the legacy of Oliko thrives for decades to come. Over the course of fiscal year 2020, we did just that. Our board of directors has consistently utilized our cash flow to enhance shareholder value. This strategy has been reinforced by Alico's history of paying quarterly dividends as we have done for the past five decades uninterrupted. Last year, the company increased Alico's dividend by 50% to $0.09 per common share. And today, we announced that the board of directors is raising Alico's dividend by another 100% to $0.18 per common share, effective for the first quarter of fiscal 2021. We believe These successive dividend increases reflect our Board of Directors' continued confidence that the business strategy we have developed will support a higher level of return of capital to our shareholders over the long term. We repaid approximately $4.5 million of debt above and beyond our required mandatory principal payments of $10.7 million to 1 from 0.82 to 1 a year ago. Over the past five years, we have reduced our debt by 28%, making net principal payments of over $57 million. We continue to evaluate our non-citrus assets and opportunistically sold off ranch land at premium prices to generate cash flow, which returns rates of return for our investors. The Alico Ranch is no longer strategic to our business, and over the past fiscal year, we have sold off acres of this pristine land and reinvested in our primary business, as well as returned some proceeds to our shareholders. Most recently, in September, we sold approximately 10,700 acres for $28.5 million to the state of Florida under the Florida Forever Program, marking the second sale we have completed with them under this program. for an aggregate of approximately 16,000 acres. Because those acres sold in September would have been critical for a dispersed water management project, we suspended those permit approval activities and renamed that business unit Land Management and Other Operations. We continue to evaluate real estate opportunities and anticipate additional sales of smaller parcels of the Aleko Ranch in the near future. We continue to assess opportunities to acquire citrus acres at attractive prices and announce two land acquisitions this fiscal year. In May 2020, we purchased 334 gross citrus acres, which are adjacent to one of our own citrus groves. More significantly, in October 2020, we acquired approximately 3,280 gross citrus acres for a purchase price of $16.45 million. And by using proceeds from the sale of ranch land to the state, we're able to defer almost $4 million of gain from that sale. These acquired citrus acres were well maintained and are close to other existing Alico groves. And we believe that this new investment will allow us to further leverage the economies of scale for our grove operations back office. Additional acquisitions remain an option within our excess cash deployment strategy. However, we will continue to be highly selective and disciplined, and we'll seek to only act on well-sized, well-maintained, and strategically located properties so that we can operate as a low-cost, high-producing citrus leader and deliver competitive returns for shareholders. In May 2020, we announced two new four-year citrus fruit supply agreements with our largest customer, Tropicana. As a result of our leadership position within the Florida citrus industry and the respectful professional relationship developed with Tropicana in recent years, we struck an arrangement which has mutually beneficial terms for both parties. These contracts, which replaced Alico's citrus supply agreement that expired in September of this year, provides certain protections against significant market price dips, such as the one the citrus industry experienced in this last fiscal year. And there are also certain provisions which protect Tropicana should market pricing increase substantially, which was last seen after Hurricane Irma in 2017. These long-term contracts, which when combined with our existing continuing agreements, commits substantially all of Oliko's fruit to Tropicana for the next several years and will enable the company to realize competitive margins for at least the next four years. In August 2020, we announced a new long-term agreement to provide Citrus Grove Management Services, including harvest and haul responsibilities for approximately 7,000 acres owned by Barron Collier Companies. another top 10 Florida citrus grower. This business was a natural extension for us because we have been conducting third-party caretaking services for many years, albeit on a smaller scale, with our largest growth for many smaller customers. This is a business that allows us to monetize decades of operational knowledge, especially the efficiencies we have refined through our WECO 2.0 modernization program. We will manage these 7,000 acres just as we manage our own 35,000 net citrus acres, including fruit sales, and are paid a management fee on top of all out-of-pocket costs and expenses. We look to expand this new business segment over the next fiscal year by focusing on companies with significant-sized groves near our existing groves who have good operations but where we can add economic value. In addition to those inorganic growth initiatives executed this year, we have also continued to invest heavily in our business for organic growth. Because of our strategic decision to replace trees lost in Hurricane Irma and increase the density of our citrus groves, Alico has planted more than 1.3 million new trees over the past four years. This level of planting has been substantially higher than the normal level of tree attrition. we will continue to evaluate the density throughout our groves and determine the appropriate tree plantings moving forward. Typically, citrus trees become fruit bearing approximately four years after planting and begin to peak around seven to eight years after planting. We anticipate seeing the positive impact of those recent tree plantings in the next couple of years. Now briefly to discuss our fiscal year results. As expected and previously announced, our fiscal year results were negatively impacted by citrus pricing pressure with market prices at their lowest level in the past 10 years. We saw our average blended price per pound solid fall by 23% from $2.42 last fiscal year to $1.86 this fiscal year. We, along with the rest of the Florida citrus industry, also experienced a decrease in production. However, due to our rigorous cross controls and the pricing protections provided by our long-term supply contracts, we were more fortunate than many of our competitors. The downward pressure on citrus pricing is not expected to persist in the next fiscal year. Consumption for NFC, not for concentrate, orange juice, has remained strong in 2020. We suspect that the reasons for that are because consumers have increased their focus on health and wellness, as well as spending more time at home enjoying breakfast. This surge in demand for NFC orange juice since March 2020 has not abated. We do not believe that this has been a case of panic buying, but rather a sustained level of increased consumption. Nielsen data reports reflect NFC orange juice consumption increasing 14% for the 52-week period ended September 26th compared with the prior year, and an increase of approximately 19% in the latest four-week period ended October 31st, 2020. How does this impact the WECO? Well, indirectly. The increase in demand has driven down inventory levels at Florida Citrus processors, which we suspect it bode well for market pricing the next year. Additionally, The harvest season for both Brazil and Mexico, the top exporters of citrus fruit into Florida, are forecasted to be substantially down from the previous year. Brazil's fruit crop, which is currently being harvested, is forecasted to be down anywhere from 25% to 30% from the prior year, and Mexico's crop, which is just beginning to be harvested, is expected to be down in the 50% range from the prior year. from these shifting dynamics as prices rise because we have one of the lowest cost structures in the citrus industry and very strong long-term supply contracts in place. With higher marketing pricing for citrus, we anticipate that Aweco will realize improved margins for our company during this fiscal year and be positioned to utilize our strong cash flow to increase the long-term value of our company. With that, I'll turn the call over to Rich to discuss our more detailed financial results.