Alico, Inc.

Greetings and welcome to ALECO's First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, today's conference is being recorded. On the call today are John Kiernan, President and Chief Executive Officer, and Rich Rallo, Chief Financial Officer. Earlier today, the company issued a press release announcing its results for the first quarter ended December 31, 2020. If you have not had a chance to review the the release, it is available on investor relations portion of the company's website at alicoincorporated.com. This call is being webcast and a replay will be available on Alico's website as well. Before we begin, the company 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 thereto filed with the SEC and those mentioned in earnings release. The company undertakes no obligations 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 and including EBITDA and adjusted EBITDA. For more details on these 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 proceed, sir.

Thank you, LaTanya. And thank you, everyone, for joining us for Alico's first quarter 2021 earnings call this morning. As we begin our fiscal year 2021, we are encouraged by higher citrus fruit market prices per pound solid and that the downward pressure on citrus pricing experienced by the industry last year has subsided. Pricing for the early and mid-season fruit is above two dollars per pound solid compared to a year ago when market pricing was in the low one dollar range. The increase in price is being driven by both an increase in consumption for of not-from-concentrate orange juice by retail consumers, as well as tighter supplies of citrus fruit from Florida, Brazil, and Mexico. These factors have led to decreased inventory supply levels at the citrus juice processors. Robust consumption of not-from-concentrate orange juice by retail consumers continues to remain strong. Since March 2020, there has been double-digit growth in consumption demand and the latest published Nielsen data shows the double-digit year-over-year increase in not-for-concentrate orange juice consumption is continuing to hold steady. We are confident that all these factors will support higher Valencia market pricing for this season, which will begin to be harvested in the next couple of weeks. With respect to the 2021 harvest, which commenced in December of 2020, we have seen, along with the entire Florida citrus industry, a decrease in processed box production of the early and mid-season crop as compared to the same period last year. At the beginning of January, the USDA released its citrus crop forecast for the 2020-21 harvest season and indicated its expectation that the Florida orange crop will decrease by approximately 19.8% this year as compared to the prior year. with much of this decrease relating to the early and mid-season crop, which is estimated to decline by approximately 32.6%. We run a comprehensive growth management program backed by decades of operational knowledge and rigorous efficiencies, which we believe will allow our percentage decline in the early and mid-season crop to be substantially lower than the USDA's forecast. Moving on to our business highlights in the quarter. Our 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, is going well. We entered into the agreement because we believe our operational philosophy for Citrus Grove Management Services aligns with that of the Barron Collier companies. We've integrated our growth management programs and are realizing some operating economies of scale. This line of business is a natural extension for us that allows us to monetize our operational knowledge and is an opportunity we seek to expand over the next fiscal year by focusing on targeted growth operators that meet our criteria and where we feel we can add economic value. We continue to pursue strategic land sale opportunities for our ranch and announced in the quarter, the state of Florida entered into an option agreement to purchase approximately 5,804 acres of Weco Ranch for approximately $14.6 million. If the state elects to exercise this option, we would expect to close in the beginning of the third quarter of fiscal year 2021. In addition, We have sold off certain smaller ranch parcels at premium prices in the first quarter ended December 31, 2020. We will continue to evaluate real estate opportunities and anticipate additional sales of the Aleko Ranch in the near future. On October 30, 2020, we purchased a well-maintained citrus grove of 3,280 gross acres located in Hendry County, which included substantial new plantings, which were completed in recent years. While the grove has only been under our care for a short period of time, we've already begun additional plantings to increase the density of the citrus grove, which will result in improved production per acre. This, as part of our continued investment in our organic growth strategy, is in addition to the more than 1.3 million new trees we have planted over the past four years, which are expected to begin positively impacting our production results in the next couple of years. We're encouraged to see Citrus pricing on the rebound after a difficult year and believe we are in the best position in the industry to capitalize on this improvement of pricing and will continue to unlock long-term value for our shareholders. With that, I will turn the call over to Rich to discuss our more detailed financial results.

Thank you, John, and good morning, everyone. As this is our second earnings call, I would again like to remind everyone of the seasonality of our business. The majority of our citrus crop is harvested in the second and third quarters of the fiscal year, and the majority of our profit and cash flows are typically recognized in the second and third quarters as well. As such, the quarterly results for the first quarter are not indicative of our full year results. For the quarter ended December 31, 2020, total operating revenue was $13.7 million compared to $11 million in the same period of the previous fiscal year. Citrus revenue was $12.9 million and $10.2 million, respectively, for the quarters ended December 31, 2020 and 2019. The increase in revenue for the quarter ended December 31, 2020, compared to the same period in the prior year, was primarily due to us generating greater revenue from our third-party grove management services. As John discussed earlier in the call, we entered into an agreement last year with an affiliated group of third parties to provide Citrus Grove caretaking and harvest and haul management services for approximately 7,000 acres owned by these third parties. Under the terms of this agreement, We are reimbursed by third parties for our cost incurred related to providing these services, and we also receive a management fee based on acres covered under this agreement. We record both revenues and expenses when we provide these growth caretaking management services. While the first quarter ended December 31, 2020, we recorded approximately $2.9 million of operating revenue, including the management fee. During the quarter ended December 31st, 2020, we saw a significant increase in the market price per pound solids for our early and mid-season fruit. The increase in the price per pound solids is due to increased consumption of not some concentrate orange juice along with tighter supplies, which has in turn led to reduced inventory levels and increased prices. As reported by the latest Nielsen data, NAPIM concentrate orange juice consumption increased 14% for the 12-week period ended December 26, 2020, as compared to the similar 12-week period in the prior year. We expect, based on this consumption trend, that the market pricing for the upcoming harvest season of the Valencia fruit will also increase significantly over the prior year. For the quarter ended December 31, 2020, fewer boxes were harvested and pound solids per box were lower compared to the same period in the prior year. While we harvested a greater percentage of our early and mid-season crop through December 31, 2020, measured as a percentage of our estimated full-year early and mid-season crop as compared to the same period in the prior year, we, along with the Florida industry in general, are recording a smaller number of boxes harvested due to a greater rate of fruit drop occurring during the current harvest season as compared to the previous year. In addition, the internal quality of the fruit was not as strong as in the previous year, resulting in lower pound solids per box. The USDA citrus crop forecast for the 2020-21 harvest season indicates that the Florida orange crop will decrease to 54 million boxes down from approximately 67.3 million boxes in the prior year. The USDA anticipates the majority of this decrease will relate to the early and mid-season boxes as their forecast is a decrease of 9.7 million boxes or a 32.6% decline. We, through our comprehensive growth management program mentioned by John earlier, anticipate our decline in the early and mid-season crop will be in the 20 to 25% range. The increase in operating expenses for the quarter ended December 31st, 2020, as compared to the same period in the prior year, primarily relates to the third party grove management services. As previously stated, we have an agreement to provide these services to an affiliated group of third parties and recorded approximately $2.6 million of operating expenses in the quarter ended December 31st, 2020. Additionally, the increase in operating expenses is attributable to the company harvesting a greater percentage of boxes in relation to the estimated total boxes to be harvested for the full season in the quarter ended December 31, 2020, 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 period. We also received less proceeds under the Florida Citrus Recovery Block Grant Program, which are recorded as a reduction of operating expenses during the quarter ended December 31, 2020, when compared to the quarter ended December 31, 2019. Partially offsetting this increase was a decrease in harvest and haul expenses resulting from a decrease in the early and mid-season boxes harvested. Income from operations for the land management and other operations segment for the quarter ended December 31, 2020 improved by approximately $300,000 compared to the quarter ended December 31, 2019. This improvement was primarily due to our decision to no longer pursue our dispersed water storage project, and as such, no water conservation expenses were incurred in the current quarter and we do not anticipate any future expenses to be incurred relating to this project. General and administrative expenses for the quarter ended December 31st, 2020 totaled approximately $2.5 million compared to approximately $2.8 million for the quarter ended December 31st, 2019. The decrease is in large part due to a reduction in payroll expenses of approximately $200,000 relating to one of the senior managers leaving the company in December 2019, and a reduction in pension expense related to our deferred retirement benefit plan of approximately $100,000 as a result of the company terminating this plan and paying out each of the plan participants in August 2020. Other income, net of other expenses for the quarter ended December 31, 2020, was approximately $2.2 million. compared to other expense net of other income of approximately $1.6 million until the quarter ended December 31, 2019. The shift to other income net from other expense net is primarily due to us recording gains on the sale of real estate, property and equipment, and assets held for sale of approximately $3.4 million relating to the sale of approximately 700 acres from the Alico Ranch to several third parties in the quarter ended December 31, 2020. With the quarter ended December 31, 2019, we only recorded a nominal gain on the sale of real estate, property and equipment, and assets held for sale. Additionally, a reduction of approximately $400,000 in interest expense was realized primarily because of the reduction of our long-term debt resulting from mandatory principal payments. During the quarter ended December 31st, 2020, we received approximately $4.1 million of additional proceeds under the Florida Citrus Recovery Block Grant Program relating to Hurricane Irma. To date, we have received approximately $24.2 million under this program. For the fiscal quarter ended December 31st, 2020, we reported net income attributable to Alico common shareholders of approximately $3.8 million compared to net income attributable to illegal common stockholders of approximately $800,000 for the fiscal quarter ended December 31, 2019. The company is affirming its fiscal year 2021 guidance. Our balance sheet remains strong, and we expect as we move forward into the peak of our season, we will provide stronger cash flow in fiscal 2021. Our working capital at September 30, 2020, was $39.8 million, representing a 3.21 to 1 ratio. In addition, we have experienced a steady improvement in our debt-to-equity ratio. Our debt-to-equity ratio at December 31, 2020, 2019, and 2018 were 0.7 to 1, 0.78 to 1, and 0.82 to 1, respectively. I would like to now pass you back to John to discuss our fiscal year 2021 album.

Thanks, Rich. Alico is the leading high-quality, low-cost producer of citrus in Florida and one of the largest citrus growers in the United States. We will continue to focus on controlling and managing costs and unlocking additional value for our shareholders to ensure that the legacy of Alico thrives for decades to come. After carefully considering the impact of lower production but higher prices this season, we are affirming our previously announced guidance for the fiscal year 2021. Our confidence is the result of a combination of our insight into the factors supporting increased market prices, as well as our track record for continued stringent management of our operating and general and administrative expenses. continue to project net income of $7.5 million to $10 million, adjusted net income of $4.5 million to $6.9 million, EBITDA between $29 million and $33 million, and adjusted EBITDA between $25 million and $28.8 million. And with that, we will now open the line up to questions from industry analysts. Latonya?

Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from Jerry Schweeney with Roth Capital. Please receive your question.

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

Morning, Jerry.

I want to start out with just the harvest. Obviously, you talked a little bit about the early and mid and the size of the harvest. If we and some of the harvest in this first quarter was large, I think you harvested more acres in this quarter versus last quarter or last year in the first quarter. If we just combined the early and mid production from last year and sort of reduced that by the range that you provided, would that be sort of a good guidepost to potential production in the early and mid this year?

Rich?

Yeah. So, Jerry, I would say that would be the early and mid would be a fair assessment.

Got it. And then pricing, obviously pricing looks very good. And as we move forward into the Valencias, which I think we start to see some in the QQ and then obviously in the third quarter, the early and mid had a substantial step up in pricing. How do we look at pricing for Valencia, and how does that compare to early and mid? I'm sure there's some nuances there, so I was just curious to hear. I don't know how that potentially may play out or some things we can keep an eye out for.

Yeah. So, Jerry, as we've seen and mentioned, the consumption of naphthalene-concentrated orange juice continues to be strong. So while we don't have specifics, we anticipate that this trend for the Valencia with respect to market pricing will be similar, if not a little bit stronger, than what we've seen on the early midsize. So I think, as we look forward, there's nothing here that says that trend would be anything different.

Got it.

Again, the harvest season hasn't started yet, but every indication is that the Valencia prices will be higher than what the market prices for early and mids were this season, which would be a substantial increase over last year.

Yeah. And then... What gives you confidence that, obviously, the early and mids were lower, you know, more fruit drop, et cetera? When you look at your acreage, it sounds like you have some confidence that, as well as, you know, the Florida state, the Valencia should be less impacted or not have nearly as much decline in the harvest. Can you go through what? provide that confidence or the difference why early mid fall more decline versus potentially on the Valencia side?

I'll take that Rich. I guess the effects to support that claim is really we're monitoring and working all of our groves every day. So it's under constant inspection. We saw the drop actually taper off in our early mids, and we believe that that trend hopefully will continue as we go into the Valencia season. So at these lower drop levels, next drop waiting out, that gives us great confidence as we forecasted our financial results for this current season.

Got it. And then one more from me, and I'll jump back in line. Sure. Grove Management. How is that moving in potential new customers? How is that moving along? Are you in discussions with other groves? Any sort of qualitative, quantitative view you can provide on that?

Sure. It's all going to be qualitative. We don't have any quantitative we can at this point. You know, we've discussed previously that, you know, We're very selective on the growth management services we would provide to potential customers. They have to meet a pretty stringent set of criteria. So it's less than a dozen potential targets, and we've been in discussions with several of them. I don't have anything to report at this time on either the likelihood that we'll close in this current fiscal year, but when we do, it'll be at profitable levels. but there are active discussions that we are having.

Okay, perfect. I'll jump back in line. Thank you.

Thanks, Jerry.

At this time, there are no more questions in the queue. I would like to turn the call back over to Mr. John Kiernan for closing comments.

I just want to thank everyone for joining our call today and for your support of OLECO. In addition, I want to send a special thank you to our dedicated employees and the rest of our management team for their continued efforts to make ALEKA the best it can be. Our annual meeting will be held on Thursday, February 25th in Tampa, and we're strongly encouraging shareholders this year to mail in their proxy vote. We look forward to hosting another earnings call for our second quarter results in May. We hope everybody stays safe. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.