Alico, Inc.

Welcome to Alico's third quarter 2023 earnings conference call. At this time, all participants are in 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 third quarter ended June 30th, 2023. If you've not had a chance to view the release, it is available on the investor relations portion of the company website at alicoinc.com. 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 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 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 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 and for reconciliations of these non-GAAP financial measures to 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.

Thank you, Mark. And thank you, everyone, for joining us for Alico's third quarter 2023 earnings call this morning. The 2022-2023 citrus harvest season has been a difficult one for Alico 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 two or more seasons for citrus production 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 Alico's production will substantially increase for the 2023-2024 citrus harvest season as compared to the 2022-2023 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 Alico. We have reported the overall decrease in box production for Aleko was 51.4% for the 2022-2023 harvest season versus the prior year. Although this is better than the 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 to meet our operating cash flow requirements, but ALECO had the balance sheet strength to weather this temporary impact to our business. Because loss production is always a weather-related risk, ALECO maintains crop insurance on all of our groves. Through June 30, 2023, we have received approximately $21.4 million in crop insurance proceeds and another 0.3 million of crop insurance proceeds was received in July. We suffered minimal damage, but did receive approximately $800,000 for property and casualty claims we filed after Hurricane Ian. 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 relief 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. However, we cannot determine the amount, if any, of 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 greening therapy following its approval by the Florida Department of Agriculture and Consumer Services in October of 2022. This application has been utilized in citrus, apple, and other crops. It is applied once a year, and through June 30th, 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. Everyone in the industry is hopeful that OTC helps improve the 2023-2024 citrus harvest. Currently, OECO 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 through the 2024-2025 harvest season with improved pricing. Although Olika is not making any financial productions 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. Our relationships with our lenders remain strong, and we have $76.8 million 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 ALEKA recovers from Hurricane Ian. Through June 30th, 2023, we have sold approximately 1,436 acres of ranch land for net proceeds of approximately $7.6 million. The company is actively engaged with third parties interested in certain parcels of additional ranch land at prices we continue to believe are competitive. Also, in the current fiscal year, we acquired two very small citrus grove purchases that are contiguous with one of our groves. Our approximately 49,500 citrus acres are located throughout the state of Florida, and we are continuing to work with land use planning professionals to evaluate how to optimize the long-term potential value for all of our real assets. For the three months ended June 30th, 2023, the company reported net income attributable to Aleko Commons stockholders of approximately $11.8 million, as compared to net income attributable to Aleko Commons stockholders of approximately $2.7 million for the same period in the prior year. Third quarter 2023 results. were primarily impacted as a result of receiving approximately 17.5 million crop and property insurance proceeds during the three months ended June 30th, 2023, partially offset by the decrease in gross profits for the Valentia crops when excluding insurance proceeds received as a result of impacts of Hurricane Ian causing an increase in fruit drop. With that, I'll turn the call over to Perry. to discuss our more detailed financial results.

Thank you, John, and good morning, everyone. Due to the seasonal nature of our business, the quarterly results for our third quarter are not indicative of our full year results. The majority of our citrus crop is harvested 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 $7.3 million compared to approximately $25.9 million for the quarter ended June 30, 2022. Our citrus revenue was approximately $6.7 million and $25.5 million for the quarters ended June 30, 2023 and 2022, respectively. The decrease in revenue for the three months ended June 30, 2023 compared to the three months 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 Grove Management Services. The decrease in the Valencia fruit harvested was primarily driven by a decrease in process box production and a decrease in pound solids per box as a result of the greater fruit drop from the impacts of Hurricane Ian. The USDA in its July 12, 2023 citrus crop forecast for the 2022-2023 harvest season indicated it expects the overall Florida orange crop will decrease from approximately 41.2 million boxes for the 2021-2022 crop year to approximately 15.9 million boxes 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% decline. Our early and mid-season crop for the season was down 55%. Regarding the Valencia crop, the USDA is forecasting a decrease of 55%, and our Valencia box production was down 49%. While there was an impact to our fiscal year 2023 crop, there does not appear to be long-term measurable damage to our trees. The decrease in pound solids per box was mainly due to the internal quality of our fruit not being as strong as it was in the previous year. In addition, we accelerated the harvesting of both the early and mid-season and valencia crop to minimize the fruit drop as a result of 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 an increase in the price per pound solids. The 4.4% improvement in the price per pound solids for the three-month ended June 30, 2023, as compared to the same period in the prior year, was due to the overall lower production of citrus fruit, which has led to reduced inventory levels. Total operating expenses were approximately $1. negative $8.2 million for the three months ended June 30, 2023, as compared to $24.6 million 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. Inventory adjustments recorded in fiscal year 2022'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 in maintaining its growth. These cost increases, coupled with the timing of the harvest and the lower box production for both its early and mid-season and Valencia harvests, resulted in a higher cost of sales per box, for the three 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 cost per box increased for the three 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 a three-month end of June 30, 2023, the company received approximately $17.5 million in Hurricane Ian crop and property insurance proceeds. The company also incurred additional costs related to the cleanup and repairs as a result of Hurricane Ian. The decrease in 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. As a result, caretaking expenses decreased significantly during the three months ended June 30, 2023, when compared to the same period in the prior year. General and administrative expenses for the three months ended June 30, 2023 were approximately $2.9 million, compared to approximately $2.6 million for the three months ended June 30, 2022. The increase was primarily due to an increase in salaries and wages and increased legal and professional fees as compared to the same period in the prior year. Other income net for the three months ended June 30, 2023 and 2022 was approximately $1.4 million and $4.9 million 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. During the quarter ended June 30, 2023, the company sold approximately 548 acres from the illegal ranch and recognized a gain of approximately $2.6 million. By comparison, for the three months ended June 30, 2022, the company recognized gains of approximately $5.8 million relating to the sale of real estate, property, and equipment and assets held for sale. In addition, the company recognized an increase in interest expense of approximately $0.4 million for the three 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 of 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 and 2022, we reported net income attributable to Alico common stockholders of $11.8 million and $2.7 million, respectively. Our adjusted EBITDA was approximately a loss of $1.3 million for the third quarter ended June 30, 2023, as compared to $2.8 million for the same period in the prior fiscal year. Alico continues to maintain a strong balance sheet. Our working capital is approximately $32.3 million on June 30, 2023, representing a 3.1 to 1 ratio. We continue to maintain a solid debt-to-equity ratio at June 30, 2023, September 30, 2022, and September 30, 2021. The ratios were 0.49 to 1, 0.45 to 1, and 0.5 to 1, respectively. I will now pass the call back to John.