Item 1. Business
Item 1. Business
Overview
Alico was incorporated under the laws of the State of Florida in 1960. Alico is an agribusiness with a legacy of achievement and innovation in citrus and conservation. We own approximately 72,000 acres of land in eight Florida counties (Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands and Polk), and also mineral rights throughout Florida. We hold these mineral rights on substantially all our owned acres, with additional mineral rights on other leased acres. Our principal lines of business are citrus groves and land management.
We are one of the largest citrus producers in the United States of America.
We operate two divisions: Alico Citrus, a citrus producer on its own land and as a manager of citrus groves for third parties, and Land Management and Other Operations, which includes land conservation, encompassing environmental services, land leasing and related support operations.
We manage our land based upon its primary usage and review its performance based upon two primary classifications - Alico Citrus and Land Management and Other Operations. The Alico Citrus division includes the production, cultivation and sale of citrus on our owned lands and as a manager of citrus groves for third parties. Land Management and Other Operations include leases for grazing rights, hunting leases, a farm lease, a lease to a third party of an aggregate mine, leases of oil extraction rights to third parties, and other miscellaneous operations generating income. We present our financial results and the related discussion based upon our two business segments: (i) Alico Citrus and (ii) Land Management and Other Operations.
Recent Developments
Florida Forever Program Land Sale
On September 18, 2023, we signed an Option Agreement for Sale and Purchase (“Option Agreement”) with the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida for the sale of 17,229 acres of the Alico Ranch. On September 21, 2023, Florida Governor Ron DeSantis and the Florida Cabinet approved the purchase of this land from Alico, under the Florida Forever Program, for approximately $77,600 thousand. The sale is expected to close between December 2023 and February 2024, and we intend to use the proceeds from this sale to repay variable rate debt and for general corporate purposes.
Hurricane Ian
On September 28, 2022, Hurricane Ian made landfall on the southwest coast of Florida and a majority of our groves were adversely impacted by the storm. The impact of Hurricane Ian has affected our year ended September 30, 2023 fruit production as we accelerated the harvest to maximize box production for both our Early and Mid-Season and Valencia harvest, which was completed earlier than the prior year harvest. Approximately 48,900 gross acres of our citrus groves, which are in Charlotte, Collier, DeSoto, Hardee, Hendry, Highlands and Polk Counties, sustained hurricane or tropical storm force winds for varying durations of time. While we lost a small percentage of trees, the force and duration of the storm impacted the majority of the groves. Based upon prior experience with serious storms of this nature, we expect it may take up to two full seasons or more for the groves to recover to pre-hurricane production levels.
We maintain crop insurance and property and casualty insurance and have received, as of September 30, 2023, $27,389 thousand in proceeds for crop claims and $839 thousand relating to property and casualty damage claims. These insurance proceeds are included as a reduction to operating expenses in the Consolidated Statements of Operations.
Federal Relief Program – Hurricane Ian
In December 2022, the Consolidated Appropriations Act was signed into law by the federal government; however, the details of the mechanism and funding of any Hurricane Ian relief still remains unclear and, if available, the extent to which we will be eligible. We intend to take advantage of any such available programs as and when they become available. We are currently working with Florida Citrus Mutual, the industry trade group, and government agencies on the federal relief programs available as part of the Consolidated Appropriations Act.
Citrus Greening Treatment
In 2022, we began testing a new application of the citrus greening therapy Oxytetracycline (“OTC”), which is used in citrus and other crops. Although not a cure for citrus greening, this OTC application is expected to mitigate some of the impacts of citrus greening and is expected to decrease the rate of fruit drop and improve fruit quality. After a review of the new application method by the U.S. Environmental Protection Agency, the Florida Department of Agriculture and Consumer Services (“FDACS”) granted a special local-need registration (24c) on October 28, 2022. We began treating our trees on
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January 16, 2023, as the product and application devices became available, and as of September 30, 2023, had treated over 35% of our trees. The extent of any benefit of the OTC application will not be measurable until the completion of the harvest for the year ended September 30, 2024.
Sales of Land
During the year ended September 30, 2023, we sold approximately 2,255 acres to third parties for approximately $12,000 thousand and recognized a gain of $11,432 thousand.
Federal Relief Program – Hurricane Irma
We were eligible for Hurricane Irma federal relief programs for block grants that were being administered through the State of Florida. We have received a total of $26,963 thousand in Hurricane Irma federal relief through the year ended September 30, 2023. As of September 30, 2023, we have received all funds due under the Florida Citrus Recovery Block Grant (“CRBG”) program. These federal relief proceeds are included as a reduction to operating expenses in the Consolidated Statements of Operations. During the years ended September 30, 2023, 2022 and 2021 we received Hurricane Irma federal relief proceeds of $1,315 thousand, $1,123 thousand and $4,299 thousand, respectively.
The Land We Manage
We regularly review our land-holdings to determine the best use of each parcel based upon our management expertise. Our total return profile is a combination of operating income potential and long-term appreciation. Land holdings not meeting our total return criteria are considered surplus to our operations and efforts are being made to sell such land holdings or to exchange such land holdings for land considered to be more compatible with our business objectives and total return profile, or to lease such land holdings.
Our land holdings and the operating activities in which we engage are categorized in the following table:
Gross Acreage Operating Activities
Alico Citrus
Citrus Groves 48,927 Citrus Cultivation
Citrus Nursery 22 Citrus Tree Development
48,949
Land Management and Other Operations
Ranch 22,328 Leasing and Conservation
Other Land 526 Mining Lease and Office
22,854
Total 71,803
Alico Citrus
We own and manage citrus land in DeSoto, Polk, Collier, Hendry, Charlotte, Highlands, and Hardee Counties in the state of Florida and engage in the cultivation of citrus trees to produce citrus for delivery to the fresh and processed citrus markets. Alico citrus groves total 48,949 gross acres or 68.2% of our land holdings.
Citrus Land Lease
On June 29, 2022, we signed three agreements to lease approximately 2,100 citrus acres from the grove owners and thus had the rights to citrus production on such leased acreage for a one-year term at a cost of $157 thousand. On June 26, 2023, we extended the lease representing approximately 1,115 acres for one-year through June 30, 2024. Additionally, on the same terms and conditions, we have the right to extend this lease representing 1,115 acres for two one-year periods. This lease expands our current citrus production acreage by approximately 3%, over our owned land production, to approximately 36,000 net citrus acres.
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Our citrus acreage is further detailed in the following table:
Net Plantable
Producing Developing Fallow Total Net
Plantable Support
& Other Gross
DeSoto County 17,569 — — 17,569 4,043 21,612
Polk County 4,907 — — 4,907 2,147 7,054
Collier County 3,869 — — 3,869 3,187 7,056
Hendry County 5,758 — 311 6,069 2,831 8,900
Charlotte County 976 — 136 1,112 1,409 2,521
Highlands County 1,049 — — 1,049 175 1,224
Hardee County 410 — — 410 172 582
Total 34,538 — 447 34,985 13,964 48,949
Of the 48,949 gross acres of citrus land we own and manage, 13,964 acres are classified as support and other acreage. Support and other acreage include acres used for roads, barns, water detention, water retention and drainage ditches integral to the cultivation of citrus trees, but which are not capable of directly producing fruit. In addition, we own a small citrus tree nursery consisting of approximately 22 acres and utilize the trees produced in this nursery in our own operations. The 34,985 remaining acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing fruit. These include acres that are currently producing, acres that are developing (i.e., acres that are planted with trees too young to commercially produce fruit) and acres that are fallow.
In an effort to increase the density of our citrus groves, we have planted approximately 2,200,000 new trees since 2017. 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 four to five years after planting and peak around seven to eight years after planting.
Our Alico Citrus business segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales to the processed market were 94.0%, 84.5%, and 82.7% of Alico Citrus revenues for the years ended September 30, 2023, 2022 and 2021, respectively. The overall increase in the sales to the processed markets as a percentage of citrus revenues during the year ended September 30, 2023, as compared to the years ended September 30, 2022 and 2021, is due to the termination of an agreement to provide grove management services to third-party grove owners, discussed further below.
The average pound solids per box was 5.02, 5.28, and 5.66 for the years ended September 30, 2023, 2022 and 2021, respectively.
We generally use multi-year contracts with citrus processors that include pricing structures based on a floor and ceiling price. Therefore, if pricing in the market is favorable, relative to our floor price, we benefit from the incremental difference between the floor and the final market price to the extent it does not exceed the ceiling price.
Our citrus produced for the processed citrus market during the year ended September 30, 2023, under our largest agreement, was subject to floor prices and ceiling prices. Under this agreement, if the market price was below the floor prices or exceeded the ceiling prices, then 50% of the shortfall or excess was deducted from the floor price or added to the ceiling price. Under our next largest agreement, our citrus produced is subject to a minimum floor price and maximum ceiling price and is based on a cost-plus structure.
In May, 2020, we entered into two agreements to supply Tropicana, our largest customer, with citrus fruit. These new agreements were effective October 1, 2020, expire on July 31, 2024, and succeeded our existing largest agreement with this customer which expired at the end of September 2020. On June 26, 2023 we renewed another agreement to supply Tropicana with citrus fruit, which expired after the fiscal year 2023 harvest season. This new agreement was effective August 31, 2023 and expires on August 31, 2025. Our sales to the fresh citrus market constituted 1.5%, 1.4%, and 0.6% of our Alico Citrus revenues for the years ended September 30, 2023, 2022 and 2021, respectively.
In June 2022, a group of third-party grove owners, who are affiliated with each other (collectively, the “Grove Owners”), for which we were managing groves under a Property Management Agreement executed on July 16, 2020 with the Grove Owners, under which we performed grove management services, terminated the management relationship under the Property Management Agreement with us as the Grove Owners decided to exit the citrus business. As a result, all grove management services relating to the Property Management Agreement and the accompanying management fee and reimbursed costs associated with performing grove management services ceased on June 10, 2022. The management fee was paid through June 30, 2022. We continue to provide grove management services to several small third-party grove-
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owners on acres within our groves. Revenues generated from our grove management services were 3.2%, 13.3%, and 16.1% of our total citrus revenues for the years ended September 30, 2023, 2022 and 2021, respectively.
On October 30, 2020, we purchased approximately 3,280 gross acres located in Hendry County for a purchase price of $18,230 thousand. This acquisition allowed us to add additional scale to our then approximately 46,000 gross acres of citrus properties. Strategically, with these acquired groves neighboring existing Alico groves, we believe that this acquisition will help us with our operation designed to be a low-cost, high-producing citrus grower.
Revenues from our Alico Citrus operations were 95.7%, 97.5%, and 97.5% of our total operating revenues for the years ended September 30, 2023, 2022 and 2021, respectively.
Land Management and Other Operations
We own and manage land in Collier, Glades, and Hendry Counties and lease land for recreational and grazing purposes, conservation, and mining activities. Our Land Management and Other Operations land holdings total 22,854 gross acres, or 31.8% of our total acreage.
Our Land Management and Other Operations acreage is detailed in the following table as of September 30, 2023:
Acreage
Hendry County 18,722
Collier County 3,606
Glades County 526
Total 22,854
During the year ended September 30, 2023, we sold approximately 2,255 acres for $12,000 thousand and recognized a gain of $11,432 thousand (including approximately 85 acres for $439 thousand to Mr. John E. Kiernan, our President and CEO).
During the year ended September 30, 2022, we sold approximately 9,414 acres for $41,421 thousand and recognized a gain of $39,124 thousand.
During the year ended September 30, 2021, we sold approximately 17,434 acres for $26,664 thousand and recognized a gain of $25,272 thousand (including approximately 7,372 acres for $20,120 thousand to the State of Florida, under the Florida Forever program, for a gain of $5,570 thousand). See Note 4. Assets Held for Sale to the Consolidated Financial Statements included in this Annual Report for further information on ranch land sales.
Revenues from Land Management and Other Operations were 4.3%, 2.5%, and 2.5% of total operating revenues for the years ended September 30, 2023, 2022 and 2021, respectively.
Our Strategy
Our core business strategy is to maximize stockholder value through continuously improving the return on our invested capital, either by holding and managing our existing land through skilled agricultural production, leasing, or other opportunistic means of monetization, disposing of under productive land or business units and acquiring new land or operations with appreciation potential.
Our objectives are to produce the highest quality agricultural products, create innovative land uses, opportunistically acquire and convert undervalued assets, sell under-productive land and other assets not meeting our total return profile, generate recurring and sustainable profit with the appropriate balance of risk and reward, and exceed the expectations of stockholder, customers, clients and partners.
Our strategy is based on what we believe are best-management practices of our agricultural operations and the environmental and conservation stewardship of our land and natural resources. We try to manage our land in a sustainable manner to maximize value creation and to evaluate the effect of changing land uses while considering new opportunities. We believe that our commitment to environmental stewardship is fundamental to our core beliefs.
Intellectual Property
While we consider our various intellectual property to be valued assets, we do not believe that our competitive position or our operations are dependent upon or would be materially impacted by any single piece of intellectual property or group of related intellectual property registrations or rights.
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Seasonal Nature of Business
As with any agribusiness enterprise, our agribusiness operations and revenues are predominantly seasonal in nature. The following table illustrates the seasonality of our agribusiness revenues:
Year Ended September 30
Q1 Q2 Q3 Q4
Ending 12/31 Ending 3/31 Ending 6/30 Ending 9/30
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept
Harvest Fresh and Early/Mid Varieties of Oranges X X X X
Harvest Valencia Oranges X X X X
Significant Customer
Revenue from Tropicana represented 81.3%, 79.7%, and 77.5% of our consolidated revenue for the years ended September 30, 2023, 2022 and 2021, respectively. Revenue in the years ended September 30, 2023 and 2022, from Tropicana, was generated primarily from two separate contracts. This revenue was generated from the sale of our citrus product in the processed market. No other single customer provided more than 10% of our consolidated revenue in the years ended September 30, 2023, 2022 or 2021.
The slight increase in Tropicana revenue, as a percentage of sales, for the years ended September 30, 2023 and 2022 is primarily due to the Grove Owners terminating the Property Management Agreement in June 2022.
Competition
The orange and specialty citrus markets are intensely competitive, but no single producer has any significant market power over any market segments, as is consistent with the production of most agricultural commodities. Citrus is grown domestically in several states including Florida, California, Arizona, and Texas, as well as foreign countries, most notably Brazil and Mexico. Competition is impacted by several factors including quality, production, demand, brand recognition, market prices, weather, disease, export/import restrictions and foreign currency exchange rates.
Environmental, Social and Governance (“ESG”)
We are an agricultural company which, based upon its rich heritage and traditions, seeks to maximize value for its customers and stockholders in the long term, which we believe includes employing sustainable practices in all aspects of operations including stewardship of both its natural and human resources. We recognize the increased emphasis by stockholders, business partners and other key constituents in recent years on ESG programs that are embedded into day-to-day business policies and practices. We are proud of our focus on the impacts of our business on our communities, the environment, and employees.
Governmental Regulations
Our operations are subject to various federal, state and local laws regulating the discharge of materials into the environment. Management believes we are in material compliance with all such rules including permitting and reporting requirements. Historically, compliance with environmental regulations has not had a material impact on our financial position, results of operations or cash flows.
Management monitors environmental legislation and requirements and makes every reasonable effort to remain in compliance with such regulations. In addition, we require in our leases that lessees of our property comply with environmental regulations as a condition of leasing.
We are subject to other laws of the United States and the rules and regulations of various governing bodies within the United States, which may differ among jurisdictions. Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations and competitive position as compared to prior periods.
Human Capital Management
Purpose and Company Values
Supporting our people is a fundamental value for Alico. We believe our success depends on our ability to attract, develop and retain key personnel. The skills, experience and industry knowledge of our employees and the employees of our
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independent contractors significantly benefit our operations and performance. Our management oversees various employee initiatives and also monitors the effectiveness of the personnel provided by independent contractors with which we contract for certain harvesting and hauling services.
Employees
We believe in a culture of equity, diversity and inclusion. We are also committed to advancing safe and respectful work environments where our employees are invited to bring their talents, backgrounds and expertise to bear on the success of our business and where every person has the opportunity to thrive personally and professionally.
Hiring, Development and Retention
Employee levels are managed to align with the pace of business and consider the services that are provided for us by our independent contractors. We rely on our independent contractors to manage their respective employee levels so that the harvesting and hauling services they are obligated to perform for us are consistent with the contractual obligations of these independent contractors and enable us to satisfy our harvesting and hauling needs. Management believes that through our own employees, coupled with the human capital supplied by our independent contractors, we have sufficient human capital to operate our business successfully. Management believes that our employee relations are favorable, that our relations with our independent contractors is favorable, and that the relations that the independent contractors and we have with the employees of the independent contractors is favorable.
Employee Safety and Well-Being
Protecting the health and safety in the workplace for our employees and personnel provided by independent contractors with which we contract is one of our core values. Hazards in the workplace are actively identified and management tracks incidents so remedial actions can be taken to improve workplace safety. In order to support and enhance health and safety practices, we routinely conduct safety training with employees to emphasize safety when conducting grove caretaking, general employee health, proper equipment operating techniques, office ergonomics and other important safety topics. The COVID-19 pandemic underscored for us the importance of keeping our employees and the personnel provided by independent contractors safe and healthy. In response to the pandemic, we have taken actions aligned with the Centers for Disease Control and Prevention to protect our workforce so that our workforce can more safely and effectively perform their work.
Inclusion and Diversity
People are critical to our efforts to drive growth and deliver value for stockholders. One of the ways we have put people at the center is by continuing to work toward a more inclusive and diverse workplace where each person feels respected, valued and seen and can be the best version of themselves – from women and ethnically diverse employees to veterans, among others. With employees, management and directors from diverse backgrounds, we can access stronger insights into different cultures and backgrounds, which ultimately helps us to better operate the business.
Based on our Inclusion and Diversity strategy, we seek to promote a greater sense of inclusion through a variety of initiatives, which includes a Company-wide women’s group to promote mentoring, career advancement, training, comradery, and empowerment.
Compensation and Benefits
Our compensation and benefits are designed to support the financial, mental, and physical well-being of our employees. We are committed to equal pay for equal work, regardless of gender, race, ethnicity, or other personal characteristics. We believe our base wages and salaries, which we review annually, are fair and competitive with the external labor markets in which our employees work. We also regularly review our compensation practices to promote fair and equitable pay. We also offer competitive benefit programs, in line with local practices and with the flexibility to accommodate the needs of a diverse workforce. The benefit programs include, among others, paid holidays, family leave, disability insurance, life insurance, healthcare, and a 401(k) plan with a company match. As of September 30, 2023, we had 194 full-time employees and no part-time employees. We do not include our independent contractors in our number of employees because they are not employees.
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Our employees work in the following divisions:
Alico Citrus 168
Land Management and Other Operations (1)
0
Corporate, General, Administrative and Other 26
Total employees 194
(1) There is one employee who is included in Corporate, General, Administrative and Other who oversees the Land Management and Other Operations.
None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.
Workforce Housing
We own and maintain 38 residential housing units located in various counties in Florida that we offer to employees. Our residential units provide affordable housing to many of our employees, including our agribusiness employees. Employees live close to their work, which reduces traffic and commuting times. This unique employment benefit helps us maintain a dependable, long-term employee base.
Raw Materials
Raw materials needed to cultivate the various crops grown by us consist primarily of fertilizers, herbicides, insecticides and fuel and are readily available from local suppliers. These raw materials are purchased on an order basis without long-term commitments. Our key suppliers for fertilizer, herbicides and insecticides include Howard Fertilizer, Wedgeworth’s, Nutrien AG Solutions and Helena Agri-Enterprises.
Societal Well-Being
We remain committed to a healthy and equitable society to ensure our collective well-being for future generations. In the past year, we provided cash grants and supporting donations to support our communities and promote health, safety and education.
Available Information
Our reports filed with or furnished to the SEC pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available, free of charge, on our investor relations website at ir.alicoinc.com as soon as reasonably practicable after we electronically file or furnish such information with the Securities and Exchange Commission (the “SEC”). Any information posted on, or that can be accessed through our website, is not incorporated by reference in this Annual Report. The SEC also maintains a website at http://www.sec.gov , which contains annual, quarterly and current reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.