Cadiz Inc. (CDZI) is a California-based water solutions company that has been at the forefront of addressing critical water challenges in the Southwestern United States. With a unique combination of land, water, pipeline, and water filtration technology assets, the company is well-positioned to provide reliable, clean, and affordable water to communities grappling with the effects of climate change and population growth.
The company's history dates back to 1983 when it was founded with the goal of developing sustainable water resources. Over the years, Cadiz has assembled an impressive portfolio of assets, including 45,000 acres of land in California, 2.5 million acre-feet of groundwater rights, 220 miles of existing pipeline infrastructure, and a specialized water filtration technology subsidiary, ATEC Water Systems, LLC. The company's groundwater rights are located in the Cadiz Valley in Eastern California, where Cadiz has completed environmental reviews and obtained necessary permits to manage an aquifer estimated to contain 30-50 million acre-feet of water in storage. The pipeline infrastructure intersects major water storage and conveyance facilities in Southern California, providing important water transportation and distribution capabilities.
Throughout its history, Cadiz has faced numerous challenges in developing its water assets, including complex regulatory and environmental review processes to obtain necessary permits and approvals. The company has relied on a combination of debt and equity financing to fund the development of its projects. In 2021, Cadiz entered into a $50 million senior secured credit agreement, which was used to repay existing debt and fund working capital needs. The following year, in 2022, the company expanded its capabilities in the water treatment space by acquiring the assets of ATEC Water Systems, Inc.
Financials
Cadiz's financial performance has been impacted by the capital-intensive nature of its water infrastructure projects. In the fiscal year 2023, the company reported a net loss of $31.45 million on revenue of $1.99 million, with a negative operating cash flow of $20.92 million and free cash flow of -$26.71 million.
The company's financial situation has shown signs of improvement in recent quarters. In the third quarter of 2024, Cadiz reported revenue of $3.22 million, representing a 775% year-over-year increase. This growth was primarily driven by increased sales from the ATEC water filtration technology business segment. Despite the revenue growth, the company still recorded a net loss of $6.79 million for the quarter, although this was lower than the prior year quarter. The reduced loss was partly offset by higher stock-based compensation costs and increased interest expense related to the company's Third Amended Credit Agreement.
For the first nine months of 2024, Cadiz reported a net loss of $22.52 million on revenue of $4.86 million, showing a significant improvement compared to the same period in 2023. The company's operating cash flow for Q3 2024 was -$5.39 million, with a free cash flow of -$5.44 million.
Cadiz operates in two main reportable segments: Land and Water Resources, and Water Filtration Technology. The Land and Water Resources segment, which includes the pre-revenue development of the Mojave Groundwater Banking Project and agricultural operations, generated $383,000 in revenues in Q3 2024, with an operating income of $5.29 million. For the first nine months of 2024, this segment reported $1.37 million in revenues but an operating loss of $16.61 million due to continued expenses related to asset development and agricultural operations.
The Water Filtration Technology segment, operated through ATEC Water Systems LLC, showed strong performance in Q3 2024, generating $2.84 million in revenues with an operating income of $519,000. For the first nine months of 2024, this segment reported $3.49 million in revenues and an operating income of $14,000. The improved performance was largely due to a contract to deliver 320 water filtration units for the Central Utah Water Conservancy District's Vineyard Wellfield Groundwater Polishing Project.
Liquidity
The company's liquidity position remains a concern, with a current ratio of 1.36 and a quick ratio of 0.87 as of September 30, 2024. The cash ratio stood at 0.37 at the end of 2023. As of September 30, 2024, Cadiz had $3.33 million in cash and cash equivalents, along with a $134 million long-term restricted cash balance.
In March 2024, the company entered into a Third Amended Credit Agreement, which provides for a new $20 million tranche of senior secured convertible loans and extends the maturity date of the existing loans to June 2027. The debt-to-equity ratio stands at 2.71, indicating a significant reliance on debt financing.
Growth Prospects and Strategic Initiatives
Despite the financial challenges, Cadiz's long-term growth prospects appear promising. The company has made significant progress in securing water supply agreements for its Mojave Groundwater Banking Project. As of August 2024, Cadiz had secured agreements for 85% of the capacity of its Northern Pipeline, which is expected to deliver an annual supply of water under "take-or-pay" contracts over 40 – 50 years. This milestone represents a critical step in the commercialization of Cadiz's water infrastructure assets.
To fully operationalize its Mojave Groundwater Banking Project, Cadiz is in the process of establishing a new entity, Newco, to help finance the approximately $800 million in required capital expenditures. This strategic move is aimed at accelerating the development of the company's core water supply, storage, and conveyance assets.
In addition to its water supply and conveyance initiatives, Cadiz has also taken steps to diversify its business. In October 2024, the company announced a partnership with RIC Energy to build a large-scale hydrogen production facility at the Cadiz Ranch, which will utilize the company's land and water resources to produce green hydrogen for the transportation and electricity sectors.
The company's growth strategy is further bolstered by its recent organizational changes. In 2024, Cadiz appointed Susan Kennedy as its new Chief Executive Officer, bringing extensive experience in the water and infrastructure sectors. The company also expanded its executive team with the appointment of Cathryn Rivera as Chief Operating Officer, with the goal of scaling its operations to meet the growing demand for its water solutions.
Cadiz's unique portfolio of assets includes permits to withdraw 2.5 million acre-feet of groundwater and 1 million acre-feet of groundwater storage capacity, as well as 220 miles of existing pipeline infrastructure and rights-of-way for an additional 43-mile pipeline. The acquisition of ATEC Water Systems in 2022 has provided the company with innovative water filtration technology, further enhancing its capabilities in addressing water scarcity and quality issues in the Southwestern United States.
While Cadiz faces several challenges, including the need for additional capital to fund its water infrastructure projects and the regulatory complexities involved in developing water resources, the company's unique asset portfolio, strategic partnerships, and experienced leadership team position it well to capitalize on the growing demand for sustainable water solutions in the Southwestern U.S. The company's focus on developing its integrated water solutions, combined with its improving financial performance in the Water Filtration Technology segment, provides a foundation for potential future growth and profitability.