Cadiz Inc. (NASDAQ:CDZI) is a water solutions provider with a unique combination of land, water, pipeline, and water filtration technology assets located in Southern California. The company's portfolio includes 2.5 million acre-feet of water supply, 220 miles of existing, buried pipeline, 1 million acre-feet of groundwater storage capacity, and versatile, scalable, and cost-effective water filtration technology. Cadiz manages these assets to offer a suite of integrated products and services to public water systems, government agencies, and commercial customers, including reliable water supply, groundwater storage, water conveyance, and custom-designed water filtration technology systems.

Financials

In the first quarter of 2024, Cadiz reported total revenues of $1.1 million, a significant increase from $130,000 in the same period of 2023. This growth was primarily driven by the company's water filtration technology business, ATEC Water Systems LLC, which contributed $485,000 in revenue, as well as $636,000 in revenue from the company's agricultural operations. However, the company continues to incur net losses, reporting a net loss of $6.9 million in the first quarter of 2024, compared to a net loss of $10.7 million in the same period of 2023.

Business Overview

Cadiz's water supply, storage, and conveyance assets remain the key focus of the company's long-term strategy. The company owns vested water rights to withdraw 2.5 million acre-feet of groundwater for beneficial uses, including agricultural development on its property and export to serve communities across Southern California. Cadiz has completed environmental review in accordance with local, state, and federal laws, authorizing the management of the groundwater aquifer underlying its property in the Cadiz Valley, which is expected to produce an average of 50,000 acre-feet of water per year for 50 years for beneficial use in Southern California communities.

In addition to its water supply, Cadiz's assets include a large alluvium aquifer that can be used as a water "banking" facility, capable of storing up to 1 million acre-feet of imported surplus water for return during drought periods. The company also owns an existing 220-mile, 30-inch steel pipeline that intersects several water storage and conveyance facilities in Southern California, as well as a 99-year lease with the Arizona & California Railroad Company that will allow the construction of a 43-mile water conveyance pipeline from the Cadiz Ranch to the Colorado River Aqueduct.

ATEC Water Systems Acquisition

Cadiz's recent acquisition of ATEC Water Systems, Inc. has further strengthened its position in the water solutions market. ATEC provides innovative water filtration solutions for impaired or contaminated groundwater sources, offering cost-effective, high-rate removal of common groundwater impairments and contaminants that pose health risks in drinking water, including iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern.

Recent Developments

In the first quarter of 2024, Cadiz entered into agreements with multiple public water systems to purchase 15,000 acre-feet per year of annual water supply, representing 60% of the full capacity (25,000 acre-feet per year) of the company's Northern Pipeline. These agreements, made through membership in Fenner Gap Mutual Water Company, a mutual water company to be owned by the participating water agencies, provide for the delivery of purchased annual water supply over a 40-year term (take or pay) at an agreed-upon market price estimated to start at approximately $850 per acre-foot and subject to annual adjustment.

Cadiz's current and future operations also include activities that further its commitments to sustainable stewardship of its land, water, pipeline, and water filtration technology assets, good governance, and corporate social responsibility. The company believes these commitments are important investments that will assist in the maintenance of sustained stockholder value.

Risks and Challenges

Despite the company's progress in developing its water solutions business, Cadiz continues to face challenges in achieving profitability. In the fiscal year 2023, the company reported annual net income of -$31.4 million, annual revenue of $2.0 million, annual operating cash flow of -$21.0 million, and annual free cash flow of -$26.7 million. These financial results reflect the significant investments required to develop the company's water supply, storage, and conveyance assets, as well as the ongoing costs associated with its agricultural operations and water filtration technology business.

Outlook

Looking ahead, Cadiz's management remains focused on securing additional water supply and storage agreements, expanding its water filtration technology business, and continuing to develop its pipeline infrastructure. The company's recent entry into the Third Amended Credit Agreement, which provides for a new tranche of senior secured convertible term loans, is expected to support these ongoing initiatives.

Liquidity

In the first quarter of 2024, Cadiz reported total assets of $125.5 million, including $87.0 million in property, plant, equipment, and water programs, and $19.2 million in cash and cash equivalents. The company's current liabilities totaled $8.6 million, and its long-term debt, net, stood at $54.2 million. Cadiz's liquidity position has been bolstered by the recent financing, providing the company with the resources necessary to continue advancing its water solutions strategy.

Conclusion

Cadiz's water solutions business faces several key risks, including regulatory and environmental challenges, competition from alternative water supply and storage options, and the ability to secure additional financing to fund its ongoing development efforts. The company's agricultural operations and water filtration technology business also face their own set of operational and market-related risks.

Despite these challenges, Cadiz's unique combination of assets and its focus on developing integrated water solutions position the company as a potential leader in addressing the growing water scarcity issues facing the Southwestern United States. As the company continues to execute on its strategic initiatives, investors will be closely watching for signs of progress in the company's ability to generate sustainable revenue and cash flow from its water solutions business.