Company Overview
Cadiz Inc. (NASDAQ:CDZI) is a California-based water solutions company that has been at the forefront of developing innovative and sustainable water infrastructure projects to address the critical water challenges facing the Southwestern United States. With a unique combination of land, water, pipeline, and water filtration technology assets, Cadiz is poised to play a pivotal role in securing reliable and clean water supplies for communities in the region.
Founded in 1983 and headquartered in Los Angeles, California, Cadiz has built an impressive portfolio of water resources over the past four decades. The company's primary focus has been on developing its land, water, and infrastructure assets in the Mojave Desert region of Southern California. In its early years, Cadiz acquired over 45,000 acres of land in the Cadiz and Fenner valleys of the Mojave Desert, obtaining permits to withdraw and use up to 2.5 million acre-feet of groundwater from the aquifer system underlying its land. This strategic acquisition gave Cadiz control over a significant water resource in a water-scarce region.
Infrastructure and Assets
To enhance its water distribution capabilities, Cadiz acquired a 220-mile existing pipeline in 2021, known as the Northern Pipeline. This infrastructure intersects major aqueducts and water conveyance systems in Southern California, providing Cadiz with the means to potentially deliver water to municipalities and other customers. The company's water assets are estimated to contain 30-50 million acre-feet of groundwater already in storage, positioning Cadiz as a crucial player in the water security of the Southwestern US.
In 2022, Cadiz expanded into the water filtration technology sector with the acquisition of ATEC Water Systems, LLC. This strategic move has enabled the company to offer a comprehensive suite of water-related products and services, including innovative filtration solutions for impaired or contaminated groundwater. ATEC's technology addresses issues such as the removal of arsenic, Chromium-6, and other contaminants, serving public water systems, government agencies, and commercial customers.
Financials
Cadiz operates in two reportable segments: Land and Water Resources, and Water Filtration Technology. The Land and Water Resources segment comprises all activities regarding Cadiz's properties in the eastern Mojave Desert, including pre-revenue development of the Mojave Groundwater Banking Project for water supply, storage, and conveyance, as well as the company's agricultural operations. This segment generates revenues primarily from sales of alfalfa crops harvested from 760 acres of commercial plantings and rental income from agricultural leases.
In the third quarter of 2024, the Land and Water Resources segment generated $383,000 in revenues, with cost of sales of $557,000, resulting in an operating loss of $5.29 million. For the first nine months of 2024, this segment recorded revenues of $1.37 million, cost of sales of $1.90 million, and an operating loss of $16.61 million. The higher losses in 2024 were primarily due to continued suppressed market conditions for alfalfa in the West Coast region, leading to lower margins on the alfalfa crop harvest.
The Water Filtration Technology segment, established with the acquisition of ATEC Water Systems in 2022, provides innovative water filtration solutions for impaired or contaminated groundwater sources. In the third quarter of 2024, this segment generated $2.84 million in revenues, with cost of sales of $1.85 million, resulting in an operating income of $519,000. For the first nine months of 2024, the Water Filtration Technology segment recorded revenues of $3.49 million, cost of sales of $2.37 million, and an operating income of $14,000.
Despite its potential, Cadiz has faced financial challenges in recent years. In 2020, the company recorded $12.2 million in other non-operating expenses, which included a $12.4 million impairment charge related to its water project. This contributed to Cadiz reporting a net loss of $37.8 million for the full year. More recently, for the nine months ended September 30, 2024, the company reported a net loss of $22.5 million, compared to a net loss of $24.7 million in the same period the prior year. However, revenue for the nine-month period increased to $4.9 million from $1.3 million in the prior-year period, driven primarily by growth in its ATEC Water Systems segment.
For the most recent fiscal year (2023), Cadiz reported revenue of $1.99 million, a net loss of $31.45 million, operating cash flow of -$20.92 million, and free cash flow of -$26.71 million. In the most recent quarter (Q3 2024), the company's revenue increased significantly to $3.22 million, up from $0.37 million in Q3 2023. This growth was primarily driven by higher sales from the company's water filtration technology business, ATEC. Despite the revenue increase, Cadiz reported a net loss of $6.79 million in Q3 2024, a slight improvement from the $6.94 million loss in Q3 2023. The company's cash flow position weakened, with operating cash flow declining from -$5.77 million to -$5.39 million and free cash flow decreasing from -$5.76 million to -$5.44 million over the same period.
The increase in ATEC's sales in 2024 primarily relates to revenues under a contract to deliver 320 filters for the Central Utah Water Conservancy District's Vineyard Wellfield Groundwater Polishing Project. ATEC's specialized filtration media provide cost-effective, high-rate removal of common groundwater impairments and contaminants, such as iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern.
Liquidity and Strategic Developments
As of Q3 2024, Cadiz reported a debt-to-equity ratio of 2.71, cash and cash equivalents of $3.33 million, and a $50 million senior secured credit facility, with $21.2 million in non-convertible term loans and $16 million in convertible debt outstanding. The company's current ratio stood at 1.36, and its quick ratio was 0.87.
In 2024, Cadiz reached a significant milestone by securing water purchase agreements for 85% of the capacity of its Northern Pipeline, totaling 21,275 acre-feet per year under long-term, take-or-pay contracts. This achievement underscores the growing demand for the company's water solutions and the trust that public water providers are placing in Cadiz's ability to deliver reliable and sustainable water supplies.
To further bolster its water infrastructure development, Cadiz announced in November 2024 that it had entered into an agreement to purchase 180 miles of steel pipe from the terminated Keystone XL Pipeline project. This strategic acquisition will provide the company with the necessary materials to construct a pipeline network connecting its Mojave Desert groundwater bank to major water networks in the Southwestern US.
Additionally, Cadiz has forged a partnership with RIC Energy, a global renewable energy company, to build a large-scale green hydrogen production facility at the Cadiz Ranch site. This collaboration aims to leverage the company's land and water resources to produce 50 tons of green hydrogen per day, further diversifying Cadiz's offerings and aligning with the growing demand for clean energy solutions.
Cadiz's commitment to sustainable water management and innovative technology has also attracted the attention of the Lytton Rancheria of California, a Native American tribe, which in November 2024 signed a letter of intent to invest up to $50 million in the company's Mojave Groundwater Bank project. This investment, if finalized, would be the largest investment in water infrastructure off tribal lands by a Native American tribe in US history.
Market Opportunity and Future Outlook
The water challenges faced by the Southwestern US are well-documented, with climate change, population growth, and aging infrastructure exacerbating the region's water scarcity and quality issues. Cadiz's strategic positioning, both geographically and through its diversified business model, positions the company as a key player in addressing these critical concerns. By leveraging its water supply, conveyance, and filtration capabilities, Cadiz is poised to play a pivotal role in delivering sustainable water solutions to the communities it serves.
Cadiz primarily operates within the United States, selling its water filtration products and services to customers located in the Southwestern US region. This geographic focus aligns with the areas most affected by water scarcity and quality issues, providing a strong market for the company's solutions.
Looking ahead, Cadiz's continued focus on developing its water infrastructure projects, expanding its water filtration technology, and exploring complementary business opportunities, such as the green hydrogen initiative, suggest a promising future for the company. As the demand for reliable and clean water continues to grow, Cadiz's unique combination of assets and expertise makes it a compelling investment opportunity for those seeking exposure to the water solutions sector in the Southwestern United States.