Executive Summary / Key Takeaways

• Alico (NASDAQ:ALCO) is undergoing a fundamental Strategic Transformation, winding down its historically dominant, but financially challenged, citrus production operations to focus on diversified land usage and real estate development.
• Recent financial results for Q2 FY2025 reflect this pivot, showing significant non-cash charges related to accelerated depreciation and asset impairment in the citrus segment, alongside gains from initial land sales.
• The company is actively executing its new strategy, including workforce reduction, pursuing diversified agricultural leases (sod, mining, seasonal crops), and advancing entitlement work on high-value development properties like Corkscrew Grove Villages.
• Management has significantly raised its fiscal year 2025 land sales outlook to potentially exceed $50 million, which is expected to dramatically improve adjusted EBITDA, strengthen the balance sheet, and support capital allocation plans, including a $50 million share repurchase program.
• The investment thesis centers on unlocking the estimated $650 million to $750 million present value of its extensive land holdings through strategic sales, diversified agriculture, and real estate development, moving beyond the volatility and challenges of large-scale citrus farming.

The Shifting Landscape: From Citrus Groves to Diversified Assets

For over 125 years, Alico has been a prominent steward of Florida's agricultural land, primarily known as one of the nation's largest citrus producers. This deep history in cultivation and land management forms the bedrock of the company's identity. However, the past decade has presented formidable challenges to the traditional citrus model. Persistent citrus greening disease, coupled with the devastating impacts of recent hurricanes like Ian in 2022 and Milton in 2024, has severely hampered production. Despite significant investments in new trees and disease treatments like Oxytetracycline (OTC) injections (treating approximately 4.5 million trees in 2024, with efforts to secure grants to offset costs and remove application restrictions), production has declined approximately 73% over the last ten years. This has led to substantial inventory write-downs ($28.5 million and $19.5 million related to recent estimated harvests) and rendered large-scale citrus production economically unviable for the company's long-term capital allocation.

In response to these realities, Alico announced a pivotal Strategic Transformation on January 6, 2025. The company is systematically winding down its capital-intensive citrus production operations following the completion of the fiscal year 2025 harvest (with a final harvest planned for a majority of the remaining ~3,783 operational acres in fiscal year 2026). The future focus is firmly set on leveraging its vast land base of approximately 51,300 acres through diversified land usage and strategic real estate development. This marks a fundamental shift, aiming to unlock value from assets that were previously tied to a struggling core business.

Alico's competitive positioning is inherently tied to its extensive land holdings, which provide a significant scale advantage. While direct competitors like Limoneira (LMNR) and Fresh Del Monte Produce (FDP) operate in similar agricultural markets, Alico's unique asset base allows for a broader strategic pivot into diversified land management and development. Compared to LMNR, which focuses on lemons and avocados, or FDP with its global fresh produce portfolio, Alico's strength lies in its regional land footprint in Florida. This land base, estimated by management to have a present value between $650 million and $750 million, offers a distinct moat, enabling cost efficiencies in certain operations (such as water and nutrient use compared to less optimized diversified operations like Calavo Growers (CVGW)) and providing a platform for multiple revenue streams beyond traditional farming.

The company's operational differentiators, while not based on proprietary high-tech hardware like some industrial peers, include its experience in large-scale land management, water management practices, and the application of treatments like OTC to mitigate disease impacts in its remaining citrus operations. While competitors like LMNR may have advanced water management technology or CVGW may lead in product innovation speed, Alico's approach leverages its scale and regional expertise. The strategic intent behind initiatives like OTC treatment was to improve yields and reduce fruit drop, aiming for quantifiable benefits, though the overall economic viability of citrus production was ultimately challenged by the disease's severity. The pivot to diversified agriculture and development seeks to capitalize on the inherent value and potential of the land itself, rather than relying solely on the output of a single, challenged crop.

Executing the Transformation: Early Progress and Financial Impact

The Strategic Transformation is already yielding tangible changes, reflected in the company's recent financial performance. For the three months ended March 31, 2025, total operating revenues saw a slight decrease to $18.0 million from $18.1 million in the prior year period. For the six months ended March 31, 2025, total operating revenues increased 8.6% to $34.9 million compared to $32.1 million in the prior year. This six-month increase was primarily driven by a blended 30.3% increase in the price per pound solid for citrus, thanks to more favorable pricing in a contract with Tropicana, despite a 16.5% decrease in total pound solids produced due to Hurricane Milton's impact.

The Land Management and Other Operations segment demonstrated strong growth, with revenues increasing 107.1% to $0.7 million for the three months and 74.1% to $1.3 million for the six months ended March 31, 2025. This growth was mainly attributable to higher rock and sand royalty income and sod sales, partially offset by reduced lease revenues following the sale of the Alico Ranch. While still a smaller portion of total revenue (4.0% and 3.7% for the three and six months, respectively), this segment's performance highlights the potential of diversified land usage.

The most significant impact on recent financials stems directly from the Strategic Transformation's accounting implications. Operating expenses surged dramatically to $167.7 million for the three months and $192.8 million for the six months ended March 31, 2025, compared to $36.3 million and $64.5 million in the prior year periods. This increase was driven by approximately $118 million of non-cash accelerated depreciation on citrus trees and a $25 million impairment charge on young trees and assets at one grove, reflecting the decision to wind down citrus operations. These non-cash charges resulted in a net loss attributable to common stockholders of $111.4 million ($14.58 per diluted share) for the three months and $120.6 million ($15.79 per diluted share) for the six months ended March 31, 2025.

Offsetting some of the operational costs and contributing to other income, the company continued its strategy of monetizing non-core assets. During the six months ended March 31, 2025, Alico sold approximately 2,100 acres of land for $17.3 million. A significant agreement was also entered into on March 7, 2025, to sell 2,930 acres for $26.7 million ($9,100 per acre), with an option exercised on April 4, 2025, to purchase another ~685 acres for $6.2 million ($9,000 per acre), both expected to close in fiscal year 2025. These sales, along with the sale of vehicles and equipment held for sale in April 2025, underscore the active unlocking of asset value.

Liquidity remains a key strength. As of March 31, 2025, cash and cash equivalents stood at $14.7 million, up significantly from $3.2 million at September 30, 2024.

Net cash used in operating activities decreased substantially to $0.6 million for the six months ended March 31, 2025, compared to $19.7 million in the prior year period, primarily due to lower caretaking spending as citrus operations wind down. The company amended its credit agreement with MetLife (MET), effective March 31, 2025, removing certain financial covenants and replacing them with a Quarterly Liquidity Covenant requiring maintenance of cash and working capital above a minimum threshold ($7.427 million at March 31, 2025). This amendment provides greater financial flexibility during the transformation. Total debt was $89.6 million, and net debt was $74.9 million as of March 31, 2025, down from $92.1 million and $89.0 million, respectively, at the end of fiscal year 2024.

The company had $88.5 million available under its revolving line of credit at quarter-end.

Outlook and Strategic Initiatives

Management is optimistic about the trajectory of the Strategic Transformation. While fiscal year 2025 harvest volumes are expected to be lower than 2024 due to environmental factors, the focus has shifted to land monetization and diversified operations. The initial expectation of approximately $20 million in land sales for fiscal year 2025 has been significantly raised, with the company now forecasting potentially an additional $30 million or more in sales this fiscal year, bringing the potential total to over $50 million. This accelerated pace of land sales is expected to dramatically improve annual adjusted EBITDA and strengthen the company's ability to return capital to shareholders.

Based on these projections, management expects to end fiscal year 2025 with a cash balance of approximately $25 million and net debt of approximately $60 million, with only the required minimum balance outstanding on the RLOC. The company anticipates generating approximately $20 million in adjusted EBITDA in fiscal year 2025 (based on the initial $20M sales estimate, with potential upside from higher sales). This cash generation is expected to provide sufficient liquidity to meet operating expenses through fiscal years 2026 and 2027.

Beyond land sales, Alico is actively pursuing diversified agricultural leases for its remaining land, including discussions and agreements for sod production, expanding sand mining activities, and leasing approximately 5,250 acres for seasonal crops like corn, sugarcane, vegetables, and fruits. These initiatives aim to maintain the company's agricultural heritage while generating profitable, non-citrus revenue streams.

A key component of the long-term strategy is real estate development. Alico is advancing entitlement work on four strategic assets totaling approximately 5,500 acres (10% of its land holdings), including Corkscrew Grove Villages in Collier County, Bonnet Lake in Highlands County, Saddlebag Grove in Polk County, and Plant World in Hendry County. The development application for Corkscrew Grove Villages, a planned 3,000-acre master-planned community, was filed in March 2025, envisioning two mixed-use villages with homes, commercial space, and civic amenities, alongside setting aside an additional 6,000 acres for permanent conservation. The local approval process is expected to take about a year, with construction potentially starting in 2028 or 2029. These four near-term development properties are estimated to be worth between $335 million and $380 million in present value dollars and could be realized within the next five years, representing significant value creation potential.

As cash balances increase, Alico plans a balanced approach to capital allocation, including continuing its quarterly dividend, pursuing opportunistic share repurchases under the recently approved $50 million program, and strategic debt reduction.

Risks and Challenges

While the Strategic Transformation offers significant upside, it is not without risks. Successfully executing the pivot to diversified land usage and real estate development depends on securing necessary regulatory approvals and permits, effectively managing resources, attracting and retaining personnel with new expertise, navigating market fluctuations, maintaining lender relationships, and addressing environmental and zoning issues. There is no guarantee that these initiatives will be successful or meet the company's projections.

The workforce reduction, while necessary for the transformation, carries risks such as the loss of institutional knowledge, potential attrition beyond the target, decreased morale, and challenges in distributing duties among remaining employees. Adverse weather conditions and natural disasters remain a risk, potentially impacting diversified agricultural operations and development timelines, particularly given the geographic concentration in Florida.

The expected significant shift in revenue sources means that adverse events or market conditions affecting real estate development or diversified farming could disproportionately harm the business. Dependence on key relationships, such as with Tropicana for remaining citrus sales or future partners for diversified agriculture and development, also presents risks. The company faces competition in its new focus areas from various agricultural operators and real estate developers.

Furthermore, the company previously disclosed a material weakness in internal control over financial reporting related to spreadsheet controls for inventory valuation, which continued to exist as of March 31, 2025. While remediation efforts are underway, failure to effectively address this could impact financial reporting reliability. Macroeconomic conditions, including inflation and interest rate fluctuations (impacting variable-rate debt like the RLOC), could also affect costs, demand, and financing availability.

Conclusion

Alico is at a pivotal juncture, strategically pivoting away from the persistent challenges of large-scale citrus production towards a diversified land management and real estate development model. The Strategic Transformation, announced in early 2025, is rapidly reshaping the company's operations and financial profile, as evidenced by the significant non-cash charges related to the citrus wind-down in recent results and the accelerated pace of land sales.

The core investment thesis is centered on unlocking the substantial value embedded in Alico's extensive land holdings, estimated by management to be worth $650 million to $750 million. The company is actively pursuing this through strategic asset sales, developing diversified agricultural revenue streams, and advancing high-value real estate entitlement projects like Corkscrew Grove Villages. The significantly raised land sales outlook for fiscal year 2025 underscores the potential for near-term value realization and balance sheet strengthening, supporting capital allocation plans including share repurchases and dividends.

While risks associated with executing this transformation, navigating new markets, and external factors like weather and macroeconomic conditions persist, Alico's strong liquidity position and strategic focus on leveraging its core asset base provide a foundation for this pivot. The success of this transformation will depend on the company's ability to effectively execute its land monetization and development plans, establish profitable diversified agricultural operations, and manage associated risks, ultimately aiming to deliver enhanced long-term returns for shareholders by capitalizing on the highest and best use of its valuable land assets.