10-K: Cadiz Inc. Reports Full Year 2023 Results, Secures New Financing

Cadiz Inc. reports a net loss for 2023, but secures new financing and advances water supply agreements.

Summary

• Cadiz Inc. reported a net loss of $31.4 million for the year ended December 31, 2023, compared to a net loss of $24.8 million in 2022.
• The increased loss in 2023 was primarily due to a $5.3 million loss on the extinguishment of debt.
• Revenue for 2023 totaled $2.0 million, primarily from ATEC sales ($0.8 million), alfalfa sales ($0.8 million), and agricultural leases ($0.4 million).
• Cost of sales was $2.9 million, including $2.2 million for alfalfa and $0.7 million for ATEC.
• General and administrative expenses were $17.3 million, excluding stock-based compensation, an increase from $13.5 million in 2022.
• Interest expense was $4.9 million, down from $8.3 million in 2022.
• The company has secured agreements to sell 15,000 acre-feet per year (AFY) of water, representing 60% of the Northern Pipeline's capacity.
• These water supply agreements are structured as 40-year take-or-pay contracts at a starting price of approximately $850/AFY, subject to annual inflation adjustments.
• Cadiz has 2.5 million acre-feet of permitted water supply, 220 miles of pipeline, and 1 million acre-feet of groundwater storage capacity.
• The company also owns 46,000 acres of land in Southern California.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company has made progress in securing water supply agreements and obtaining new financing, the significant net loss and reliance on external funding are concerning. The company's long-term prospects are dependent on the successful implementation of its development programs.

Positives

• Cadiz secured agreements to sell 15,000 AFY of water, demonstrating progress in commercializing its water assets.
• The new $20 million financing provides additional capital for operations and development.
• The company has a significant portfolio of water assets, including permitted water supply, pipeline infrastructure, and storage capacity.
• ATEC's water filtration technology is generating revenue and diversifying the company's offerings.
• The company is actively working with public water systems to address water scarcity issues.

Negatives

• The company reported a significant net loss of $31.4 million for 2023.
• The loss on extinguishment of debt of $5.3 million significantly impacted the 2023 results.
• The company's agricultural operations experienced a net operating loss of $1.4 million due to increased diesel costs and suppressed market conditions.
• General and administrative expenses increased to $17.3 million, excluding stock-based compensation.
• The company continues to rely on debt and equity financing to support its operations.

Risks

• The company's development activities have not yet generated significant revenues.
• The company may not become profitable unless it successfully implements its development programs.
• The development of the company's properties is heavily regulated and requires governmental approvals.
• The company's failure to make timely payments on its debt could impact its ability to implement its asset development programs.
• The company's stock price is volatile and could adversely affect current and future stockholders.
• The company is subject to cybersecurity risks that could harm its business.

Future Outlook

The company expects its agricultural development and ATEC operations to be funded using existing capital and cash profits generated from operations. In the longer term, the company will need to raise additional capital to finance working capital needs and capital expenditures. The company is evaluating the amount of cash needed and the manner in which such cash will be raised on an ongoing basis.

Management Comments

• The company's addition of pipeline infrastructure and ATEC water filtration technology enabled it to adjust its business model to begin offering integrated services and solutions to public water systems.
• The company believes that its water supply, storage, pipeline conveyance and treatment solutions will provide a significant source of future cash flow for the business and its stockholders.

Industry Context

The document highlights the increasing demand for water solutions due to climate change and the need for reliable and affordable water supplies. Cadiz is positioning itself to address these challenges by offering integrated products and services to public water systems and other water industry customers. The company's focus on sustainable water management and its commitment to serving disadvantaged communities align with broader industry trends.

Comparison to Industry Standards

• Cadiz's water storage capacity of 1 million acre-feet is comparable to the largest surface reservoir in Southern California, Diamond Valley Lake, which has a capacity of 1.2 million acre-feet.
• The company's water supply project is expected to conserve 50,000 acre-feet per year, which is a significant amount compared to other water projects in the region.
• The company's ATEC water filtration technology is competitive with other companies in the market, offering cost-effective solutions for removing contaminants from groundwater.
• The company's pipeline infrastructure, including the 220-mile Northern Pipeline, is a unique asset that provides a competitive advantage in the water conveyance market.
• The company's focus on public-private partnerships is a common approach in the water industry, allowing for shared funding and risk.

Corporate Governance

Legal Proceedings

• The company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business.
• At this time, the company is not aware of any pending or threatened litigation that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results.

Related Party Transactions

• The company had an agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (Brownstein Agreement), a related party, which was terminated effective December 31, 2023.

Stakeholder Impact

• The company's water supply agreements will provide reliable and affordable water to public water systems and underserved communities.
• The company's projects are expected to create and support nearly 6,000 jobs across the local economy.
• The company is committed to sustainable stewardship of its land, water, pipeline, and water filtration technology assets.
• The company's activities will have an impact on shareholders, employees, customers, suppliers, and creditors.

Next Steps

• The company will continue to develop its water supply, storage, and conveyance assets.
• The company will seek to secure additional water supply agreements.
• The company will work to convert the Northern Pipeline for water conveyance.
• The company will file an application with the BLM for a new FLPMA ROW for the Northern Pipeline.
• The company will continue to develop its ATEC water filtration technology business.
• The company will continue to monitor and report groundwater conditions to the County of San Bernardino.

Key Dates

Keywords

water supply, water storage, water conveyance, water filtration, pipeline, groundwater, Cadiz, ATEC, financing, debt, revenue, loss, agriculture