Cadiz Issues Shareholder Letter with Lookback on Q1

Rhea-AI Summary

Cadiz Inc (NASDAQ: CDZI) released a Q1 2025 shareholder letter highlighting significant progress in its water infrastructure projects. The company secured 180 miles of steel pipe from the Keystone XL project, avoiding new steel tariffs. Cadiz aims to complete the Northern Pipeline by end-2026 and Southern Pipeline by end-2027. Key Q1 developments include: securing a lead project investor, raising $20 million in equity, and advancing permit applications under Trump's emergency proclamation for water projects. The company expects $15-20 million in development expense reimbursements and additional payments of $25 million for NPL assets and $51 million for water storage rights. Their ATEC division doubled production capacity and showed strong growth in water filtration technology markets. Cadiz Ranch is expanding with potential hydrogen production facilities and data center developments.

Positive

• Secured 180 miles of steel pipe from Keystone XL project, avoiding 25% tariff increase
• Raised $20 million in equity funding for 2025 development expenses
• Expected reimbursement of $15-20 million in development costs
• Will receive $25 million for NPL assets and $51 million for water storage rights
• ATEC division doubled production capacity with new 20,000 sq ft facility
• 90% win rate on ATEC's water treatment bids with 38% growth in planning stage opportunities
• Potential new revenue streams from hydrogen facilities and data center development at Cadiz Ranch

Negative

• Complex project financing structure involving multiple types of investors causing lengthy due diligence
• Project development costs currently impacting balance sheet until reimbursement
• Delayed permit application submissions due to administration transition
• Post-election chaos and strategic detours affected Q1 progress

Insights

Water Infrastructure Analyst

Steel acquisition shields project costs from 25% tariffs while expedited permitting and JPA formation advance Cadiz's pipeline development despite transition challenges.

Cadiz's Q1 strategy reveals exceptional foresight in water infrastructure development. Their acquisition of 180 miles of Keystone XL pipeline steel before the announcement of 25% steel import tariffs demonstrates remarkable timing that effectively neutralized what could have been a devastating cost escalation for their pipeline projects. This single decision may have preserved project economics that otherwise would have been severely challenged.

The regulatory landscape is evolving favorably for Cadiz. Rather than fighting the political transition, they strategically delayed permit submissions until the new administration was in place. This patience appears to be paying off, as their water infrastructure projects may now receive expedited review under the emergency proclamation for California water projects. The formation of a Joint Powers Authority with Victor Valley Wastewater Reclamation Authority represents a significant milestone in establishing the municipal financing mechanisms essential for project construction.

Their filtration technology subsidiary ATEC continues to outperform expectations with an extraordinary >90% win rate on competitive bids. The pilot testing of PFAS filtration using FluoroSorb engineered clay positions them in the rapidly expanding "forever chemicals" remediation market – a sector facing intense regulatory and public pressure. While still in field testing, securing California approval for FluoroSorb represents a critical regulatory milestone that significantly de-risks the commercial pathway.

The development of hydrogen production facilities at Cadiz Ranch, coupled with potential data center opportunities, reveals a sophisticated strategy to maximize land value beyond water resources. These energy-intensive operations create natural synergies with Cadiz's water assets – hydrogen production requires substantial water inputs while data centers need cooling resources. This integrated approach to resource utilization demonstrates exceptional operational efficiency in their development strategy.

Financial Analyst

$20M equity raise bridges to complex project financing while strategic acquisitions shield from inflation and secure tax credits worth ~$60M.

Cadiz has engineered a sophisticated capital structure optimization that balances multiple funding sources while simultaneously positioning for substantial tax advantages. The $20 million equity raise ($18.3 million net) provides crucial development capital while they finalize the more complex project financing – a prudent financial bridge that maintains momentum without rushing into suboptimal financing terms.

The company's financial strategy reveals a sophisticated understanding of tax-efficient project structuring. By securing linear generation technology that qualified for the 2024 Investment Tax Credit before expiration, they've potentially captured tax credits worth approximately $60 million (50% of $120 million in expected energy generation costs). This tax credit capture, combined with avoiding steel tariffs, has effectively locked in two major cost components that would have created significant financial uncertainty.

Cadiz's financing approach leverages a diverse capital stack including private equity, publicly-traded companies, tribal-owned businesses, utilities, Opportunity Zone Funds, municipal financing, tax equity and government grants. This multi-source funding strategy distributes risk while potentially lowering blended capital costs. The expected $25 million payment for Northern Pipeline assets and $51 million for water storage rights would provide substantial near-term capital while maintaining long-term revenue participation.

The ATEC filtration business continues to demonstrate exceptional financial leverage from its original $2 million acquisition cost. With a $9.2 million Utah project recently completed and 38% growth in planning stage opportunities, this diversification provides both current revenue and expanding market potential. While detailed financial metrics aren't provided, the 32% growth in design stage value and 27% growth in bid opportunities suggest significant embedded value in this operating unit that may be underappreciated in Cadiz's overall valuation.

"Project development is on track; We picked up some strong tailwinds in Q1"

LOS ANGELES, May 5, 2025 /PRNewswire/ -- Cadiz, Inc. (NASDAQ: CDZI / CDZIP) ("Cadiz," the "Company"), a California water solutions company, today issued a letter to shareholders from Chairman and Chief Executive Officer Susan Kennedy with a lookback on the first quarter.

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Fellow Shareholders,

In the last six months our team has been at work behind the scenes, navigating the ups, downs and opportunities of the new landscape.  Here's a look back on Q1 with an update on key catalysts.

Our overarching goal is to get pipelines built so the Company can begin generating revenues from our water supply and storage assets.  We've set an aggressive schedule to complete construction on the Northern Pipeline at the end of 2026 and the Southern Pipeline (for storage) at the end of 2027.  Actions taken year-to-date were aimed at keeping us on target for this aggressive timeline.

Our primary objectives in Q1 were to establish the NewCos for project development and secure the lead project investor so we can raise project capital, move development costs off Cadiz' balance sheet, and fund construction. Despite the post-election chaos and some strategic detours, we made substantial progress on all fronts and remain on track to meet our construction timeline.

Highlights from Q1:

Transition – Q1 was dominated by transition in Washington, wildfires in Los Angeles and tariffs on steel. Looking back, the strategic decisions we made in Q4 following the election positioned the Company to navigate a rocky transition in Q1 and created some tailwinds for 2025:

Tariffs – In December, we closed a deal to purchase 180 miles of steel pipe from the abandoned Keystone XL project. In February, President Trump announced plans to hike tariffs on imported steel by 25%. With the Keystone steel already manufactured and in the U.S., this steel is not subject to import tariffs. The Company's ability to lock in steel at very favorable pricing shielded from tariffs eliminated what would have been a significant risk to project costs and which would have, in turn, impacted our ability to close project financing.

Permits – Following the election, we delayed submission of permit applications to federal agencies until the new Administration was in place to not lose any momentum in the void of a government transition. In January, following the wildfires in Los Angeles, President Trump issued an emergency proclamation directing federal agencies to streamline permits for projects that provide water supplies to California. We anticipate that our ROW application with BLM to convert the 220-mile EPNG pipeline to water conveyance will be among first permits to be reviewed under President Trump's emergency proclamation.  It is important to note that we had already completed the necessary work with the Biden Administration to process the permit for conversion of the Northern Pipeline (NPL), but we anticipate that all regulatory permits will be processed more efficiently under the Trump Administration and this, combined with the President's emergency order, provides a tailwind for us to maintain an accelerated development schedule.

Investment Tax Credit (ITC) – The election results called into question whether any tax credits for clean energy would be supported by the incoming Congress.  Aside from steel, the cost of energy generation was the biggest unknown in terms of project costs. In December, the Company closed a deal to purchase linear generation technology that qualifies for the ITC that expired at the end of 2024. Qualifying for the 2024 ITC provides as much as 50% in tax credits toward approximately $120 million in expected costs for generation equipment.  Locking in power costs and tax credits, especially in such an unexpectedly volatile market environment, ended up being hugely important for securing project investors.

Project Finance – Following the election, we made the strategic decision to pivot away from project investors whose funding was tied to the Inflation Reduction Act or other federal climate programs that were expected to be frozen by the Trump Administration. In Q1 we confirmed a lead investor for the project finance company and are in the process of drafting the LLC agreement and related documents for syndication with other project investors.  The LLC is a Public - Private Partnership with a complex investment structure due to the number of project investors and diversity of the capital sources involved, which includes private equity, publicly-traded companies, tribal-owned businesses, investor-owned utilities, Opportunity Zone Funds, municipal financing, tax equity and government grant funding. While this is a complex process and the diligence is lengthy, the number and types of investors interested in participating makes this a good problem to have.

To keep us on track, in Q1 the Company closed a $20 million¹ equity raise to cover capital costs and development expenses in 2025 while we finish drafting the LLC agreement and raise project capital. We did this to ensure we can cover mission critical development expenses and stay on schedule despite the timing of closing project financing. Thankfully, we closed that capital raise before the full impact of the tariff war roiled capital markets. The Company expects to be reimbursed for approximately $15 to $20 million in capital costs and development expenses at the close of project financing with initial capital drawdown for construction on the NPL scheduled to occur in late Q3 / beginning of Q4, as reflected in the development schedule attached.

As previously disclosed, in addition to reimbursement of development expenses, the Company also expects to receive payments for the transfer of assets to the LLC in accordance with the terms and conditions set out in the LLC agreement. Expected payments to the Company from the LLC include $25 million for NPL assets and $51 million in exchange for 51% of the cash flows from water storage and banking operations.

Additional Q1 Callouts:

Victor Valley Wastewater Reclamation Authority (VVWRA) whose municipal members include the Cities of Victorville and Hesperia and the County of San Bernardino, voted in favor of forming a Joint Powers Authority (JPA) with our public agency partners to support municipal financing for the project.  Formation of this new JPA will allow us to access municipal debt to support construction financing (in addition to equity capital and grant funding through the LLC). We expect to complete formation of the JPA in the next few months with the goal of being able to issue revenue bonds for construction in early 2026.

OTHER SEGMENTS:

ATEC

In Q1 ATEC substantially completed delivery on the 60MGD Central Utah treatment project and concluded shipment in April.  ATEC also opened a second 20,000 sq ft new building for storage, assembly, training and lab services – doubling its production capacity.

Interest in ATEC's water filtration technologies for groundwater treatment continues to grow at a robust rate as our presence in the market grows. For context, the groundwater remediation market in the US overall is projected to grow at a CAGR of 8.4% to $163.4 billion by 2027²;  ATEC's  annual revenue potential is tied to a deal stage cycle that runs from "Planning" (e.g. RFIs and anticipated procurement for treatment solutions by water utilities) to "Design", "Bidding" and "Purchase Order." The number of opportunities in the Planning stage grew by 38% in Q1; The value of potential deals in the Design stage grew 32%; The value of potential deals we bid on grew by 27%; and our overall "win" rate (the number of bids resulting in Purchase Orders) still stands at better than 90%.

For context, remember that we acquired ATEC Systems in 2022 for $2 million. The $9.2 million Utah deal awarded in 2023 was "pig in a python" for the ATEC pipeline but we've steadily expanded our market presence with new reps covering larger communities (Texas, Midwest) and new treatment solutions (arsenic, nitrates, Chromium VI and PFAS).

ATEC had a surge in inquiries in Q1 after previewing a new water filtration solution for PFAS (forever chemicals) with California water agencies last December.  FluoroSorb, an engineered clay, has now been approved for use in PFAS removal in California. We began pilot-testing ATEC's PFAS filter using FluoroSorb in the field in Q1 and are very excited about rolling out the results in 2025. Bottom line: We remain very bullish on the future of ATEC, its importance in the water treatment marketplace and the value it can bring to shareholders of Cadiz as it grows.

Cadiz Ranch

Q1 has been busy at Cadiz Ranch. In addition to preparing for the 2025 growing season, we've been building out the wellfield infrastructure to support construction of the water supply and storage project. We are also assisting RIC Energy with the permit process for development of the hydrogen production facility (announced in Q4 2024) and fielding inquiries from other developers to locate at least one additional hydrogen facility at Cadiz Ranch. In addition, we've received multiple inquiries to locate a data center at Cadiz Ranch as well. 

The synergies of co-locating hydrogen, solar and potentially a data center at Cadiz are becoming clear. After we announced the agreement with RIC to build a green hydrogen production at Cadiz, we attracted the attention of other developers looking for space to build data centers.  As previously discussed, we intend to develop our land assets to generate the highest value to shareholders and are very encouraged by these recent developments. 

Key Takeaways

We understand the importance of continuing to update our shareholders as we work through a complex project financing.  We will continue to release as much information as we can, as soon as we can, about our progress on project financing as we finalize agreements with our public and private partners for project finance and reach key milestones. The main message here is that, despite some external chaos, project development is on track; We made strategic decisions that insulated us from variables outside of our control and we picked up some strong tailwinds in Q1.  

I look forward to delivering future updates.

Sincerely,

Susan Kennedy

About Cadiz, Inc.
Founded in 1983, Cadiz, Inc. (NASDAQ: CDZI) is a California water solutions company dedicated to providing access to clean, reliable and affordable water for people through a unique combination of water supply, storage, pipeline and treatment solutions. With 45,000 acres of land in California, 2.5 million acre-feet of water supply, 220 miles of pipeline assets and the most cost-effective water treatment filtration technology in the industry, Cadiz offers a full suite of solutions to address the impacts of climate change on clean water access.

For more information, please visit https://www.cadizinc.com. 

Cautionary Note About Forward-Looking Statements

This investor briefing contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "expects," "plans," "intends," "aims," "projects," "believes," "anticipates," "estimates," "targets," "will," "may," "could," "should," "would," "likely," and variations of such words and similar expressions.

These forward-looking statements include, without limitation, statements regarding the Company's expectations concerning the timing, structure, and closing of project financing; the ability to secure commitments from investors and enter into definitive agreements, including the LLC Agreement and the formation of a Joint Powers Authority; expectations regarding the achievement of project development milestones, including the timing of construction and commencement of operations for the Northern Pipeline and Southern Pipeline projects; the anticipated reimbursement of development costs and receipt of asset transfer payments; the potential favorable impact of regulatory, permitting, and political developments, including emergency proclamations; the Company's expectations regarding tax credits and tariff exposure; the expected expansion of ATEC operations and commercialization of new technologies, including PFAS treatment; future development opportunities at Cadiz Ranch; and the overall pace and success of the Company's development and financing activities.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, there can be no assurance that such expectations will prove to be correct. Actual outcomes and results may differ materially due to a variety of factors, including, without limitation: the ability to negotiate and execute definitive agreements with project investors and partners; delays in construction schedules; delays or setbacks in obtaining required permits and regulatory approvals; changes in applicable laws, regulations, or federal and state policies; the availability and terms of project financing; increases in project costs or adverse shifts in market conditions, including those related to tariffs, inflation, or supply chain disruptions; the ability to further scale ATEC's growth and commercialize its new technologies; and broader political, environmental, or economic developments that may affect the Company's operations, assets, or financing strategy. Additional information regarding factors that may affect the Company's forward-looking statements can be found in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and any subsequent filings under the Securities Act and Exchange Act. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by law.

1 Net proceeds of $18.3 million.

2 https://www.marketsandmarkets.com/Market-Reports/environmental-remediation-market-93290334.html

 

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SOURCE Cadiz, Inc.

FAQ

When will Cadiz CDZI complete the Northern and Southern Pipeline construction?

Cadiz plans to complete the Northern Pipeline construction by the end of 2026 and the Southern Pipeline (for storage) by the end of 2027.

How much equity did Cadiz CDZI raise in Q1 2025?

Cadiz raised $20 million in equity (with net proceeds of $18.3 million) to cover capital costs and development expenses in 2025.

What are the expected payments Cadiz CDZI will receive from the LLC agreement?

Cadiz expects to receive $25 million for NPL assets and $51 million in exchange for 51% of cash flows from water storage and banking operations, plus reimbursement of $15-20 million in development expenses.

How did Cadiz CDZI avoid the steel tariff increase?

Cadiz secured 180 miles of steel pipe from the abandoned Keystone XL project in December, before the 25% tariff increase on imported steel was announced in February.

What is the growth rate of ATEC's water treatment business for Cadiz CDZI?

ATEC saw 38% growth in planning stage opportunities, 32% growth in design stage deals, 27% growth in potential bid values, and maintains a 90% win rate on bids.