Executive Summary / Key Takeaways

• Strategic Pivot to Integrated Water Solutions: Cadiz Inc. (CDZI) is transforming from a land and water asset holder to an integrated water solutions provider, leveraging its vast Mojave Desert groundwater resources, extensive pipeline infrastructure, and proprietary ATEC water filtration technology to address Southern California's acute water scarcity and contamination challenges.
• ATEC's High-Growth, High-Margin Performance: The Water Filtration Technology segment (ATEC) is demonstrating significant operational momentum, with Q2 2025 revenues surging to $3.7 million from $0.2 million in Q2 2024, driven by a substantial increase in filter shipments (115 vs. 4). This growth has propelled ATEC to a 44.5% gross margin in Q2 2025, a stark improvement from a negative margin in the prior year, providing crucial near-term profitability.
• Mojave Groundwater Bank: A Transformative Project: The Mojave Groundwater Bank project, with its 2.5 million acre-feet of water rights and 1 million acre-feet of storage capacity, is advancing with significant funding initiatives, including non-binding letters of intent for up to $425 million in equity capital for Mojave Water Infrastructure Company, LLC (MWI) and a recent MOU with EPCOR for 25,000 AFY to Arizona. This project, estimated at $800 million, represents the core long-term value driver.
• Capital-Intensive Development & Liquidity Management: CDZI remains in a capital-intensive development phase, relying on debt and equity financing. Recent direct offerings in November 2024 and March 2025 raised $22.1 million and $18.3 million net, respectively, providing short-term liquidity. The company's ability to secure additional capital for the $800 million Mojave Groundwater Bank project is paramount for its long-term success.
• Competitive Niche with Significant Scale Potential: While smaller than regulated utility giants like American Water Works (AWK) or California Water Service (CWT), Cadiz carves a niche with its unique combination of large-scale, environmentally reviewed groundwater assets and advanced filtration technology. Its strategic partnerships and project-specific focus offer a differentiated approach to water security in a high-demand region.

The Arid Imperative: Cadiz's Vision for Water Security

Cadiz Inc., founded in 1983, has evolved into a California water solutions company uniquely positioned to address the escalating water crisis in the Southwestern United States. The region faces an urgent need for groundwater storage capacity and reliable, long-term water supplies, exacerbated by climate change and persistent drought conditions. Cadiz's strategy centers on leveraging its extensive land, water, and infrastructure assets in the eastern Mojave Desert, complemented by its advanced water filtration technology, to deliver integrated solutions to public and private water systems, government agencies, and commercial businesses.

The company's foundational strength lies in its vast asset portfolio. This includes vested water rights to withdraw 2.5 million acre-feet of groundwater, a substantial 1 million acre-feet of groundwater storage capacity within the aquifer beneath its Cadiz Ranch property, and a 220-mile Northern Pipeline with a 25,000 acre-feet per year (AFY) capacity. This pipeline strategically intersects major water systems like the California Aqueduct. Furthermore, Cadiz holds a 99-year lease for a 43-mile right-of-way for a Southern Pipeline, projected to have a 150,000 AFY capacity for imported water storage, and an option to acquire 180 miles of steel pipe for its construction. These assets form the backbone of its long-term vision.

Cadiz's business model has strategically adjusted to offer integrated services. This includes water supply, storage, conveyance, and custom-designed water filtration technology systems. This pivot is a direct response to the urgent challenges of climate change and the growing demand for water security. The company's competitive positioning is distinct; while traditional regulated water utilities like American Water Works (AWK), California Water Service Group (CWT), SJW Group (SJW), and Essential Utilities (WTRG) offer broad utility services, Cadiz focuses on large-scale, project-specific water resource development and advanced treatment in a region with critical needs. This specialized approach allows Cadiz to target specific, high-value opportunities that may be less accessible to broader utility players due to regulatory or geographic constraints.

ATEC: The Technological Edge in Water Purification

Central to Cadiz's integrated solutions strategy is its Water Filtration Technology segment, ATEC Water Systems LLC. Acquired in 2022, ATEC provides innovative solutions for impaired or contaminated groundwater sources, a critical and growing concern for water providers. This technology is a significant differentiator, offering tangible benefits over conventional methods.

ATEC's core technology utilizes specialized filtration media designed for cost-effective, high-rate removal of common groundwater impairments. These include health-risk contaminants such as iron, manganese, arsenic, Chromium-6, nitrates, and per-and-polyfluoroalkyl substances (PFAS). The tangible benefit of this technology is its ability to efficiently purify water that would otherwise be unusable or require more expensive, less efficient treatment. While specific quantitative performance metrics like "superior energy yield" or "lower degradation rate" were not detailed, the company emphasizes its "cost-effective, high-rate of removal" capability. This implies a competitive advantage in operational efficiency and contaminant removal efficacy, which is crucial for public water systems facing stringent regulatory standards and rising treatment costs.

The "so what" for investors is clear: ATEC provides a near-term revenue and profitability driver while the larger Mojave Groundwater Bank project develops. The segment's financial performance underscores this. For the three months ended June 30, 2025, ATEC's revenues surged to $3.7 million, a dramatic increase from $0.2 million in the same period of 2024. This growth was directly attributed to a significant rise in filter shipments, from 4 filters in Q2 2024 to 115 filters in Q2 2025. This scale has allowed ATEC to achieve a robust 44.5% gross margin in Q2 2025, a substantial improvement from a negative 6.0% gross margin in Q2 2024. For the six months ended June 30, 2025, ATEC revenues reached $6.1 million (up from $0.6 million in H1 2024), with 195 filters shipped (vs. 37 in H1 2024), leading to a 40.3% gross margin. This improved profitability is vital, as it allows fixed costs to be spread over a larger sales base, demonstrating the scalability and economic viability of ATEC's technology.

Mojave Groundwater Bank: Unlocking a Strategic Resource

The Mojave Groundwater Bank project stands as Cadiz's most ambitious and potentially transformative endeavor. This project aims to manage the aquifer underlying the Cadiz Ranch to produce an average of 50,000 AFY for 50 years, providing a critical new water supply for Southern California. The environmental review for this project has been completed, authorizing its development.

Operational details highlight the project's scale and complexity. The estimated cost to construct all required facilities, including the conversion of the Northern Pipeline, construction of the Southern Pipeline, and development of the wellfield and power facilities, is approximately $800 million. To fund this, Cadiz established Mojave Water Infrastructure Company, LLC (MWI), aiming to secure up to $401 million in equity capital from public sector, tribal, and other investors. The company has made significant progress, securing non-binding letters of intent and a letter of agreement for up to $425 million from potential MWI investors in Q4 2024 and Q1 2025, with due diligence ongoing. Additional funding sources include infrastructure grants and potential revenue bond issuances through a Joint Powers Authority.

Strategic partnerships are key to de-risking and advancing this massive project. In 2024, Cadiz secured agreements to sell 21,275 AFY of water supply via the Northern Pipeline to public water systems, private utilities, and other private water providers. These "take or pay" agreements span 40 years, representing 85% of the Northern Pipeline's capacity, with an estimated starting market price of $850/AFY, subject to annual adjustment. Post-filing, in August 2025, a non-binding Memorandum of Understanding (MOU) was signed with EPCOR NR Holdings Inc. This MOU contemplates granting EPCOR exclusive rights to market 25,000 AFY of conserved water to Arizona off-takers and for EPCOR to design, build, and finance a portion of the Southern Pipeline system. This partnership diversifies Cadiz's customer base and shares the substantial capital burden. Upon definitive agreements for MWI, Cadiz expects to contribute its pipeline infrastructure assets and a 51% share of long-term cash flows from groundwater banking operations in exchange for equity capital and approximately $76 million, while retaining 49% of the water storage rights.

Financial Performance: A Transition in Progress

Cadiz's financial performance in the first half of 2025 reflects a company in a significant development phase, balancing growing operational revenue from ATEC with substantial investments in its long-term water projects. For the six months ended June 30, 2025, total revenues reached $7.1 million, a notable increase from $1.6 million in the prior year. This growth was predominantly driven by the Water Filtration Technology segment, which contributed $6.1 million in revenue. The Land and Water Resources segment, primarily from agricultural operations and leases, contributed $1.0 million.

Despite revenue growth, Cadiz reported a net loss of $17.3 million for the six months ended June 30, 2025, compared to a $15.7 million net loss in the same period of 2024. The operating loss widened to $13.3 million from $11.9 million. This higher loss was primarily due to increased professional fees associated with advancing the Mojave Groundwater Bank project and higher stock-based non-cash bonus awards. General and administrative expenses, excluding stock-based compensation, rose to $11.7 million in H1 2025 from $8.7 million in H1 2024, reflecting increased legal and consulting fees for the Mojave project and higher marketing expenses for ATEC. Net interest expense also increased to $4.0 million from $3.9 million, due to increased borrowing under the Third Amended Credit Agreement.

Liquidity remains a critical focus. The company used $5.0 million in cash from operations for the six months ended June 30, 2025, an improvement from $9.9 million used in the prior year, partly due to reduced working capital needs at ATEC after completing a large filter shipment.

Cash and cash equivalents stood at $13.2 million as of June 30, 2025, with working capital at $9.4 million. Cadiz has historically relied on debt and equity financing to fund its capital-intensive development. Recent equity raises include $22.1 million net from a November 2024 direct offering and $18.3 million net from a March 2025 direct offering. A significant portion of these proceeds is earmarked for the Mojave Groundwater Bank project, including securing an option to purchase 180 miles of steel pipe for $5.0 million in January 2025.

Comparing Cadiz's financial profile to its larger, regulated utility peers highlights its developmental stage. Cadiz's TTM Net Profit Margin of -217.42% contrasts sharply with American Water Works (AWK)'s 2024 Net Profit Margin of 0.22, California Water Service Group (CWT)'s 0.18, SJW Group (SJW)'s 0.13, and Essential Utilities (WTRG)'s 0.29. Similarly, Cadiz's TTM Operating Profit Margin of -164.09% is significantly lower than its peers, who generally exhibit positive operating margins (e.g., AWK at 0.37, CWT at 0.22). This disparity underscores that Cadiz is currently an investment in future growth and asset monetization, rather than a stable, profitable utility. Its Debt/Equity ratio of 0.85 is lower than AWK's 1.37 and SJW's 1.34, but higher than CWT's 0.84, indicating a manageable, albeit significant, debt load relative to its equity base given its capital needs.

Outlook and Risks: Charting the Path Forward

Cadiz's short-term outlook is supported by recent capital raises. The net proceeds from the March 2025 direct offering, combined with existing cash, are expected to cover short-term working capital needs. ATEC operations are projected to be self-funded by existing capital and cash profits generated in 2025. This provides a crucial bridge as the larger water projects mature.

The long-term outlook hinges on the successful development and monetization of the Mojave Groundwater Bank. Management believes that its "water supply, storage, pipeline conveyance and treatment solutions will provide a significant source of future cash flow for the business and our stockholders." The progress of MWI funding, the construction of the Mojave Groundwater Bank facilities, and the timing of water delivery agreements will dictate future capital expenditures and the need for additional financing. The company explicitly states that "equity placements will be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders." This commitment to minimizing dilution, while pursuing substantial capital projects, will be a key balancing act for management.

However, significant risks accompany this ambitious trajectory. The primary concern is liquidity and the ability to raise sufficient capital to fund the $800 million Mojave Groundwater Bank project. There is no assurance that liquidity requirements will always be met, and a failure to secure necessary funds could force substantial reductions in operating expenses, potentially jeopardizing the business plan. The timing of reimbursements for development costs and the receipt of funds from the MWI asset transfer are also critical variables impacting future capital needs. Furthermore, while the company's water rights are vested and environmental reviews complete, large-scale water projects in California are often subject to complex regulatory environments and potential legal challenges, which could cause delays and cost overruns. The success of ATEC, while promising, is also subject to market adoption and competition in the water filtration technology space.

Conclusion

Cadiz Inc. presents a compelling, albeit high-risk, investment thesis rooted in its strategic position to alleviate Southern California's pressing water challenges. The company's unique combination of vast groundwater assets, extensive pipeline infrastructure, and the innovative ATEC filtration technology forms a differentiated platform. ATEC's recent surge in revenue and profitability provides a tangible, near-term operational success story, demonstrating the market demand for its specialized filtration solutions and offering a valuable revenue stream during the development phase of the larger water projects.

The long-term value proposition is inextricably linked to the Mojave Groundwater Bank, a project of significant scale and strategic importance. While the path to full monetization requires substantial capital investment and successful execution of complex partnerships like MWI and the EPCOR MOU, the potential to deliver 50,000 AFY of conserved water for 50 years, coupled with 1 million acre-feet of storage capacity, addresses a critical societal need. Investors must weigh the inherent risks of a capital-intensive development company against the immense, long-term opportunity in a water-scarce region. Cadiz's ability to continue securing strategic financing, execute its development plans efficiently, and leverage its technological leadership will be paramount in transforming its substantial asset base into sustained shareholder value.