Mission Produce, Inc. (NASDAQ:AVO) Q4 2022 Earnings Conference Call November 22, 2022 5:00 PM ET Company Participants Jeff Sonnek - ICR, IR Bryan Giles - CFO Steve Barnard - CEO Conference Call Participants Ben Bienvenu - Stephens Tom Palmer - JPMorgan Bryan Spillane - Bank of America Operator Good afternoon and welcome to the Mission Produce Fiscal Fourth Quarter 2022 Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference cal ...

Revenue Generation and Market Dynamics - The company generates revenue from avocados, but its ability to do so is limited by the supply of avocados and the capacity to purchase or grow additional avocados[43] - Sales to the top 10 customers accounted for approximately 59% of net sales for the years ended October 31, 2022, and 2021, and about 64% for the year ended October 31, 2020[52] - The company’s profitability is sensitive to fluctuations in avocado market prices, which are influenced by supply and demand dynamics[44][45] - Seasonal factors significantly impact the company's revenue, particularly in Peru, where harvests are concentrated in the third and fourth fiscal quarters[67] Operational Risks and Challenges - The company is exposed to risks from international operations, including changes in legal or regulatory requirements, which could adversely affect its ability to sell products and repatriate profits[48] - Economic and political conditions in Mexico, the largest source of avocado supply, could negatively impact the company's operations and financial results[53] - The company faces increasing competition in the avocado market, which may adversely affect its operating results and pricing strategies[46] - Disruptions in the supply chain, including transportation issues and global supply chain complexities, have led to increased costs and delays in customer shipments[62] - The company's operations are subject to various farming risks, including adverse weather and market price reductions, which can affect revenue and operating results[66] Financial and Economic Factors - Inflationary pressures and rising costs of commodities, such as fuel and paper, could adversely affect the company's operating results[50][51] - General economic conditions, including potential downturns, could adversely impact consumer spending and, consequently, the company's financial results[58] - The company may face increased costs and may not be able to fully offset these through price increases, potentially adversely impacting results[63] - Inflation impacts the company by increasing costs related to labor, materials, and transportation, with uncertainty regarding the ability to recover these costs through price increases[207] Labor and Management Issues - The future success of the company largely depends on the management team's expertise and ability to attract and retain qualified personnel[64] - Labor market pressures and inflation may negatively affect the company's ability to recruit and retain skilled labor, impacting operations[65] Legal and Regulatory Environment - The company is subject to various legal and regulatory changes impacting labor in Mexico, which could have a material impact on its operations and profitability[54] - The company is subject to extensive government regulations that could negatively impact financial condition and results of operations, including compliance costs and potential penalties[91] - The company has faced various legal proceedings, including substantial claims that could divert management's attention and result in significant monetary damages[90] - Compliance with evolving data privacy laws, such as CCPA and GDPR, is critical, as failure to comply could result in significant penalties and reputational damage[73] Geopolitical and External Risks - The ongoing conflict between Russia and Ukraine poses geopolitical risks that may adversely affect the company's business and results of operations[98] - Changes in U.S. trade policy and regulations may negatively impact the company's operating results and financial condition[80] Corporate Governance and Financial Structure - Approximately 41% of the company's outstanding common stock is owned by executive officers, directors, and principal stockholders, which may influence corporate governance and control[101] - The company has amended its certificate of incorporation to include provisions that may discourage mergers or acquisitions, potentially limiting stockholder benefits[111] - The company is governed by Section 203 of the Delaware General Corporation Law, which restricts individuals owning over 15% of voting stock from merging with the company for three years unless approved[112] - The company’s credit facility has a principal value of $100 million, with restrictive covenants that may limit operational flexibility and strategic initiatives[118] Financial Instruments and Currency Exposure - Interest rate swaps with a total notional amount of $100 million are in place to hedge against variable interest rates, with fixed LIBOR rates ranging from 1.75% to 2.57%[205] - The company does not expect foreign currency transactions to materially affect its financial results due to the majority of sales being in U.S. dollars[206] Cybersecurity and Safety Concerns - Cybersecurity risks pose a threat to the company's operations, potentially leading to revenue loss and increased expenses[68] - Food safety events could adversely affect sales and operating results, particularly if they involve the company's products[75] Management Controls and Compliance - The company has implemented additional financial and management controls to comply with Sarbanes-Oxley requirements, which may increase operational costs[108] - The company is subject to examination by tax authorities, and adverse outcomes could affect financial condition and cash flows[97] - The company may incur significant costs as a result of operating as a public company, impacting net income or increasing net loss[104]

Financial Data and Key Metrics Changes - Total revenue for Q3 2022 increased by 27% to $313.2 million, driven by a 42% increase in average per unit avocado sales prices due to lower industry supply from Mexico and inflationary pressures [5][18] - Adjusted EBITDA for Q3 2022 was $31.6 million, a 5% increase compared to the prior year [21] - Net income for Q3 2022 was $18.4 million or $0.26 per diluted share, essentially flat with the prior year [21] Business Line Data and Key Metrics Changes - Marketing and Distribution segment net sales increased by 29% to $308.9 million, with adjusted EBITDA rising 18% to $15.5 million [23] - International Farming segment sales decreased by 2% to $73.5 million, primarily due to lower third-party service revenue [25] - The new Blueberry segment generated net sales of $0.3 million with an adjusted EBITDA loss of $0.2 million [26] Market Data and Key Metrics Changes - Mexican avocado volume was down over 40% in Q3 2022, with only about 1/3 of U.S. distributed volume being Mexican fruit [9] - Despite lower volumes, there was over 25% volume growth in other source markets, including California and Peru [9] - Year-to-date pricing for avocados was approximately 45% higher compared to the prior year, reflecting strong demand despite food inflation [12] Company Strategy and Development Direction - The company is focused on vertical integration, with approximately 25% of total distributed volume in Q3 coming from owned production in Peru [15] - A long-term third-party logistics partnership with NatureSweet was announced to enhance operational efficiencies and capacity utilization at the Laredo facility [7][8] - The company aims to maintain a consistent year-round supply to support long-term consumption growth and market development [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the upcoming production from the Jalisco growing region, which presents long-term growth opportunities [10] - The company anticipates fourth-quarter volumes to increase sequentially due to ample Peruvian product and a larger Mexican crop expected [30] - Management acknowledged ongoing inflationary pressures affecting costs but remains confident in the resilient demand for avocados [31] Other Important Information - Cash and cash equivalents were $43.8 million as of July 31, 2022, down from $84.5 million as of October 31, 2021, reflecting seasonal operating cash flow dynamics [27] - Capital expenditures for the first nine months of fiscal 2022 were $42 million, with expectations to come in below the previous year's total [29] Q&A Session Summary Question: Clarification on fourth-quarter volume expectations - Management indicated that fourth-quarter volumes are expected to be higher sequentially but comparable year-over-year, with no specific numbers provided [33] Question: Exposure of International Farming business to market pricing - Management noted that fixed volume, fixed price contracts were established for the season, with some pressure on market pricing due to increased Mexican fruit supply [34][35] Question: Utilization of Laredo facility capacity - Management estimated that the NatureSweet partnership would utilize about 20% to 25% of the facility's capacity initially, with plans to ramp up over time [40] Question: Volume growth expectations for next fiscal year - Management expects a larger Mexican crop next year, which will drive volume growth, but the impact on revenue will depend on average selling prices [44][45] Question: Returns on blueberry investments compared to avocados - Management confirmed that blueberries have a quicker return on investment compared to avocados, with expectations of slightly higher returns due to different marketing dynamics [46][48] Question: Funding for blueberry capital costs - Management indicated that most funding for blueberry investments would come from operating cash flows within the joint venture, with minimal cash out from the business [50]

Financial Performance - Net sales increased by $66.4 million or 27% in the three months ended July 31, 2022, and by $153.2 million or 23% in the nine months ended July 31, 2022, compared to the same periods last year[94]. - Total net sales for the three months ended July 31, 2022, were $313.2 million, compared to $246.8 million for the same period in 2021, reflecting a significant increase[116]. - Total segment sales for the nine months ended July 31, 2022, reached $870.1 million, compared to $715.8 million in the same period last year, indicating strong growth[116]. Sales and Pricing - Average per-unit avocado sales prices increased by 42% and 45% in the three and nine months ended July 31, 2022, respectively, due to lower industry supply from Mexico and inflationary pressures[94]. - Net sales in the Marketing and Distribution segment rose by $69.3 million or 29% in the three months ended July 31, 2022, compared to the same period last year, totaling $306.3 million[118]. - The Marketing and Distribution segment generated net sales of $308.9 million in the three months ended July 31, 2022, compared to $239.6 million in the same period last year[94]. Volume and Supply - Avocado volume sold decreased by 11% and 16% for the three and nine months ended July 31, 2022, respectively, primarily driven by lower Mexican supply[94]. - The International Farming segment reported net sales of $4.0 million in the three months ended July 31, 2022, down from $7.2 million in the same period last year[94]. - Total segment sales in the International Farming segment decreased by $1.5 million or 2% in the three months ended July 31, 2022, primarily due to lower third-party service revenue[120]. Profitability - Gross profit for the three months ended July 31, 2022, increased by $1.7 million or 4% to $42.6 million, with a gross profit percentage of 13.6%[98]. - Gross profit for the nine months ended July 31, 2022, decreased by $27.8 million or 31% to $62.9 million, with a gross profit percentage of 7.8%[99]. - Operating income for the three months ended July 31, 2022, was $22.0 million, a decrease from $23.7 million in the same period last year[92]. Expenses - Selling, general and administrative expenses increased by $3.4 million or 20% in the three months ended July 31, 2022, compared to the same period last year, primarily due to higher employee-related costs and noncapitalizable costs associated with the new ERP system[100]. - Interest expense rose by $0.5 million or 50% in the three months ended July 31, 2022, and by $0.8 million or 29.6% in the nine months ended July 31, 2022, due to higher interest rates on outstanding debt[103]. - Other expense increased by $0.4 million or 80% in the three months ended July 31, 2022, primarily due to higher losses on foreign currency transactions[108]. Taxation - The provision for income taxes decreased by $0.5 million or 8% in the three months ended July 31, 2022, primarily due to lower pre-tax income[112]. - The effective tax rate for the three months ended July 31, 2022, was 23.2%, down from 24.3% in the same period last year[112]. Cash Flow and Capital Expenditures - Net cash used in operating activities was $3.0 million for the nine months ended July 31, 2022, compared to cash provided of $15.2 million in the same period last year[124]. - Capital expenditures in the nine months ended July 31, 2022, were $42.0 million, focused on farmland purchases and orchard development in Peru and Guatemala[126]. - The company intends to fund capital projects for farming expansion and facility improvements through operating cash flow and cash equivalents[134]. Debt and Leverage - The company utilized a revolving credit facility for short-term working capital, with borrowings of $40.0 million and repayments of the same amount in the nine months ended July 31, 2022[128]. - As of July 31, 2022, the consolidated leverage ratio was 2.08 to 1.00, and the fixed charge coverage ratio was 1.94 to 1.00, indicating compliance with financial covenants[133]. - The consolidated total net leverage ratio was increased to 3.75:1.0 for the fiscal quarter ending April 30, 2022, and to 3.25:1.0 for the quarter ending July 31, 2022[132]. Business Developments - The implementation of a new ERP system encountered significant challenges, impacting profitability and financial results in the first quarter of 2022[87]. - The company consolidated Moruga as a variable interest entity on May 1, 2022, which affected the financial results and reportable segments[84]. - The Moruga Blueberry Project, approved on May 1, 2022, involves an investment of approximately $50 million to farm 600 additional hectares of blueberries in Peru, expected to start in mid-to-late fiscal year 2023[136].

Mission Produce, Inc. (NASDAQ:AVO) Q2 2022 Earnings Conference Call June 8, 2022 5:00 PM ET Company Participants Jeff Sonnek – Investor Relations, ICR Steve Barnard – Chief Executive Officer Bryan Giles – Chief Financial Officer Conference Call Participants Jim Salera – Stephens Tom Palmer – JPMorgan Bryan Spillane – Bank of America Gerry Sweeney – Roth Capital Operator Good afternoon and welcome to the Mission Produce Fiscal Second Quarter 2022 Conference Call. All participants will be in a listen-only mod ...

Financial Performance - Net sales increased by $43.4 million or 18% in the three months ended April 30, 2022, and by $86.8 million or 21% in the six months ended April 30, 2022, compared to the same periods last year [76]. - Gross profit decreased by $7.3 million or 27% in the three months ended April 30, 2022, and by $29.5 million or 59% in the six months ended April 30, 2022, compared to the same periods last year [81][82]. - The operating income for the three months ended April 30, 2022, was $1.1 million, a decrease from $10.8 million in the same period last year [74]. - The net income for the three months ended April 30, 2022, was $2.4 million, down from $7.4 million in the same period last year [74]. - For the six months ended April 30, 2022, the company reported a net loss of $11.0 million compared to a net income of $9.6 million for the same period in 2021 [104]. Sales and Revenue - Average per-unit avocado sales prices increased by 44% and 46% in the three and six months ended April 30, 2022, respectively, due to lower industry supply from Mexico and inflationary pressures [76]. - Net sales in the Marketing and Distribution segment increased by $41.3 million or 18% in the three months ended April 30, 2022, compared to the same period last year [99]. - Net sales in the International Farming segment increased by $2.1 million or 91% in the three months ended April 30, 2022, compared to the same period last year, due to higher service revenue and mango harvest volumes [101]. - Total net sales for the six months ended April 30, 2022 were $494.7 million, compared to $407.9 million in the same period last year [97]. Expenses and Costs - Selling, general and administrative expenses increased by $2.4 million or 15% in the three months ended April 30, 2022, and by $6.5 million or 21% in the six months ended April 30, 2022, compared to the same periods last year [83][84]. - Interest expense increased by $0.3 million or 37.5% in the three months ended April 30, 2022, and by $0.3 million or 17.6% in the six months ended April 30, 2022, compared to the same periods last year [85]. - Adjusted EBITDA for the Marketing and Distribution segment decreased by $4.5 million or 28% in the three months ended April 30, 2022, primarily due to lower avocado volume sold and higher expenses [99]. - Adjusted EBITDA for the International Farming segment was $(2.5) million in the three months ended April 30, 2022, compared to $0.1 million in the same period last year, primarily due to early-stage mango farm costs [101]. Tax and Income - The provision for income taxes decreased by $1.3 million or 62% in the three months ended April 30, 2022, primarily due to lower pre-tax income [93]. - The effective tax rate for the six months ended April 30, 2022 was 13.4%, a decrease from 49.5% in the same period last year [93]. Cash Flow and Investments - Net cash used in operating activities increased by $16.8 million for the six months ended April 30, 2022, reflecting a net loss, partially offset by favorable changes in working capital [103]. - Net cash used in operating activities was $37.0 million, an increase from $20.2 million in the prior year [104]. - The company reported net cash used in investing activities of $25.8 million, down from $45.0 million in the previous year [105]. - As of April 30, 2022, cash and cash equivalents were $21.4 million, a decrease from $84.5 million as of October 31, 2021 [110]. Capital Expenditures and Financing - Capital expenditures for the six months ended April 30, 2022, were primarily focused on purchasing farmland in Peru and land improvements in Peru and Guatemala [106]. - The company has a revolving credit facility with a maximum borrowing capacity of $100 million, with no outstanding borrowings as of April 30, 2022 [111]. - The consolidated leverage ratio as of April 30, 2022, was 2.56 to 1.00, in compliance with the required maximum of 3.75 to 1.00 [113]. - The company made capital contributions to joint ventures to support farmland purchases in Colombia and a new distribution facility in southern China [107]. - The company expects to fund various capital projects through operating cash flow and cash equivalents, with no significant deviation from previous fiscal years' expenditures [114]. - As of April 30, 2022, remaining maturities on term loans and notes amounted to $159.9 million [114]. Other Income - Other income increased to $2.9 million in the three months ended April 30, 2022, compared to an expense of $0.3 million in the same period last year, driven by gains on interest rate swaps and lower foreign currency transaction losses [90]. - Equity method income for the three months ended April 30, 2022 was $0.3 million, a recovery from a loss of $0.2 million in the same period last year, primarily due to higher earnings from HAC [88]. ERP System Improvement - The company continues to work with a third-party implementation firm to improve the ERP system, which had previously impacted profitability and financial results [70].

Financial Data and Key Metrics Changes - Total revenue for Q1 2022 increased by 25% to $216.6 million compared to $173.2 million in the same period last year, driven by a 50% increase in average per unit avocado sales prices due to lower industry supply from Mexico and inflationary pressures [15][16] - Net loss for Q1 2022 was $13.4 million or $0.19 per diluted share, compared to net income of $2.2 million or $0.03 per diluted share for the same period last year [21] - Adjusted EBITDA was negative $10.4 million for Q1 2022, compared to a positive $12.5 million for the same period last year, primarily due to lower gross margin and higher SG&A costs [21] Business Line Data and Key Metrics Changes - Marketing & Distribution segment net sales increased by 25% to $212.3 million for the quarter, but segment adjusted EBITDA was negative $7.7 million due to similar drivers affecting consolidated results [21] - International Farming segment net sales increased by 19% to $4.3 million, driven by higher third-party service revenues, but segment adjusted EBITDA was negative $2.7 million due to higher costs associated with strategic initiatives [22] Market Data and Key Metrics Changes - Industry supply was negatively impacted by a smaller Mexican harvest, with estimates indicating that Mexican supply to the U.S. market was approximately 10% lower than the prior year [16] - Approximately 97% of U.S. distributed volume was Mexican fruit in Q1 2022, highlighting the reliance on Mexican supply [16] Company Strategy and Development Direction - The company is focused on long-term growth by investing in its own production to ensure year-round global sourcing, which is key to maintaining organic growth [13] - The implementation of a new ERP system is seen as a necessary step to scale the business and enhance operational visibility, despite the challenges faced during its implementation [9][10] Management's Comments on Operating Environment and Future Outlook - Management believes the worst of the ERP implementation challenges is behind them, and they are focused on improving efficiency and resolving remaining issues [30] - The company expects Mexico industry volumes to remain lower than the prior year during Q2, with pricing expected to be steady to slightly higher [26] Other Important Information - Cash and cash equivalents were $25.3 million as of January 31, 2022, down from $84.5 million as of October 31, 2021, with net cash used in operating activities increasing to $41.4 million [23] - Capital expenditures for Q1 2022 were $20.9 million, focused on farmland purchases and improvements in Peru and Guatemala [24] Q&A Session Summary Question: What lingering impacts should be expected from ERP challenges? - Management indicated that the issues causing gross margin loss have been largely resolved, but some costs related to outside consultants will continue, tapering off in Q2 [30] Question: Will February's per box margins remain stable? - Management noted that February margins returned to historical levels, but future margins may be impacted by volume challenges due to the current Mexico crop situation [33][34] Question: When will the current Mexico crop supply issues be resolved? - Management expects to see some relief from Peru's crop starting around April, but substantial impacts may not be felt until Q3 [38][39] Question: What is the demand outlook in the domestic market? - Management confirmed that domestic demand remains strong, with increased pricing observed, indicating a healthy market despite supply challenges [41][42] Question: Can you quantify customer wins and their impact on volume? - Management mentioned securing major retailers during the Mexico shutdown, which could contribute positively to volume moving forward [47]

Mission Produce, Inc. (NASDAQ:AVO) Q4 2021 Earnings Conference Call December 22, 2021 5:00 PM ET Company Participants Jeff Sonnek - IR, ICR Steve Barnard - CEO Bryan Giles - CFO Conference Call Participants Benjamin Bienvenu - Stephens Inc. Thomas Palmer - JPMorgan Gerard Sweeney - ROTH Capital Partners Operator Good afternoon, and welcome to the Mission Produce Fiscal Fourth Quarter 2021 Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportuni ...