
PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents Calavo Growers, Inc.'s unaudited consolidated financial statements and explanatory notes, covering financial position, performance, and key events Consolidated Condensed Balance Sheets The balance sheets show a slight decrease in total assets and working capital from October 2021 to July 2022, with changes in liabilities Consolidated Condensed Balance Sheet Highlights (in thousands) | Metric | July 31, 2022 | October 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Total Assets | $430,525 | $445,402 | | Total Current Assets | $148,445 | $152,641 | | Total Current Liabilities | $118,454 | $114,624 | | Total Long-term Liabilities | $86,232 | $103,895 | | Cash and Cash Equivalents | $2,505 | $1,885 | | Payable to Growers | $35,748 | $23,033 | Consolidated Condensed Statements of Operations Statements of operations show significant net sales and gross profit increases, despite a nine-month net loss attributable to Calavo Growers, Inc Consolidated Condensed Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Nine Months Ended July 31, 2022 | Nine Months Ended July 31, 2021 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net Sales | $341,991 | $285,008 | $947,501 | $782,407 | | Cost of Sales | $323,477 | $277,141 | $894,017 | $734,101 | | Gross Profit | $18,514 | $7,867 | $53,484 | $48,306 | | Operating Income (Loss) | $1,552 | $(5,808) | $2,973 | $6,752 | | Net Income (Loss) Attributable to Calavo Growers, Inc. | $1,300 | $(12,981) | $(2,933) | $1,137 | | Diluted EPS | $0.07 | $(0.74) | $(0.17) | $0.06 | Consolidated Condensed Statements of Cash Flows Operating cash flow significantly increased, while financing cash usage rose due to dividends and credit facility payments Consolidated Condensed Statements of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended July 31, 2022 | Nine Months Ended July 31, 2021 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net Cash Provided by Operating Activities | $42,184 | $12,396 | | Net Cash Used in Investing Activities | $(7,738) | $(8,465) | | Net Cash Used in Financing Activities | $(33,835) | $(6,648) | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $611 | $(2,717) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $3,466 | $1,338 | Consolidated Condensed Statements of Shareholders' Equity Shareholders' equity statements show changes from stock compensation and net income/loss, resulting in a total equity decrease Consolidated Condensed Statements of Shareholders' Equity Highlights (in thousands) | Metric | July 31, 2022 | October 31, 2021 | | :------------------------------------------------- | :------------ | :--------------- | | Total Shareholders' Equity | $225,839 | $226,883 | | Net Income (Loss) Attributable to Calavo Growers, Inc. (9M) | $(2,933) | $1,137 | | Stock Compensation Expense (9M) | $2,123 | $2,818 | Notes to Consolidated Condensed Financial Statements These notes provide essential context for the financial statements, detailing business operations, segment reporting, and significant events 1. Description of the business Calavo Growers, Inc. is a global leader in the avocado industry, operating in Grown and Prepared fresh food segments - Calavo operates in two business segments: Grown (fresh avocados, tomatoes, papayas) and Prepared (fresh-cut fruits/vegetables, guacamole, salsa, etc.)2629 2. Information regarding our operations in different segments The company reorganized into Grown and Prepared segments in Q3 2022, reallocating goodwill and recasting sales data, with foreign currency impacts - Business reorganized into Grown and Prepared segments starting Q3 2022, with goodwill reallocated accordingly ($24.7 million to Prepared, $4.0 million to Grown)2930 Net Sales by Segment (in thousands) | Segment | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Nine Months Ended July 31, 2022 | Nine Months Ended July 31, 2021 | | :------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Grown | $207,119 | $160,908 | $579,612 | $436,810 | | Prepared | $134,872 | $124,100 | $367,889 | $345,597 | | Total Net Sales | $341,991 | $285,008 | $947,501 | $782,407 | Foreign Currency Remeasurement (in millions) | Period | 2022 (Loss) | 2021 (Gain) | | :----- | :---------- | :---------- | | Three Months | $(0.4) | $0.6 | | Nine Months | $(1.3) | $1.2 | 3. Inventories Total inventories decreased from October 2021 to July 2022, with a breakdown across fresh fruit, supplies, and prepared foods Inventories (in thousands) | Category | July 31, 2022 | October 31, 2021 | | :----------------------------- | :------------ | :--------------- | | Fresh fruit | $14,793 | $17,648 | | Packing supplies and ingredients | $14,621 | $13,088 | | Finished prepared foods | $6,659 | $10,021 | | Total | $36,073 | $40,757 | 4. Related party transactions The company engages in various related party transactions, including avocado procurement, Limoneira dealings, and advances with unconsolidated entities Avocados Procured from Board Members (in millions) | Period | 2022 | 2021 | | :----------- | :--- | :--- | | Three Months | $5.7 | $10.4 | | Nine Months | $7.3 | $15.4 | - Calavo owns approximately 9% of Limoneira Company, receiving $0.1 million in dividend income for Q3 2022 and $0.4 million for 9M 2022, while paying $0.1 million in rent for Q3 2022 and $0.3 million for 9M 202243 - Investment in Agricola Don Memo (50% ownership) was $3.5 million as of July 31, 2022, with outstanding advances of $6.4 million45 - Grower advances due from Belher totaled $3.5 million as of July 31, 2022; $1.1 million was withheld from payments to Belher in Q3/9M 2022 to offset bridge loan repayments48 5. Other assets and Intangibles Other assets are mainly Mexican IVA taxes receivable, while net intangible assets decreased with a projected amortization schedule Other Assets (in thousands) | Category | July 31, 2022 | October 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Mexican IVA taxes receivable | $41,265 | $37,493 | | Infrastructure advances to Agricola Belher | $1,641 | $1,641 | | Bridge loan to Agricola Belher | $1,700 | — | | Other | $815 | $1,366 | | Total | $45,421 | $40,500 | Intangibles, Net (in thousands) | Category | July 31, 2022 | October 31, 2021 | | :-------------------- | :------------ | :--------------- | | Customer list/relationships | $6,312 | $7,351 | | Trade names | $990 | $1,080 | | Trade secrets/recipes | $10 | $63 | | Brand name intangibles | $275 | $275 | | Total Intangibles, net | $7,587 | $8,769 | - Anticipated amortization expense: $0.4 million (remainder of FY2022), $1.5 million (FY2023), $1.5 million (FY2024), $1.5 million (FY2025), and $2.4 million thereafter54 6. Stock-Based Compensation The company granted various stock-based awards under its 2011 and 2020 Plans, resulting in recognized and unrecognized compensation expenses - The 2020 Equity Incentive Plan, approved in April 2021, allows for up to 1,500,000 shares to be issued through December 202555 - Key restricted stock grants in FY2022 include 5,355 shares to officers, 28,140 shares to directors, and 28,993 shares to the new CEO, Brian Kocher565759 Total Recognized Stock-Based Compensation Expense (Restricted Stock, in millions) | Period | 2022 | 2021 | | :----------- | :--- | :--- | | Three Months | $0.4 | $0.6 | | Nine Months | $1.8 | $2.8 | - Unrecognized stock-based compensation expense for restricted stock totaled $1.7 million as of July 31, 2022, to be amortized through fiscal year 202462 - 34,269 RSUs and 34,269 PRSUs were granted in April 2022, with $2.2 million of unrecognized compensation costs as of July 31, 2022, to be recognized over 2.3 years63 7. Other events This section details a dividend payment, ongoing litigation, and updates on significant Mexican tax audits, including legal challenges and provisions - A $1.15 per share dividend, totaling $20.3 million, was paid on December 3, 202170 - The 2011 Mexican Tax Assessment was settled for approximately $2.4 million USD in June 202173 - The 2013 Mexican Tax Assessment totals approximately $127.6 million USD (as of July 31, 2022), plus $5.8 million USD in employee profit-sharing liability80 - The company is actively disputing the 2013 Assessment through administrative appeals, injunction suits, and an Annulment Suit, which has provisionally suspended collection proceedings82848690 - An Administrative Guaranty has been offered to secure the 2013 Assessment, aiming to remove existing liens and suspend the SAT collection process91 - A provision of $11 million USD was recorded in Q3 2021 for the 2013 Assessment, and professional fees of $0.3 million (Q3 2022) and $1.1 million (9M 2022) have been incurred95 8. Fair value measurements The company's investment in Limoneira Company common stock is measured at fair value, showing a Q3 2022 gain but a nine-month loss Investment in Limoneira Company (in thousands) | Date | Value | | :------------ | :------ | | July 31, 2022 | $21,251 | | October 31, 2021 | $27,055 | Unrealized Net Gain (Loss) on Limoneira Shares (in millions) | Period | 2022 | 2021 | | :----------- | :--- | :--- | | Three Months | $1.2 (gain) | $(0.3) (loss) | | Nine Months | $(5.8) (loss) | $6.8 (gain) | 9. Noncontrolling interest Noncontrolling interest, mainly from Avocados de Jalisco, decreased from July 2021 to July 2022, reflecting a nine-month net loss Avocados de Jalisco Noncontrolling Interest (in thousands) | Period | July 31, 2022 | July 31, 2021 | | :------------------------------------------------- | :------------ | :------------ | | Noncontrolling Interest, Ending | $1,183 | $1,451 | | Net Income (Loss) Attributable to Noncontrolling Interest (9M) | $(185) (loss) | $(21) (loss) | 10. Earnings per share Diluted EPS showed a positive shift for Q3 2022 but remained a loss for the nine-month period, with anti-dilutive shares excluded Diluted EPS (Attributable to Calavo Growers, Inc.) | Period | 2022 | 2021 | | :----------- | :--- | :--- | | Three Months | $0.07 | $(0.74) | | Nine Months | $(0.17) | $0.06 | - Approximately 65,000 common stock equivalents (9M 2022) and 52,000 (Q3 2021) were excluded from diluted EPS computation due to their anti-dilutive effect during net loss periods103 11. Mexican IVA taxes receivable Mexican IVA receivables increased to $41.3 million, with the company pursuing collection and a favorable court ruling supporting substantial recovery Mexican IVA Receivables (in millions) | Date | Amount | | :------------ | :----- | | July 31, 2022 | $41.3 | | October 31, 2021 | $37.5 | - A favorable Tax Court ruling in April 2022 recognized CDM's maquila operations, non-taxable avocado purchase deposits, and the recoverability of VAT, except for $0.3 million USD related to certain packing materials107108109111 - The company is appealing the unrecoverable VAT amount and believes it has strong legal grounds to prevail in collecting substantially all corresponding IVA amounts112113114 12. Credit Facility The credit facility was amended with increased interest rates, revised covenants, and a reduction to $80 million, with $16.8 million available as of July 31, 2022 - Fourth and Fifth Amendments (Dec 2021) increased interest rate by 0.5% and amended financial covenants, including waiving FCCR for certain quarters and introducing a cumulative monthly minimum Consolidated EBITDA covenant115 - Sixth Amendment (March 2022) waived prior non-compliance, set new minimum Consolidated EBITDA targets, and adjusted FCCR calculation118 - Total facility reduced from $100 million to $80 million, with a borrowing base tied to accounts receivable, US inventory, and Limoneira shares119236 - As of July 31, 2022, the company was in compliance with financial covenants and had $16.8 million available for borrowing120237 Credit Facility Outstanding Borrowings (in millions) | Date | Amount | | :------------ | :----- | | July 31, 2022 | $25.6 | | October 31, 2021 | $37.7 | 13. COVID-19 Pandemic Impact The COVID-19 pandemic continues to cause inflationary pressures, supply chain disruptions, and increased costs, particularly affecting foodservice and retail segments - Ongoing inflationary and cost pressures on raw materials, packaging, labor, and freight due to the pandemic121 - Experiencing supply chain disruptions, including strained transportation capacity and labor availability issues121 - Impacts are more pronounced in foodservice and certain retail segments (e.g., behind-the-glass deli, grab-and-go convenience items)122 14. Closure of Florida facility The Florida facility ceased operations in November 2021 as part of Project Uno, incurring restructuring costs and asset write-downs, with sub-lease plans - Prepared segment's Green Cove Springs, Florida facility ceased operations on November 15, 2021, as part of Project Uno124160 - Closure resulted in 140 employee reductions, $8.7 million impairment of leasehold improvements, $0.1 million equipment write-down, and $0.6 million inventory write-down in Q4 2021125161 - Incurred $1.0 million of incremental restructuring and related costs during the nine months ended July 31, 2022, due to the transition to other facilities129163 - The company intends to seek a sub-lease tenant for the vacated facility, which has right-of-use assets of $4.1 million and lease liabilities of $5.3 million as of July 31, 2022128162 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and operations, covering recent developments, segment performance, and liquidity, including COVID-19 impacts Recent Developments Recent developments include segment reorganization, COVID-19 impacts, a dividend payment, Project Uno, and updates on Mexican tax audits and IVA receivables Change in Reporting Segments Calavo reorganized into Grown and Prepared reporting segments effective Q3 2022, aligning with CEO performance measurement and resource allocation - Business reorganized into Grown (fresh avocados, tomatoes, papayas) and Prepared (fresh-cut fruits/vegetables, ready-to-eat items, guacamole, salsa, avocado pulp) segments, effective Q3 2022132 COVID-19 Pandemic Impact The COVID-19 pandemic continues to cause inflationary pressures, supply chain disruptions, and increased costs, particularly affecting foodservice and retail segments - Ongoing inflationary and cost pressures on raw materials, packaging, labor, and freight due to the pandemic133 - Experiencing supply chain disruptions, including strained transportation capacity and labor availability issues133 - Impacts are more pronounced in foodservice and certain retail segments (e.g., behind-the-glass deli, grab-and-go convenience items)134 COVID-19 Recovery Economic Impact COVID-19 recovery drives increased labor, commodity, and logistical costs, leading to price increases for Prepared products to offset margin compression - Increasing labor costs, commodity costs, and logistical costs due to COVID-19 recovery and current economic climate136 - Implementing price increases for Prepared products to offset rising costs, reverse margin compression, and invest in growth138 Dividend payment A $1.15 per share dividend, totaling $20.3 million, was paid on December 3, 2021 - A $1.15 per share dividend, totaling $20.3 million, was paid on December 3, 2021139 Litigation The company is involved in routine litigation, not expecting a material adverse impact on its financial statements - Company is involved in routine litigation arising in the ordinary course of business140 - Management does not believe litigation will have a material adverse impact on financial statements140 Project Uno Project Uno, launched in Q3 2021, is a strategic initiative for operational efficiencies and cost savings, aiming to expand profit margins and cash flow - Project Uno is a strategic initiative launched in Q3 2021 to identify operating efficiencies and cost savings141 - Initiatives include closing the Florida Prepared plant, supply chain improvements, integrating commercial/logistics/IT/procurement/accounting functions, product rationalization, and outsourcing141 - Goals are to expand profit margins, cash flow, and return on invested capital141 Mexico tax audits The company disputes a $127.6 million 2013 Mexican tax assessment, pursuing legal challenges and settlement discussions, with an $11 million provision - The 2013 Mexican Tax Assessment totals approximately $127.6 million USD (as of July 31, 2022), plus $5.8 million USD in employee profit-sharing liability80152 - Company is pursuing legal challenges (injunction suits, Annulment Suit) and settlement discussions with the SAT, having offered an Administrative Guaranty to secure the assessment143144147148 - A provision of $11 million USD was recorded in Q3 2021 for the 2013 Assessment, and professional fees of $0.3 million (Q3 2022) and $1.1 million (9M 2022) have been incurred152 Mexican IVA taxes receivable The company seeks to recover $41.3 million in Mexican IVA receivables, supported by a recent court ruling despite tax authority objections - Mexican IVA receivables totaled $41.3 million (July 31, 2022), with collection efforts facing delays and objections from tax authorities105153 - A favorable Tax Court ruling in April 2022 recognized CDM's maquila operations and the recoverability of most VAT amounts, strengthening the company's position154156 Closure of Florida facility The Florida facility ceased operations in November 2021 as part of Project Uno, incurring restructuring costs and asset write-downs, with sub-lease plans - Prepared segment's Green Cove Springs, Florida facility ceased operations on November 15, 2021, as part of Project Uno160 - Closure resulted in 140 employee reductions, asset impairments ($8.7 million leasehold, $0.1 million equipment, $0.6 million inventory in Q4 2021), and $1.0 million incremental restructuring costs (9M 2022)161163 Critical Accounting Estimates Financial statements rely on estimates, with no material changes in critical accounting estimates except for goodwill impairment due to segment realignment - No material changes in critical accounting estimates during the period, except for the goodwill impairment evaluation due to operating segment realignment167 - Goodwill for the RFG reporting unit ($24.7 million) is now included in the Prepared reporting unit, while $4.0 million in Grown remained unchanged168 Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like Adjusted Net Income, EPS, and EBITDA, used by management for performance evaluation Adjusted Net Income (in thousands) | Period | 2022 | 2021 | | :----------- | :----- | :------- | | Three Months | $2,856 | $(3,044) | | Nine Months | $8,272 | $7,603 | Adjusted Diluted EPS | Period | 2022 | 2021 | | :----------- | :--- | :--- | | Three Months | $0.16 | $(0.17) | | Nine Months | $0.47 | $0.43 | Adjusted EBITDA (in thousands) | Period | 2022 | 2021 | | :----------- | :----- | :------- | | Three Months | $8,107 | $1,020 | | Nine Months | $25,520 | $25,444 | Net Sales Net sales significantly increased for both three and nine months ended July 31, 2022, driven by higher prices in Grown and Prepared segments Net Sales (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :------- | :------- | :--------- | | Three Months | $341,991 | $285,008 | 20% | | Nine Months | $947,501 | $782,407 | 21% | - Grown product sales increase primarily due to higher avocado prices, offset by lower volume. Prepared product sales increase due to higher prices for fresh-cut fruit & vegetables and prepared foods186 Results of Operations This section details Grown and Prepared segment performance, highlighting drivers of net sales increases and the impact of volume changes Summary Net sales increased 20% (three months) and 21% (nine months) driven by higher avocado prices in Grown and increased prices in Prepared segments - Net sales increased by $57.0 million (20%) for the three months and $165.1 million (21%) for the nine months ended July 31, 2022185 - Grown segment sales increase was primarily due to higher avocado prices, while Prepared segment sales increase was due to higher prices for fresh-cut fruit & vegetables and prepared foods186 - The company has begun importing avocados from its Avocados de Jalisco subsidiary, expecting increased volume in Q4 2022187 Grown products Grown product net sales significantly increased due to higher avocado prices despite lower volume, with mixed tomato sales performance - Grown product net sales increased by $46.0 million (28%) for Q3 2022 and $142.4 million (32%) for 9M 2022188193 - Avocado sales increased 33% (Q3) and 35% (9M) due to a 63% (Q3) and 58% (9M) increase in average sales price per carton, despite a 19% (Q3) and 14% (9M) decrease in volume189190194 - Tomato sales decreased 21% (Q3) due to a 24% volume decrease, but increased 7% (9M) due to a 9% volume increase, partially offset by a 2% price decrease192195 Prepared products Prepared product net sales increased due to higher prices for fresh-cut and prepared foods, partially offset by lower prepared avocado product volume - Prepared product net sales increased by $11.2 million (9%) for Q3 2022 and $22.1 million (6%) for 9M 2022196199 - Fresh-cut fruit & vegetables and prepared foods sales increased 13% (Q3) and 8% (9M), driven by price increases (20% in Q3, 14% in 9M) and favorable product mix, despite volume decreases197200 - Prepared avocado product sales decreased 9% (Q3) and 3% (9M) primarily due to lower total volume sold198201 Gross Profit Gross profit significantly increased for both three and nine months ended July 31, 2022, driven by improvements in Prepared and Grown segments Summary Gross profit increased 135% (three months) and 11% (nine months), primarily due to gains in the Prepared segment and Grown segment avocados Total Gross Profit (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :------- | :------- | :--------- | | Three Months | $18,514 | $7,867 | 135% | | Nine Months | $53,484 | $48,306 | 11% | - The increase was primarily attributable to gross profit increases in the Prepared segment and across both Prepared and Grown segments for the nine-month period205 Grown products Grown products gross profit decreased in Q3 due to lower tomato/papaya and currency impact, but increased over nine months due to avocados Grown Products Gross Profit (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :------- | :------- | :--------- | | Three Months | $11,771 | $12,202 | (4)% | | Nine Months | $41,594 | $40,355 | 3% | - Avocado gross profit percentage decreased to 5.9% (Q3 2022) and 7.2% (9M 2022) from 7.5% (Q3 2021) and 9.2% (9M 2021), as sales price increases outpaced gross profit per case206208 - Gross profit was negatively affected by Mexican peso remeasurement losses of $0.4 million (Q3 2022) and $1.3 million (9M 2022)207209 Prepared products Prepared products gross profit increased for fresh-cut and prepared foods due to higher prices and efficiency, but prepared avocado products incurred a significant gross loss Prepared Products Gross Profit (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :------- | :------- | :--------- | | Three Months | $6,743 | $(4,335) | 256% | | Nine Months | $11,890 | $7,951 | 50% | - Fresh-cut fruit & vegetables and prepared foods gross profit percentages improved to 7.7% (Q3 2022) and 3.4% (9M 2022) from losses in prior periods, driven by price increases, reduced distribution, and improved productivity214 - Prepared avocado products experienced a gross loss percentage of 11.5% (Q3 2022) and a reduced gross profit percentage of 3.3% (9M 2022), primarily due to higher raw product fruit costs and increased manufacturing costs215 Selling, General and Administrative SG&A expenses increased 35% (three months) and 20% (nine months), driven by consulting, recruiting, re-categorized costs, and bonus accruals Selling, General and Administrative Expenses (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :------- | :------- | :--------- | | Three Months | $16,713 | $12,387 | 35% | | Nine Months | $48,566 | $40,374 | 20% | - Key drivers for the increase include consulting services and recruiting fees for restructuring ($1.3 million Q3, $2.8 million 9M), re-categorized costs ($1.7 million Q3), increased bonus accruals ($0.8 million Q3), and investment in key personnel ($1.3 million 9M)217218 Loss from unconsolidated entities Losses from unconsolidated entities, mainly Agricola Don Memo, decreased 43% (three months) and 54% (nine months) Loss from Unconsolidated Entities (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :----- | :------- | :--------- | | Three Months | $(269) | $(469) | (43)% | | Nine Months | $(812) | $(1,755) | (54)% | - Losses primarily stem from the company's investment in Agricola Don Memo221 Income Taxes Benefit (Provision) The company recorded an income tax provision of $(984) thousand (three months) and a benefit of $363 thousand (nine months), impacted by discrete taxable items Income Tax Benefit (Provision) (in thousands) | Period | 2022 | 2021 | Change (%) | | :----------- | :------- | :--------- | :--------- | | Three Months | $(984) | $(12,358) | (92)% | | Nine Months | $363 | $(17,073) | (102)% | | Effective Tax Rate (Q3) | 42.8% | (2,218.7)% | | | Effective Tax Rate (9M) | 10.4% | 93.9% | | - Discrete taxable items of $1.4 million in Q3 2022, primarily related to rate differentials from prior year carryback losses and non-deductibility of certain Mexican tax expenses, impacted the tax provision221 Liquidity and Capital Resources Operating cash flow significantly increased, while financing cash usage rose; the company maintains liquidity through cash, operations, and an $80 million credit facility - Cash provided by operating activities increased to $42.2 million for the nine months ended July 31, 2022, from $12.4 million in the prior year222 - Cash used in financing activities was $33.9 million for the nine months ended July 31, 2022, primarily for a $20.3 million dividend payment and $12.1 million in net credit facility payments226 Working Capital (in millions) | Date | Amount | | :------------ | :----- | | July 31, 2022 | $29.5 | | October 31, 2021 | $38.0 | - The company has an $80 million revolving credit facility, with $25.6 million outstanding and $16.8 million available for borrowing as of July 31, 2022228237 - The company was in compliance with amended financial covenants as of July 31, 2022, and expects to remain compliant through September 2023237 Contractual Commitments No material changes to contractual commitments have occurred since the 2021 Annual Report on Form 10-K - No material changes to contractual commitments since the 2021 Annual Report on Form 10-K238 Impact of Recently Issued Accounting Pronouncements The adoption of ASU 2019-12, "Income Taxes," in Q1 2022 did not materially impact the company's financial statements - ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," adopted in Q1 2022, had no impact on financial statements28 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and foreign currency exchange rate risks, primarily with the Mexican peso, and does not use derivative instruments - Primary market risks include interest rate risk (variable rate credit facilities) and foreign currency exchange rate risk (Mexican peso to U.S. dollar)239241 - The company does not use derivative instruments for hedging or speculative purposes240 Foreign Currency Remeasurement (in millions) | Period | 2022 (Loss) | 2021 (Gain) | | :----------- | :---------- | :---------- | | Three Months | $(0.4) | $0.4 | | Nine Months | $(1.3) | $1.2 | Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of July 31, 2022, despite recent management and internal control changes - Disclosure controls and procedures were deemed effective as of July 31, 2022, following an evaluation by management, including the CEO and CFO247 - Changes in management structure, including the placement of a new Chief Financial Officer, resulted in shifts in internal control over financial reporting responsibilities248 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, with further details available in Note 7 of the financial statements - The company is involved in litigation arising in the ordinary course of business249 - Further information on legal proceedings is available in Note 7 of the financial statements249 Item 1A. Risk Factors No material changes to risk factors from the 2021 Annual Report on Form 10-K, though unknown risks may still adversely affect the business - No material changes to the risk factors presented in the Annual Report on Form 10-K for the fiscal year ended October 31, 2021250 - Acknowledges that additional risks and uncertainties not currently known or deemed immaterial may adversely affect the business250 Item 5. Other Information The company corrected an administrative error in its Amended and Restated Bylaws, filing the correct version as an exhibit to this Form 10-Q - An administrative error in the Amended and Restated Bylaws (effective September 25, 2014) was identified and corrected251 - The correct version of the bylaws is included as Exhibit 3.1 to this Form 10-Q251 Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance, employment agreements, and financial data - Key exhibits include Amended and Restated Bylaws (3.1), Employment Agreements (10.2, 10.3), CEO/CFO Certifications (31.1, 31.2, 32.1), and Inline XBRL financial information (101, 104)253254 Signatures The Quarterly Report on Form 10-Q was signed on September 1, 2022, by Brian Kocher (CEO) and Shawn Munsell (CFO) - The report was signed by Brian Kocher (President and CEO) and Shawn Munsell (CFO) on September 1, 2022261