Calavo(US:CVGW)2024-06-10 20:55PART I. FINANCIAL INFORMATION Item 1. Financial Statements Q2 2024 financial statements show improved net income and positive operating cash flow for continuing operations, following the Fresh Cut business reclassification Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2024 | October 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,273 | $2,091 | | Total current assets | $262,344 | $133,370 | | Current assets held for sale | $138,927 | $37,533 | | Total assets | $411,369 | $386,854 | | Total current liabilities | $133,182 | $81,746 | | Current liabilities held for sale | $53,261 | $29,911 | | Total shareholders' equity | $207,331 | $210,229 | Consolidated Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $184,383 | $158,279 | $311,989 | $291,042 | | Gross profit | $20,357 | $15,671 | $32,825 | $28,756 | | Operating income | $7,135 | $1,924 | $5,757 | $1,319 | | Net income from continuing operations | $6,507 | $1,447 | $3,933 | $1,002 | | Net loss from discontinued operations | $(408) | $(5,407) | $(4,091) | $(7,757) | | Net income (loss) attributable to Calavo | $6,062 | $(3,995) | $(205) | $(7,063) | | Diluted EPS (Continuing Operations) | $0.36 | $0.08 | $0.22 | $0.04 | Consolidated Statement of Cash Flows Highlights (Six months ended April 30, in thousands) | Cash Flow Category | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,150 | $(3,778) | | Net cash used in investing activities | $(2,377) | $(8,461) | | Net cash provided by financing activities | $1,648 | $13,303 | Notes to Consolidated Financial Statements Notes detail the Fresh Cut business reclassification, an FCPA investigation, a major Mexican tax assessment, and ongoing related party transactions - The company is in non-binding negotiations to sell its Fresh Cut business, now classified as held for sale and discontinued operations, with transaction completion targeted for Q3 fiscal 2024202178 - An internal investigation identified potential issues under the Foreign Corrupt Practices Act (FCPA) related to Mexico operations, voluntarily disclosed to the SEC and DOJ, with no estimable financial impact currently5355 - The company is contesting a 2013 tax assessment from Mexico's SAT, totaling approximately $181.1 million USD as of April 30, 2024, with an $11 million provision recorded in fiscal 2021 deemed appropriate by management5865 Results of Discontinued Operations (Fresh Cut Business, in thousands) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $83,959 | $86,410 | $170,372 | $179,851 | | Gross profit (loss) | $3,810 | $(634) | $4,641 | $713 | | Net loss from discontinued operations | $(408) | $(5,407) | $(4,091) | $(7,757) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights strong Q2 2024 performance in continuing operations, driven by the Grown segment, while addressing the Fresh Cut business sale and FCPA investigation expenses Results of Operations Q2 2024 net sales from continuing operations increased 16%, with gross profit up 30%, primarily driven by the Grown segment, while SG&A rose due to FCPA investigation fees Net Sales by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Grown | $166,755 | $140,301 | 19% | | Prepared | $17,628 | $17,978 | (2)% | | Total | $184,383 | $158,279 | 16% | - Grown segment sales growth in Q2 was driven by a 12% increase in avocado sales (28% price increase, 13% volume decrease) and a 73% increase in tomato sales (28% volume increase, 35% price increase)115116117 Gross Profit by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | % Change | Q2 2024 Margin | Q2 2023 Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Grown | $16,049 | $12,599 | 27% | 9.6% | 9.0% | | Prepared | $4,308 | $3,072 | 40% | 24.4% | 17.1% | | Total | $20,357 | $15,671 | 30% | 11.0% | 9.9% | - SG&A expenses for Q2 2024 decreased by 3% YoY, but increased by 6% for the six-month period, primarily driven by $5.0 million in professional fees for the FCPA investigation136137 Non-GAAP Financial Measures Non-GAAP measures like Adjusted EBITDA are used to evaluate performance, with Q2 2024 Adjusted EBITDA from continuing operations at $13.4 million, adjusted for FCPA and restructuring costs Reconciliation of Adjusted EBITDA from Continuing Operations (in thousands) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net income from continuing operations attributable to Calavo | $6,470 | $1,412 | | EBITDA from continuing operations | $10,241 | $6,233 | | Professional fees related to FCPA Mexico investigation | $2,656 | $— | | Restructure costs | $550 | $2,327 | | Other adjustments | $202 | $1,177 | | Adjusted EBITDA from continuing operations | $13,445 | $9,937 | Liquidity and Capital Resources The company maintains solid liquidity with $4.3 million cash and $43.0 million credit facility availability, with operating cash flow improving to $2.2 million for the six-month period - Cash provided by operating activities improved to $2.2 million for the six months ended April 30, 2024, compared to cash used of $3.8 million in the prior-year period141 - As of April 30, 2024, the company had $4.3 million in cash and cash equivalents and working capital of $54.4 million146 - The company had $43.0 million available for borrowing under its credit facility as of April 30, 2024, with outstanding borrowings including $42.0 million on the revolving loan and $3.8 million on the term loan153 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exchange rate fluctuation between the U.S. dollar and Mexican peso, with a Q2 2024 remeasurement loss of $0.3 million - The company is exposed to market risk from fluctuations in the Mexican peso to U.S. dollar exchange rate, resulting in a net remeasurement loss of $0.3 million for Q2 2024, compared to a $1.0 million gain in Q2 2023159 - The company does not use derivative instruments for speculative, trading, or hedging purposes158 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of April 30, 2024, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 30, 2024160 - No material changes were made to the company's internal control over financial reporting during the quarter161 PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 7 for details on legal proceedings, including the ongoing FCPA investigation in Mexico and the long-standing Mexican tax audits - For information regarding legal proceedings, the report refers to Note 7 of the consolidated financial statements163 Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended October 31, 2023 - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended October 31, 2023164 Item 5. Other Information No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading plans during the quarter ended April 30, 2024 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading plans during the quarter165 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - The exhibits filed with the report include CEO/CFO certifications and financial data in Inline XBRL format166