# Mission Produce, Inc.: Form 10-Q for the period ended Apr 30, 2024

- Company: [Mission Produce, Inc.](/companies/avo.md) (CIK 1802974)
- Form: 10-Q
- Filed: 2024-06-06
- Accepted by EDGAR: Jun 6, 2024, 20:57 ET
- Period: 2024-04-30
- Accession: 0001802974-24-000028
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1802974/000180297424000028/avo-20240430.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1802974/000180297424000028/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-04-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-02-01 to 2024-04-30 | $297.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-11-01 to 2024-04-30 | $556.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-02-01 to 2024-04-30 | $266.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-11-01 to 2024-04-30 | $496.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-02-01 to 2024-04-30 | $31.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-11-01 to 2024-04-30 | $59.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-02-01 to 2024-04-30 | $18.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-11-01 to 2024-04-30 | $39.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-02-01 to 2024-04-30 | $12.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-11-01 to 2024-04-30 | $20.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-02-01 to 2024-04-30 | $3.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-11-01 to 2024-04-30 | $6.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-02-01 to 2024-04-30 | $3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-11-01 to 2024-04-30 | $5.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-02-01 to 2024-04-30 | $7.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-11-01 to 2024-04-30 | $7.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-02-01 to 2024-04-30 | $0.10 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-11-01 to 2024-04-30 | $0.10 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-02-01 to 2024-04-30 | $0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-11-01 to 2024-04-30 | $0.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-02-01 to 2024-04-30 | 71,003,563 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-11-01 to 2024-04-30 | 70,959,716 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-11-01 to 2024-04-30 | $12.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-11-01 to 2024-04-30 | $17.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-04-30 | $46.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-04-30 | $276.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-04-30 | $966.9m | us-gaap:Assets |
| Current liabilities | at 2024-04-30 | $121.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-04-30 | $426.9m | us-gaap:Liabilities |
| Long-term debt | at 2024-04-30 | $167.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-04-30 | $3.1m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-04-30 | $0 | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-04-30 | $513.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,539 characters.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and related notes included elsewhere in this quarterly report. This discussion and analysis contains forward-looking statements based upon our current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. Please refer to the section of this report under the heading “Forward Looking Statements.”

### Overview

We are a world leader in sourcing, producing and distributing Hass avocados, serving retail, wholesale and foodservice customers. We source, produce, pack and distribute avocados and a small amount of other fruits to our customers and provide value-added services including ripening, bagging, custom packaging and logistical management. In addition, we provide our customers with merchandising and promotional support, insights on market trends and training designed to increase their retail avocado sales.

We have three operating segments which are also reportable segments:

- *Marketing and Distribution.* Our Marketing and Distribution reportable segment sources fruit from growers and then distributes the fruit through our global distribution network.
- *International Farming.* International Farming owns and operates orchards from which the vast majority of fruit produced is sold to our Marketing and Distribution segment. The segment’s farming activities range from cultivating early-stage plantings to harvesting from mature trees. It also earns service revenues for packing and processing fruit for both our Blueberries segment, as well as for third-party producers of other crops. Operations are principally located in Peru, with smaller operations emerging in other areas of Latin America.
- *Blueberries.* The Blueberries segment represents the results of Moruga. Moruga’s farming activities include cultivating early-stage blueberry plantings and harvesting mature bushes. Substantially all blueberries produced are sold to a single distributor under an exclusive marketing agreement.

### Results of Operations

The operating results of our businesses are significantly impacted by the price and volume of fruit we farm, source and distribute. In addition, our results have been, and will continue to be, affected by quarterly and annual fluctuations due to a number of factors, including but not limited to: pests and disease; weather patterns; changes in demand by consumers; food safety advisories; the timing of the receipt, reduction or cancellation of significant customer orders; the gain or loss of significant customers; the availability, quality and price of raw materials; the utilization of capacity at our various locations; and general economic conditions.

Our financial reporting currency is the U.S. dollar. The functional currency of our most significant subsidiaries is the U.S. dollar and the majority of our sales are denominated in U.S. dollars. A significant portion of our purchases of avocados are denominated in the Mexican Peso and a significant portion of our growing and harvesting costs are denominated in Peruvian Soles. Fluctuations in the exchange rates between the U.S. dollar and these local currencies usually do not have a significant impact on our gross margin because the impact affects our pricing by comparable amounts. Our margin exposure to exchange rate fluctuations is short-term in nature, as our sales price commitments are generally limited to less than one month and orders can primarily be serviced with procured inventory. Over longer periods of time, we believe that the impact exchange rate fluctuations will have on our cost of goods sold will largely be passed on to our customers in the form of higher or lower prices.

*(In millions, except for percentages)*

|  | Three Months Ended April 30, 2024 Dollars% |  | 2023 Dollars% |  | Six Months Ended April 30, 2024 Dollars% |  | 2023 Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $297.6 | 100% | $221.1 | 100% | $556.3 | 100% | $434.6 | 100% |
| Cost of sales | 266.6 | 90% | 203.0 | 92% | 496.6 | 89% | 407.5 | 94% |
| Gross profit | 31.0 | 10% | 18.1 | 8% | 59.7 | 11% | 27.1 | 6% |
| Selling, general and administrative expenses | 18.7 | 6% | 19.3 | 9% | 39.4 | 7% | 38.4 | 9% |
| Operating income (loss) | 12.3 | 4% | (1.2) | (1)% | 20.3 | 4% | (11.3) | (3)% |
| Interest expense | (3.4) | (1)% | (2.7) | (1)% | (6.7) | (1)% | (5.1) | (1)% |
| Equity method income | 0.5 | —% | 0.4 | —% | 0.9 | —% | 1.4 | —% |
| Other income (expense), net | 1.0 | —% | 0.6 | —% | — | —% | (0.2) | —% |
| Income (loss) before income taxes | 10.4 | 3% | (2.9) | (1)% | 14.5 | 3% | (15.2) | (3)% |
| Provision for income taxes | 3.4 | 1% | 1.8 | 1% | 5.5 | 1% | 0.1 | —% |
| Net income (loss) | 7.0 | 2% | (4.7) | (2)% | 9.0 | 2% | (15.3) | (4)% |
| Less: Net (loss) income attributable to noncontrolling interest | — | —% | (0.1) | —% | 2.0 | —% | (1.9) | —% |
| Net income (loss) attributable to Mission Produce | $7.0 | 2% | $(4.6) | (2)% | $7.0 | 1% | $(13.4) | (3)% |

### Net sales

Our net sales are generated predominantly from the shipment of fresh avocados to retail, wholesale and foodservice customers worldwide. Our net sales are affected by numerous factors, including the balance between the supply of and demand for our produce and competition from other fresh produce companies. Our net sales are also dependent on our ability to supply a consistent volume and quality of fresh produce to the markets we serve.

*(In millions)*

| Net sales by segment: | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Marketing and Distribution | $287.1 | $215.3 | $511.7 | $397.1 |
| International Farming | 0.5 | 4.1 | 2.1 | 6.0 |
| Blueberries | 10.0 | 1.7 | 42.5 | 31.5 |
| Total net sales | $297.6 | $221.1 | $556.3 | $434.6 |

Net sales increased $76.5 million or 35% in the three months ended April 30, 2024 compared to the same period last year, primarily driven by our Marketing and Distribution segment, where average per-unit avocado sales prices increased 22% and avocado volume sold increased 8%. Blueberry revenue also increased $8.3 million or 488% compared to the same period last year, driven by the timing of the harvest season compared to the same period last year.

Net sales increased $121.7 million or 28% in the six months ended April 30, 2024 compared to the same period last year, driven by a 23% increase in average per-unit avocado sales prices and a 4% increase in avocado volume sold. Blueberry revenue increased $11.0 million or 35%, primarily due to a 63% increase in average per-unit sales price, partially offset by a 17% decrease in volume sold. Pricing in the first quarter of 2024 was favorably impacted by industry supply constraints during the Peru harvest season.

### Gross profit

Cost of sales is composed primarily of avocado procurement costs from independent growers and packers, logistics costs, packaging costs, labor, costs associated with cultivation (the cost of growing crops), harvesting and depreciation. Avocado procurement costs from third-party suppliers can vary significantly between and within fiscal years and correlate closely with market prices for avocados. While we have long-standing relationships with our growers and packers, we predominantly purchase fruit on a daily basis at market rates. As such, the cost to procure products from independent growers can have a significant impact on our costs.

Logistics costs include land and sea transportation and expenses related to port facilities and distribution centers. Land transportation costs consist primarily of third-party trucking services to support North American distribution, while sea transportation cost consists primarily of third-party shipping of refrigerated containers from supply markets in South and Central America to demand markets in North America, Europe and Asia. Fuel prices as well as variations in containerboard prices, which affect the cost of boxes and other packaging materials, impact our product cost and our profit margins. Variations in production yields and other input costs also affect our cost of sales.

In general, changes in our volume of products sold can have a disproportionate effect on our gross profit. Within any particular year, a significant portion of our cost of products are fixed. Accordingly, higher volumes produced on company-owned farms directly reduce the average cost per pound of fruit grown on company owned orchards, while lower volumes directly increase the average cost per pound of fruit grown on company owned orchards. Likewise, higher volumes processed through packing and distribution facilities directly reduce the average overhead cost per unit of fruit handled, while lower volumes directly increase the average overhead cost per unit of fruit handled.

Gross profit percentage will fluctuate based upon per-unit sales price levels in relation to per-unit costs. Margin is primarily managed on a per-unit basis in our Marketing and Distribution segment, which can lead to movement in gross profit percentage when sales prices fluctuate.

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Gross profit (in millions) | $31.0 | $18.1 | $59.7 | $27.1 |
| Gross profit as a percentage of sales | 10.4% | 8.2% | 10.7% | 6.2% |

Gross profit increased $12.9 million or 71% in the three months ended April 30, 2024 compared to the same period last year to $31.0 million and gross profit percentage increased 220 basis points to 10.4% of revenue, compared to the same period last year. The increases were attributed to our Marketing and Distribution segment, driven by strong per-unit margins on avocados sold and higher volume.

Gross profit increased $32.6 million or 120% in the six months ended April 30, 2024 compared to the same period last year to $59.7 million and gross profit percentage increased 450 basis points to 10.7% of revenue, compared to the same period last year. The increases were attributed to our Marketing and Distribution segment, where we achieved strong per-unit margins on avocados sold and higher volume, and our Blueberries segment, where we benefited significantly from higher per-unit sales pricing.

Warmer temperatures correlated with El Niño have persisted through the development of our 2024 Peruvian avocado crop. We expect these warmer temperatures to negatively affect our harvest yields for the second half of fiscal year 2024, reducing exportable volume from our owned farms to be more than 50% lower than recent seasons. The decrease in volume will negatively impact absorption of fixed costs at our Peruvian farms. Though we expect these lower volumes to generally support higher pricing, we do not expect higher pricing levels to offset the negative impact of volume decreases on gross profit for the International Farming segment for the fiscal year.

### SG&A

Selling, general and administrative (“SG&A”) expenses primarily include the costs associated with selling, professional fees, general corporate overhead and other related administrative functions.

*(In millions)*

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $18.7 | $19.3 | $39.4 | $38.4 |

SG&A expenses decreased $0.6 million or 3% in the three months ended April 30, 2024 compared to the same period last year, primarily due to a reduction in general corporate expenses.

SG&A expenses increased $1.0 million or 3% in the six months ended April 30, 2024 compared to the same period last year, primarily due to higher employee related costs, including performance-based incentive compensation and stock-based compensation expense. These costs were partially offset by a reduction of approximately $2.0 million in general corporate expenses.

### Interest expense

Interest expense consists primarily of interest on borrowings under working capital facilities that we maintain and interest on other long-term debt used to make capital and equity investments. We also incur interest expense on finance leases, computed using each lease’s explicit or implicit borrowing rate.

*(In millions)*

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $3.4 | $2.7 | $6.7 | $5.1 |

Interest expense increased $0.7 million or 26% and $1.6 million or 31% in the three and six months ended April 30, 2024, respectively, compared to the same periods last year, driven primarily by rising interest rates. Interest expense incurred from a significant financing lease in our Blueberries segment was $0.5 million and $0.4 million for the three months ended April 30, 2024 and 2023, respectively, and $1.0 million and $0.7 million in the six months ended April 30, 2024 and 2023, respectively.

### Equity method income

Our material equity method investees include Henry Avocado (“HAC”), Mr. Avocado and Copaltas.

*(In millions)*

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Equity method income | $0.5 | $0.4 | $0.9 | $1.4 |

Equity method income was flat in the three months ended April 30, 2024 compared to the same period last year, as income from HAC was largely offset by losses at Mr. Avocado resulting from low margins on fruit sold.

Equity method income decreased $0.5 million or 36% in the six months ended April 30, 2024 compared to the same period last year, as losses at Mr. Avocado were only partially offset by income growth from HAC.

### Other income (expense), net

Other income (expense), net consists of interest income, currency exchange gains or losses, interest rate derivative gains or losses and other miscellaneous income and expense items.

*(In millions)*

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Other income (expense), net | $1.0 | $0.6 | $— | $(0.2) |

Other income increased $0.4 million or 67% in three months ended April 30, 2024 compared to the same period last year, primarily due to foreign currency transaction losses in the previous year from the weakening of the U.S. dollar relative to the Mexican peso.

Other income (expense), net was zero in the six months ended April 30, 2024 compared to expense of $0.2 million in the same period last year, primarily due to higher interest income.

### Income taxes

The provision for income taxes consists of the consolidation of tax provisions, computed on a separate entity basis, in each country in which we have operations. We recognize the effects of tax legislation in the period in which the law is enacted. Our deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years we estimate the related temporary differences to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

We recognize a tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized within provision for income taxes.

Our effective tax rate is impacted by income attributable to foreign jurisdictions which is taxed at different rates from the U.S. federal statutory tax rate of 21%, changes in foreign exchange rates taxable in foreign jurisdictions and nondeductible tax items.

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes (in millions) | $3.4 | $1.8 | $5.5 | $0.1 |
| Effective tax rate | 32.7% | (62.1)% | 37.9% | (0.7)% |

The provision for income tax increased $1.6 million or 89% in the three months ended April 30, 2024 compared to the same period last year, primarily due to the effect of higher income before taxes in the current year, and a $1.8 million discrete charge recorded in the prior year related to an uncertain tax position in Mexico. Our effective tax rate was also impacted by book losses in jurisdictions where either a full valuation allowance has been recorded or where loss carryforward is disallowed.

The provision for income tax increased $5.4 million in the six months ended April 30, 2024 compared $0.1 million in the same period last year, due to the same reasons noted above.

### Segment Results of Operations

Our CEO evaluates and monitors segment performance primarily through segment sales and segment adjusted earnings before interest expense, income taxes and depreciation and amortization (“adjusted EBITDA”). We believe that adjusted EBITDA by segment provides useful information for analyzing the underlying business results as well as allowing investors a means to evaluate the financial results of each reportable segment in relation to the Company as a whole. These measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures.

Adjusted EBITDA refers to net income (loss), before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expense, other income (expense), and income (loss) from equity method investees, further adjusted by asset impairment and disposals, net of insurance recoveries, farming costs for nonproductive orchards (which represents land lease costs), recognition of deferred ERP costs, transaction costs, amortization of inventory adjustments recognized from business combinations, and any special, non-recurring, or one-time items such as remeasurements or impairments, and any portion of these items attributable to the noncontrolling interest, all of which are excluded from the results the CEO reviews uses to assess segment performance and results.

### Net sales

*(In millions)*

|  | Marketing and Distribution International Farming Blueberries Total Three Months Ended April 30, 2024 | Marketing and Distribution International Farming Blueberries Total 2023 |
| --- | ---: | ---: |
| Third party sales | $287.1 $0.5 $10.0 $297.6 | $215.3 $4.1 $1.7 $221.1 |
| Affiliated sales | — 0.9 — 0.9 | — 1.9 — 1.9 |
| Total segment sales | 287.1 1.4 10.0 298.5 | 215.3 6.0 1.7 223.0 |
| Intercompany eliminations | — (0.9) — (0.9) | — (1.9) — (1.9) |
| Total net sales | $287.1 $0.5 $10.0 $297.6 | $215.3 $4.1 $1.7 $221.1 |
|  | **Six Months Ended April 30,** |  |
|  | **2024** | **2023** |
| Third party sales | $511.7 $2.1 $42.5 $556.3 | $397.1 $6.0 $31.5 $434.6 |
| Affiliated sales | — 5.1 — 5.1 | — 5.7 — 5.7 |
| Total segment sales | 511.7 7.2 42.5 561.4 | 397.1 11.7 31.5 440.3 |
| Intercompany eliminations | — (5.1) — (5.1) | — (5.7) — (5.7) |
| Total net sales | $511.7 $2.1 $42.5 $556.3 | $397.1 $6.0 $31.5 $434.6 |

23

### Adjusted EBITDA

*(In millions)*

|  | Three Months Ended April 30, 2024 | 2023 | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Marketing and Distribution adjusted EBITDA | $21.7 | $8.6 | $32.7 | $13.2 |
| International Farming adjusted EBITDA | (2.2) | (1.1) | (2.7) | (2.9) |
| Blueberries adjusted EBITDA | 0.7 | 0.1 | 9.4 | (0.4) |
| Total reportable segment adjusted EBITDA | 20.2 | 7.6 | $39.4 | $9.9 |
| Net income (loss) | 7.0 | (4.7) | 9.0 | (15.3) |
| Interest expense | 3.4 | 2.7 | 6.7 | 5.1 |
| Provision for income taxes | 3.4 | 1.8 | 5.5 | 0.1 |
| Depreciation and amortization(1) | 5.7 | 5.9 | 18.6 | 15.2 |
| Equity method income | (0.5) | (0.4) | (0.9) | (1.4) |
| Stock-based compensation | 1.6 | 1.3 | 3.0 | 2.0 |
| Asset impairment and disposals, net of insurance recoveries | 0.2 | 0.5 | 0.4 | 0.8 |
| Farming costs for nonproductive orchards | 0.3 | 0.4 | 0.8 | 0.8 |
| Recognition of deferred ERP costs | 0.6 | 0.5 | 1.1 | 1.1 |
| Severance | — | — | 1.3 | — |
| Legal settlement | — | — | 0.2 | — |
| Transaction costs | — | 0.2 | — | 0.3 |
| Amortization of inventory adjustment recognized from business combination | — | — | — | 0.7 |
| Other (income) expense, net | (1.0) | (0.6) | — | 0.2 |
| Noncontrolling interest(2) | (0.5) | — | (6.3) | 0.3 |
| Total adjusted EBITDA | $20.2 | $7.6 | $39.4 | $9.9 |

(1) Includes depreciation and amortization of purchase accounting assets of $0.4 million and $0.1 million for the three months ended April 30, 2024 and 2023, respectively, and $3.3 million and $1.7 million for the six months ended April 30, 2024 and 2023, respectively. The six months ended April 30, 2024 include $4.1 million of accelerated depreciation expense for certain blueberry plants determined to have no remaining useful life.

(2) Represents net income (loss) attributable to noncontrolling interest plus the impact of non-GAAP adjustments, allocable to the noncontrolling owner based on their percentage of ownership interest.

#### Marketing and Distribution

Net sales in our Marketing and Distribution segment increased $71.8 million or 33% in the three months ended April 30, 2024 compared to the same period last year, driven by avocado pricing and volume increases as described above.

Segment adjusted EBITDA increased $13.1 million or 152% in the three months ended April 30, 2024 compared to the same period last year primarily due to improved per-unit gross margin on avocados sold.

Net sales in our Marketing and Distribution segment increased $114.6 million or 29% in the six months ended April 30, 2024 compared to the same period last year, driven by avocado pricing and volume increases as described above.

Segment adjusted EBITDA increased $19.5 million or 148% in the six months ended April 30, 2024 compared to the same period last year primarily due to improved per-unit gross margin on avocados sold.

#### International Farming

The vast majority of fruit sales from our International Farming segment are made to the Marketing and Distribution segment, with the remainder of revenue largely derived from services provided to third parties and our Blueberries segment. Affiliated sales are concentrated in the second half of the fiscal year in alignment with the Peruvian avocado harvest season, which typically runs from April through September of each year. As a result, adjusted EBITDA for the International Farming segment is generally concentrated in the third and fourth quarters of the fiscal year in alignment with the timing of sales. In addition, the Company operates approximately 700 acres of mangos in Peru that are largely in an early stage of production. The timing of the mango harvest is generally concentrated in the fiscal second quarter. However, in the current fiscal year, the harvest was largely concluded by the end of the first fiscal quarter.

Total segment sales in our International Farming segment decreased by $4.6 million or 77% in the three months ended April 30, 2024, compared to the same period last year primarily due to lower third-party avocado packing service revenue associated with the later start of the 2024 avocado season in Peru.

Segment adjusted EBITDA was $(2.2) million in the three months ended April 30, 2024, compared to $(1.1) million in the same period last year primarily due to lower third-party avocado packing service revenue associated with the later start of the avocado season.

Total segment sales in our International Farming segment decreased by $4.5 million or 38% in the six months ended April 30, 2024, compared to the same period last year primarily due to lower third-party avocado packing service revenue associated with the later start of the avocado season.

Segment adjusted EBITDA improved by $0.2 million or 7% in the six months ended April 30, 2024, compared to the same period last year, primarily driven by cost savings measures in our mango farms, packing operations, and SG&A in Peru.

#### Blueberries

Sales in our Blueberries segment have been concentrated in the first and fourth quarters of our fiscal year in alignment with the Peruvian blueberry harvest season, which typically runs from July through February.

Net sales in our Blueberries segment increased $8.3 million or 488% in the three months ended April 30, 2024 compared to the same period last year, driven by higher volume resulting from an extended harvest season compared to the same period last year.

Segment adjusted EBITDA increased $0.6 million or 600% for the three months ended April 30, 2024 compared to the same period last year, primarily due to gross margin improvement driven by higher sales volume.

Net sales in our Blueberries segment increased $11.0 million or 35% in the six months ended April 30, 2024 compared to the same period last year, primarily due to a 63% increase in average per-unit sales price, partially offset by a 17% decrease in volume sold. Pricing in the first quarter of 2024 was favorably impacted by industry supply constraints during the Peru harvest season.

Segment adjusted EBITDA was $9.4 million for the six months ended April 30, 2024 compared to $(0.4) million in the same period last year, primarily due to gross margin improvement driven by elevated sales pricing.

### Liquidity and Capital Resources

### Operating activities

Operating cash flows are seasonal in nature. We typically see increases in working capital during the first half of our fiscal year as our supply is predominantly sourced from Mexico under payment terms that are shorter than terms established for other source markets. In addition, we are building our growing crops inventory in our International Farming segment during the first half of the year for ultimate harvest and sale that will occur during the second half of the fiscal year. While these increases in working capital can cause operating cash flows to be unfavorable in individual quarters, it is not indicative of operating cash performance that we expect to realize for the full year.

*(In millions)*

|  | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net income (loss) | $9.0 | $(15.3) |
| Depreciation and amortization | 18.6 | 15.2 |
| Equity method income | (0.9) | (1.4) |
| Noncash lease expense | 3.1 | 2.9 |
| Stock-based compensation | 3.0 | 2.0 |
| Dividends received from equity method investees | 3.2 | 2.7 |
| Deferred income taxes | (1.0) | (0.9) |
| Other | 1.6 | 0.9 |
| Changes in working capital | (23.7) | (32.2) |
| Net cash provided by (used in) operating activities | $12.9 | $(26.1) |

Net cash provided by operating activities was $12.9 million for the six months ended April 30, 2024, compared to cash used of $26.1 million in the same period last year, driven by improved operating performance and working capital management. Within working capital, favorable changes in grower payables were partially offset by changes in accounts receivable, correlated with the higher avocado pricing and higher volume as previously discussed. Changes in net inventory were consistent with prior year as higher per-unit cost of purchased avocados on-hand was largely offset by lower avocado growing crop inventory in Peru. Also impacting working capital was a net favorable change in accounts payable and accrued expenses and other long-term liabilities, related to the timing of payables and correlated to the later end of the blueberry harvest season.

### Investing activities

*(In millions)*

|  | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: |
| Purchases of property, plant and equipment | $(17.7) | $(34.9) |
| Proceeds from sale of property, plant and equipment | — | 0.1 |
| Investment in equity method investees | (0.6) | (0.3) |
| Purchase of other investment | — | (2.3) |
| Other | — | (0.1) |
| Net cash used in investing activities | $(18.3) | $(37.5) |

#### Property, plant and equipment

*(In millions)*

| Purchases of property, plant and equipment by segment: | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: |
| Marketing and Distribution | $5.5 | $7.2 |
| International Farming | 7.6 | 18.6 |
| Blueberries | 4.6 | 9.1 |
| Total purchases of property, plant and equipment | $17.7 | $34.9 |

In the six months ended April 30, 2024 and 2023, capital expenditures were comprised primarily of avocado orchard development, pre-production orchard maintenance and land improvements in Guatemala; pre-production avocado orchard maintenance, blueberry land development and plant cultivation, and blueberry cooling facility construction costs in Peru; and distribution facility construction costs in the UK.

From time to time, we may make capital contributions or loans to equity method investees to support capital expansion or working capital needs. Capital contributions made in six months ended April 30, 2024 and 2023 were to Mr. Avocado.

#### Other investment

In the six months ended April 30, 2023, we acquired a 5.1% interest in shares of common stock of a private entity in South Africa.

### Financing activities

*(In millions)*

|  | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: |
| Borrowings on revolving credit facility | $40.0 | $135.0 |
| Payments on revolving credit facility | (20.0) | (100.0) |
| Repayment of short-term borrowings | (2.8) | (2.5) |
| Principal payments on long-term debt obligations | (1.8) | (1.8) |
| Principal payments on finance lease obligations | (2.6) | (2.0) |
| Proceeds from loan from noncontrolling interest holder | — | 2.4 |
| Principal payments on loans due to noncontrolling interest holder | (0.5) | — |
| Payments for long-term supplier financing | (0.3) | — |
| Payments to noncontrolling interest holder for long-term supply financing | (1.9) | — |

26

*(In millions)*

|  | Six Months Ended April 30, 2024 | 2023 |
| --- | ---: | ---: |
| Payments of minimum withholding taxes on net share settlement of equity awards | (0.8) | (0.4) |
| Equity contributions from noncontrolling interest holders | — | 1.4 |
| Net cash provided by financing activities | $9.3 | $32.1 |

#### Borrowings and repayments of debt

We utilize a revolving line of credit for short-term working capital purposes. Principal payments on our credit facility are made in accordance with debt maturity schedules.

#### Blueberries

Financing of our Blueberries segment consists of shareholder contributions and loans, as well as short-term bank borrowings, as needed. Principal payments on shareholder loans are made in accordance with loan agreements. Principal payments on finance lease obligations primarily relate to a long-term land lease, which for accounting purposes has been classified as a finance lease. Certain supply purchases are made under long-term financing arrangements, a significant portion of which are with the noncontrolling interest holder of the entity.

### Capital resources

*(In millions)*

|  | April 30, 2024 | October 31, 2023 |
| --- | ---: | ---: |
| Cash and cash equivalents | $46.2 | $42.9 |
| Working capital(1) | 154.6 | 122.6 |

(1) Current assets minus current liabilities.

Capital resources include cash flows from operations, cash and cash equivalents, and debt financing. Our Blueberries segment may from time to time also receive capital contributions or loans from shareholders.

Our syndicated credit facility with Bank of America has a total borrowing capacity of $250 million. The credit facility is comprised of two senior term loans totaling $100 million and a revolving credit agreement of $150 million. The loans are secured by assets of the Company, including certain real property, personal property and capital stock of the Company’s subsidiaries. Borrowings under the credit facility bear interest at a spread over SOFR ranging from 1.5% to 2.5% depending on the Company’s consolidated total net leverage ratio. We pay fees on unused commitments on the credit facility.

As of April 30, 2024, we were required to comply with the following financial covenants: (a) a quarterly consolidated leverage ratio of not more than 3.5 to 1.00 and (b) a quarterly consolidated fixed charge coverage ratio of not less than 1.25 to 1.00. As of April 30, 2024, our consolidated leverage ratio was 2.14 to 1.00 and our consolidated fixed charge coverage ratio was 2.25 to 1.00 and we were in compliance with all such covenants of the credit facility.

### Material cash requirements

#### Capital expenditures

We have various capital projects in progress for farming expansion and facility improvements which we intend to fund through our operating cash flow as well as cash and cash equivalents on hand. For fiscal 2024, we expect capital expenditures to be between $40 million to $45 million.

#### Moruga Blueberry Project

In fiscal year 2023, Moruga commenced a long-term project to farm approximately 1,500 additional acres of blueberries in the Olmos region of Peru. The project is funded by cash flow generated by Moruga and supplemented by pro-rata shareholder contributions based on each shareholders’ respective ownership interest. As of April 30, 2024, the estimated remaining capital expenditures related to the project were approximately $35 million.

#### Leases

We are party to various leases, the most material of which are for facilities and land. Our undiscounted cash liabilities were approximately $175.3 million as of April 30, 2024, of which, approximately $107.8 million was for long-term land leases in our International Farming and Blueberries segments.

#### Long-term debt

As of April 30, 2024, remaining maturities on our term loans and notes were $170.6 million. See Note 6 to the consolidated financial statements for more information.

### Critical accounting estimates

For a discussion of our critical accounting estimates, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Operations” in our Annual Report on Form 10-K for the year ended October 31, 2023, filed with the SEC on December 21, 2023. There have been no material changes to the critical accounting estimates disclosed in such Annual Report on Form 10-K.

## Market risk

As filed, 188 characters.

There have been no material changes to “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended October 31, 2023.

## Controls and procedures

As filed, 2,203 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended April 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

## Risk factors

As filed, 1,022 characters.

For a discussion of our risk factors, see “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 2023, filed with the SEC on December 21, 2023. There have been no material changes from the risk factors previously disclosed in such Annual Report on Form 10-K, except as set forth below. The risks and uncertainties that we face are not limited to those set forth in the 2023 Form 10-K and in this quarterly report. You should carefully consider the risk factors in the 2023 Form 10-K, together with the other information contained in this quarterly report on Form 10-Q, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before making a decision to purchase or sell shares of our common stock. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.

Filed Jun 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001802974-24-000028. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.