Mission Produce (AVO) 11 Mar 222022 Q1 Earnings call transcript

Good afternoon. And welcome to the Mission Produce Fiscal First Quarter 2022 Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note today’s event is being recorded. like Relations the at I’d Jeff over time, Investor Sonnek, ICR. this to conference turn to At Sir, please go ahead.

of than Chief All Officer; well facts Thank statements. concerning the Reform you by from forward-looking Bryan during the statements Executive hosted within and forward-looking number results historical of risks statements considered are These in the meaning will unknown presentation statements uncertainties statements. The discussed expectations results accompanying assumptions of statements Giles, today’s and Act forward-looking and and presentation call and are forward-looking good actual provisions Steve current of Litigation to management’s afternoon. that Barnard, are differ the and based known Private cause the subject future Today’s Harbor Financial of as materially other on Securities comments Officer. events. XXXX. statements contain be Such beliefs, to the Chief Safe as a could

of Relations that, comparable on non-GAAP found for Some to and Barnard, to over most uncertainties also and the which Steve with non-GAAP company’s included now can identified of refer the these the financial be tables the financial CEO. We’ll turn certain their website like GAAP to release, investors.missionproduce.com, to to our I’d Investor measures With refer reconciliations in risks directly today. discussed measures. filings Please SEC. the earnings in measures call are

quarter call. Thank you for for XXXX joining fiscal earnings us our first

founding. ERP segment. Marketing impacted X, we Distribution first entire the and is not our level November demonstrate results & of XXXX, and its that disappointing new defined our system do a Our execution business implemented that quarter were On

implementation all undergone which highly is mitigate to company an is testing, requires that designed knows, every a As implementation of extensive planning and has this who exercise risks. complex ERP

planning with hours we implementation. despite countless this challenges significant spent the we nevertheless and experienced for However, preparing the conversion,

addressed the drive to we the in before were we we issues done level unable execution back we the delivered. perhaps, quarter nearly And come most of our result, that and quickly despite historically a that and per most team work our to four to expect has Mission’s have challenges, the customers to there’s first is we’ve to in efficiency our from impact. that unit decades. As able of to more be have extended that the was we the believe acute margins quarter, we first get faced ourselves. any largely hallmark commitment the importantly, adjust protect for It customer to been service disruption Well,

stressed time we’ve base of from our and ability providing growers, their services also advantage As round customer fit with vertically and needs. competitive greatest year diverse global to supply our of a again, value-added while that provide customized farms our precisely network avocados is integrated our

our you network. simple any As the we have. XXX you weekly of through On fruit of when what move XXX which And move but as between on day. the precisely operational need we anything can through given basis, is chain and consider moving a these fruit capabilities, of sheer supply extensive is kind we’re sounds, truckloads it volume that to volume

leader the has in and over different continents four Mission and and four of serve on California, to global different set covers across XX houses Peru, XX with the over complexities. XX are built years countries. distribution network packing piece-by-piece, in become operations unique growth Our has countries capabilities a Mexico forward we But centers today. asset-by-asset nine to last ripening customers

support security our to infrastructure system growing the execute unparalleled to new need now standard visibility infrastructure be our a scale public greater so geography while strategic of need necessary we businesses service. able a that ERP and has our we across that our maintaining to provides larger of enhance For designed to apparent even many upgrade years, can establishes The growth we our operational It that was control ERP also it our environment an for been company. would to on plans. business breadth organization and are customers our

we business, implementation the we risk the naive impacted first examples of in I’ll was operations provide our While a greater the anticipated. weren’t quarter. extent disruption to magnitude ERP few and the to the than how

which First, there fit was was not into returns of at moved below that resulted in lack fruit inventory, visibility on considerable or for a sufficient hand average sale.

by amount meaningful inventory, margins large commitments. do first In of addition, to we in fruit on quarter due fruit sourcing visibility braids were of providers with difficulties a third-party Mexican amendments. Separately, needed and size we smaller to negatively sourced fulfill significant the led order the the impacted with use from co-packer disproportionately which to the and also harvest results typically where meet recognize to expensive curve struggles not customer

first metric which capital the product these our largely exceptional working we was and to priority, complexities erosion our customers, margin amendments is Although, operational inefficiencies. of

the So remarks, noted As it? top what at we we behind doing believe my are us. the of I about worst is

our for of a basis conversion, to the teams and we on hired preparation remediate part on us the third-party They actively implementation. work with remaining remain ERP engaged identify a As firm issues. our to with daily

and the teams functionality and and centers the needed with protocols to provide capabilities to develop the new distribution operational key into assist At excellence additional we activated business. and time, have visibility execution. same training to that aspects deployed enhance we our our insight Additionally, reporting processes of

accelerated enterprise in the so same that Importantly, we entire direction and the at up our pace. heavily have ramped moving and an also on same page communication cross-functional is collaboration, the

We are progress. making

consumption as element and to advantageous favorable, help service margins a intact. challenges, the month ability production Despite to long-term to continued trends round the in per year are that business driving for historical be be is the Europe remain fractions fundamentals implementation. remain our such global faced supporting America. February, and our the in experience sourcing demographics are and have we at of During of of food is here business ensure demand and business we and decidedly North customers what in our to to of will despite Asia, key ERP retailers our Strategically investing our plans. industry levels. trend the a returned markets and challenges of the key with maintaining box our resilient the long-term our growth we growth component The capture growth avocados key the In organic summary, own

believe We the a ERP necessary was further footprint. as we conversion continue step global scale our to that

while capabilities of enhancing to and on to focused strategy consistent market and growth and adapt dynamics. continuing mitigate long-term capacities, generating We are industry our by share increasing

sustainable shareholder about advantage we the excited value. financial commentary. pass with are ahead for that, over I’ll global value-added that our have With long-term We his network we what’s believe to CFO, Giles and an assets our call will drive Bryan undisputed of

by last in driven call. and XX, of a million, lower of and everyone Then the Mexico, lower same conditions per unit first in on volume I’ll decrease $XXX.X smaller increased the the prices in compared out sales the as by XXXX, for XXXX position sold, Growth financial due Total well current tracking brief provide operating to supply start million to increase thoughts was supply some are a which XX% on year. of snapshot offsetting the we some impacted of as avocado our ended as industry with and February. for supply. was afternoon revenue Thank industry touch to period performance driven seeing is price how first $XXX.X good a fiscal was primarily first on you, by the avocado and segments. average pressures. industry quarter to of that drivers the gains Partially inflationary quarter, harvest. an review negatively within our Mexican some XX% Steve, fiscal was two I’ll In our XX% performance of with January quarter conclude

that the own XX% Mexican market U.S. than volumes. in the to domestic our Our with consistent estimates indicate we which was prior supply year, experienced was reduction approximately lower

grading industry the quarter. situation, Mexican distributed of with fruit. perspective Mexican addition, to XX% supply experience To continued approximately further on volume challenges sizing first the of in In the provide harvested fruit abnormal was and U.S.

a While to available this Mission impact year of not example gaps investing at are of industry Mexico provides the proactive Mission’s offset to is supply supply shortages. there why meaningfully global has relative as the to footprint in sources fruit sourcing of the sources volatility. and of an industry time supply ample advantages been global reduce fill whole, This in these

during drove see unit typically impact a The per higher lower mentioned, substantially demand higher consumption on first international in in markets. more the the were due than that prices those is markets, remained in strong. of for quarter, market previously we pricing capita larger of pricing where had avocados and lower we sell indicating the levels sensitive supply volume demand supply the the lack fruit to to able per of international domestic to As

As the volume were significant international experienced market. in such, year-over-year in more U.S. reductions those than markets

So, margin. conditions of the to ability be we costs. while and less limit per our unit to on fixed clear our is on In first to performance, market industry wanted have absorb ERP words, overwhelming business how was volume reminder when in that the I a has ability our generate quarter other variable influencing the volume, the provide impact

period million. where profit First $XX.X was prior quarter versus gross year $X.X million we generated

Marketing third-party by created margin co-packer coupled company’s higher directly fruit, increase box in first to inflation eroding SG&A of This profit. in chain combined resulted industry in relative temporary extreme fixed $X.X costs included to management per disposals increased unusually costs million, field both points problems pack implementation. the the $X limited As with ability quarter large gross transportation which resulted first unfavorable These new segment, on our the consulting Steve and erosion Inventory shared, with during cost a our the volume sourced quarter and ERP manage to for lower non-capitalizable we experienced the associated the to ERP $XX.X facilities. unforeseen fruit with in and challenges mix our significant sourcing million absorption we and low fruit challenges costs, fruit primarily and implementation have system in our supply million in effectively which a to reliance due Distribution quarter. XXXX. during the of due price high approximately incurred & the of

component consulting expect through move rational the the amount spend quarter and we to of peak as beyond. we that note I on we and spend more Importantly, second a foresee be this

Adjusted expenses Adjusted related million SEC of diluted fees, $X.X the $XX.X I gross Additionally, year. last for EBITDA or diluted primarily per October period growth fiscal quarter will $X.XX adjusted year. we note $XX.X Net per year, incurred $X.XX company previously. $X.XX with to described quarter associated of a compared accelerated net same the the fiscal million and period or share cost a per from same an higher same net of SG&A net Higher last the emerging spending ease million to professional large negative lower fees these $XX.X and was costs. loss positive diluted XXXX. share the income higher share, the diluted period in driven certain travel was XX, were up or to change compared compared million XXXX, to for for million margin status step our $X.X or million transaction per professional as second increases and for filer on $X.XX last first costs those first $XX.X by the in the primarily for anniversary share, half, that items. we loss to income filer was

segment, Distribution In similar to the sales negative the segments, those for our million. segment was results. terms quarter million segment increased for XX% The Distribution to for that described & Marketing $X.X I drivers $XXX.X EBITDA net adjusted are the Marketing & our of consolidated and

primarily Our International in segment farms owned we that represents Farming Peru. manage our

farms through adjusted fashion. the emerge Farming significant typically as and third you EBITDA for April of year, segment and contribute a August see a harvest season reminder, each As Peruvian and International in to in the our a result, from avocado quarters runs fourth

higher our maintenance payment service were was driven and costs by strategic and nature are last associated activities year. operating For Farming operating segment from of XXXX, temporarily are for the million cash position, intended $X.X XX, period the $XX.X The terms to as operations million, Segment was to equivalents source in higher to shifts, to XXXX, can third-party sales January million. that Net revenues. of regions. negative October quarter of influenced cash varying primarily compared $X.X XXXX. million to increased compared with and be to as fiscal resulting was used flows seasonal to drive growers million enhancements. $XX.X the Shifting initiatives by million company’s working $XX.X different $X.X International financial Segment growth cash in sales capital XX, adjusted and farming, in yield EBITDA first cash net first XX% due quarter, and same

is Peru the reflects working inventory unfavorable and harvest the addition, and capital. in occur half the the growing during accounts an the million capital, International change of building change year. the its receivable half first of In $XX.X loss Farm quarter in first fiscal The during Within for inventory company fruit the to will its higher unfavorable driven ultimate farming with changes in and second and in hand payables sale per grower crops in net and inventory higher that due The segment were partially working year were factors net on noted growing cost inventory the pricing prior compared by of in the in were Changes changes acreage. offset to were productive increases by buildup payables. accounts Changes of acre per favorable the higher receivable and Mexican correlated previously. unit growing year. costs crop grower crop

invoicing payments increases to related our to automated system. Additionally, delayed receivable accounts new challenges were ERP in in due customer

our Guatemala. these While land Current receivable period challenges, of million compared in in have Capital accounts the in during still $XX.X day well development working XXXX, a fiscal concentrated in to and expenditures for noticeable improvements we last $XX.X purchase and of seen Peru in March. the and we were Peru, million were as expenditures same through sales orchard year. February are as quarter first early farmland outstanding reduction the year

In modeling to of help this assumptions, at year. our the market some to providing due practice, expectations providing to fluidity are similar our formal industry inform the terms but prior outlook, of in near-term around we guidance are point conditions not context your the for

quarter, our remain through than to year a are expectations higher move of the to the are experienced to we basis quarter, From today, compared year-over-year challenges that the XX% remainder the crop. absent to prior volumes We expecting we which of we XX%, to would to the as a approximately quarter of have pricing those a ERP Mexico average prior per Further, in in year. a lower increase current slightly first steady amounts first for to second sequential described feel industry which fiscal experienced $X.XX by perspective, during the second imply be comparable year on. quarter on current pound profitability we handle we our

include the others, battling These that well labor pressures inflationary to among We are driving same have been contain them. we’re packaging documented. actions help and and freight, mitigating

absorbing drive environment company facility, costs create our in However, Laredo headwind EBITDA. and as higher a public margins also volume unit including to which we’re ability our well, costs per a lower and to adjusted other

of were sold the During middle month. the the nominally our These during of figures totaled Mexican pounds. month avocado of impacted volumes February, XX avocado the approximately USDA shutdown by imports million

box As to returned levels. Steve historical mentioned have earlier, margins our February per

So That to Q&A. Operator, continue headwinds open near pose over prepared remarks. you. concludes call now some our cost the the term. over the noted Please to to will above higher

very We much. have a Ben question Stephens. go you ahead. line Instructions] first with from Thank the of Please Bienvenu [Operator

Hey. you. afternoon. Thank Good

Hi, Ben.

of that what way maybe described So got it any you’re of should we faced. I lingering issue are of you that There the you as paying? the here, as ask, It’s relates should you should this? as to see, about fix subsequent see we it, the there quantify it When think expenses my associated helpful. expect the go-forward then to sort extend paying lingering there’s advisory from quarter? ERP And around system the some challenges with your of question. to we consulting to result you’re ERP to be issues want the in issues. Is impact arms either or kind kind lingering it That’d a beyond first costs that you’ve still

Sure. Thanks, Ben.

I us gross think resolved substantially been this at have that point. to that caused issues lose margin the

we is I is efficiency day-to-day -- problems gross decisions I things got make used, of there’s anticipate that the at hand. that’s to the call about through. see around taper reference will improve us that information caused that million consultants and of quick our to arms used I but system should to before number incur to being to still need continue think to And how then down incurred to we QX. that in do It some losses the margin will with inability we costs that, do had and we made to than erosion We don’t will as a that off continue the with in dollars think result we’ll continue taper continue costs less we incur during a outside be that. That thereafter. will some or get QX. certainly we’ve

We level getting getting from point those more transitioning as of at we’re that resources issues to and of are we’re beginning of many resolved. to the in-house that that scale back work this group support effort

Okay. Great. And commentary margins Is My that we maybe of you base? a Mexico net think to positive than little it such right from is you’re market the it’s number your we related about think as about underlying should imports as describe margins presented buoys or maybe How to range? now? in the that average? equilibrium that maybe function -- a kind relative market, of that that how now? back returning is are comment to remain off continue February, that to February and number the that you weaker about navigating second a question per historical in that you when to you is to expect February look was Would box suspension to that the around you at

it the say the end month result bit probably returned wasn’t the stay range, a whether the stay -- helped. hard that feel don’t came historical in we it within looking a but resulted it level. that of margins -- at will Ben, I March -- from elevated higher April, we’re there price the we a a at believe when don’t towards confident to it significant, a say I I that, our bit say say of that, was it’s pickup we above environment. and I to ranges as believe would that probably as back month look was the little certainly think I historically. would we will mean, of the, do margins alone. February that that that to and of the close -- we’ve at that for I But somewhat I that worked range --

to which going bigger I down continue QX. to has be will get QX crop, be impact the are in us challenges to have an current going think forward and Mexico Until we the volume. through been in

my why to on we important decision kind Mission. We said, really we business. had absorption. seen the this changes We’re the feel have over network year our created the that we’ve certainly of the or time fruit just in be like in issues around really the of magnitude at border gonna talk We work going that capacity fruit have particularly it U.S. don’t with you cost come into has of first through last creates current volumes decline for an where issues declines for season, our the have see about actually the for abnormal haven’t and being this and headwinds volume around to at this That investments made something impact for and market that in are harvest during coming that Laredo having volume Mexican kind then is us. to year, long-term

you. Understood. Okay. Thank

But are… there

Yeah. Go ahead, Steve.

say, Ben, they alternate bearings. to going are I’m

is is late crop way, half we crop up in as example. see was mind, the go it that year’s last why stick slightly late the cycles supply in Mexico kind has as the of go and year’s keep the So as prices A of back continued. ago, you’ll -- larger year drove dried crop get into XXXX, is up it because and like they an this this the those heavier. And other

other the So it’s going in few a months. shift way to here and go

would Yeah. with there. Steve agree I

I coming think new by of the some past, a the been the in buffered there’s been lot acreage things online. some of fact of that’s that

that’s of that of kind berry impact think I of that off the nature. some muted

they yeah, typically you do that So similar in to but, to that have feature see California. what

much. very Thanks Okay.

you. Thank

Tom We of question [Operator you. Thank line with ahead. Please JPMorgan. have next the from go Instructions] Palmer

Thanks question. Hey, for the Bryan. Steve and

Yeah. Sure. Thank you.

do little from I guess might you long the it past just move harvest up start flexibility and picture to Is sourcing third crop? bit to Is Mexico not point off, supply of maybe a areas? to talking maybe on, that an other how maybe there really this overhang quarter? sourcing on the the maybe current until to environment. What push Just a does trying early get last? start

exactly what supply on of possibility testing complement yet. around off the started little at crop their looking would we’re not well that just amount at than got the I’m coming we’ve Peru sure could in Mexico. the North are of it said waiting is Peru earlier is there’s April. of we But Well, but Mexico a time. schedule, start pretty on the is, help we than now this because up I good more base Yeah. hectors Mexico haven’t week appear think pretty some that that Xst

Yeah.

for see substantial a -- I probably before that it’ll think we impact. QX be

Yeah.

We looking like I think earlier be in areas there’ll do believe QX, an that at we’re harvest. California.

in of it. for the Peru just of things, look big opportunities and accelerate magnitude overwhelms will to scheme other But we We the for origin. when countries of look Mexico

these will think, in XX% QX, other of out wipe increase So, these XX% other or XX% Mexico a areas. I we’ll during markets in see in decline but some a increases

Yeah.

months? pricing that, price you prepared mentioned rising sensitivity, as up side? recent I for talked internationally the on you remarks. side seems, making you then demand headwinds. It mentioned are the What in sounds the to just supply much some volume it that in And confirm, Thanks but seen you about want on is really have have like, But here demand Understood. Yeah. wasn’t for like that. seeing domestic

minute. U.S., X Well, a California beforehand week or XX probably pounds between Mexico here a prices the mean, million into there even the it million for U.S. XX very shipping but let’s stoppage the after and just for was week million and which week was take the at a picking, a million are was I today know exact high $XX better. X I around number plus with don’t there, or prices. pounds

it’s So, showing there’s demand numbers sure product ago, of I increased magnitude level but for $XX high to it’s were on mean, still the price a is that a with year have not what a volume that probably we bill $XXs. in about compared to,

So we or have in we help a why are up spots. in and this options crops when in integration just the seeing in down out space But it supplier with growth trick invest the that’s continue trying is around to category. certain vertical even world the certain to are to

like Colombia time harvest their filled this areas of Definitely and window. year. Guatemala in the have calendar would That’s at the

will investments on only will, a market quick -- markets there make the to well. I able want comment support did making not should will think International over I time, U.S. But to we’re but the as International. be the So support

think pricing a is market inelastic more fact I the market, that continue the more tends happen of pay more here. demand to that the that. higher it’s U.S. U.S. to inelastic, is They’ll what is

other export global reach has bigger product that those program a markets. a International and of proportion a Mission it like are the does on a coming probably greater crop than the has on has available company the U.S. international and with That go marketers it larger So into a U.S. fruit of a that market it into just with leaves has impact some Mexico the ends maybe up great focused solely to -- less Mexico or

we’re of what the to prior think dramatically, is and the had trying I up points Asia market were you’re U.S. America back instead. to say fruit to the price at in ended where that we coming cut programs that say because So South that, to or

you Thank Understood. all guys. detail for Okay. that

you. Thank

you. Thank

Stephens. Ben Please ahead. line question have the go with of from We next Bienvenu

guys. Hey,

a Just for up me. follow question

sort alluded some volume move release you You magnitude we might around Can the put wins to your press addition what customer and that contribution to in looks quantification any contribute that as is of is about or it forward. markets you talk if like the Thank it or it who which term? then, end either be And helpful. duration from? can That’d they by bound you. if a come of

Like, major on at retailers but before, just to shutdown I want the up to but Mexico. they’re have business that to a doing been with I mean, started actually you in centers don’t picked working during distribution been add tell we them want we’ve list that ripen name, again distribute on our are thing they we’ve major and had product those retailers distribution we centers The these actually up, because we we it. picked and to to and three this able up to prove and good to about of are picked program top it’s that.

Coast. win So us. on There East it was for a the double

Thanks. Okay.

this and to over turn I’d remarks. question-and-answer I and you like am closing ladies no session gentlemen, to for showing the the end further at to And gentlemen. management back time, Over you. the Thank questions. call

be interest. Mission. turned you back challenging in Well, time. this in you game quarter, and Thank Obviously, thanks everyone for soon. your Thank your for your had interest around we’ll thing get the but we for a

and ladies gentlemen. That concludes conference you for much, thank very today’s attending. you call. Thank We

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