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. At this time, I’d like to turn the conference over to Jeff Sonnek, Investor Relations at ICR. Sir, please go ahead.

Thank you and good afternoon. Today’s presentation will be hosted by Steve Barnard, Chief Executive Officer; and Bryan Giles, Chief Financial Officer. The comments during today’s call and the accompanying presentation contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management’s current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company’s filings with the SEC. We’ll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on our Investor Relations website investors.missionproduce.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that, I’d now like to turn the call over to Steve Barnard, CEO.

Thank you for joining us for our fiscal 2021 first quarter earnings call. Our first quarter results were disappointing and do not demonstrate the level of execution that is defined our business and its founding. On November 1, 2021, we implemented a new ERP system that impacted our entire Marketing & Distribution segment. As every company who has undergone an ERP implementation knows, this is a highly complex exercise that requires extensive planning and testing, all of which is designed to mitigate implementation risks. However, despite the countless hours we spent planning and preparing for this conversion, we nevertheless experienced significant challenges with the implementation. As a result, we were unable to drive the per unit margins in the first quarter that we have historically delivered. Well, we believe we’ve addressed the most acute issues that we faced in the first quarter, there’s more work to be done before we get back to the level of efficiency and execution that we have come to expect of ourselves. And perhaps, most importantly, despite the challenges, our team was able to quickly adjust to the disruption and largely protect our customers from any extended impact. It is our commitment to customer service that has been Mission’s hallmark for nearly four decades. As we’ve stressed time and again, our greatest competitive advantage is our ability to provide our diverse customer base with a year round supply of avocados from our vertically integrated farms and global network of growers, while also providing customized value-added services that precisely fit their needs. As simple as these sounds, it is anything but when you consider the sheer volume of fruit we’re moving through the supply chain on any given day. On a weekly basis, we can move between 240 and 300 truckloads of fruit through our network.…

Thank you, Steve, and good afternoon to everyone on the call. I’ll start with a brief review of our fiscal first quarter performance ended January 31, 2022, and touch on some of the drivers within our two operating segments. Then I’ll provide a snapshot of our financial position and conclude with some thoughts on some of the current industry conditions that we are seeing and how performance is tracking in February. Total revenue for the first quarter of fiscal 2022 increased 25% to $216.6 million, as compared to $173.2 million for the same period last year. Growth was driven by a 50% increase in average per unit avocado sales prices due to lower industry supply out of Mexico, as well as inflationary pressures. Partially offsetting price gains was an 18% decrease in avocado volume sold, which was primarily driven by lower supply. In the first quarter, industry supply was negatively impacted by the smaller Mexican harvest. Our estimates indicate that Mexican supply to the U.S. market was approximately 10% lower than prior year, which was consistent with the reduction we experienced in our own domestic volumes. In addition, the industry continued to experience challenges with abnormal grading and sizing of harvested fruit. To provide further perspective on the Mexican supply situation, approximately 97% of U.S. distributed volume was Mexican fruit in the first quarter. While Mission’s global footprint provides sourcing advantages relative to the industry as a whole, there are not ample sources of fruit available at this time of the year to meaningfully offset the impact of Mexico supply shortages. This is an example of why Mission has been proactive in investing in global supply sources to fill these supply gaps and reduce industry volatility. As previously mentioned, the lack of supply drove per unit prices substantially higher during…

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

Hey. Thank you. Good afternoon.

Hi, Ben.

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

Sure. Thanks, Ben. I think that the issues that caused us to lose gross margin have substantially been resolved at this point. I think that, that there’s things that we still need to do to improve efficiency and how the system is used -- is being used, but we’ve got our arms around the day-to-day problems that caused the losses we had before and I don’t anticipate that we’ll continue to see erosion of gross margin as a result of inability to make quick decisions with information that’s at hand. I do think we will continue to incur some costs or we will certainly continue to incur some costs with outside consultants to get us through. We made reference in the call that we incurred about a million dollars during Q1. That number will taper off in Q2. It will be less than that. And then should continue to taper down thereafter. We are beginning to scale back the level of support effort that we’re getting from that group at this point as we’re transitioning more of that work to in-house resources and getting many of those issues resolved.

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

Ben, I would say that, there was probably towards the back end of the month a bit of a pickup that resulted from the higher price and environment. I don’t think it was -- it wasn’t significant, but it certainly helped. I would say that, when we say it returned to a range, we’re looking at -- we probably came in a little bit above our historical ranges as a result of that for the month of February alone. I don’t -- I mean, I believe that the, -- as we look at March and April, that the -- it’s hard to say whether the margins will stay elevated at that level. But I do believe that we feel confident that margins will stay somewhat close to the range that we’ve worked within historically. I think the bigger challenges to us going forward are going to be volume. Until we get through the current Mexico crop, which has been down in Q1 and will continue to be have an impact in Q2. We’re gonna have issues with volume and the issues that that creates around cost absorption. We talk about the investments we’ve made in capacity in our network over the last year, particularly at the border for Mexican fruit and then having the first year come around and actually see volume declines for fruit that are coming into the U.S. market have certainly created headwinds for us. That being said, we don’t feel like it changes or really has an impact on the long-term decision of why Laredo is going to be important for our business. We just have to work through kind of this current harvest season, where you kind of had this abnormal decline in volumes that something we really haven’t seen to this magnitude during my time at Mission.

Okay. Understood. Thank you.

But there are…

Yeah. Go ahead, Steve.

I’m going to say, Ben, they are alternate bearings. So keep in mind, they kind of go in cycles as the stick Mexico is an example. A year ago, why the supply dried up slightly and it drove those prices up and that has continued. And as we get into the back half of 2022, you’ll see it go the other way, because the crop is larger as last year’s late crop was like this -- this year’s late crop is heavier. So it’s going to shift and go the other way here in a few months.

Yeah. I would agree with Steve there. I think some of the things in the past, some of that’s been buffered by the fact that there’s been a lot of new acreage coming online. I think that that’s kind of muted the impact of some of that off berry nature. So but, yeah, they typically do have that feature to that similar to what you see in California.

Okay. Thanks very much.

Thank you.

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

Hey, Steve and Bryan. Thanks for the question.

Yeah. Sure. Thank you.

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

Yeah. Well, we’re looking at now is the Peru crop more than we are Mexico. Mexico is pretty well said I think on their schedule, but we’ve got some pretty good amount of hectors up in the North of Peru that could start coming off around the 1st of April. I’m not sure exactly what week it is, because we haven’t started testing yet. But there’s that possibility that would help complement the supply base appear a little earlier than just waiting on Mexico at this time.

Yeah. I think that for -- it’ll probably be Q3 before we see a substantial impact.

Yeah.

I think in Q2, we’re looking at areas like California. We do believe that there’ll be an earlier harvest. We will look for opportunities to accelerate Peru and look for other countries of origin. But when we in the big scheme of things, the magnitude of Mexico just overwhelms it. So, I think, we’ll see increases in these other markets during Q2, but a 10% decline in Mexico will wipe out a 30% or 40% increase in some of these other areas.

Yeah.

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

Well, let’s just take the U.S. here for a minute. Mexico after the stoppage there for a week and even beforehand was shipping between 50 million pounds a week and 55 million pounds a week into the U.S., plus with California was picking, which I don’t know the exact number there, but it was probably 5 million or 7 million at very high prices. I mean, prices today are around $60 or better. So, I mean, it’s showing that there’s increased demand for product with numbers of that magnitude on volume to still have a high price level is a $60 bill compared to, not sure what we were about a year ago, but it’s probably in the $30s. So we are seeing growth in this space in the category. But just trying to even it out with a supplier is the trick and that’s why we continue to invest in vertical integration around the world to help have options when certain crops are down or up in certain spots.

Definitely areas like Colombia and Guatemala would have filled in the calendar at this time of the year. That’s their harvest window. So I think the investments we’re making there not only will support International markets will, but over time, will -- should be able to support the U.S. market as well. But I did want to make a quick comment on the International. I think what tends to happen is that the U.S. market, it’s more of a fact that the U.S. market is more inelastic, the demand is more inelastic that. They’ll continue to pay higher pricing here. So a larger proportion of the Mexico crop just ends up coming into the U.S. market and it leaves less fruit available to go into those International markets. That probably has a -- it has a greater impact on a company like Mission that has a global reach and has a great bigger international or export program with Mexico product than it does with some of the other marketers that maybe are focused solely on the U.S. So I think what we’re trying to say is that, programs that we had in the prior to say South America or to Asia were cut back dramatically, because of where the price points you’re at and that fruit ended up coming to the U.S. market instead.

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

Thank you.

Thank you.

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

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

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

Okay. Thanks.

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

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

Thank you very much, ladies and gentlemen. That concludes today’s conference call. We thank you for attending. You may now disconnect your lines.