Greetings and welcome to the Mission Produce Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jeff Sonnek, Investor Relations. Please go ahead, Jeff.

Thank you and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; and Bryan Giles, Chief Financial Officer. The Company's President and Chief Operating Officer, John Pawlowski, will also be available on today's call for participation during the Q&A session. 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. And with that, I'd now like to turn the call over to Steve Barnard, CEO. Steve?

Thank you for joining us today. Our momentum in fiscal 2024 continued with another strong financial performance in the third quarter. We grew revenue by 24% year-over-year to a record $324 million and generated a 49% increase in adjusted EBITDA to $31.5 million. Combined with our solid working capital management, these results translated into a $62.7 million improvement in our year-to-date operating cash flow performance versus the prior year period, which showcases our team's remarkable execution this year. We are particularly excited about these results given the challenges we faced on our farming operations in Peru this year with El Nino resulting in poor growing conditions across the region. Our ability to pivot and ultimately capitalize during this environment underscores the enhanced alignment we fostered between our sales, operations and sourcing teams. This enabled us to effectively leverage the advantages of our global sourcing network to meet customer demand while simultaneously maximizing per-unit margins. While the industry shortage of Peruvian fruit created headwinds for our farming operation, it created opportunities in our Marketing and Distribution segment to really shine. The market experienced strong consumer demand during the quarter and coupled with the supply shortages, this helped support continued strength in the pricing versus our prior year. The industry's more constrained supply environment overall, both in Peru and Mexico, was an opportunity for our team to bring Mission's comprehensive capabilities to bear to service customer demand globally. For instance, we were able to leverage our deep relationships and sourcing capabilities to supplement the lower industry volumes with California fruit, where harvest yields were over 50% larger than the prior year. Our team's agility in quickly identifying the opportunity in California gave us a competitive advantage in meeting customers' needs, resulting in a record share of the California sourced market for Mission.…

Thank you, Steve, and good afternoon to everyone on the call. I'll start with a review of our fiscal third quarter financial performance, touching on some of the key drivers within our three reportable segments. Then I'll provide an update on our financial position and conclude with some thoughts on the current industry conditions that we are seeing. Total revenue for the third quarter of fiscal 2024 increased 24% to $324 million, driven by a 36% increase in avocado sales prices. This price dynamic resulted from lower avocado supply available during the quarter due to a combination of weather impacts on fruit development and production in Peru and fruit harvesting disruptions in Mexico. Despite overall volume reductions, domestic sales volumes were relatively flat during the quarter, demonstrating the resiliency of demand for avocados amid higher price points in the US market. Gross profit increased by $8.6 million to $37 million in the third quarter and gross profit margin increased 50 basis points to 11.4% of revenue. These increases were primarily driven by stronger per unit margins on avocados sold in our Marketing and Distribution segment, which were attributed to a combination of favorable mix of source fruit and internal initiatives that Steve spoke to. Within our International Farming segment, gross profit was down slightly during the quarter, excluding the $3.2 million asset disposal for undeveloped land in Peru as the adverse impact of lower harvest yields on fixed cost absorption was largely offset by higher sales prices and cost savings measures. SG&A expense increased $2.8 million or 16% compared to the same period last year, primarily due to higher employee-related costs, including performance-based incentive compensation and stock-based compensation expense. Higher performance-based incentive compensation is largely explained by our improved year-to-date operating performance relative to the prior year period. We continue…

Certainly. We'll now be conducting a question-and-answer session. [Operator Instructions] One moment please while we poll for questions. Our first question is coming from Ben Klieve from Lake Street Capital Markets. Your line is now live.

All right. Thanks for taking my questions and congratulations on a really excellent quarter from top to bottom here. First question, a couple related to your upcoming Peruvian harvest in the avocado side. I'm wondering, the volume that you talked about today seems like a real reiteration of your expectations from three months ago. But I'm wondering if you can comment on how should all your expectations from Peru have evolved over the last three months as harvest is approaching? And then also if you can comment on fruit size and quality of that crop because I'm just curious the extent to which, what harvest is able to be taken, we can be able to get this really strong market pricing.

Well, we're done harvesting for the season. I think the main reason we had some extreme heat down there, which we started out with what we had estimated about 42,000 tons prior, well, obviously before the fruit was ready, but it was on the tree and we experienced some tremendous heat waves through the area due to El Nino. I think we ended up with, I don't know what percent it was. It was substantially lower than the 42,000 tons, but the prices were much higher, so it offset it a little bit. But going forward, it looks like El Ninos moved offshore and the trees look a lot healthier going forward.

I'll kind of build on that as well. I think when we spoke three months ago, we had a pretty good sense as to what volumes for this year were going to look like. I think we could get an accurate picture of what was on the tree and we had a pretty good feel for what the size curve would look like. And I think it pretty much came through the way we expected in the fourth quarter. I would say, well, in the third and fourth quarter. I would say that the pricing did hold up a little bit better than we expected. I definitely, we had a smaller size curve and I think that's what concerned us a little bit about what the average selling prices may come to. But there was just such a lack of fruit at times during the period that the pricing remained high regardless. So I think we were pleased with how the season progressed as we moved through it. I think to Steve's point, as we look to next year, at this point, the trees are looking better. It won't be until probably December or so that we'll start to see the flowering on the trees and we'll start to get a better sense. But to Steve's point, this last year the fruit was on the tree. It was just with the weather, it caused it to drop. So we'll need to make sure that as long as we get better weather conditions as we move forward, we think that we can expect harvest to kind of revert back to more normalized levels.

Actually, that branch we have up north, which is substantially different in climate is flowered and set already and it looks pretty good. The southern ones are in process now. Things can change, but so we got to start with something good before you end up with it.

No, I hear you loud and clear. Okay, that's helpful. I thought there was still some fruit at least left on the trees down there. So thanks for clarifying all those points. Shifting north to California, you talked about kind of how strong that harvest is, but also that you had record share. I'm wondering if you can elaborate a bit on what drove the share increase. Any comments you guys can make from a quantitative perspective about how much your share increased, overall level of share, anything of that nature would be helpful.

Hey, Ben. This is John Pawlowski. I'll try to give some commentary here and then let Steve or Bryan chime in if necessary. I would say when you think about California this year, not only were the expected volumes 25%, 30% I think close to 40% higher than anticipated. We can validate that versus original estimates on the crop. But we had challenges like the rest of the industry in Mexico and Peru as well. So when we saw that coming, the teams internally pivoted to understand what was the best situationally for our customers. And one of the things we saw immediately was trying to get more share of the California crop especially as it was getting a little bit larger, was going to be the best thing for our customers to make sure that we had the appropriate amount of supply and the right size curve because California was coming in with slightly larger pieces of fruit. What we did then was really work with our field teams and execute as far as we could with excellence. So a lot of things that Steve and team had done for years with building relationships with folks here both in Northern California and in Southern California and understanding who owns those ranches, where they typically sell, what those relationships look like, and just quite frankly, making phone calls and understanding where the fruit was and doing what we could to partner with those local growers and ensure we have the right amount for our customers. And ultimately, we ended up with close to 30% share in the California market this year and potentially higher when all is said and done. So I know that's higher than we've had in the past, but proud of the teams, and quite frankly, it came down to relationships and our ability to pivot quickly with what our customer needs were.

Yeah, I agree completely with what John had to say. I think on top of that, you know, some of this fruit, I mean, our relationships, not just with any growers, but some of these large-scale growers in California. I think that we saw big growth with many of the larger players this year who we were very proactive with and reaching out to and kind of developing a plan to market their fruit over the course of the season. So, no, I think that it was when California is running smoothly, it's very favorable for our business.

Well, I think just one last thing too. With having our own people on the ground in both Peru and Mexico, we knew what was down there and could see the gap or the lack of fruit coming out of there probably before most of them did. So we got aggressive on this end and locked it up before the others did. And it worked.

It sure did. It sure did. Very good. Well, I appreciate that from all of you. One last question. On the balance sheet, cash flow side. The cash flow is really exceptional. We knew that was moving in the right direction, certainly faster than, the improvement was more material. I think than I certainly was expecting. Just great to see. And I'm wondering, you know, given the momentum here and how strong your balance sheet is today, how your thought process is evolving, if at all, towards future capital allocation? Are you looking to maybe, you know, further accelerate capital investments since you have more flexibility now, you know, any maybe accelerated M&A. Has anything changed given how strong your performance has been or is your thought process unchained?

I wouldn't say anything's changed, Ben. I think we've always kind of had the same priorities. I think we've gone through a period of time last couple of years where our earnings were weak and we leaned into our balance sheet a bit during those periods. So as we've gone through a year that's been relatively strong, I think, first and foremost, we wanted to get the balance sheet back in order and get the debt down. I don't think that we ever, you know, well, let me take one step back. When it comes to traditional CapEx, we've been communicating a step down in that capital spend over time, as we have our distribution capacity built out and we believe our farming supply needs have been met. So that step down has been a plan that we've had in place for years. I think we mentioned in the last call that we did accelerate some things related to blueberries because we saw the opportunity with the cash flow that had been generated within the joint venture. But outside of that, I wouldn't say that we're going and necessarily doing anything overly aggressive compared to what we'd planned previously. I think M&A, it's always out there. We're always evaluating opportunities when they come across our table. It's not something that we've participated in aggressively in the past. But I think that we're always open-minded to how we can invest to complement the business that we have in place today. So I wouldn't say that the cash position alone changes our feelings about what we're going to do. I think we're going to continue doing the same things we've been doing. It's just nice to have a bigger pile of cash to do it with right now.

Got it. Got it. Very helpful. Well, congratulations again on a great quarter. Thanks for taking my questions and I'll get back in line.

Sure. Thank you, Ben.

Thank you.

Thank you, Ben.

Thank you. The next question is coming from Gerry Sweeney from ROTH Capital Partners. Your line is now live.

Good afternoon, Steve and Bryan, and welcome aboard, John.

Thanks, Gerry.

I have one question, but it's actually a couple of different parts. So looking at margins, obviously, we had some cost savings initiatives. I think last year you highlighted, you're sort of going, you were in growth mode for a bunch of years and there was some opportunity to fine tune operations. As we look at this year, margins up, part of it price, part of it sounds like cost savings initiatives. But just curious if you could give us a little bit longer-term view on are there more options out there or things that you can still continue to fine tune. How do we look at that on a go-forward basis?

Maybe I'll take the first crack at it and I'll let Steve and John supplement.

Yeah.

I think most of the margin improvement that we saw during the third quarter, Gerry, was driven by performance within the marketing segment. I think even with the cost-cutting initiatives we had in place with farming, we did not see margin improvement this year. And that's because of the weakness in volume in production off the farms. I think if we had not done those cost-savings initiatives, we could have been in a much worse spot than we ultimately were. But at the end of the day, our EBITDA was $4.9 million in Q3 last year. It was $4.6 million in Q3 this year from the Farming segment. And that was on volumes that were dramatically lower both for the quarter and projected for the season as a whole. So I think we're very pleased with what we were able to achieve. I think as -- and I think it sets a good baseline as we move forward, as the trees recover and the crops grow in Peru, we're going to be building off a much lower cost base per acre, per hectare, per unit than what we would have had previously. So I think that we're in a good spot. I don't know if there's deeper cuts to be made than what we've already done within the farms, but I think we've level set it and put us in a position that as we grow going forward, hopefully, we can keep those costs under control. I think, and that would be true, I would say, of both the avocado and the blueberry farming. I think on the marketing side, I think it had more to do with, while some of it was leveraging investments that we'd made, I think very astute management of the buy-sell throughout the quarter as we moved through different countries of origin probably had more to do with the success than cost savings initiatives. And that was really the driver of the quarterly results in my opinion. And I think it will, but I think it highlights, I think, some of the things we were able to accomplish that we want. We believe we can still build on as we move forward. But yeah I just think that we were really pleased with the results that we were able to generate. And keep in mind, I think, when we have multiple countries of origins available to us and during the third quarter we were using, we had California, we had Peru, we had Mexico, that gives us the most flexibility in terms of meeting our customers' needs and generally enables us to manage margin a little bit better than when we're constrained to a single or more limited countries of origin to get supply.

Got it.

I would add a little bit of color there. This is John. It's been a quarter and a half for me, watching the team and having responsibility for the sales and marketing side, the operational side from a logistics perspective here in the US, and then our procurement team as well. And when looking at what they've been able to accomplish, Q3 was outstanding, Q2 was great as well. And it's a result, as Bryan mentioned, of a lot of good collaboration work, new processes, and tools internally to help that team come together and make really quick agile decisions, as Steve mentioned earlier in his comments. And when you think about what we're doing on the mango side and the growth that we're experiencing there, I get even more excited than when I started in April about what the sales and marketing growth opportunities are at the company, right. So when we think about the future and we think about what we've been able to accomplish from a sales and marketing perspective, not just this quarter, but what the team's been building up to. The runway from a sales and marketing growth perspective, I think is in a really good spot. I think the infrastructure that Steve and team built over the years has room in it, has runway in it for us to continue to put more product through that network and the team has proven that they can execute well, even in uncertain conditions. The farming investments that the team has made over the years are all in a great spot in regards to what they can produce. And so it's a matter of letting those things, letting some of those things get worked out and what we see as we look at the next couple of years is really, I think, impressive, and my focus is going to continue to be growth. And I think we can really get there together as a team.

I'll just summarize it. The farming thing looks good. It appears to be back. Things can change overnight, as you know. But as of right now, they look good, and as John mentioned, this mango deal is fitting very well, considering we're leveraging the assets we already have and the demand on the fresh ripened mango is surprising. I'll just leave it at that.

Lot of opportunity ahead.

All right. Well, guys, I appreciate it, and congrats on a good quarter.

Okay.

Thanks, Gerry.

Thanks, Gerry.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you very much for your interest in Mission Produce and we look forward to speaking with you again soon.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.