UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
_____________
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended January 31, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission file number: 001-39561
_____________
MISSION PRODUCE, INC.
(Exact name of Registrant as specified in its charter)
_____________
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
2710 Camino Del Sol
Oxnard, California
(Address of Principal Executive Offices)
95-3847744
(I.R.S. Employer
Identification No.)
93030
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (805) 981-3650
_____________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $0.001 per share | AVO | NASDAQ Global Select Market | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of March 1, 2023, the registrant had 70,733,090 shares of common stock at $0.001 par value outstanding.
MISSION PRODUCE, INC.
TABLE OF CONTENTS
FORM 10-Q
FISCAL FIRST QUARTER 2023
INDEX
| Item 1. | Financial Statements | ||||||||||
Condensed Consolidated Statements of Loss (Unaudited) | |||||||||||
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | |||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||||||||
| Item 4. | Controls and Procedures | ||||||||||
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “could”, “intends”, “target”, “projects”, “contemplates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the following:
•Risks related to our business, including: limitations regarding the supply of avocados, either through purchasing or growing; fluctuations in the market price of avocados; increasing competition; risks associated with doing business internationally, including Mexican and Peruvian economic, political and/or societal conditions; inflationary pressures; loss of one or more of our largest customers; general economic conditions or downturns; supply chain failures or disruptions; disruption to the supply of reliable and cost-effective transportation; failure to recruit or retain employees, poor employee relations, and/or ineffective organizational structure; inherent farming risks; seasonality in operating results; failures associated with information technology infrastructure, system security and cyber risks; new and changing privacy laws and our compliance with such laws; food safety events and recalls; failure to comply with laws and regulations, including those promulgated by the USDA and FDA, health and safety laws, environmental laws, and other laws and regulations; changes to trade policy and/or export/import laws and regulations; risks from business acquisitions, if any; lack of or failure of infrastructure; material litigation or governmental inquiries/actions; failure to maintain or protect our brand; changes in tax rates or international tax legislation; and risks associated with the ongoing conflict in Russia and Ukraine.
•Risks related to our common stock, including: the viability of an active, liquid, and orderly market for our common stock; volatility in the trading price of our common stock; concentration of control in our executive officers, directors and principal stockholders over matters submitted to stockholders for approval; limited sources of capital appreciation; significant costs associated with being a public company and the allocation of significant management resources thereto; reliance on analyst reports; failure to maintain proper and effective internal control over financial reporting; restrictions on takeover attempts in our charter documents and under Delaware law; and the selection of Delaware as the exclusive forum for substantially all disputes between us and our stockholders.
•Risks related to restrictive covenants under our credit facility, which could affect our flexibility to fund ongoing operations, uses of capital and strategic initiatives, and, if we are unable to maintain compliance with such covenants, lead to significant challenges in meeting our liquidity requirements and acceleration of our debt.
•Other risks and factors listed under “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the year ended October 31, 2022 and elsewhere in this report.
We have based the forward-looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the year ended October 31, 2022 and elsewhere in this report. These risks are not exhaustive. Other sections of this report include additional factors that could adversely impact our business and financial performance. Furthermore, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this report, including documents that we reference and exhibits that have been filed, in this report and have filed as exhibits to this report, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this report relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this report or to conform such statements to actual results or revised expectations, except as required by law.
This quarterly report may also include trademarks, tradenames and service marks that are the property of the Company and also certain trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this quarterly report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.
3
We maintain a website at www.missionproduce.com, to which we regularly post copies of our press releases as well as additional information about us. Our filings with the Securities and Exchange Commission (“SEC”), are available free of charge through our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information contained in our website does not constitute a part of this report or our other filings with the SEC.
4
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
MISSION PRODUCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (In millions, except for shares) | January 31, 2023 | October 31, 2022 | |||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 39.2 | $ | 52.8 | |||||||
| Restricted cash | 1.0 | 1.1 | |||||||||
| Accounts receivable | |||||||||||
| Trade, net of allowances of $0.3 and $0.3, respectively | 64.3 | 62.9 | |||||||||
| Grower and fruit advances | 1.8 | 1.8 | |||||||||
| Other | 11.2 | 17.3 | |||||||||
| Inventory | 76.8 | 73.1 | |||||||||
| Prepaid expenses and other current assets | 10.1 | 11.1 | |||||||||
| Income taxes receivable | 11.2 | 8.0 | |||||||||
| Total current assets | 215.6 | 228.1 | |||||||||
| Property, plant and equipment, net | 511.6 | 489.7 | |||||||||
| Operating lease right-of-use assets | 74.2 | 65.4 | |||||||||
| Equity method investees | 25.5 | 27.1 | |||||||||
| Deferred income tax assets, net | 8.3 | 8.1 | |||||||||
| Goodwill | 39.4 | 39.4 | |||||||||
| Intangible asset, net | 0.8 | 2.0 | |||||||||
| Other assets | 21.6 | 19.7 | |||||||||
| Total assets | $ | 897.0 | $ | 879.5 | |||||||
| Liabilities and Equity | |||||||||||
| Liabilities | |||||||||||
| Accounts payable | $ | 30.5 | $ | 34.4 | |||||||
| Accrued expenses | 29.4 | 30.1 | |||||||||
| Income taxes payable | 0.5 | 1.0 | |||||||||
| Grower payables | 25.4 | 24.3 | |||||||||
| Short-term borrowings | — | 2.5 | |||||||||
| Long-term debt—current portion | 3.6 | 3.5 | |||||||||
| Operating leases—current portion | 4.9 | 4.7 | |||||||||
| Finance leases—current portion | 1.2 | 1.2 | |||||||||
| Total current liabilities | 95.5 | 101.7 | |||||||||
| Long-term debt, net of current portion | 146.0 | 136.9 | |||||||||
| Operating leases, net of current portion | 72.6 | 63.9 | |||||||||
| Finance leases, net of current portion | 15.3 | 1.4 | |||||||||
| Income taxes payable | 3.1 | 3.1 | |||||||||
| Deferred income tax liabilities, net | 29.0 | 29.4 | |||||||||
| Other long-term liabilities | 21.4 | 20.2 | |||||||||
| Total liabilities | 382.9 | 356.6 | |||||||||
| Commitments and contingencies (Note 6) | |||||||||||
| Shareholders’ Equity | |||||||||||
| Common stock ($0.001 par value, 1,000,000,000 shares authorized; 70,733,090 and 70,669,535 shares issued and outstanding as of January 31, 2023 and October 31, 2022, respectively) | 0.1 | 0.1 | |||||||||
| Additional paid-in capital | 229.6 | 229.3 | |||||||||
| Accumulated other comprehensive loss | (1.2) | (1.7) | |||||||||
| Retained earnings | 265.6 | 274.4 | |||||||||
| Mission Produce shareholders' equity | 494.1 | 502.1 | |||||||||
| Noncontrolling interest | 20.0 | 20.8 | |||||||||
| Total equity | 514.1 | 522.9 | |||||||||
| Total liabilities and equity | $ | 897.0 | $ | 879.5 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
MISSION PRODUCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions, except for per share amounts) | 2023 | 2022 | |||||||||||||||||||||
| Net sales | $ | 213.5 | $ | 216.6 | |||||||||||||||||||
| Cost of sales | 204.5 | 216.1 | |||||||||||||||||||||
| Gross profit | 9.0 | 0.5 | |||||||||||||||||||||
| Selling, general and administrative expenses | 19.1 | 18.7 | |||||||||||||||||||||
| Operating loss | (10.1) | (18.2) | |||||||||||||||||||||
| Interest expense | (2.4) | (0.9) | |||||||||||||||||||||
| Equity method income | 1.0 | 1.6 | |||||||||||||||||||||
| Other (expense) income, net | (0.8) | 1.6 | |||||||||||||||||||||
| Loss before income taxes | (12.3) | (15.9) | |||||||||||||||||||||
| Income tax benefit | (1.7) | (2.5) | |||||||||||||||||||||
| Net loss | $ | (10.6) | $ | (13.4) | |||||||||||||||||||
| Net loss attributable to noncontrolling interest | (1.8) | — | |||||||||||||||||||||
| Net loss attributable to Mission Produce | $ | (8.8) | $ | (13.4) | |||||||||||||||||||
| Net loss per share attributable to Mission Produce: | |||||||||||||||||||||||
| Basic | $ | (0.12) | $ | (0.19) | |||||||||||||||||||
| Diluted | $ | (0.12) | $ | (0.19) | |||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
MISSION PRODUCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Net loss | $ | (10.6) | $ | (13.4) | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Foreign currency translation adjustments | 0.5 | (0.3) | |||||||||||||||||||||
| Total comprehensive loss, net of tax | (10.1) | (13.7) | |||||||||||||||||||||
| Comprehensive loss attributable to noncontrolling interest | (1.8) | — | |||||||||||||||||||||
| Comprehensive loss attributable to Mission Produce | $ | (8.3) | $ | (13.7) | |||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
MISSION PRODUCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
| (In millions, except for shares) | Common stock | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Noncontrolling interest | Total equity | ||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| Balance at October 31, 2021 | 70,631,525 | $ | 0.1 | $ | 225.6 | $ | (0.5) | $ | 309.0 | $ | — | $ | 534.2 | |||||||||||||
| Stock-based compensation | — | — | 0.8 | — | — | — | 0.8 | |||||||||||||||||||
| Net loss | — | — | — | — | (13.4) | — | (13.4) | |||||||||||||||||||
| Other comprehensive loss | — | — | — | (0.3) | — | — | (0.3) | |||||||||||||||||||
| Balance at January 31, 2022 | 70,631,525 | $ | 0.1 | $ | 226.4 | $ | (0.8) | $ | 295.6 | $ | — | $ | 521.3 | |||||||||||||
| Balance at October 31, 2022 | 70,669,535 | $ | 0.1 | $ | 229.3 | $ | (1.7) | $ | 274.4 | $ | 20.8 | $ | 522.9 | |||||||||||||
| Stock-based compensation | — | — | 0.7 | — | — | — | 0.7 | |||||||||||||||||||
| Exercise of stock options | 8,500 | — | — | — | — | — | — | |||||||||||||||||||
| Issuance of common stock for equity awards, net of shares withheld for the settlement of taxes | 55,055 | — | (0.4) | — | — | — | (0.4) | |||||||||||||||||||
| Contributions from noncontrolling interest holders | — | — | — | — | — | 1.0 | 1.0 | |||||||||||||||||||
| Net loss | — | — | — | — | (8.8) | (1.8) | (10.6) | |||||||||||||||||||
| Other comprehensive income | — | — | — | 0.5 | — | — | 0.5 | |||||||||||||||||||
| Balance at January 31, 2023 | 70,733,090 | $ | 0.1 | $ | 229.6 | $ | (1.2) | $ | 265.6 | $ | 20.0 | $ | 514.1 | |||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
8
MISSION PRODUCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
| Three Months Ended January 31, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Operating Activities | |||||||||||
| Net loss | $ | (10.6) | $ | (13.4) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities | |||||||||||
| Depreciation and amortization | 9.3 | 4.5 | |||||||||
| Amortization of debt issuance costs | 0.1 | 0.1 | |||||||||
| Equity method income | (1.0) | (1.6) | |||||||||
| Noncash lease expense | 1.4 | 1.2 | |||||||||
| Stock-based compensation | 0.7 | 0.8 | |||||||||
| Dividends received from equity method investees | 2.7 | 2.2 | |||||||||
| Losses on asset impairment, disposals and sales, net of insurance recoveries | 0.3 | 0.1 | |||||||||
| Deferred income taxes | (0.5) | — | |||||||||
| Unrealized losses (gains) on derivative financial instruments | 0.1 | (0.8) | |||||||||
| Effect on cash of changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable | (1.2) | (27.6) | |||||||||
| Grower fruit advances | — | (2.9) | |||||||||
| Other receivables | 6.1 | 3.1 | |||||||||
| Inventory | (3.8) | (29.8) | |||||||||
| Prepaid expenses and other current assets | 0.8 | 0.1 | |||||||||
| Income taxes receivable | (3.2) | (4.2) | |||||||||
| Other assets | (1.2) | 0.6 | |||||||||
| Accounts payable and accrued expenses | (1.7) | 13.3 | |||||||||
| Income taxes payable | (0.5) | (0.1) | |||||||||
| Grower payables | 1.1 | 15.1 | |||||||||
| Operating lease liabilities | (1.4) | (0.7) | |||||||||
| Other long-term liabilities | 1.2 | (1.4) | |||||||||
| Net cash used in operating activities | $ | (1.3) | $ | (41.4) | |||||||
| Investing Activities | |||||||||||
| Purchases of property, plant and equipment | (17.6) | (20.9) | |||||||||
| Investment in equity method investees | (0.3) | — | |||||||||
| Loan repayments from equity method investees | — | 1.0 | |||||||||
| Other | — | (0.2) | |||||||||
| Net cash used in investing activities | $ | (17.9) | $ | (20.1) | |||||||
| Financing Activities | |||||||||||
| Borrowings on revolving credit facility | 10.0 | — | |||||||||
| Repayment of short-term borrowings | (2.5) | — | |||||||||
| Principal payments on long-term debt obligations | (0.9) | (2.2) | |||||||||
| Principal payments on finance lease obligations | (1.7) | (0.3) | |||||||||
| Taxes paid related to shares withheld from the settlement of equity awards | (0.4) | — | |||||||||
| Contributions from noncontrolling interest holders | 1.0 | — | |||||||||
| Net cash provided by (used in) financing activities | $ | 5.5 | $ | (2.5) | |||||||
| Net decrease in cash, cash equivalents and restricted cash | (13.7) | (64.0) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 53.9 | 92.2 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 40.2 | $ | 28.2 | |||||||
| Summary of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets: | |||||||||||
9
| Three Months Ended January 31, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Cash and cash equivalents | $ | 39.2 | $ | 25.3 | |||||||
| Restricted cash | 1.0 | 2.9 | |||||||||
| Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows | $ | 40.2 | $ | 28.2 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
10
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
Business
Mission Produce, Inc. together with its consolidated subsidiaries (“Mission,” “the Company,” “we,” “us” or “our”), is a global leader in the avocado industry. The Company’s expertise lies in the farming, packaging, marketing and distribution of avocados to food retailers, distributors and produce wholesalers worldwide. The Company procures avocados principally from California, Mexico and Peru. Through our various operating facilities, we grow, sort, pack, bag and ripen avocados and a small amount of other fruits for distribution to domestic and international markets. We report our results of operations in three operating segments: Marketing and Distribution, International Farming and Blueberries (see Note 11).
Basis of presentation and consolidation
The unaudited interim condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and include the Company’s consolidated domestic and international subsidiaries and variable interest entity (“VIE”) for which we are the primary beneficiary and have a controlling interest. Certain information and disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company’s Annual Report for the year ended October 31, 2022. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair statement have been included in the unaudited condensed consolidated financial statements. Interim results of operations are not necessarily indicative of future results, including results that may be expected for the twelve months ended October 31, 2023.
Consolidation of VIE
On May 1, 2022, a reconsideration event occurred related to Moruga S.A.C., an entity for which we have a 60% equity ownership interest. Moruga S.A.C. is a holding company with one wholly owned subsidiary Blueberries Peru, S.A.C. (collectively referred to as “Moruga”). Moruga was previously accounted for under the equity method of accounting, where investments are stated at initial cost and adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions. As a result of the reconsideration event, we concluded that Moruga is a VIE, and that the Company is the primary beneficiary with a controlling financial interest. Based on this conclusion, Moruga was prospectively consolidated on May 1, 2022.
Recently issued accounting standards
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities—Supplier Finance Programs (Topic 405), which among other things, requires certain disclosures for a buyer in a supplier finance program. Some of the amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and others are required to be adopted for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of adoption on our financial disclosures.
In March 2022, the FASB issued ASU, Financial Instruments–Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, which among other things, requires that entities disclose current-period gross write-offs by year of origination for financing receivables. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The impact of ASU 2022-02 is not expected to be material on our financial condition, results of operations and cash flows.
11
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Inventory
Major classes of inventory were as follows:
| (In millions) | January 31, 2023 | October 31, 2022 | |||||||||
| Finished goods | $ | 28.9 | $ | 33.8 | |||||||
| Crop growing costs | 28.3 | 19.5 | |||||||||
| Packaging and supplies | 19.6 | 19.8 | |||||||||
| Inventory | $ | 76.8 | $ | 73.1 | |||||||
Inventory at October 31, 2022 included a $0.7 million adjustment to increase inventories recognized in the business combination with Moruga to their fair value as of May 1, 2022. These inventories, including the fair value adjustment, were recognized in cost of sales as the underlying inventories were sold.
3. Goodwill and Intangible Asset, net
Goodwill
| (In millions) | International Farming | Blueberries | Total | ||||||||||||||
| Goodwill as of January 31, 2023 and October 31, 2022 | $ | 26.9 | $ | 12.5 | $ | 39.4 | |||||||||||
Goodwill is tested for impairment on an annual basis in the fourth quarter, or when an event or changes in circumstances indicate that its carrying value may not be recoverable.
Intangible asset, net
| (In millions) | January 31, 2023 | October 31, 2022 | |||||||||
| Intangible asset, gross | $ | 2.8 | $ | 2.8 | |||||||
| Accumulated amortization | (2.0) | (0.8) | |||||||||
| Intangible asset, net | $ | 0.8 | $ | 2.0 | |||||||
The intangible asset, net consists of a distributor relationship entirely attributed to the business combination with Moruga on May 1, 2022. The intangible asset has an amortizable life of 2 years, to be recognized in selling, general and administrative expenses coinciding with the timing of the estimated revenues. Amortization expense was $1.2 million for the three months ended January 31, 2023. The remaining amortization expense is expected to be recognized as follows.
| (In millions) | Remaining 2023 | Year Ending October 31, 2024 | |||||||||
| Estimated annual amortization expense | $ | 0.2 | $ | 0.6 | |||||||
4. Details of Certain Account Balances
Accrued expenses
| (In millions) | January 31, 2023 | October 31, 2022 | |||||||||
| Employee-related | $ | 13.1 | $ | 16.3 | |||||||
| Freight | 7.9 | 6.2 | |||||||||
| Outside fruit purchase | 1.3 | 1.0 | |||||||||
| Legal settlement | 0.8 | 0.8 | |||||||||
| Other | 6.3 | 5.8 | |||||||||
| Accrued expenses | $ | 29.4 | $ | 30.1 | |||||||
12
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other long-term liabilities
| (In millions) | January 31, 2023 | October 31, 2022 | |||||||||
Uncertain tax positions(1) | $ | 18.3 | $ | 17.1 | |||||||
| Employee-related | 1.3 | 1.2 | |||||||||
| Other | 1.8 | 1.9 | |||||||||
| Other long-term liabilities | $ | 21.4 | $ | 20.2 | |||||||
(1)Includes uncertain tax positions related to both income taxes and other statutory tax reserves, plus related penalties and interest.
Other expense (income), net
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Losses (gains) on derivative financial instruments | $ | 0.1 | $ | (0.8) | |||||||||||||||||||
| Foreign currency transaction loss (gain) | 0.9 | (0.5) | |||||||||||||||||||||
| Interest income | (0.2) | (0.1) | |||||||||||||||||||||
| Other | — | (0.2) | |||||||||||||||||||||
| Other expense (income), net | $ | 0.8 | $ | (1.6) | |||||||||||||||||||
5. Debt
Credit facility
Long-term debt under our syndicated credit facility with Bank of America (“BoA”) Merrill Lynch consisted of the following:
| (In millions) | January 31, 2023 | October 31, 2022 | ||||||||||||
| Revolving line of credit. The interest rate is variable, based on SOFR plus a spread that varies with the Company’s leverage ratio. As of January 31, 2023 and October 31, 2022, the interest rate was 6.42% and 5.34%, respectively. Interest is payable monthly and principal is due in full in October 2027 | $ | 50.0 | $ | 40.0 | ||||||||||
| Senior term loan (A-1). The interest rate is variable, based on SOFR plus a spread that varies with the Company’s leverage ratio. As of January 31, 2023 and October 31, 2022, the interest rate was 6.41% and 5.58%, respectively. Interest is payable monthly, principal is payable quarterly and due in full in October 2027. | 49.4 | 50.0 | ||||||||||||
| Senior term loan (A-2). The interest rate is variable, based on SOFR plus a spread that varies with the Company’s leverage ratio. As of January 31, 2023 and October 31, 2022, the interest rate was 6.66% and 5.83% respectively. Interest is payable monthly, principal is payable quarterly and due in full in October 2029. | 49.9 | 50.0 | ||||||||||||
| Note payable to BoA. Payable in monthly installments including interest at a rate of 3.96% as of both January 31, 2023 and October 31, 2022. Principal is due July 2024. | 0.8 | 1.0 | ||||||||||||
| Total long-term debt | 150.1 | 141.0 | ||||||||||||
| Less debt issuance costs | (0.5) | (0.6) | ||||||||||||
| Long-term debt, net of debt issuance costs | 149.6 | 140.4 | ||||||||||||
| Less current portion of long-term debt | (3.6) | (3.5) | ||||||||||||
| Long-term debt, net of current portion | $ | 146.0 | $ | 136.9 | ||||||||||
The credit facility requires the Company to comply with financial and other covenants, including limitations on investments, capital expenditures, dividend payments, amounts and types of liens and indebtedness, and material asset sales. The Company is also required to maintain certain leverage and fixed charge coverage ratios. As of January 31, 2023, the Company was in compliance with all covenants of the credit facility.
13
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other
The Company may issue standby letters of credit through banking institutions. As of January 31, 2023, total letters of credit outstanding were $0.7 million.
Certain of our consolidated subsidiaries may also enter into short-term bank borrowings from time to time. As of October 31, 2022, short-term borrowings outstanding were $2.5 million with a variable interest rate of 6.65%, all of which was repaid in the three months ended January 31, 2023.
Interest rate swaps
The Company has four separate interest rate swaps with a total notional amount of $100 million to hedge changes in variable interest rates on the principal value of the Company’s term loans. The interest rate swaps carry fixed LIBOR rates ranging from 1.75% to 2.57%. We account for the interest rate swaps in accordance with ASC 815, Derivatives and Hedging, as amended, which requires the recognition of all derivative instruments as either assets or liabilities in the consolidated balance sheets and measurement of those instruments at fair value. The Company has not designated the interest rate swaps as cash flow hedges, and as a result under the accounting guidance, changes in the fair value of the interest rate swaps have been recorded in other (expense) income, net in the condensed consolidated statements of loss and changes in the asset are presented in net cash used in operating activities in the condensed consolidated statements of cash flow. Refer to Note 8 for more details.
6. Commitments and Contingencies
Litigation
The Company is involved from time to time in claims, proceedings, and litigation, including the following:
On April 23, 2020, former Mission Produce, Inc. employees filed a class action lawsuit in the Superior Court of the State of California for the County of Los Angeles against us alleging violation of certain wage and labor laws in California, including failure to pay all overtime wages, minimum wage violations, and meal and rest period violations, among others. Additionally, on June 10, 2020, former Mission Produce, Inc. employees filed a class action lawsuit in the Superior Court of the State of California for the County of Ventura against us alleging similar violations of certain wage and labor laws. The plaintiffs in both cases seek damages primarily consisting of class certification and payment of wages earned and owed, plus other consequential and special damages. While the Company believes that it did not violate any wage or labor laws, it nevertheless decided to settle these class action lawsuits. In May 2021, the plaintiffs in both class action lawsuits and the Company agreed preliminarily to a comprehensive settlement to resolve both class action cases for a total of $0.8 million, which the Company recorded as a loss contingency in selling, general and administrative expenses in the consolidated statements of income during the three months ended April 30, 2021. The parties executed a stipulation of settlement agreement on such terms in November 2021. This preliminary settlement was approved by the applicable courts in October 2022. In the course of preparing to send out notices to the settlement class, issues arose regarding the nature and scope of the settlement, specifically with respect to the universe of participants in the settlement class, which the parties have been unable to resolve to-date. The parties intend to petition the court to enforce the terms of the settlement as each party has understood them to be. An informal conference before the judge is scheduled for March 2023.
The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and if one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that period could be materially adversely affected.
7. Income Taxes
The income tax benefit recorded for the three months ended January 31, 2023 and 2022 differs from the income taxes expected at the U.S. federal statutory tax rate of 21.0%, primarily due to income attributable to foreign jurisdictions which is taxed at different rates, changes in foreign exchange rates taxable in foreign jurisdictions, state taxes, nondeductible tax items, changes in uncertain tax positions (“UTP”), and changes in tax law affecting the rate in future years.
14
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of January 31, 2023, the Company had $16.0 million accrued in UTP on income taxes, of which $8.9 million relates to interest and penalties, inclusive of inflationary adjustments. The period for assessing interest and penalties has expired. However, the Company continues to record certain statutory adjustments related to inflation. Changes in the UTP related to changes in foreign exchange rates during the period are included in other (expense) income, net in the condensed consolidated statements of loss.
8. Fair Value Measurements
Financial assets measured and recorded at fair value on a recurring basis included in the condensed consolidated balance sheets were as follows:
| January 31, 2023 | October 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Mutual funds | $ | 1.3 | $ | 1.3 | $ | — | $ | — | $ | 1.2 | $ | 1.2 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Interest rate swap | 2.0 | — | 2.0 | — | $ | 2.6 | — | 2.6 | — | ||||||||||||||||||||||||||||||||||||||
Our mutual fund investments relate to our deferred compensation plan, which are held in a Rabbi trust included in other assets in our condensed consolidated balance sheets. The funds are measured at quoted prices in active markets, which is equivalent to their fair value.
The fair value of interest rate swaps is determined using widely accepted valuation techniques, including the discounted cash flow method. The analysis reflects the contractual terms of the swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves (“significant other observable inputs”). The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded, as of January 31, 2023 and October 31, 2022, the fair value associated with the “significant unobservable inputs” relating to the Company’s risk of non-performance was insignificant to the overall fair value of the interest rate swap agreements and, as a result, the Company has determined that the relevant inputs for purposes of calculating the fair value of the interest rate swap agreements, in their entirety, were based upon “significant other observable inputs”. The assets associated with the interest rate swaps have been included in prepaid expenses and other current assets and other assets in the condensed consolidated balance sheets and gains and losses for the interest rate swaps have been included in other (expense) income, net in the condensed consolidated statements of loss.
15
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Earnings Per Share
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss attributable to Mission Produce (in millions) | $ | (8.8) | $ | (13.4) | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares of common stock outstanding, used in computing basic earnings per share | 70,688,785 | 70,631,525 | |||||||||||||||||||||
| Effect of dilutive stock options | — | — | |||||||||||||||||||||
| Effect of dilutive RSUs | — | — | |||||||||||||||||||||
| Weighted average shares of common stock outstanding, used in computing diluted earnings per share | 70,688,785 | 70,631,525 | |||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||
| Basic | $ | (0.12) | $ | (0.19) | |||||||||||||||||||
| Diluted | $ | (0.12) | $ | (0.19) | |||||||||||||||||||
Equity awards representing shares of common stock outstanding that were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive, were as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Anti-dilutive stock options | 547,187 | 2,185,487 | |||||||||||||||||||||
| Anti-dilutive RSUs | 287,780 | 135,893 | |||||||||||||||||||||
16
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Related Party Transactions
Transactions with related parties included in the condensed consolidated financial statements were as follows:
| Condensed Consolidated Balance Sheets | |||||||||||||||||||||||||||||||||||||||||
| January 31, 2023 | October 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | Accounts receivable | Property, plant and equipment, net | Accounts payable & accrued expenses | Finance lease liabilities | Accounts receivable | Accounts payable & accrued expenses | |||||||||||||||||||||||||||||||||||
| Equity method investees: | |||||||||||||||||||||||||||||||||||||||||
| Mr. Avocado | $ | 0.4 | $ | — | $ | — | $ | — | $ | 1.5 | $ | — | |||||||||||||||||||||||||||||
| Other: | |||||||||||||||||||||||||||||||||||||||||
Directors/Officers(1) | 0.1 | 15.4 | 1.1 | 14.3 | 0.1 | 2.5 | |||||||||||||||||||||||||||||||||||
Employees(2) | — | — | 0.6 | — | — | 0.4 | |||||||||||||||||||||||||||||||||||
| Condensed Consolidated Statements of Loss | |||||||||||||||||||||||||||||||||||
| Three Months Ended January 31, 2023 | Three Months Ended January 31, 2022 | ||||||||||||||||||||||||||||||||||
| (In millions) | Net sales | Cost of sales | Interest expense | Net sales | Cost of sales | Other income (expense) | |||||||||||||||||||||||||||||
| Equity method investees: | |||||||||||||||||||||||||||||||||||
| Henry Avocado | $ | — | $ | — | $ | — | $ | — | $ | 0.2 | $ | — | |||||||||||||||||||||||
| Mr. Avocado | 0.1 | — | — | 0.4 | — | — | |||||||||||||||||||||||||||||
Moruga(3) | — | — | — | 3.4 | — | 0.4 | |||||||||||||||||||||||||||||
| Other: | |||||||||||||||||||||||||||||||||||
Directors/Officers(1) | 0.2 | 0.2 | 0.3 | 0.4 | 0.1 | — | |||||||||||||||||||||||||||||
Employees(2) | — | 2.2 | — | — | 1.7 | — | |||||||||||||||||||||||||||||
(1)The Company purchases from and sells avocados to, and provides logistics services to, a small number of entities having full or partial ownership by some of our directors/officers. These transactions are made under substantially similar terms as with other growers and customers. In November 2022, Moruga entered into a long-term land lease with a company owned by one of our directors. The rental rate in the lease was comparable to market rates and reflective of an arms-length transaction. The lease was accounted for as a finance lease right-of-use asset and is included in property, plant and equipment, net in the condensed consolidated balance sheets, with amortization and interest expense recognized in cost of sales and interest expense, respectively, in the condensed consolidated statements of loss. The portion of lease costs attributable to noncontrolling interest, net of income taxes, was $0.2 million for the three months ended January 31, 2023, and included as part of net loss attributable to noncontrolling interest in the condensed consolidated statements of loss.
(2)The Company utilizes a small number of transportation vendors in Mexico having full or partial ownership by some of our employees. The Company also purchases avocados from a small number of entities having full or partial ownership by some employees. These transactions are made under substantially similar terms as with other transportation carriers and growers.
(3)Effective May 1, 2022, Moruga was prospectively consolidated into the Company’s financial statements, at which time transactions between parties were prospectively eliminated in the consolidation of our financial statements. Transactions prior to consolidation are presented the same as in prior periods. The Company provides packing and cooling services for blueberries and leases owned land to Moruga. The Company has also provided loans to Moruga to support growth and expansion projects, bearing interest at 6.5%, due December 31, 2023.
11. Segment and Revenue Information
We have three operating segments which are also reportable segments. Our reportable segments are presented based on how information is used by our CEO, who is the chief operating decision maker, to measure performance and allocate resources. After the consolidation of Moruga on May 1, 2022 (refer to Note 1 for more information), the information used by the CEO changed to include the results of Moruga, and as such, we determined our reportable segments to be:
•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 substantially all fruit produced is sold to our Marketing and Distribution segment. Its farming activities range from cultivating early-stage plantings to harvesting from mature trees, and it also earns service revenues for packing and processing for our Blueberries segment, as well as for third-party producers of other crops during the avocado off-harvest season. Operations are principally located in Peru, with smaller operations emerging in other areas of Latin America.
17
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
•Blueberries. The Blueberries segment represents the results of Moruga, subsequent to its consolidation on May 1, 2022. Moruga’s farming activities include cultivating early-stage blueberry plantings and harvesting mature bushes. Substantially all of blueberries produced are sold to a single distributor under an exclusive marketing agreement.
The CEO evaluates and monitors segment performance primarily through segment sales and segment adjusted EBITDA. 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), certain noncash and nonrecurring 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. 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.
Net sales from each of our reportable segments were as follows.
| Marketing and Distribution | International Farming | Blueberries | Total | Marketing and Distribution | International Farming | Total | |||||||||||||||||||||||||||||||||||
| Three Months Ended January 31, | |||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||
| Third party sales | $ | 181.8 | $ | 1.9 | $ | 29.8 | $ | 213.5 | $ | 212.3 | $ | 4.3 | $ | 216.6 | |||||||||||||||||||||||||||
| Affiliated sales | — | 3.8 | — | 3.8 | — | (1.0) | (1.0) | ||||||||||||||||||||||||||||||||||
| Total segment sales | 181.8 | 5.7 | 29.8 | 217.3 | 212.3 | 3.3 | 215.6 | ||||||||||||||||||||||||||||||||||
| Intercompany eliminations | — | (3.8) | — | (3.8) | — | 1.0 | 1.0 | ||||||||||||||||||||||||||||||||||
| Total net sales | $ | 181.8 | $ | 1.9 | $ | 29.8 | $ | 213.5 | $ | 212.3 | $ | 4.3 | $ | 216.6 | |||||||||||||||||||||||||||
Supplemental sales information is as follows.
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| By type | |||||||||||||||||||||||
| Avocado | $ | 174.0 | $ | 209.1 | |||||||||||||||||||
Blueberry(1) | 29.8 | — | |||||||||||||||||||||
| Mango | 7.3 | 3.0 | |||||||||||||||||||||
| Other | 2.4 | 4.5 | |||||||||||||||||||||
| Total net sales | $ | 213.5 | $ | 216.6 | |||||||||||||||||||
| By customer location | |||||||||||||||||||||||
| United States | $ | 174.6 | $ | 178.1 | |||||||||||||||||||
| Rest of world | 38.9 | 38.5 | |||||||||||||||||||||
| Total net sales | $ | 213.5 | $ | 216.6 | |||||||||||||||||||
(1)Blueberry sales are generated entirely by our Blueberries segment, and are therefore reported prospectively from May 1, 2022.
18
MISSION PRODUCE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Adjusted EBITDA (as defined above) for each of our reportable segments was as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Marketing and Distribution adjusted EBITDA | $ | 4.6 | $ | (7.7) | |||||||||||||||||||
| International Farming adjusted EBITDA | (1.8) | (2.7) | |||||||||||||||||||||
| Blueberries adjusted EBITDA | (0.5) | — | |||||||||||||||||||||
| Total reportable segment adjusted EBITDA | $ | 2.3 | $ | (10.4) | |||||||||||||||||||
| Net loss | (10.6) | (13.4) | |||||||||||||||||||||
| Interest expense | 2.4 | 0.9 | |||||||||||||||||||||
| Income tax benefit | (1.7) | (2.5) | |||||||||||||||||||||
Depreciation and amortization(1) | 9.3 | 4.5 | |||||||||||||||||||||
| Equity method income | (1.0) | (1.6) | |||||||||||||||||||||
| Stock-based compensation | 0.7 | 0.8 | |||||||||||||||||||||
| Asset impairment and disposals, net of insurance recoveries | 0.3 | 0.1 | |||||||||||||||||||||
| Farming costs for nonproductive orchards | 0.4 | 0.5 | |||||||||||||||||||||
ERP costs(2) | 0.6 | 1.5 | |||||||||||||||||||||
| Transaction costs | 0.1 | 0.4 | |||||||||||||||||||||
| Amortization of inventory adjustment recognized from business combination | 0.7 | — | |||||||||||||||||||||
| Other expense (income) | 0.8 | (1.6) | |||||||||||||||||||||
Noncontrolling interest(3) | 0.3 | — | |||||||||||||||||||||
| Total adjusted EBITDA | $ | 2.3 | $ | (10.4) | |||||||||||||||||||
(1)Includes depreciation and amortization of purchase accounting assets of $1.6 million and $0.1 million for the three months ended January 31, 2023 and 2022, respectively.
(2)Includes recognition of deferred implementation costs for both periods, and for the three months ended January 31, 2022, non-recurring post-implementation process reengineering costs are also included.
(3)Represents net loss attributable to noncontrolling interest plus the impact of non-GAAP adjustments, allocable to the noncontrolling owner based on their percentage of ownership interest.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 fresh 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 substantially all fruit produced is sold to our Marketing and Distribution segment. Its farming activities range from cultivating early-stage plantings to harvesting from mature trees, and it also earns service revenues for packing and processing for our Blueberries segment, as well as for third-party producers of other crops during the avocado off-harvest season. 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, subsequent to its consolidation on May 1, 2022. Moruga’s farming activities include cultivating early-stage blueberry plantings and harvesting mature bushes. Substantially all of 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 substantially all of our subsidiaries is the U.S. dollar and substantially all 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.
20
| Three Months Ended January 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| (In millions, except for percentages) | Dollars | % | Dollars | % | |||||||||||||||||||||||||||||||
| Net sales | $ | 213.5 | 100 | % | $ | 216.6 | 100 | % | |||||||||||||||||||||||||||
| Cost of sales | 204.5 | 96 | % | 216.1 | 100 | % | |||||||||||||||||||||||||||||
| Gross profit | 9.0 | 4 | % | 0.5 | — | % | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 19.1 | 9 | % | 18.7 | 9 | % | |||||||||||||||||||||||||||||
| Operating loss | (10.1) | (5) | % | (18.2) | (8) | % | |||||||||||||||||||||||||||||
| Interest expense | (2.4) | (1) | % | (0.9) | — | % | |||||||||||||||||||||||||||||
| Equity method income | 1.0 | — | % | 1.6 | 1 | % | |||||||||||||||||||||||||||||
| Other (expense) income, net | (0.8) | — | % | 1.6 | 1 | % | |||||||||||||||||||||||||||||
| Loss before income taxes | (12.3) | (6) | % | (15.9) | (7) | % | |||||||||||||||||||||||||||||
| Income tax benefit | (1.7) | (1) | % | (2.5) | (1) | % | |||||||||||||||||||||||||||||
| Net loss | (10.6) | (5) | % | (13.4) | (6) | % | |||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | (1.8) | (1) | % | — | — | % | |||||||||||||||||||||||||||||
| Net loss attributable to Mission Produce | $ | (8.8) | (4) | % | $ | (13.4) | (6) | % | |||||||||||||||||||||||||||
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.
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Marketing and Distribution | $ | 181.8 | $ | 212.3 | |||||||||||||||||||
| International Farming | 1.9 | 4.3 | |||||||||||||||||||||
| Blueberries | 29.8 | — | |||||||||||||||||||||
| Total net sales | $ | 213.5 | $ | 216.6 | |||||||||||||||||||
Net sales decreased $3.1 million or 1% in the three months ended January 31, 2023 compared to the same period last year. Lower sales in our Marketing and Distribution segment were largely offset by the consolidation of revenue from our Blueberries segment. In Marketing and Distribution, a 27% decrease in average per-unit avocado sales prices was partially offset by an increase in avocado volume sold of 14%, both of which were driven by higher industry supply out of Mexico during the quarter.
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. Variations in containerboard prices, which affect the
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cost of boxes and other packaging materials, and fuel prices can have an impact on our product cost and our profit margins. Variations in the 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.
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Gross profit (in millions) | $ | 9.0 | $ | 0.5 | |||||||||||||||||||
| Gross profit as a percentage of sales | 4.2 | % | 0.2 | % | |||||||||||||||||||
Gross profit increased $8.5 million or 1700% in the three months ended January 31, 2023 compared to the same period last year to $9.0 million, and gross profit percentage increased 400 basis points to 4.2% of revenue compared to the same period last year. Gross profit and gross profit percentage for the three months ended January 31, 2022 were significantly affected by challenges with the implementation of our new ERP system in our Marketing and Distribution segment. In the three months ended January 31, 2023 higher volumes had a favorable impact on fixed cost absorption while the lower pricing environment limited our ability to generate per-box margins on the buy-sell of avocados. We experienced negative gross margin within the Blueberries segment during the first quarter of 2023 as a result of weak sales prices within the European and US markets driven by strong industry supply as well as the amortization of purchase accounting adjustments associated with the business combination of Moruga during fiscal 2022.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses primarily include the costs associated with selling, professional fees, general corporate overhead and other related administrative functions.
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Selling, general and administrative expenses | $ | 19.1 | $ | 18.7 | |||||||||||||||||||
SG&A expenses increased $0.4 million or 2% in the three months ended January 31, 2023 compared to the same period last year. The current period included the consolidation of $1.6 million in expenses from the Blueberries segment, a large portion of which was attributed to amortization of an intangible asset recognized in the business combination. This impact was partially offset by non-recurring ERP process reengineering costs incurred in the previous period.
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.
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Interest expense | $ | 2.4 | $ | 0.9 | |||||||||||||||||||
Interest expense increased $1.5 million or 167% in the three months ended January 31, 2023 compared to the same period last year. The increases were due to rising interest rates, as the majority of our outstanding debt is subject to variable rates. Additionally, we incurred interest expense of $0.3 million in the first quarter of 2023 related to a long-term land lease for blueberry development which was classified as a finance lease.
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To reduce interest rate risk on our long-term debt, we have interest rate swaps with a total notional amount of $100 million to hedge changes in the variable rates applicable to our term loan principal. Gains or losses generated from the swaps are recognized in other expense (income) in the consolidated financial statements.
Equity method income
Our material equity method investees include Henry Avocado (“HAC”), Mr. Avocado, Copaltas, and up until May 1, 2022, Moruga. On May 1, 2022, Moruga became a variable interest entity and prospectively consolidated into our financial statements.
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Equity method income | $ | 1.0 | $ | 1.6 | |||||||||||||||||||
Equity method income decreased $0.6 million or 38% in the three months ended January 31, 2023 compared to the same period last year, primarily due to the consolidation of Moruga.
Other expense (income), net
Other expense (income), net consists of interest income, currency exchange gains or losses, interest rate derivative gains or losses and other miscellaneous income and expense items.
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Other expense (income), net | $ | 0.8 | $ | (1.6) | |||||||||||||||||||
Other expense was $0.8 million in three months ended January 31, 2023 compared to other income of $1.6 million in the same period last year primarily due to loss on foreign currency transactions in the current period compared to gains in the prior period, both driven by movement between the U.S. dollar and Mexican peso. Our interest rate swaps also generated gains in the previous period as a result of rising interest rates during the period.
Income taxes
The benefit or 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.
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Income tax benefit (in millions) | $ | 1.7 | $ | 2.5 | |||||||||||||||||||
| Effective tax rate | 13.8 | % | 15.7 | % | |||||||||||||||||||
The income tax benefit decreased $0.8 million or 32% in the three months ended January 31, 2023 compared to the same period last year primarily due to a reduction in pre-tax losses. Our effective tax rate is impacted by income attributable to
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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.
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), certain noncash and nonrecurring 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
| Marketing and Distribution | International Farming | Blueberries | Total | Marketing and Distribution | International Farming | Total | |||||||||||||||||||||||||||||||||||
| Three Months Ended January 31, | |||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||
| Third party sales | $ | 181.8 | $ | 1.9 | $ | 29.8 | $ | 213.5 | $ | 212.3 | $ | 4.3 | $ | 216.6 | |||||||||||||||||||||||||||
| Affiliated sales | — | 3.8 | — | 3.8 | — | (1.0) | (1.0) | ||||||||||||||||||||||||||||||||||
| Total segment sales | 181.8 | 5.7 | 29.8 | 217.3 | 212.3 | 3.3 | 215.6 | ||||||||||||||||||||||||||||||||||
| Intercompany eliminations | — | (3.8) | — | (3.8) | — | 1.0 | 1.0 | ||||||||||||||||||||||||||||||||||
| Total net sales | $ | 181.8 | $ | 1.9 | $ | 29.8 | $ | 213.5 | $ | 212.3 | $ | 4.3 | $ | 216.6 | |||||||||||||||||||||||||||
Adjusted EBITDA
| Three Months Ended January 31, | |||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||
| Marketing and Distribution adjusted EBITDA | $ | 4.6 | $ | (7.7) | |||||||||||||||||||
| International Farming adjusted EBITDA | (1.8) | (2.7) | |||||||||||||||||||||
| Blueberries adjusted EBITDA | (0.5) | — | |||||||||||||||||||||
| Total reportable segment adjusted EBITDA | $ | 2.3 | $ | (10.4) | |||||||||||||||||||
| Net loss | (10.6) | (13.4) | |||||||||||||||||||||
| Interest expense | 2.4 | 0.9 | |||||||||||||||||||||
| Income tax benefit | (1.7) | (2.5) | |||||||||||||||||||||
Depreciation and amortization(1) | 9.3 | 4.5 | |||||||||||||||||||||
| Equity method income | (1.0) | (1.6) | |||||||||||||||||||||
| Stock-based compensation | 0.7 | 0.8 | |||||||||||||||||||||
| Asset impairment and disposals, net of insurance recoveries | 0.3 | 0.1 | |||||||||||||||||||||
| Farming costs for nonproductive orchards | 0.4 | 0.5 | |||||||||||||||||||||
ERP costs(2) | 0.6 | 1.5 | |||||||||||||||||||||
| Transaction costs | 0.1 | 0.4 | |||||||||||||||||||||
| Amortization of inventory adjustment recognized from business combination | 0.7 | — | |||||||||||||||||||||
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| Other expense (income) | 0.8 | (1.6) | |||||||||||||||||||||
Noncontrolling interest(3) | 0.3 | — | |||||||||||||||||||||
| Total adjusted EBITDA | $ | 2.3 | $ | (10.4) | |||||||||||||||||||
(1)Includes depreciation and amortization of purchase accounting assets of $1.6 million and $0.1 million for the three months ended January 31, 2023 and 2022, respectively.
(2)Includes recognition of deferred implementation costs for both periods, and for the three months ended January 31, 2022, non-recurring post-implementation process reengineering costs are also included.
(3)Represents net 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 decreased $30.5 million or 14% in the three months ended January 31, 2023 compared to the same period last year, primarily due to a 27% decrease in average per-unit avocado sales prices, partially offset by an increase in avocado volume sold of 14%, both of which were driven by higher industry supply out of Mexico during the quarter.
Segment adjusted EBITDA increased $12.3 million or 160% in the three months ended January 31, 2023 compared to the same period last year primarily due to the same factors impacting segment gross profit as described above.
International Farming
Substantially all sales of fruit from our International Farming segment are 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 August 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. 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 concentrated in the fiscal second quarter and, as a result, mangos have a more pronounced impact on segment financial performance during this timeframe.
Total segment sales in our International Farming segment increased $2.4 million, or 73% in the three months ended January 31, 2023 compared to the same period last year due primarily to higher packing and cooling service revenue for our blueberry operations. Net sales decreased due to the consolidation of the Blueberries segment in the current period, thus eliminating sales generated from Moruga.
Segment adjusted EBITDA increased $0.9 million or 33% in the three months ended January 31, 2023 compared to the same period last year, driven by margin generated from higher segment sales combined with lower SG&A expense.
Blueberries
Sales in our Blueberries segment are 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 January.
Net sales in our Blueberries segment were $29.8 million and segment adjusted EBITDA was $(0.5) million for the three months ended January 31, 2023. Negative segment adjusted EBITDA was a result of weak blueberry sales prices within the European and U.S. markets driven by strong industry supply.
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
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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.
| Three Months Ended January 31, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Net loss | $ | (10.6) | $ | (13.4) | |||||||
| Depreciation and amortization | 9.3 | 4.5 | |||||||||
| Equity method income | (1.0) | (1.6) | |||||||||
| Noncash lease expense | 1.4 | 1.2 | |||||||||
| Stock-based compensation | 0.7 | 0.8 | |||||||||
| Dividends received from equity method investees | 2.7 | 2.2 | |||||||||
| Deferred income taxes | (0.5) | — | |||||||||
| Other | 0.5 | (0.6) | |||||||||
| Changes in working capital | (3.8) | (34.5) | |||||||||
| Net cash used in operating activities | $ | (1.3) | $ | (41.4) | |||||||
Net cash used in operating activities was $1.3 million for the three months ended January 31, 2023, compared to $41.4 million for the same period last year. The change was driven by a reduction in our net loss despite higher depreciation and amortization expense and favorable net changes in working capital. The increase in depreciation and amortization was largely attributed to the consolidation of the Blueberries segment in the current period, inclusive of the impact of the amortization of purchase accounting adjustments. Within working capital, favorable changes in accounts receivable and inventory were partially offset by unfavorable changes in accounts payable and grower payables. Changes in inventory and grower payables were driven by lower per-unit cost of Mexican sourced fruit on-hand in comparison to prior period. Favorable changes in accounts receivable were attributed to lower per-unit sales prices, which correlate to the costing factors noted above.
Investing activities
| Three Months Ended January 31, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Purchases of property, plant and equipment | $ | (17.6) | $ | (20.9) | |||||||
| Investment in equity method investees | (0.3) | — | |||||||||
| Loan repayments from equity method investees | — | 1.0 | |||||||||
| Other | — | (0.2) | |||||||||
| Net cash used in investing activities | $ | (17.9) | $ | (20.1) | |||||||
Capital expenditures
In the three months ended January 31, 2023 and 2022, capital expenditures were concentrated in avocado orchard development, pre-production orchard maintenance and land improvements in Peru and Guatemala. In the first quarter of 2023, capital expenditures also included construction costs on our new UK distribution facility that is scheduled to open in spring 2023 and $4.4 million of spend related to irrigation installation and early-stage plant cultivation in our Blueberries operation.
Equity method investees
In the three months ended January 31, 2023, we made capital contributions to Mr. Avocado. In the three months ended January 31, 2022, we received an installment payment on outstanding loans to Moruga. From time to time, we may issue loans to support the working capital needs of our equity method investees, at market interest rates.
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Financing activities
| Three Months Ended January 31, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Borrowings on revolving credit facility | $ | 10.0 | $ | — | |||||||
| Short-term borrowings, net | (2.5) | — | |||||||||
| Principal payments on long-term debt obligations | (0.9) | (2.2) | |||||||||
| Principal payments on finance lease obligations | (1.7) | (0.3) | |||||||||
| Taxes paid related to shares withheld from the settlement of equity awards | (0.4) | — | |||||||||
| Contributions from noncontrolling interest holders | 1.0 | — | |||||||||
| Net cash provided by (used in) financing activities | $ | 5.5 | $ | (2.5) | |||||||
Borrowings and repayments of debt
We utilize a revolving line of credit for short-term working capital purposes. Principal payments on our term loans and other notes payable are made in accordance with debt maturity schedules.
Other
Principal payments on finance lease obligations during the first quarter of 2023 primarily related to a long-term land lease by our Blueberries segment, which for accounting purposes has been classified as a finance lease.
Contributions from noncontrolling interest holders were made in support of the blueberry capital project in the Olmos region of Peru that was agreed to in conjunction with the Moruga business combination.
Capital resources
| (In millions) | January 31, 2023 | October 31, 2022 | |||||||||
| Cash and cash equivalents | $ | 39.2 | $ | 52.8 | |||||||
Working capital(1) | 120.1 | 126.4 | |||||||||
(1)Includes cash and cash equivalents
Capital resources include cash flows from operations, cash and cash equivalents, and debt financing. Our Blueberries segment may also receive capital contributions or loans from shareholders, or enter into short-term bank borrowings from time to time.
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 up to $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 January 31, 2023, 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 January 31, 2023, our consolidated leverage ratio was 2.11 to 1.00 and our consolidated fixed charge coverage ratio was 2.29 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 2023, we expect capital expenditures
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excluding the Moruga Blueberry Project (described below) to be lower than fiscal 2022. Cash paid for capital expenditures for the year ended October 31, 2022 was $61.2 million.
Moruga Blueberry Project
On May 1, 2022, the shareholders of Moruga approved a new capital project to farm approximately 1,500 additional acres of blueberries in the Olmos region of Peru. The project is anticipated to require a total investment of approximately $50 million, the majority of which will be funded by cash flow generated by Moruga and supplemented by pro-rata shareholder contributions based on each shareholders’ respective ownership interest. The project is expected to be carried out in phases, commencing in fiscal year 2023. For fiscal 2023, capital expenditures related to the project are currently expected to be approximately $15.0 million, depending on timing and other factors.
Leases
We are party to various leases for facilities, land, and equipment, for which our undiscounted cash liabilities were $183.8 million as of January 31, 2023. Of that amount, approximately $60.0 million was related to the commencement of a portion of a 25-year land lease agreement in our Blueberries segment.
Long-term Debt
As of January 31, 2023, remaining maturities on our term loans and notes were $150.1 million. See Note 5 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, 2022, filed with the SEC on December 22, 2022. There have been no material changes to the critical accounting estimates disclosed in such Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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, 2022.
Item 4. Controls and Procedures
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 other changes in our internal control over financial reporting during the quarter ended January 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time involved in legal proceedings and investigations arising in the ordinary course of business, including those relating to employment matters, relationships with clients and contractors, intellectual property disputes and other business matters.
The following updates the matter discussed in “Part I, Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended October 31, 2022:
On April 23, 2020, former Mission Produce, Inc. employees filed a class action lawsuit in the Superior Court of the State of California for the County of Los Angeles against us alleging violation of certain wage and labor laws in California, including failure to pay all overtime wages, minimum wage violations, and meal and rest period violations, among others. Additionally, on June 10, 2020, former Mission Produce, Inc. employees filed a class action lawsuit in the Superior Court of the State of California for the County of Ventura against us alleging similar violations of certain wage and labor laws. The plaintiffs in both cases seek damages primarily consisting of class certification and payment of wages earned and owed, plus other consequential and special damages. While the Company believes that it did not violate any wage or labor laws, it nevertheless decided to settle these class action lawsuits. In May 2021, the plaintiffs in both class action lawsuits and the Company agreed preliminarily to a comprehensive settlement to resolve both class action cases for a total of $0.8 million, which the Company recorded as a loss contingency in selling, general and administrative expenses in the consolidated statements of income during the three months ended April 30, 2021. The parties executed a stipulation of settlement agreement on such terms in November 2021. This preliminary settlement was approved by the applicable courts in October 2022. In the course of preparing to send out notices to the settlement class, issues arose regarding the nature and scope of the settlement, specifically with respect to the universe of participants in the settlement class, which the parties have been unable to resolve to-date. The parties intend to petition the court to enforce the terms of the settlement as each party has understood them to be. An informal conference before the judge is scheduled for March 2023.
The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and if one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that period could be materially adversely affected.
Item 1A. Risk Factors
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, 2022, filed with the SEC on December 22, 2022. 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 2022 Form 10-K and in this quarterly report. You should carefully consider the risk factors in the 2022 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.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
The documents set forth are filed herewith or incorporated herein by reference.
INDEX
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
| Exhibit No. | Exhibit Description | Form | Date | Number | Filed Herewith | |||||||||||||||||||||||||||
| 3.1# | 8-K | 10/7/2020 | 3.1 | |||||||||||||||||||||||||||||
| 3.2# | 8-K | 10/7/2020 | 3.2 | |||||||||||||||||||||||||||||
| 31.1* | X | |||||||||||||||||||||||||||||||
| 31.2* | X | |||||||||||||||||||||||||||||||
| 32.1* | X | |||||||||||||||||||||||||||||||
| 32.2* | X | |||||||||||||||||||||||||||||||
| 101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 2023 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Loss, (iii) Condensed Consolidated Statements of Loss (iv) Condensed Consolidated Statements of Changes in Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | X | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||||||||||||||
| # | Previously filed | ||||||||||||||||||||||||||||
| * | These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. | ||||||||||||||||||||||||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 9, 2023.
| MISSION PRODUCE, INC. | ||
| /s/ Stephen J. Barnard | ||
| Stephen J. Barnard | ||
| Chief Executive Officer | ||
| /s/ Bryan E. Giles | ||
| Bryan E. Giles | ||
| Chief Financial Officer | ||
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