Good morning, and welcome to the Mission Produce Fiscal First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the conference over to Jeff Sonnek, Investor Relations at ICR. Sir, please go ahead.

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

Thank you for joining us for our fiscal '21 first quarter earnings call. We delivered a strong quarter, generating $12.5 million of adjusted EBITDA, which represents growth of 49% compared to the prior year, and met the high end of our expectations. Our solid financial execution comes back to the quality of our operational network. Despite the pandemic-induced disruptions to the industry that caused shocks to the foodservice and retail channels, Mission was unfazed due to our global network and infrastructure. In fact, our ability to stay nimble and manage disruptions with minimal effects proved to be highly beneficial and allowed us to demonstrate our value-added services to customers worldwide. The consistency that we bring is critical in fostering customer relationships, creating growth in new and existing business, while increasing our market share during the first quarter. This is all made possible by our long-term commitment to innovation and investing in infrastructure, which has been the hallmark of Mission since we started the Company 37 years ago. Our latest endeavor is the construction of our Laredo, Texas new distribution center, which is scheduled for completion in the third quarter of fiscal '21. This 262,000 square foot facility is a game changer for Mission. It will support our distribution of Mexican-sourced fruit in the North American markets and will include border crossing, cold storage and value-added capabilities such as ripening and custom packaging. What makes it so powerful is the enhanced flexibility it provides our entire North American network and its ability to take significant pressure off of our other distribution centers during seasonal peaks. We will have the ability to be even more competitive than we are today, provide unmatched service to our customers and meet their precise needs, all while having the flexibility to absorb shocks to the system, whether that be changes in volume, changes in customer needs, or other disruptions. Supporting our global footprint remains critical for our growth strategy. We are leveraging our global supply chain and distribution capabilities to continue developing international markets. We have a network of complementary assets in Mexico, Peru, and the Netherlands, providing us access to key growth markets such as Europe. We've been working with retailers to grow the category through direct access to high-quality ripe product through our sourcing and distribution capabilities. And in Asia, we are leveraging more than 35 years' presence in Japan and existing Chinese distribution facilities to service our platform and build our Asian distribution network. Both of these regions present immense long-term growth opportunities for us with consumption rates that are a fraction of what the U.S. market is today. Ultimately, our ability to execute this consistently comes back to our year-round sourcing capabilities, which are extremely unique and a substantial competitive advantage for Mission. Avocados are no longer a seasonal fruit or a luxury; they have become a staple in households around the world. We are bolstering this by providing a consistent year-round supply and value-added services to neighborhood retailers and restaurants. We aim to replicate this trend globally, but to do so requires foresight and constant focus on continuously assessing opportunities to optimize our sourcing capabilities with third-party growers, as well as investing in our own farms to ensure that we control the quality and supply that our customers have come to expect. We welcome the challenge. Our year-round sourcing strategy is expanded to mangoes as well. While our organization is firmly committed to the avocado industry, which will continue to drive our financial results for decades to come, we find ourselves in a unique position with relationships and assets that lend themselves to what we think is a very complementary opportunity for our business and customers. For those who know us well, we've been in the mango business since 2015 by owning and operating 300 hectares of mangos in Peru. The genesis of this was to leverage our labor workforce. The wonderful thing about mangos is they have a harvest cycle opposite to that of avocados, so we can employ a workforce year-round, which is a significant operational advantage for us and also for the communities that can thrive and invest behind a consistent regional employer such as Mission. As the trees began to provide higher yields, we saw an opportunity in 2019 to start marketing mangoes under the Mission label in the United States through a small window our farms provided. Demand from our customer base became bigger, requesting a year-round program, so we decided to capitalize and fully expand to meet those needs. Further, we see several similarities between mangoes and avocados. Both require ripening technology that we already possess, a buyer or customer tends to be the same for both categories, and consumption trends are on the rise, particularly in Europe. Our presence in the category will continue to grow at a measured pace based on customer demand and our capacity to support year-round sourcing. While it won't have any immediate impact on our financial profile, it does provide an additional avenue for long-term profitable growth. We can leverage our strengths: our existing distribution, ripening and transportation network, and our exceptional team. It also strengthens our relationship with retailers, as we've become a larger percentage of their supply base. With that, I'll pass the call over to our CFO, Bryan Giles, for some commentary around our recent financial results.

Thank you, Steve, and good afternoon to everyone on the call. I'll start with a brief review of our fiscal first quarter performance that ended January 31st, 2021, and touch on some of the drivers within our two operating segments. Then I'll provide a snapshot of our strong financial position and conclude with some thoughts around our outlook. As Steve mentioned, we had a great fiscal first quarter 2021, which met our plan and reflects the strong global infrastructure we have in place to service our blue-chip customer base. Total revenue was $173.2 million compared to $197.5 million for the same period last year, representing a 12% decrease, which was consistent with our expectations. The decrease in revenue was driven by an 18% decrease in average per-unit sales prices, partially offset by a 7% increase in volume, which reflected a broader trend over the past couple of quarters that has been driven by strong industry supply from Mexico. I'll touch on the price-volume dynamics in a moment, but would like to reiterate that our business has managed the volume targets, as we leverage our global presence to drive share of fresh avocados to our retail and foodservice customers. While prices fluctuate given the influences of global supply and demand, this is not something Mission can control or forecast with any degree of certainty. That said, our leadership position as a global value-added marketer and distributor of fresh avocados insulates our gross profits, as these sought-after value-added services such as ripening, storage and distribution are largely unaffected by price changes. As such, our first quarter 2021 gross profit increased 17% compared to prior year despite a 12% decrease in total revenue, driving a gross profit margin improvement of 328 basis points to 13% of revenue. In other words, in a lower-price environment such as this, where price is inversely related to higher market volume, we are able to maintain growth of our gross profit dollars through our higher volume, and when measured as a margin against a lower revenue base, our gross margin percentage expands accordingly. SG&A for the first quarter decreased $0.2 million to $14.6 million due to lower professional fees, largely offset by higher employee-related costs and liability insurance premiums now required as a public company. Net income for the first quarter of 2021 was $2.2 million or $0.03 per diluted share. This compares with net income of $1.4 million or $0.02 per diluted share for the same period last year. Notably, we experienced two non-operational variances in the first quarter that affected net income. First was the positive impact from equity earnings from unconsolidated subsidiaries of $2.3 million in the current year period compared to nominal equity earnings in the prior year period. This reflects our proportionate earnings from our investment in Laredo, which experienced strong yields and pricing returns on their blueberry harvest, and Henry Avocado, which experienced higher per-unit margins. The second variable influencing first quarter net income is a $5.1 million non-cash charge to deferred tax expense for the revaluation of the Company's deferred tax assets and liabilities due to changes in future corporate income tax rates in Peru. Adjusted net income was $7.9 million or $0.11 per diluted share for the first quarter of 2021, compared to adjusted net income of $2.5 million or $0.04 per diluted share for the same period last year. Note that the equity method income that I just highlighted is included in these adjusted figures, while the deferred tax expense charge is not. Adjusted EBITDA increased $4.1 million or 49% to $12.5 million for the first quarter of fiscal 2021, compared to $8.4 million for the same period last year. In terms of our segment drivers: our Marketing and Distribution segment net sales decreased 13% to $169.6 million for the quarter. The drivers for the Marketing and Distribution segment are similar to those that I described for the consolidated results, with lower average pricing being partially offset by volume growth. This is due to the fact that virtually all of our third-party revenue is generated within this segment. Segment adjusted EBITDA increased 34% to $13.7 million due to a combination of higher volumes and higher per-unit gross margins, which correlate with lower per-box packaging costs and favorable leveraging of fixed-cost overhead. Our International Farming segment primarily represents our own farms that we manage in Peru. Naturally, the dynamics of this business are quite different from those in our Marketing and Distribution segment. Here, we behave as an operator and our ability to scale our operations in an efficient and profitable manner are central to our current and future success. While we are more exposed to price in this segment compared to our Marketing and Distribution segment, this is a highly strategic initiative for Mission. Our growing base of global customers requires year-round supply, and today's key growing regions can't keep up with international demand. As a result, we made a commitment close to a decade ago to establish a presence where we control our own supply that we are able to sell to customers through our Marketing and Distribution operations. As we look forward, in the short run growth within our International Farming segment will be dictated by yield improvement within our maturing orchards, while longer-term growth will be supported by additional producing acreage that will come online and subsequently mature. Nominal affiliated sales were realized in the first quarter since the avocado harvest season for our premium farms typically runs from April through August of each year. Adjusted EBITDA for International Farming is generally concentrated in the third and fourth quarters of our fiscal year in alignment with the harvest season for avocados in Peru. For the first quarter, International Farming segment sales increased 27% to $3.8 million and net sales after intercompany eliminations increased 20% to $3.6 million for the quarter. Sales increases were primarily driven by higher blueberry packing and cold storage service revenues compared to the prior year. Segment adjusted EBITDA improved by $0.6 million to a loss of $1.2 million, primarily due to the higher service volumes noted above, which enabled us to better leverage fixed-cost overhead during the avocado harvest off-season. Shifting to our financial position: cash and cash equivalents were $91.1 million as of January 31st, 2021, compared to $124 million as of October 31st, 2020. Total debt was $172 million. Mission's financial model has historically generated strong operating cash flow, which has provided us great flexibility to support our long-term growth objectives with the required infrastructure and sourcing capabilities. Despite significant investments in the business over the past decade as we built out our global footprint, our net leverage ratio is very healthy. Our operating cash flows are seasonal in nature and can be temporarily influenced by working capital shifts resulting from payment timing for Mexican-sourced volume, which have shorter terms than other source markets. Additionally, we are building our growing crops inventory for sale in the second half of the fiscal year, which can influence year-over-year changes. These variables can cause quarterly shifts in operating cash flows, but it is not indicative of the positive operating cash flow performance that we expect to realize for the full year. Net cash used in operating activities was $9.7 million for the first quarter of fiscal 2021, compared to $12.5 million for the same period last year. The $2.8 million improvement reflected our higher net income and favorable net changes in working capital. Capital expenditures were $22.4 million for the first quarter of fiscal 2021, compared to $8.9 million for the same period last year, and were concentrated in the construction of our new distribution center in Laredo, Texas, and for land improvements in orchard development in Peru and Guatemala. Our Laredo facility will expand our distribution capacity in North America, while our farming investments will provide avocado supply in future years. In terms of our outlook: we are providing an update on some of our second quarter-to-date drivers to inform modeling assumptions, but are not providing formal guidance due to the fluidity of the market at this point in the year. Consolidated volume for the second quarter-to-date period through the end of February is trending up approximately 14% versus prior year. Importantly, as we look forward to the balance of the quarter, we have considerable variance in the prior year periods due to disruption from the pandemic. If we assume a normalization of the prior year period volumes, which would exclude those anomalies, we believe a quarterly trend in the positive high single-digit range is prudent. However, given the low prior year actual realized volumes, we may experience actual volume growth for the quarter approaching 20%. Sales prices for the second quarter-to-date period through the end of February are trending down approximately 20% versus prior year. To put this in perspective, I'll share our monthly progression for average pricing during the first quarter, which follows for our Marketing and Distribution segment avocado sales. For November, we realized an average sales price of $1.06 per pound. For December, it was $1.00 per pound, and for January it was $1.06 per pound. This averaged to $1.04 per pound for the first quarter. In the second quarter, February pricing was approximately $1.15 per pound, which is built off of the lows we realized in December. As we look to the balance of the quarter, the bias is for this momentum to continue, but of course the market will dictate pricing based on available volume at any point in time. In terms of adjusted EBITDA, we would like to share some insights as to how we are thinking about some of the key variables that will influence our performance for the balance of fiscal 2021. Naturally, this starts with the harvest, which dictates volume. We expect total annual volume growth to track in the high single-digit range based upon current assessments of industry crop sizes. As we shift into the second half of our fiscal year, we start seeing the Peruvian crop come online. The good news is that we are seeing evidence that our Peru crop is expected to show strong growth versus prior year driven by yield improvement in our existing orchards. As Steve indicated in his remarks, the pricing environment is improving but still remains well below prior year levels. While we see some signs that indicate a gradual improvement may extend through the second half of our fiscal year due to expectations for a smaller late-season Mexican harvest and a smaller California crop, it is too early to make a call on price, so we will stop short of offering a guess and instead provide you with our view of the market dynamics. Regardless of what comes to pass in terms of market pricing, I'd like to re-emphasize that we have better control of our margins within the Marketing and Distribution segment, which we expect to translate to more consistency on the adjusted EBITDA line than what we may experience on the revenue line, again due to changes in pricing driven by market forces. We continue to look at this metric through a broader lens with a long-term goal of maximizing per-box margins. That isn't always possible given the dynamics of the marketplace, but it is what we strive for year-in and year-out. That concludes our prepared remarks. Operator, now over to you. Please open the call to Q&A.

Thank you. At this time, we'll be conducting a question-and-answer session. Operator Instructions were provided. Your first question comes from the line of Brian Holland with D.A. Davidson. Please proceed with your question.

Yes, thanks. Good afternoon and congrats on the strong results. I'm curious what you are seeing in California at this point to give you confidence. I know that the California Avocado Commission recently reduced its forecast for the 2021 crop by about 8%. I don't know if that jives with what you're hearing or seeing. So maybe I'll just stop there and ask what moving parts give you the confidence as we look forward?

I'll start and Mike can support this. Yes, the crop is a little bit lower than they originally anticipated due to some heavy high winds we had a month or two ago. But in Mission's case, we've got backup plans in Peru specifically, which has a much larger crop. So, we feel we're in a pretty good position going forward as far as supply.

I concur with Steve. The commission came out with adjusted numbers; you probably recall we had kind of forecasted about 300 million pounds for California prior to some of these weather events while they were still at about 315 million pounds, I think. Now those numbers are down well under 300 million pounds. We have some nice rains in California right now, which will help with sizing of fruit, and there seems to be a natural window developing for California this year for harvest.

I appreciate the color. One other question: I'm reading about in Peru this agrarian promotion law, which was repealed in December. I've read comments from directors of avocado producers there saying this is going to limit investment in new avocado plantations. Could you provide a little context around what's happening there? Has it impacted you, and from a competitive standpoint, is this a negative or maybe even a positive to the extent investment is limited around you? Just the dynamics there?

I think it's both. I'll let Bryan address the tax side of it, but I think it will slow down future investment from people that aren't there yet. We're in a situation where we're already well down the road and invested, and our orchards are now starting to harvest in big volume. The promotion money or that tax program they had was to create investment, which it did. I think now they're backing off a little bit and it's creating some social challenges that they weren't able to keep up with given the rapid growth. So I think it's probably a time for them to catch their breath. I think it's good for us in that it will limit new investors entering the market, and in our case, we'll stick to our plan.

Yes, related to the tax rates themselves and they are graduated and build up over time. The big hit that we took, $5.1 million during the first quarter, was related to the revaluation of some very long-term deferred tax liabilities that we have, and these related to the step acquisition that we did of our Peruvian operation back in 2018. It really relates to revaluation of land and things of that nature. Those entries generally won't impact cash unless we sell the investment or the property. So, approximately $4.5 million of that number is really a book transaction related to liabilities on that acquisition we did, and the other $0.5 million will unwind over a relatively long period of time. It won't have an immediate operational impact on our results. But again, those tax rates are going to step up over the longer term.

Appreciate that color. Best of luck going forward. Thank you.

Your next question comes from the line of Tom Palmer with J.P. Morgan. Please proceed with your question.

Hi guys, thanks for taking the question. It was helpful to get the volume and pricing disclosures for the second quarter. I wondered if you had detail on how profit per pound in the Distribution business was trending thus far in the second quarter, maybe how it compares to last year or relative to what we saw in the first quarter?

I think it's very early right now. We have preliminary numbers for our first month and so we have more than half of the quarter still ahead of us. It's very difficult to say where it's going to be at the end of the quarter. I will say that we saw a trend throughout the first quarter where margins got a little bit tighter toward the back end of the quarter than they were in the earlier part. Some of the volatility we're seeing in the market in Mexico today in terms of price increases makes it challenging for us to get our price increases up with our customers at the same rate when it moves this quickly. So there are some challenges ahead. I don't think it's anything insurmountable and we'll manage it. February was not a bad month; it wasn't too far out of line with what we ran in the first quarter. But certainly with March and April ahead of us, we'd like to see the Mexico market stabilize, California growers start to harvest in heavy volumes, and then have that bridge us to when we can get to our Peru volumes in Q3.

Thanks for the color. I know we covered this last earnings call, but could you give an update on the supply picture and the progression of sourcing shifts — when sourcing begins to switch to other regions or when Mexico comes off — so we can think about supply stabilizing?

Mexico will continue to harvest albeit at lesser rates as we get into spring and early summer. California, I think, will start to seize a window as Mexico comes off; it's too early for Peru. So California will have a very strong spring harvest into early June, and then it's pretty much Peru and a little bit of Mexico going through June, July, August, maybe early September. Beyond that, we get back into the new Mexico crop cycle. Right now we're battling some issues with sizing and quality and also logistics and fuel costs, but California should fill the current situation as Mexico eases. Peru will be a very nice program as it comes online.

Understood.

Well, of course, Peru is going to be a very nice program. In terms of filling the current situation we have with Mexico, California is going to fill that very nicely.

Okay. Thanks, guys.

Your next question comes from the line of Ben Bienvenu with Stephens. Please proceed with your question.

Hi, good afternoon guys. First question: as it relates to Laredo and the recent storms, any impact that's had on the ramping of that facility? Any damages or anything that will remain from an operational standpoint? I'll leave it there for now.

Thanks for thinking of that. Texas had a rough time through the whole state. Fortunately, Laredo got through it without any issues whatsoever. We're still on schedule to have our soft open April 22nd. We've put in place some management there and we would be ready to go. We did have some issues up in our Dallas facility, and that is going to take a little bit of time to resolve because of freezing pipes and that kind of thing, but one of the great things about our network is it can feed off of itself and we can move product around, keep customers satisfied and keep everything moving. Laredo will be up and going and it will be the lifeboat to help Dallas out until we get Dallas back up and running.

Okay, great. My second question: I'd be curious to hear what you're seeing as it relates to foodservice demand. I know we're very early in the recovery, and it's probably fits and starts and varies by geography, but any color you could offer would be helpful. Along those lines, what does foodservice business mean for your mix and margin within your volumes, and how do you expect to see that develop as we move through the year?

Our foodservice business has held up relatively well. Many foodservice customers shifted to takeout and delivery, including drive-through and curbside pickup, and that change has supported volumes for some customers. We haven't seen a big drop in our overall foodservice category, although some customers within foodservice — especially wholesale foodservice distributors that serve white-tablecloth restaurants and similar segments — have taken a big hit. Those segments are starting to come back a little bit; their numbers are up but not yet at prior levels. At the same time, we've had export and retail business pick up where some foodservice demand decreased. Overall, foodservice is recovering but unevenly by customer and geography.

Okay, thanks. Best of luck.

Your next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question.

Hi guys, good afternoon. Thanks for taking the question. Bryan, on pricing quarter-to-date down 20%, that would have encompassed February. Some of the public data we can see, for example, data reported out of Mexico with the USDA, was quite a bit worse than that, so I wanted to understand why you may have outpaced that decline. Also, to make sure I heard it right: if we think about that minus 20% as maybe a low watermark pending recovery in March and April, could the quarter be something better than that if things pick up?

Sure. When we look at our performance during February, we were seeing a nice trend up from what we saw in the first quarter. Ideally, that will continue into March and April. December kind of was that low point. When we look at it year-over-year, pricing was relatively high during this time last year leading into the pandemic-related shutdowns, and then post-April we saw a gentle decline in prices through the summer. We are a little different than the industry as a whole due to our customer mix; we tend to be more retail-focused and we also have a strong export business — roughly 27% of our revenue during the first quarter came from supporting sales outside the U.S. So parts of our business can soften the impact of lower U.S. pricing. Company-by-company differences will exist on pricing based on customer mix and where they're selling to, but the broad trends are consistent. If March and April improve as hoped, the quarter could be better than the minus-20% figure.

To add one point on the exports Bryan referred to: our global sourcing isn't just California, Mexico, or Peru. We export avocados from Israel, South Africa, Colombia, Chile and other origins. That global sourcing helps fuel the export business and supports the roughly 27% of revenue from international sales.

Colombia, Chile — yes, we truly couldn't support the markets we do today without the global supply infrastructure we've built.

There is no doubt. We regularly watch the market and our customers' needs and leverage global supply to provide consistent programs.

Got it. Two other quick ones: first, as a follow-up to Ben's question on the weather — good to hear no impact on Laredo — was there any impact to harvest in Mexico from the colder weather? Second, on the tax adjustment in the quarter, it seemed like something was adjusted out, but is there now a step change as a result of Peru's tax changes that we should incorporate as a higher tax rate going forward?

We didn't have much interference in harvest. We had a little disruption getting trucks across the border into Texas for a couple of days because roads were affected, but we worked through it. Because we manage a nice inventory, we were able to pull through our system and get product moving. So there wasn't much of an impact on harvest.

Understood.

On the tax rate: historically we've had a 15% statutory tax rate on our agribusiness-based earnings in Peru. The repeal of the previous agrarian promotion law and its replacement leads to a graduated tax rate increase over time. We see an increase from 15% to 20% starting in calendar year 2023, so it's still a couple of years out before it will impact our current tax expense. The $5.1 million non-cash deferred tax charge reflected a revaluation largely tied to purchase accounting on land related to our step acquisition, and it's a one-time non-cash adjustment. Over time, we will monitor tax rates in all jurisdictions where we do business — Peru, Mexico, and the United States — and our effective tax rate will evolve as proportions of our income shift among those regions. We are also monitoring potential changes in U.S. tax rates.

Okay, that's helpful. Thanks very much, Bryan.

Your next question comes from the line of Gerry Sweeney with ROTH Capital. Please proceed with your question.

Good afternoon, guys. Thanks for taking my call. I want to touch on the mangoes quickly. My understanding is mangoes are a more competitive, fragmented market and pricing is different. Is this more of a strategic move to leverage your assets? How should we think about this given it's not a huge part of the business today?

That is part of it, Gerry. But keep in mind mangoes are the most consumed fruit globally, just not as much in the United States. We planned our first mango orchards in Peru to leverage labor and because mango harvest comes off-season from avocados, helping us keep our workforce employed year-round. We started marketing mangoes and learned that our customer base — the retailers and grocers — were asking for a consistent, high-quality ripe mango program. We already have assets in place: ripening, distribution, and the sourcing in Peru. Depending on how big it gets we may need to add capacity in spots, but it's a manageable expansion. The industry has matured with the advent of the Mango Board under USDA guidance, which has helped the category develop. We believe there's an opportunity to be a leader in the category and to legitimize it much like we've done in avocados over the years.

Is the mango industry highly fragmented among growers and marketers? How competitive is it on the growing and Marketing & Distribution sides?

Yes, it's quite fragmented with many small players and regional windows. Harvests shift from region to region in 6- to 10-week cycles. That fragmentation is actually an advantage for us because we're already present in several regions and have the downstream ripening and distribution expertise. We're not inventing the sourcing side; we can scale and standardize quality and ripening, which positions us well to lead.

Perfect, that was very helpful. I'll jump back in line. Thanks a lot, guys.

At this time, I'm showing no further questions. I'd like to end the question-and-answer session and turn the conference call back over to management for any closing remarks.

I'd just like to thank everyone for their interest in Mission Produce. I think we have an exciting future ahead and we're looking forward to it. Thank you for your time today.

Ladies and gentlemen, that concludes today's conference call. We do thank you for attending. You may now disconnect your lines.