Good afternoon, and welcome to the Mission Produce Fiscal Third Quarter 2022 Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jeff Sonnek, Investor Relations at ICR. Sir, please go ahead.

Thank you, and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; and Bryan Giles, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release 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 2022 third quarter earnings call. We produced strong revenue growth of 27% to $313.2 million, and we generated $31.6 million in adjusted EBITDA for the third quarter, which was supported by sustained strength in pricing amid a lower industry supply backdrop. Additionally, our per unit margins performed well in the third quarter, which have remained at the high end of normal historical ranges and demonstrates the flexibility of our diversified global sourcing platform, even in periods where we experienced volatility from the large Mexican source market and capacity absorption headwinds that we are incurring from our new Laredo facility. On the Laredo point, we continue to feel great about the flexibility that this 261,000 square foot mega facility will provide us in the future to drive volume efficiency throughout North American markets. We've made substantial investments in our network over the past several years, including Laredo, and we feel confident about the capacity we have in place to support our anticipated growth over the next several years. While we've been absorbing those incremental overhead costs over the past year, they are largely fixed and have stabilized, which provides us with an opportunity to leverage those investments as utilization rates improve and we move more volume through the facility. To that end, earlier this week, we announced a long-term third-party logistics partnership with NatureSweet, which is one of the largest growers and marketers of tomatoes, bell peppers, and cucumbers in North America. Given the size and scale of our business, Mission is uniquely positioned to offer 3PL services that streamline operations and create logistical efficiencies for complementary products. This 3PL deal will leverage our state-of-the-art Laredo forward distribution center in Texas, to handle approximately 70% of their Mexican volume that's destined for the Southwest, Midwest, and Eastern regions of the United States. We designed our Laredo mega facility to serve as a major hub for U.S. avocado imports, and we are leveraging the facility's size and advanced technology to drive volume and generate additional revenue through synergistic partnerships with produce importers. While enabling those partners to benefit from economies of scale, this business model allows us to maximize utilization of the facility, especially in times of lower avocado supply. Speaking of supply, the ongoing inconsistency of Mexican supply continued during the third quarter, and the harvest ended more abruptly than we expected. For context, only about one-third of U.S. distributed volume was Mexican fruit in the fiscal third quarter. Nonetheless, we were very well positioned to fill the gap with alternate sources such as California, which was especially strong, and our own Peru production and other emerging global source markets such as Colombia. As compared to the prior year, our Mexican volume was down over 40% in the third quarter, but by leveraging our global sourcing advantages, we offset the vast majority of this shortage by generating over 25% volume growth in other source markets, much of which we own. With respect to Mexico, we are looking forward to the production from the Jalisco growing region this coming season, which, on a relative basis, is about 10% to 15% the size of Michoacan's annual production, but one that presents an opportunity for long-term growth, with younger plantations and more organized and sophisticated operators. Mission immediately capitalized on the opportunity to import Jalisco fruit following the recent USDA certification for that fruit's entry into the U.S. market. It is a region we know well, having established a presence there with some of the largest regional growers and packers in 2009 to service other global export markets. Aside from the additional volume of the large U.S. market, Jalisco provides other important benefits, including high-quality fruit and serving as an alternate supply to fill gaps during the season, complementing our already existing source from Michoacan very nicely. This product will also go through our Laredo facility where we can ripe and bag and go straight to our customers. While Mission's global footprint provides sourcing advantages relative to the industry as a whole, there are not enough ample sources of fruit available to meaningfully offset the impact of the Mexican supply shortages. This resulted in persistently high pricing this year, which were approximately 45% higher year-to-date versus the prior year. Despite these higher prices, we remain encouraged by the resilient demand in the core U.S. market. Food inflation has been intense, and yet consumers are continuing to consume avocados on a regular basis, which speaks to the broader health and wellness trends that underpin the avocado industry, elevating the avocado to a must-have staple in many households. Our goal is to access globally with consistent year-round supply. This is key to supporting long-term consumption growth and is the catalyst to drive new market development. Mission has played a critical role in the industry's growth. It has required foresight and a 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 can control the quality and supply that our customers have come to expect. To this end, I'm excited to have Tim Bulow, our new President and Chief Operating Officer, join our executive team in August. Tim is a versatile and results-driven executive who has a great appreciation for global commerce and the development of new growth markets through his 30-year career working for large multinational enterprises. With Tim's operational and commercial expertise, I'm confident that we will expand upon our industry-leading market share and meet our long-term strategic growth plans. Our strategy to invest in vertical integration has proven to be an unparalleled competitive advantage. Specifically, our own Peruvian production gives us reliable access to fruit to meet customer needs on a scale and at volumes that only Mission can deliver. In fact, approximately 25% of our total distributed volume in the third quarter was from our owned production. Our Peruvian farming operations are performing well this season, and we expect to produce approximately 15% more volume than what we achieved in fiscal 2021. As of the end of the third quarter, we distributed about one-third of the season's harvest, with the balance of the harvest being sold primarily in the fiscal fourth quarter. Reliable access to our own fruit during the transitional Mexican season and the ability to commit to long-term programs with retailers and foodservice customers demonstrates the strategic advantages we have over our competitors. In summary, Mission continues to be in a great position with strategic assets that provide value-added supply and services to our customers. We are focused on our long-term strategy of generating consistent growth and enhancing market share by increasing capabilities and capacities while continuing to adapt to industry dynamics. We are excited about what's ahead and believe we have an undisputed advantage that will drive sustainable long-term shareholder value. With that, I'll pass the call over to our CFO, Bryan Giles, for his financial commentary.

Thank you, Steve, and good afternoon to everyone on the call. I'll start with a brief review of our fiscal third quarter performance ended July 31st, 2022, and touch on some of the drivers within our reportable segments. Then I'll provide a snapshot of our financial position and conclude with some thoughts on some of the current industry conditions that we are seeing. Total revenue for the third quarter of fiscal 2022 increased 27% to $313.2 million. Growth was driven by a 42% increase in average per unit avocado sales prices due to lower industry supply out of Mexico following a smaller Mexican harvest as well as inflationary pressures. As a result of the smaller industry harvest, avocado volumes sold decreased 11%. Domestic volumes declined 6%, which was a lower rate relative to export markets during this period, demonstrating the resiliency of demand for avocados amid higher price points in the U.S. market. Third quarter gross profit increased $1.7 million or 4% compared to the same period last year to $42.6 million, and gross profit percentage decreased 300 basis points to 13.6% of revenue. The increase in gross profit was primarily driven by higher per unit margins during the quarter. Strength in margin was partially offset by the impact of lower avocado volumes sold and its related impact on fixed cost absorption in our Marketing and Distribution segment. Gross profit in the International Farming segment was essentially flat with the prior year, and I'll discuss these dynamics later in my remarks. The lower gross profit percentage was driven by higher per unit sales prices, as per unit margin represents a lower proportion of the sales value. Margin is primarily managed on a per unit basis in our Marketing and Distribution segment, which can lead to significant movement in gross profit percentage when sales prices fluctuate. SG&A for the third quarter increased $3.4 million to $20.6 million due primarily to higher employee-related costs, driven by higher stock-based compensation expense and labor inflation as well as non-capitalizable costs associated with the implementation of our new ERP system in our Marketing and Distribution segment. Additionally, we realized a $0.5 million impact in the third quarter to SG&A from the consolidation of Moruga, which is our Peruvian blueberry operation that I'll speak to in a moment. And finally, I'd note that in the prior year period, we recorded a gain on insurance settlement that influences the year-over-year changes. The non-comparable items I just noted account for approximately $3 million of the year-over-year increase, which isolates labor inflation as the primary item that drove an approximate 2% increase on a normalized basis versus the prior year. Net income for the third quarter of fiscal 2022 was $18.4 million or $0.26 per diluted share, which was essentially flat with the prior year period. Similarly, adjusted net income for the third quarter of fiscal 2022 was consistent with the prior year at $18.9 million or $0.27 per diluted share. Adjusted EBITDA increased 5% to $31.6 million for the third quarter of fiscal 2022. The drivers of the increase are similar to those of gross margin with higher per unit gross margins being partially offset by the impact of lower avocado volumes sold. In terms of our segments, I want to point out a change in our segment presentation which now includes a third reportable segment titled Blueberries. On May 1st, 2022, we obtained a controlling interest in Moruga, which is an entity that farms blueberries in Peru for which we own a 60% equity interest. Following this event, Moruga was prospectively consolidated into our results of operations and was the basis for the new reportable segment. I'd simply note that the integrity of the prevailing marketing and distribution segment and the International Farming segment remain intact. Prior to the third quarter, Moruga was accounted for under the equity method as an investment and as such did not impact sales or adjusted EBITDA. With that, our Marketing and Distribution segment net sales increased 29% to $308.9 million for the quarter, and segment adjusted EBITDA was $15.5 million, an 18% increase from the prior year. The drivers for the Marketing and Distribution segment are similar to those that I described for the consolidated results. Our International Farming segment primarily represents our own farms that we manage in Peru. Substantially all sales of fruit from the International Farming segment are to the Marketing and Distribution segment, with the remainder of revenue largely derived from services provided to third parties in the blueberry 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, you see the International Farming segment emerge in the third and fourth quarters and contribute to adjusted EBITDA in a significant fashion. So, with this in mind, total segment sales in the International Farming segment decreased $1.5 million or 2% for the quarter compared to the same period last year, due primarily to lower third-party service revenue. Affiliated sales were slightly higher due to an increase in avocado volume harvested and sold. Segment affiliated sales reflect the consideration returned to the International Farming segment net of logistics costs, the most significant of which is ocean freight. The higher average per unit pricing that was realized in the third quarter was offset by these higher logistics costs. Segment adjusted EBITDA was $16.3 million, a 4% decrease from the prior year, primarily due to inflationary pressures on input costs in our farming and packing operations in Peru. Our new Blueberry segment reflects the results of Moruga's farming activities, which includes cultivating early-stage blueberry plantings and harvesting mature bushes. Although relatively small in size, the blueberry harvesting season is asynchronous with the avocado harvesting season, allowing us to leverage our resources improved during the off-season for avocados. Sales in our Blueberry 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. I'd also note that the product is marketed globally by our partner in the Moruga joint venture. For the third quarter, our Blueberry segment net sales were $0.3 million and segment adjusted EBITDA loss was $0.2 million. Shifting to our financial position. Cash and cash equivalents were $43.8 million as of July 31, 2022, compared to $84.5 million as of October 31st, 2021. The company's operating cash flows are seasonal in nature and can be temporarily influenced by working capital shifts resulting from varying payment terms to growers in different source regions and prevailing market prices. In addition, the company is building its growing crops inventory in its 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. Thus, when looking at operating cash flow on a three-month period for the fiscal third quarter, we generated approximately $34 million in operating cash. However, on a year-to-date basis, given the seasonal nature of our working capital, net cash used in operating activities was $3 million for the first nine months of fiscal 2022 compared to cash provided of $15.2 million in the same period last year. The $18.2 million change versus the prior year reflects lower net income in fiscal 2022, primarily offset by favorable change in working capital year-over-year. Within working capital, a favorable change in grower payables was partially offset by unfavorable changes in inventory and accounts receivable. Changes in grower payables and accounts receivable were due to increases in per unit fruit pricing compared to the prior year. Changes in inventory were due to an increase in the per unit value of fruit on hand in North America and higher growing crop inventory in Peru, driven by inflationary pressures on farming costs and additional productive acreage compared to last year. Capital expenditures were $42 million for the first nine months of fiscal 2022 compared to $61.3 million in the same period last year. Current year expenditures were concentrated in the purchase of farmland in Peru as well as land improvements in Orchard Development in Peru and Guatemala. Capital expenditures within our marketing and distribution segment are much lower following the completion of our Laredo facility in the prior year. On a full-year basis for fiscal 2022, we expect to come in below full-year 2021 spend of approximately $73 million. Regarding our near-term outlook, we are providing some context around our expectations for industry conditions and production from our own farms to help inform your modeling assumptions. The industry is expecting fourth quarter volumes to increase sequentially, primarily due to ample Peruvian product in the supply chain and the transition to the new Mexican crop, which is expected to be larger than the prior year. With this expectation for improving volumes, we believe that the pricing environment should continue to soften during the fiscal fourth quarter. We expect avocado production volumes from our own farms in the range of 110 million pounds to 120 million pounds for the full harvest season, of which approximately 38 million pounds were sold through as of the end of our fiscal third quarter. This compares to 101 million pounds for the full harvest season of fiscal 2021. We continue to battle the same inflationary pressures that have been well documented. These include freight, labor, and packaging costs among others, which in a lower volume environment creates additional headwinds to our ability to drive higher per unit margins and adjusted EBITDA. That concludes our prepared remarks. Operator, now over to you. Please open the call's Q&A.

Our first question comes from Ben Bienvenu with Stephens.

Bryan, I was hoping to put a finer point on your commentary around volumes in the fourth quarter. You said higher sequentially. Should our inference be that, that's lower year-over-year or higher year-over-year, but higher sequentially, just to put a finer range on things, if that's possible?

At this point, we don't have a specific number to share. I can say that we generated approximately 6 million leg equivalents sold during Q3. For reference, we sold about 6.3 million legs in Q4 last year, so the difference isn't significant. We anticipate that Q4 will exceed Q3, likely resulting in numbers comparable to what we experienced in Q4 last year, showing year-over-year similarities.

And then thinking about the International Farming business, the volumes are quite strong. When we think about pricing, I know you guys price a portion of that earlier in the year. How should we think about the exposure of that business in the fourth quarter, the volume there, to market pricing versus prices you might have locked in earlier in the year?

I will start by saying that we secured as many retailers as possible at a fixed volume and price for the entire season, which includes the fourth quarter. Currently, there is some market pressure due to the increased availability of Mexican fruit this week. However, retailers are maintaining their commitments, and we remind them that they received a very good deal about 90 days ago, which has proven beneficial for them with strong sales. Overall, it appears to be steady for the Peruvian fruit from our perspective.

Yes, I would agree with that, Ben. During the third quarter, the program sales we established with our customers meant we weren't selling Peruvian fruit at spot market rates, as we were negotiating to ensure we had a steady outlet for all our fruit throughout the season. While you might have noticed that our Peruvian product pricing was somewhat lower compared to Mexico and California's spot market in Q3, I believe the price gap will be much narrower in Q4. Even if the market price drops, our prices should remain relatively stable. It's important to note that not all of our fruit is committed to long-term contracts, and the quantities sold on the spot market are likely to be lower in Q4 compared to Q3. We definitely expect lower average sell-through prices in Q4 compared to what we experienced in Q3.

And then one more, if I could. Just thinking about this 3PL relationship that you have through your Laredo facility, how much of the kind of slack capacity in that facility does that arrangement fill up? And are there other opportunities that you all have to maximize that capacity utilization of that asset as we think about other periods of the year?

We are approaching this gradually. The volume we are dealing with for tomatoes, cucumbers, and similar products is quite significant. It remains fairly stable throughout the year. Our goal is to utilize not just our facility but also our staff effectively. We are also looking at logistics, where many of our customers overlap. I believe we can achieve cost efficiencies in freight in the future. We'll start with the transfers and then expand from there.

Yes, Ben. I believe this will definitely assist us in the short term. The business will need some time to scale up; it won't operate at full capacity initially. There are significant opportunities to develop this over the coming year. However, from the start, it will utilize some of the available capacity we currently have at that facility. If I had to estimate, it might use about 20% to 25% of our capacity, especially in areas like cross-stocking and docking. I want to emphasize that the long-term goal of this facility is to support the increasing supply of avocados from Mexico that we anticipate in the future. Although we experienced a decline this year, which is well known across the industry, we still expect Mexico to be a major contributor to the overall avocado supply consumed in the U.S., and this facility strategically positions us for that.

And that opening of Jalisco will help too because that product will go through there also.

Our next question is from Tom Palmer with JPMorgan.

I wanted to ask, although it's a bit early to consider next fiscal year, we are getting closer to it. How do you approach volume growth when dealing with a difficult supply year? What are your plans for the business? Are you aiming to return to your target of high single-digit total sales growth that is primarily volume-driven? Are you anticipating high single-digit volume growth for the year as part of your planning? Or given the challenging nature of this year, do you assume you'll achieve a bit more due to catch-up effects?

Well, on the volume side of it, the Mexican crop is expected to be up. I can't give you an exact percentage because I don't know, but it's going to be higher than it has been this past year. And then when you look at say the Peruvian crop, a lot of those trees are younger trees. They haven't bloomed yet or some of the earlier remains are just starting blooming. So it's hard to tell what the crop will be, but the trees will be bigger. So generally, you would think the crop will be larger there also. Too early to tell, but that's looking at history, and looking at how the Mexican crop looks and what we know about Peru, it should be a higher number.

Yes, I would agree with that, Tom. I would say that Mexico is going to be the big driver here. I mean, historically, it's provided 65% to 70% of the fruit that we've sold. So when Mexico moves, Mission moves, the whole industry moves. The data we're seeing so far would indicate that the crop is going to be much larger next year than it was this year. I don't know, to Steve's point, an exact percentage on that, but our volume growth is going to be driven by the fact that there's going to be a greater supply of fruit out there. What that means on top line revenue, a lot of it will depend on how the additional volume what that does to average selling prices. We know this year, a year where supply was constrained, prices reached record levels, and we're seeing revenues that are higher than we've ever seen historically. So certainly, the higher volumes are going to have an impact in the other direction, the extent to which we don't yet know.

And then, I wanted to ask on the blueberry side. I noticed in the Q, looks like a pretty substantial build-out over the next few years in terms of acreage, more than doubling it. How do you think about returns for blueberries compared to similar investments you're making in your farming operations? And then is the grow-out period quicker and so you get perhaps a faster return on those investments?

Certainly. I'll address the second part of your question. The return on blueberries is indeed quicker than on avocados. Many of these plants are typically grown in pots first and then planted in the ground, allowing for development in the nursery. Once planted, you can start harvesting a decent-sized crop within one to two years, whereas avocados might take four to five years. This allows blueberries to reach the market sooner. We assess the return on investment for these projects, and we find that it aligns with what we would expect from avocado farming. With blueberries, we anticipate a slightly higher return since we are not responsible for marketing the fruit as we are with avocados; our partner in the joint venture handles that aspect. This means we generate revenue not just from farming but also from the sell-through. Additionally, there are various cost efficiencies in Peru linked to our blueberry operations, given the different seasonal factors such as labor and facilities. Having this production in place offers us several advantages, and we're optimistic about its potential contributions to our bottom line in the future.

Do you have any insight on the total capital cost being around $50 million? Will that primarily come from partner contributions, or is there expected to be cash outflow from the business?

Our expectation is that most of the funding will come from operating cash flows within the joint venture. With the over 360 hectares we have already planted and in mature production, we are generating strong cash flow from that operation. Most of the funding will be from operating cash flows, and the remainder will come from partner contributions, of which we will provide 60%. However, we see that amount as a small fraction of the $50 million.

Our final question will be from Gerry Sweeney with ROTH Capital.

Let's start with Mexico and Laredo. There are likely many variables to consider here, but I want to clarify some points. If you examine Laredo, the size of the facility is designed for future use. How large does the Mexico harvest need to be in order to effectively utilize that facility? I understand you have a lease for Michoacan, and that various factors will influence how much fruit you can obtain. However, I believe there is a connection to explore, and I'm interested in your thoughts on that.

We did build it for the future. There's no question about that because I'm glad we did it then looking at the cost of things to build today. But I think between some outside third-party logistics, such as we've just talked about, and then Jalisco opening up, that will help and improve volume coming across on the avocado space. I think it will also add efficiencies, as I said, where we can hopefully minimize a step or a stop or a leg on the transportation going forward by being able to ripen and bag or do whatever you're going to do right there in Laredo or straight into a customer rather than stop at another distribution center. So the volume, I think, will continue to increase year-to-year. Not quite sure what the crop in Mexico is yet or what to expect, but the demand continues to be good. So, I think as soon as Peru gets out of the way here in a few weeks, that volume should pick up substantially going through Laredo.

Yes, Jerry, I would like to add that there are certain peak times each year for products from Mexico, typically from January up until the Super Bowl and continuing through late April, especially around Cinco de Mayo. We have prepared the capacity at that facility to accommodate the volumes expected during this period. During other times of the year, we will look for third-party logistics opportunities, like the NatureSweet partnership, to utilize the capacity at that facility. I don’t have an exact figure for the volume we need to reach peak capacity during those times, but we do have significant room for growth. Additionally, that facility is designed to support our other distribution centers across North America. By using Mexican fruit, which is available year-round, we can hold fruit at the border instead of having to make immediate decisions, as we did in the past with only a cross-docking facility. This flexibility allows us to delay decisions on distribution and support capacity at other locations. This is reflected in how much our capital expenditure and marketing distribution have decreased this year, showing less need for ongoing infrastructure expansion in North America.

Got it. It provides more flexibility regarding where to send the fruit, the reasons behind it, and which locations to use. Speaking about the additional infrastructure, is there an opportunity with NatureSweet to utilize any of your other facilities, or is this specifically for Laredo?

Well, it's primarily for Laredo. They have talked about utilizing some other ones in strategic locations, probably not all of them, but possibly the Pacific Northwest where they need to be there more just in time and inventory some product there. So I think there's some more opportunities down the road as we get in and learn about each other's business.

Switching to the international side, I'm curious about the Peru harvest. How much of that is attributed to new acres from maturing trees versus simply having a good crop year-over-year? What I'm really trying to understand is that you do have more acreage coming on, and I believe you're anticipating between 110 million and 120 million pounds from Peru. What could that yield be as these acres mature over the next few years?

Yes. I don't know the exact acreage that is not mature compared to mature.

Yes, we had a bit more land that came into production this year at our Northern Peru farms. Most of the southern area in Chile was already in what we consider production, but we did have a small amount up north that came in this year. The significant improvement in production was primarily driven by yields per hectare. We estimate yields of around 18,000 kilos per hectare this year, which is a continuing increase from what we've seen in previous years. We're pleased with the production results. Looking ahead, we have some additional acreage in the southern part of Peru that we've planted over the last year or two, which will likely take a couple of years to come into production; we probably have about 600 hectares there. Similarly, we'll see some planning in Guatemala where we expect a very small amount of production next year, increasing in 2024 and continuing to ramp up thereafter. The long-term strategy is to fill in the calendar throughout the year, which takes time for the trees to grow and mature. However, we can see that this strategy will come to fruition.

Thank you. There are no further questions at this time. I'd like to end the question-and-answer session and turn the conference call back over to management for any closing remarks.

Great. Thank you for your interest in Mission Produce, and we look forward to speaking with you again soon. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your attendance. You may now disconnect your lines.