Mission Produce, Inc. — Fiscal Q1 2023 Form 10-Q
Reporting period: Three months ended January 31, 2023; filed March 9, 2023. Mission Produce sources, farms, packs, markets and distributes avocados and other fruit. Its reportable segments are Marketing and Distribution, International Farming and Blueberries. Moruga, the blueberry business, has been consolidated since May 1, 2022, affecting comparisons with the prior year.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $213.5 million | $216.6 million |
| Gross profit / margin | $9.0 million / 4.2% | $0.5 million / 0.2% |
| Operating loss | $10.1 million | $18.2 million |
| Net loss | $10.6 million consolidated; $8.8 million attributable to Mission | $13.4 million |
| Loss per share, basic and diluted | $0.12 | $0.19 |
| Adjusted EBITDA (non-GAAP) | $2.3 million | $(10.4) million |
| Net cash used in operating activities | $1.3 million | $41.4 million |
Sales declined 1% year over year. Marketing and Distribution sales fell 14% to $181.8 million: avocado volume rose 14%, while average per-unit selling prices fell 27%, reflecting higher Mexican supply. Blueberries contributed $29.8 million in sales and $(0.5) million of adjusted EBITDA; strong industry supply weakened prices in European and U.S. markets. International Farming sales were $1.9 million and adjusted EBITDA was $(1.8) million. Marketing and Distribution adjusted EBITDA improved to $4.6 million from $(7.7) million.
Gross profit improved substantially from the prior-year quarter, which was significantly affected by challenges implementing the new ERP system. In the current quarter, higher volumes improved fixed-cost absorption, but lower avocado prices constrained per-box buy-sell margins. SG&A was $19.1 million, up 2%; the quarter included consolidated blueberry expenses, including intangible amortization, partly offset by prior-year ERP reengineering costs. Interest expense rose to $2.4 million from $0.9 million, mainly due to higher rates on variable-rate debt.
Financial position and cash flow
At January 31, 2023, cash and cash equivalents were $39.2 million, down from $52.8 million at October 31, 2022; working capital was $120.1 million. Total assets were $897.0 million and total liabilities were $382.9 million. Long-term debt was $150.1 million gross ($149.6 million net of issuance costs), including $50.0 million drawn on the revolving line. The $250 million credit facility includes $100 million of term loans and a revolver of up to $150 million.
Operating cash use improved year over year, with working-capital changes contributing $3.8 million of use in the current quarter versus $34.5 million in the prior-year quarter. Investing cash use was $17.9 million, including $17.6 million of property and equipment purchases. Financing provided $5.5 million. The quarter-end cash-flow total, including restricted cash, was $40.2 million.
Outlook, risks and notable items
- Management expects fiscal 2023 capital expenditures, excluding the Moruga blueberry project, to be lower than fiscal 2022, when capex was $61.2 million. The blueberry project to develop approximately 1,500 additional acres is expected to require about $50 million overall; fiscal 2023 project capex was estimated at approximately $15 million, subject to timing and other factors.
- The company says first-half working-capital needs are seasonally higher; quarterly operating cash flows may therefore not indicate full-year cash performance. No specific revenue or earnings guidance is provided in the filing.
- Variable-rate debt creates exposure to rising interest rates. The company had $100 million notional of interest-rate swaps. It reported compliance with credit covenants at quarter-end: leverage ratio 2.11x against a 3.50x maximum and fixed-charge coverage 2.29x against a 1.25x minimum.
- Risks include avocado supply and price volatility, weather and farming conditions, input and transport costs, foreign exchange, customer concentration, food safety, international operations and seasonality. Blueberry sales are concentrated in the first and fourth fiscal quarters, and substantially all segment production is sold to one distributor under an exclusive marketing agreement.
- Undiscounted lease cash liabilities were $183.8 million at quarter-end, including approximately $60 million related to commencement of part of a 25-year blueberry land lease.
- Two California wage-and-labor class actions have a preliminary $0.8 million settlement approved by the courts, but the parties disagree about the settlement class scope and intended to ask the court to enforce their respective understandings; a conference was scheduled for March 2023.
Important facts for investors to verify
- Whether avocado prices and margins stabilize as market supply and sales volumes change, and whether the improved Marketing and Distribution results persist.
- Blueberry segment pricing, losses, capital requirements and reliance on its single distributor.
- Progress and actual spending on the UK distribution facility and Moruga blueberry expansion, against management’s stated timing and capex expectations.
- Cash generation through the seasonally working-capital-intensive first half, debt balances, variable interest costs and continued covenant compliance.
- Developments in the wage-and-labor settlement proceedings and any material change in the company’s contingencies.