Mission Produce, Inc. — Fiscal Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended April 30, 2022. Mission Produce sources, farms, packs, markets and distributes avocados, primarily through its Marketing and Distribution and International Farming segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $278.1 million | $234.7 million | $494.7 million | $407.9 million |
| Gross profit (margin) | $19.8 million (7.1%) | $27.1 million (11.5%) | $20.3 million (4.1%) | $49.8 million (12.2%) |
| Operating income (loss) | $1.1 million | $10.8 million | $(17.1) million | $18.9 million |
| Net income (loss) | $2.4 million | $7.4 million | $(11.0) million | $9.6 million |
| Diluted EPS | $0.03 | $0.10 | $(0.16) | $0.14 |
| Adjusted EBITDA | $9.2 million | $16.3 million | $(1.2) million | $28.8 million |
Q2 revenue grew 18%, as average per-unit selling prices rose 44%, primarily reflecting lower Mexican avocado supply and inflation. Volume sold fell 19%; lower volume also weakened fixed-cost absorption and gross profit. Six-month sales rose 21% on 46% higher average prices, while volume declined 19%.
- Segments: Q2 Marketing and Distribution adjusted EBITDA was $11.7 million, down from $16.2 million; International Farming was $(2.5) million versus $0.1 million. Six-month results were $4.0 million and $(5.2) million, respectively.
- Expenses and other items: Q2 SG&A increased 15% to $18.7 million, including ERP implementation costs, labor-related costs and travel. Q2 other income was $2.9 million, principally from interest-rate swap gains. Six-month results included $2.8 million of noncapitalizable ERP costs and a $1.7 million income-tax benefit; prior-year taxes included a $5.1 million Peru tax-law remeasurement charge.
Cash flow, liquidity and debt
- Six-month operating cash flow was a use of $37.0 million, versus a use of $20.2 million a year earlier. Working-capital changes used $37.8 million, including higher inventory; the company notes that first-half cash use is seasonal.
- Investing cash flow was a use of $25.8 million, including $29.1 million of capital expenditures, mainly for Peruvian farmland, land improvements and orchard development. Financing cash flow was a use of $5.0 million.
- At April 30, cash and cash equivalents were $21.4 million; working capital was $126.3 million. Cash, cash equivalents and restricted cash totaled $24.0 million.
- Debt was $159.9 million before $0.4 million of issuance costs ($159.5 million net); $8.8 million was current. The $100 million revolving facility had no outstanding balance at quarter-end. Term loans bear variable rates and mature in October 2023 and October 2025. The company reported covenant compliance; leverage was 2.56x and fixed-charge coverage was 1.68x.
Material developments, outlook and risks
- The November 2021 ERP launch disrupted purchasing, receiving, shipping, invoicing and inventory processes, contributing to first-quarter operating and supply-chain problems and lower first-half profitability. Management said the issues were largely resolved during Q2; remaining financial impact was primarily consulting costs. Disclosure controls were deemed effective, while ERP-related changes affected recordkeeping processes.
- In April, the credit agreement amendment raised the permitted acquisition consideration limit and temporarily relaxed the leverage covenant. In May, Mission amended the Moruga shareholders agreement, gaining control and planning to consolidate the blueberry business prospectively from May 1. A proposed 600-hectare expansion is expected to require approximately $40–$50 million, funded by Moruga cash flow and pro-rata shareholder contributions. The company expects a remeasurement gain or loss on consolidation; the amount was not yet determined.
- No quantified earnings or revenue guidance is provided. Management said fiscal 2022 capital expenditures were not expected to materially deviate from recent years. Results remain exposed to avocado supply, prices and seasonality; labor, freight and input-cost inflation; farming yields; customer demand; and execution of systems and supply-chain operations.
- Other disclosed exposures include variable-rate debt, international and currency risks, cyber and systems disruption, and legal contingencies. The company reported $14.0 million of accrued uncertain tax positions, including interest and penalties. A previously agreed $0.8 million settlement of California wage-and-labor class actions remained subject to court approval. The filing added risks related to the Russia-Ukraine conflict and cybersecurity; it reported no other material risk-factor changes.
Important facts for investors to verify
- Whether avocado supply and sales volume recover, and whether higher prices sustain revenue without further margin pressure.
- Whether ERP remediation is complete and whether operational performance, profitability and cash conversion improve.
- Whether seasonal second-half operations generate sufficient cash to fund capital spending and working capital.
- How Moruga consolidation, its planned expansion and the pending fair-value remeasurement affect reported results, investment needs and leverage.
- Compliance with debt covenants and exposure to rising variable interest rates, alongside the status of the tax positions and legal settlement.