Participants

Jeff Sonnek; Investor Relations; ICR Inc

Stephen Barnard; Chief Executive Officer, Director; Mission Produce Inc

Bryan Giles; Chief Financial Officer; Mission Produce Inc

John Pawlowski; President, Chief Operating Officer; Mission Produce Inc

Ben Klieve; Analyst; Lake Street Capital Markets, LLC

Gerry Sweeney; Analyst; Roth Capital Partners, L.L.C

Presentation

Operator

Good afternoon, and welcome to the Mission Produce fourth-quarter 2024 conference call. (Operator Instructions) 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. Thank you. You may begin.

Jeff Sonnek

Thank you, and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; and Bryan Giles, Chief Financial Officer. The company's President and Chief Operating Officer, John Pawlowski, is also on today's call for participation during the Q&A session.
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 investors.missionproduce.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures.
And with that, I'd now like to turn the call over to Steve Barnard, CEO. Steve?

Stephen Barnard

Thank you for joining us today. Our strong execution in the fourth quarter rounded out an exceptional fiscal 2024, where we delivered $1.2 billion in revenue and generated $107.8 million in adjusted EBITDA, demonstrating the strength of our business model and industry-leading position. Throughout the year, we effectively leveraged Mission's differentiated global sourcing network to capitalize on favorable market conditions, which culminated in another quarter of solid financial performance.
The strength of our integrated business was particularly evident this quarter through the collective efforts of our sales, sourcing and operations teams. When others might have seen challenges, given the smaller production out of Peru this year, which resulted in supply constraints for the industry, we capitalized opportunities to leverage our unique capabilities and global sourcing network.
Strong consumer demand and retail support of the category, coupled with the supply constrained environment helped support elevated pricing dynamics that extended into the fourth quarter. Our ability to seamlessly shift between growing regions and maintain consistent supply for our customers translated into robust per unit margins that exceeded our targeted range.
This performance underscores the breadth of our sourcing network, which we believe is the most comprehensive in the industry, enabling us to provide reliable supply to our customers even during periods of disruption to key industry supply sources, while at the same time, maximizing our margin performance. We are particularly pleased with our cash flow generation for the full year fiscal 2024, in which we delivered a $64.2 million increase in operating cash flow versus 2023.
Our strong operational performance throughout the year, combined with the planned tapering of our heavy CapEx cycle over the past several years, has resulted in strong free cash flow that has strengthened our capital structure through reduced leverage, further enhancing our flexibility.
While some capital projects, including our packing house construction in Guatemala and certain blueberry investments will shift into early fiscal 2025 due to timing of vendor payments and blueberry plant development, our overall trajectory of moderating capital spending remains intact as we complete these remaining projects and focus on optimizing returns from our existing asset base.
While our marketing & distribution segment performance was the highlight of the quarter, our international farming segment faced a more challenging set of circumstances related to the El Nino weather cycle and its associated impact on our owned volume. We've taken proactive steps to ensure the long-term health and productivity of our workers and are encouraged by early signs of improvement we are seeing.
Combined with the cost optimization efforts we implemented, we expect to translate these into improved operational efficiencies as growing conditions normalize in fiscal 2025. Turning now to our blueberries segment.
The harvest season ramped up during the fourth quarter, and we benefited from pricing that proved to be more resilient than we expected at the higher levels of volume. While pricing has since moderated. We remain committed to growing this segment of our business as we see significant opportunities ahead. The blueberry business continues to complement our existing offerings and aligns perfectly with the strategy of delivering high quality, differentiated products across multiple growing reasons.
We look forward to advancing our planned projects in this category as we move through fiscal 2025 and beyond with the support of our strategic joint venture partner. While still in its infancy, I am also pleased to report that our strategic investment in Guatemala continues to progress. In November, the USDA approved Guatemalan avocado imports into the United States, a significant milestone that validates our expansion strategy in the region.
Similar to our approach with other sourced regions, the goal of Guatemala is to fill voids in the calendar to reliably supply customers year round. We look forward to the additional flexibility that the USDA approval affords us, which we expect to further strengthen our competitive position in the years to come. Further on the topic of our facility work, we took actions in the fourth quarter to optimize our distribution footprint and enhance our efficiency.
As part of this effort, we will be winding down our Toronto and Calgary facilities through the first quarter of fiscal 2025. We will be able to maintain the same high level of customer service while eliminating redundant costs in our system. This decision reflects the flexibility and efficiency that we build into our North American distribution network over the years.
In closing, I want to thank our team for their outstanding execution throughout fiscal 2024. Their hard work and dedication enabled us to successfully navigate dynamic market conditions while driving meaningful growth and operational improvements. As we look ahead to fiscal 2025, we're confident in our competitive positioning.
Our global sourcing network continues to be a key differentiator, providing us with the flexibility to meet customer demand regardless of regional supply dynamics. Combined with our strong balance sheet and disciplined approach to capital allocation, we believe we're well positioned to continue creating value for our shareholders.
With that, I'll pass the call over to our CFO, Bryan Giles, for his financial commentary.

Bryan Giles

Thank you, Steve, and good afternoon to everyone on the call. I'll start with a review of our fiscal fourth quarter financial performance, touching on some of the key drivers within our three reportable segments. Then I'll provide an update on our financial position and conclude with some thoughts on the current market conditions that we are seeing.
Total revenue for the fourth quarter of fiscal 2024 increased 37% to $354.4 million, driven primarily by a 36% increase in avocado sales prices. Higher prices resulted from constrained avocado supply during the quarter driven by weather impacts on fruit development and production in Peru, combined with stronger consumer demand.
Despite lower Peruvian volumes, we were able to leverage our diverse sourcing network across California, Colombia and Mexico to drive a 9% increase in North American avocado sales volumes compared to the prior year.
Amidst the supply challenges we faced, we made a strategic decision to prioritize the North American market, where strong consumer demand, supported by retail promotional activity translated to higher per unit price points.
Gross profit increased by $28 million to $55.8 million in the fourth quarter, and gross profit margin increased 490 basis points to 15.7% of revenue. These increases were primarily driven by stronger per unit margins on avocados sold during the period. We can further attribute these increases to the combination of favorable mix of source fruit and internal initiatives that Steve spoke to earlier.
Our Blueberries segment also contributed to the increase with higher volumes, while per unit margins remained generally consistent with the prior year. SG&A expense increased $6.6 million or 32% compared to the same period last year, primarily due to higher employee-related costs including performance based incentive compensation and stock-based compensation expense as a result of our improved operating performance relative to the prior year period.
Adjusted net income for the quarter was $19.6 million or $0.28 per diluted share compared to an adjusted net income of $7.5 million or $0.11 per diluted share last year. Adjusted EBITDA increased $19.6 million or 113% to $36.9 million as compared to $17.3 million last year. This improvement was driven primarily by the stronger gross profit performance from our marketing & distribution and blueberries segments.
Turning now to our segments. Our marketing & Distribution segment net sales increased 35% and of $319.6 million for the quarter, primarily driven by the avocado pricing increases I described previously. Segment adjusted EBITDA increased $14.8 million to $25.6 million as a result of the higher per unit gross margins we discussed.
Total segment sales and adjusted EBITDA in our international farming segment were $30.3 million and $2.7 million, respectively, compared to $40.3 million and $1.1 million in the same period last year. While we experienced a decrease in segment sales due to the previously disclosed reduction in volume from our own farms as a result of the unfavorable El Nino weather conditions during the harvest set in Peru, we were pleased to generate positive adjusted EBITDA that was higher than the prior year period.
The improved profitability correlated to the strong pricing environment within which we work diligently to maximize sales returns with our US market focus and the cost containment efforts we implemented near the end of the prior harvest season.
In our Blueberries segment, activity is typically concentrated in the first and fourth quarters of our fiscal year, in alignment with the Peruvian blueberry harvest season. Net sales in the Blueberries segment totaled $31.6 million compared to $19.5 million in the prior year period, and adjusted EBITDA increased to $8.6 million from $5.4 million in the prior year period.
The increases in both sales and adjusted EBITDA were driven by higher blueberry volumes sold during the quarter that resulted from both new plantings coming into production as well as yield improvements on existing plantings following the challenging weather conditions experienced in the prior year.
Shifting to our financial position. Cash and cash equivalents were $58 million as of October 31, 2024, compared to $42.9 million at October 31, 2023. We are very pleased with our operating cash flow performance in fiscal 2024, which increased $64.2 million versus the prior year to $93.4 million for the fiscal year ended October 31. The growth in operating cash flow was primarily driven by improved operating performance during fiscal 2024. Further supporting the improvement in operating cash flow was favorable working capital management.
While higher avocado pricing drove increases in inventory and accounts receivable, these increases were more than offset by higher grower payable balances driven primarily by those same high prices and higher accounts payable and accrued expenses, the latter of which was significantly impacted by incentive compensation and statutory profit sharing accruals in the current year.
In addition, higher accounts payable and accrued expenses were attributed to the impact of higher volume and increased acreage within our blueberries segment. Capital expenditures were $32.2 million for the 12 months ended October 31, 2024, compared to $49.8 million last year and were attributed to avocado and blueberry farming-related investments in Latin America as well as construction costs associated with expanding capacity at our UK distribution facility.
During the fiscal year, the international farming segment also began construction of a pack house in Guatemala. Of note, our CapEx spending in fiscal 2024 was approximately $10 million less than we've contemplated in our outlook due to timing of vendor payments and blueberry plant development that will push this spending into fiscal 2025.
As a result of this timing shift, our projected CapEx budget for fiscal 2025 is expected in the range of $50 million to $55 million allocated largely to international farming and blueberries segments. However, our overall trajectory of moderating capital spending remains intact as we complete these remaining projects through fiscal 2026 and focus on optimizing returns from our existing asset base.
To that end, we remain committed to driving free cash flow as a means towards maintaining a healthy capital structure. We are proud to have generated approximately $60 million of free cash flow in fiscal 2024. Looking ahead, we believe the business is well positioned to continue generating meaningful free cash flow in the years ahead.
Debt paydown remains our near term priority, and we expect to continue to strengthen our balance sheet next year. In regards to our near term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions to help inform your modeling assumptions.
Beginning with avocados, with the conclusion of the California and Peru harvest seasons, we have transitioned to a Mexico centric source model. We expect industry volumes in our fiscal 2025 first quarter to be consistent with the prior year period. While supply from Mexico has been constrained during the early part of the quarter due to fruit maturity and sizing, we expect industry volumes to ramp up when we move to the latter portion of the quarter as we expect a larger Mexican harvest season.
Pricing is expected to be higher on a year-over-year basis by approximately 20% compared to the $1.40 per pound average experienced in the first quarter of fiscal 2024, indicative of continued strength in demand. Pricing assumptions are closely tied to the volume estimates previously mentioned. As the industry transitions to Mexico being the primary country of origin for supply and supply becomes more readily available, we are expecting that per unit margins on purchased avocados will revert to our historical targeted ranges from the elevated levels that we experienced during our fiscal 2024, third and fourth quarters.
Our blueberry harvest season in Peru will peak during the first quarter. We expect to see meaningful volume increases from owned farms resulting from yield improvements and new acreage in production, but the impact on revenue is expected to be offset by lower average sales prices due to higher overall industry volumes from Peru.
Pricing is expected to be approximately 30% lower on a year-over-year basis. which will negatively impact segment adjusted EBITDA during the quarter as compared to the previous year when weather-related supply constraints led to abnormally high sales prices.
In closing, we're incredibly proud of the progress we've made this year. We've demonstrated our industry leadership in a turbulent environment while delivering some of the strongest financial performances in our history as a public company, further underscored by robust free cash flow generation. These achievements have laid a very strong foundation for Mission's future, and we're excited to continue executing on our growth strategy. That concludes our prepared remarks.
Operator, now over to you. Please open the call to Q&A.

Question and Answer Session

Operator

Great, thank you. At this time, we'll be conducting a question-and-answer session. (Operator Instructions)
Ben Klieve, Lake Street Capital Markets.

Ben Klieve

All right. Thanks for taking my questions and congratulations. Great end to a great year here. My first question is the result in the quarter relative to the prerelease information. Both revenue and EBITDA comfortably exceeded what you had laid out in prerelease five or six weeks ago. I'm just wondering kind of what the delta was in the actual results versus what you saw in the prerelease?

Bryan Giles

Yeah. Sure thing, Ben. We certainly wanted to get out in front of it. We knew that some of the data that was out on the street was well below where we expected the quarter to track to. We certainly didn't have all of our information closed out at the point in time when we put this release together.
I would say we were bullish on our marketing & distribution segment and where pricing and per unit margins were even though we did not yet have everything finalized and that is certainly where why we kind of set a floor and we knew that there was some room to be a little bit better than those figures.
I think the biggest delta that we saw though was really in our farming and blueberry segments. We really had not pulled the closing information together from either of those areas yet. It does take us a little bit longer to extract that data from our systems. So I'd say the biggest delta the volumes sold through on blueberry is not harvested but actually sold through. We're a little higher than we expected.
And the average selling prices that we realized held better than we'd originally thought they would. We knew as we were transitioning towards Q1 that blueberry prices were beginning to decline. So we factored in some conservatism into what we thought pricing was going to look like. But in reality, through the end of October, that pricing held up better than we'd expected.

Ben Klieve

Got it. Got it. Okay. That's very helpful. A couple of others for me. So first of all, Steve, you noted winding down a couple of facilities here in this current fiscal quarter. I'm wondering if you can comment at all on any costs associated with this, both cash or noncash costs?

Stephen Barnard

Well, those two facilities I mentioned were not running at a profit, and there's ways to provide the same service level that we were providing with a lot less cost by just going direct from other facilities either at the border or somewhere up the United States into Canada.
So it -- we put those in there several years ago for a specific customer, and they started buying more and more direct, a lot of it from us. I mean we didn't lose the customer, but they were wanting to go direct from the border not have it ripe and they would ripen it themselves. So it just it kind of outgrew its purpose.

Bryan Giles

Yeah, in terms of the cost spend, I would just say that certainly, we have some assets there in those facilities that aren't fully amortized or depreciated yet. But most of our leases -- these leases were due to expire in the next one to two years. So they were close to their end date. So there is a tail on some fixed assets.
There's a tail on some lease payments that we have left to go. Then there's also potentially some asset retirement related obligations, a minimal amount of severance when all said and done, the facilities weren't staffed. We had maybe 12 people within those facilities. So they weren't -- we're not expecting this to have a significant impact when all said and done. But we do think that longer term, it will generate some meaningful cost savings for us.
To Steve's point, the facilities there was not enough volume moving through those facilities to enable them to operate efficiently. The Canadian market simply has changed over the last decade. It's not what it was when we first opened our facilities in Toronto back in the 2007, 2008 time frame and certainly, we've had to- it's taken us time to adapt to the changing market conditions up there. We think long term, this is the right choice for us.

Ben Klieve

Okay. All right. Yeah, that definitely makes sense. Both your comments on the international farming segment both your comments on the international farming segment seems pretty encouraging. I'm wondering if you can just kind of big picture, talk about the especially the EBITDA expectations coming out of that segment here if you anticipate kind of the directional improvement that you saw in '24 to continue in '25, given kind of stabilizing weather conditions and the operational efficiencies that you guys have made on there?

Stephen Barnard

I'll refer to Bryan on the numbers.

Bryan Giles

Yeah, I think at a high level, Ben, things are moving in the right direction. I think we did some things in 2024 related to the cost structures within the farms that will continue to pay dividends going forward. I think we expect the market conditions to be different next year than they were in 2024. With the weather changes down in Peru, the El Nino effect kind of dissipated in May of this year so with weather conditions changing, we're expecting a larger crop as we move into next year, which likely translates -- and not only from Peru, but in general, we're expecting larger crops across many of the source regions that we work in.
So expecting a year of higher volumes and a year where pricing is likely going to come down off the high as we saw this year, particularly as we reengage to a greater extent with some of the international markets that we work in.
I'd say in general, we're bullish about the direction of farming. If we look back, we've come off a couple of difficult years, I mean, 2023, 2024 EBITDA has not been where we would have expected it to be. We go back to 2022, our EBITDA was in the $23 million range. In 2021, it was north of $30 million. We absolutely believe that the farming segment can move back to those types of levels in the near future as volume picks up and we continue to kind of reopen markets for that through.

Stephen Barnard

We've gone through an El Nino series a one year or two ago, which kind of damaged those trees for a year or so. And the crop suffered size-wise, quality-wise, it got hot, it got wet. We've outgrown that and I think we're on that happens about every 10 years so hopefully, we won't see it for another 10.

Ben Klieve

Very good. All right. Well, fingers crossed up here. So one more for me, and I will get back in queue. Just kind of a big picture macro question, given how much you are involved in the import export world, how you're thinking about kind of the future of agricultural exports into the US, particularly within Mexico in the context of potential tariffs?
Is there is this a dynamic that's changing at all how you think about operating your supply chain or are you really just kind of sitting back and waiting to see kind of how it all shakes out?

Stephen Barnard

Well, I think on Trump's behalf, I think that's a ploy to get them to the table to negotiate a help with the immigrant problem. Whether he pulls the trigger on the tariff or not, I don't know. I hope not. But obviously, it will raise costs, probably slow consumption down a little bit, who knows? I mean consumption keeps growing. And if you look at the overall category, volume goes up and pricing has gone up. So even if it leveled up, we'd be in pretty good shape. So I'm not too worried about it really.

John Pawlowski

This is John Pawlowski. I would add to Steve's comments that when you look at the historical capabilities of the team here at Mission, disruptions, price changes, price inflation, challenges getting product from one country to another has always been part of the game. And this team has proven and really proven over the last 12 months how well they can execute when things get choppy.
So if there's things that come down the path that creates some choppiness, this team as absolutely ready for that. And then the second piece of it is also what Steve just mentioned, and that's the consumer resilience. We have really seen the consumer be resilient through both an inflationary period as well as price not just the price side but also from a supply challenge perspective.
And the consumer is really taking away more and at a higher price than they ever have. So both of those two things combined, I see Mission positioned in a great spot kind of regardless of what happens on the tariff side of things.

Stephen Barnard

I think that's directly focused at Mexico, too, not I don't think he's going to put a tariff on Peru or Colombia or Guatemala, I hope.

Ben Klieve

Got it. Very good. All right. Well, I appreciate that context from you both. Congratulations again on a really great quarter, really great year.

Stephen Barnard

Thanks. I appreciate it.

Operator

Gerry Sweeney, Roth Capital Partners.

Gerry Sweeney

Hey, good afternoon guys. Thanks for taking my call.

Bryan Giles

Sure thing, Gerry.

Gerry Sweeney

Just to follow up on Ben's question and then the answer, but it seems like consumers have, maybe for lack of a better phrase, busted through the price barrier and seem more consistent at higher prices than maybe a couple of years ago. Is that fair to say, especially with this past year's results?

John Pawlowski

Yeah. Yeah, we're seeing two macro trends that are driving that, Gerry. This is John. The first one, I think you'll hear consistently across anyone in the grocery sector, and that is exactly what you just said. There's been inflationary pressure over the last 18 months, and you're starting to reach points where the consumer has adapted to that.
The second piece, more specific to our kind of slice of the pie in regards to the produce section is we're seeing a lot of younger consumers enter the marketplace. You've got people that are 18 to 30 that are picking up more avocado consumption and those consumers as they enter the marketplace, they're making up a much bigger portion of our shopper base, they are much more resilient than the traditional baby boomers have proven to be in the past.

Gerry Sweeney

Got it. Does this mean moving forward that retail can keep prices elevated, make more money and maybe help and does that sort of trickle through to Mission's role?

John Pawlowski

Well, I guess the prices they make more money piece is always the tricky question, right? Because the price versus our cost always plays a role in that. I think you'll see more consistency compared from a margin perspective, from a retail side of things where they were in '24.

Bryan Giles

Yeah, I mean, Gerry, I think it's all in relative terms where pricing is going to sit. There's going to be a supply of volume available and prices need to -- it will need to ultimately be set at a level that enables the market to consume that supply. Do I think -- at comparable levels, I think the price points will settle in higher than where they were in the past two, three, four years ago.
But I think as we look to this coming year, if volumes were to increase 10%, 15% across all countries of origin, I would think that, that is going to bring pricing down somewhat with that much of a volume increase. But again, it will be a more resilient price than it would have been two, three, four years ago.

Stephen Barnard

Still be good. They're pretty high to start with.

Gerry Sweeney

Yeah. Yeah, I got it. I just curious, it feels like prices, the elasticity is coming back or something like that.

Bryan Giles

So I would say there were definitely times I mean where that $0.99 per piece barrier was kind of an indicator of when demand would start to taper, and that doesn't seem to be the threshold or the limit any longer. Price points, $1.25, $1.49, we're not seeing that having a negative impact on pull through any longer. So yes, I think inflation, it's taken a few years, I think, for maybe the consumer to adapt to paying higher prices but it feels like it's finally kind of come through our category in this last year.

Gerry Sweeney

Got it. Switching gears to blueberries. I mean, blueberries are great. But you also noted, I think, you increased planting. How many more acres this year than last year and two years ago? And then what is the plan for the blueberries for the next couple of years going forward?

Stephen Barnard

So, in production you're talking about or planning?

Gerry Sweeney

Planning. Yeah.

Bryan Giles

Yeah, blueberries have a pretty quick turn like usually within a year, they're in a productive state, unlike an avocado tree where it can take four or five years. But blueberries, I think we rolled out another 100 hectares this year. I think we'll be layering in at least another 100. We're doing some double density planting, Gerry, in the first year. So I'm like in my head, I'm 100 hectares this year, but maybe a little more than 100 hectares worth of plants.
And then we're probably looking at another -- close to 200 hectares coming into production for the next harvest season, which would roll through Q4 of '25 and into Q1 of 2026. And that would be on top of -- I think prior to this, we had about somewhere close to 500 hectares in production.

Stephen Barnard

And another 200 developed, in process.

Bryan Giles

So when all is said and done with our planting is up in the Northern almost region, we should roughly double the size of the blueberry plantings that we had in place before we started that project. So overall acreage, certainly a lot of these plantings are of the new, more desirable varieties as well, which we believe over the long haul are going to help drive higher average selling prices over some of the generic varieties that are being grown in country.
So I think we're excited about the opportunity that lies ahead, certainly focused on trying to stretch hard this season, things of that nature, so we're not overloading markets at certain times of the year. And again, getting fruit of those premium varieties with the right sizing and the right quality to generate those above average returns.

Gerry Sweeney

Got it. And then obviously, balance sheet's in good shape. You kind of touched on cash flow, but next couple of years, good cash flow, I mean, that would be high in a very excellent spot. I mean any thoughts on what's after that? Do we go back into maybe increasing some planting to a degree? Just curious from that perspective.

Bryan Giles

I mean, I think our plan, Gerry, I mean -- and we've been communicating for years and for a couple of years, I don't think we changed too much on it that our expectation was that we've gone through a couple -- had gone through a couple of years where our operating cash was depressed. I think the year we saw in 2024 was more in line with what we believe the long term capabilities of this business are.
Capital has continued to step down, probably step down, it looks like it stepped down a little more this year than it really did because of some timing things. But nonetheless, it's well off of the numbers that we've seen over the last three or four years, and we expect that will continue. So yes, we're going to generate significant cash flow.
I would think next year as we look to fiscal '25, our priority would still be on paying debt down. Beyond that, you're right, we will be in a position where we'll have our balance sheet in really good shape. And that will enable us to evaluate other opportunities with that cash, and one of which could be returning cash to shareholders in some way, shape or form.

Gerry Sweeney

Yeah. Got it. Well, congratulations on a great year. I appreciate it.

John Pawlowski

Hey, thank you, Gerry.

Operator

This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Stephen Barnard

Thank you for your interest in Mission Produce, and we look forward to talking to you again.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.