Mission Produce Inc Stock

Good afternoon, and welcome to the Mission Produce Fiscal Third Quarter 2026 Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the call over to Andrew Pearson, Vice President of Investor Relations and Strategy for Mission Produce. Sir, please go ahead.

Thank you, and good afternoon. Today's presentation will be hosted by John Pawlowski, President and Chief Executive Officer, and Bryan Giles, Chief Financial Officer. The comments during today's call 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. 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. I would now like to turn the call over to John.

Thank you, Andrew, and good afternoon, everyone. Our third quarter results demonstrate the strength of our platform and the team's focus on delivering results. Adjusted EBITDA of $32.4 million exceeded the high end of our expectations, supported by solid marketing and distribution performance, stronger than forecast results from our International Farming team, and early progress on the integration of Calavo. This was an extremely important quarter for Mission. It was our first reporting period following the completion of the acquisition, and it provided an early look at the capabilities of the combined organization. While we are still in the initial stages of integrating, the progress to date reinforces our confidence in the strategic and financial merits of the combination. I want to start with the avocado category because the strength of consumer demand provides important context for both our results as well as the opportunity ahead.

Last quarter, we discussed how a historically high supply, low price environment brought new households and consumption occasions into the category. This follows a historical pattern in which lower prices expand the consumer base and support sustained demand as pricing normalizes. That dynamic started to materialize in the third quarter. U.S. retail avocado volume grew approximately 9% year over year, even as the average retail price increased approximately 15% sequentially. Furthermore, U.S. avocado consumption remains at record levels in '26, trending above 10 pounds per capita year to date, 12% higher than last year, while household penetration has increased approximately 50 basis points year-to-date compared to last year. This is an encouraging progression from what we discussed last quarter. The low price environment helped introduce more consumers and occasions to the category, and volume yet remained strong as prices recovered.

This supports our view that the category expansion we saw in the first half is creating larger and more durable demand for the future. Avocados have evolved into an important staple for consumers. The category aligns with lasting preferences around fresh food, nutrition, convenience, and value, while the product's versatility supports consumption across multiple meals and occasions. Those qualities provide a strong foundation for continued category growth, both in the United States as well as in international markets that remain at relatively earlier stages of development. Our job is to translate those category tailwinds into profitable growth. Year-to-date, for Mission's legacy business, we increased our estimated U.S. retail market share by approximately 60 basis points from last year, reflecting deeper customer relationships and our ability to reliably support programs through changing supply conditions. Importantly, market share is a key measure of whether we are winning, but we will not pursue it at any cost.

Volume and per-unit margin must work together. Our objective is to deepen category leadership while maintaining the commercial discipline required to translate growth into stronger earnings and cash flow. During the quarter, we sold approximately 253 million pounds of avocados, an increase of 38% from last year, reflecting the addition of Calavo and higher legacy Mission volume. As California and Peru became more meaningful sources, our origin mix improved from Q2, supporting both customer continuity and a sequential recovery in per-unit margins. This improvement is a great example of the value our multi-origin sourcing model brings. In the second quarter, delayed California and Peru harvests temporarily limited that flexibility, but in Q3, our teams were better able to balance fruit from Mexico, California, and Peru, matching available sizes with customer demand, and directing the product toward the markets and programs where it could create the greatest value. Turning to Calavo, our first several months of ownership have reinforced our original investment thesis.

The combination expands our customer reach, sourcing flexibility, Mexican and California packing capacity, as well as participation in our Prepared Foods category. It provides more ways to serve customers, more flexibility to align fruit and sizing with demand, and more opportunities to remove costs from the overall supply chain. We are also bringing together two organizations with complementary strengths. Mission contributes a global sourcing and distribution platform, vertically integrated farming operations, category management capabilities, and established international infrastructure. Calavo adds customer relationships, additional North American sourcing and packing capabilities, and an established position in the value-added Prepared Foods space. For customers, the opportunity is to create a more reliable and capable supply partner. The combined company has more fruit, more facilities, and more options for responding when supply conditions change.

Over time, we believe this should help us improve our fulfillment, increase network utilization, reduce unnecessary handling and external sourcing costs, and ultimately provide customers with a broader set of products and services. At the time of the transition announcement, we identified at least $25 million of annualized cost synergies achievable within 18 months of close, with meaningful upside potential. Following our integration work so far, we are increasing that estimate to more than $30 million, primarily reflecting higher-than-anticipated SG&A savings and network efficiencies. We are already moving fruit across the combined network, reducing reliance on higher-cost external sources and improving our inventory positioning. We also discontinued operations at the Calavo Temecula facility and are advancing broader distribution, freight, technology, procurement, and organizational initiatives. The real measure of integration is not simply whether an action has been initiated. It is whether that action ultimately produces sustainable savings, better customer service, and stronger operating performance.

We are applying that standard to the work underway and remain focused on maintaining business continuity as we make changes. We expect synergies to begin contributing to financial results in Q4 and build more meaningfully throughout fiscal 2027. We recognize that integration requires disciplined execution across many functions, and we will continue to update you on our progress. Prepared Foods is an important part of the strategic opportunity. It extends Mission into convenient, value-added avocado products and gives us an established platform which allows us to participate in a broader avocado category. The business operates differently from Fresh Avocados, with different pricing structures, inventory requirements, as well as manufacturing considerations, but it is closely connected to our core sourcing expertise and customer relationships.

Our immediate focus in Prepared Foods is straightforward: Maintain customer service, improve operating consistency and throughput, and build a solid foundation for profitable growth. Over time, we believe Mission sourcing capabilities and customer reach can complement the Calavo team's manufacturing expertise and product portfolio. We look forward to discussing this opportunity in greater detail at our upcoming Investor Day. Within the International Farming segment, third quarter performance exceeded our expectations, supported by stronger average sales returns. We expect exportable production from our own Peru farms of 120 to 130 million pounds for the harvest season, compared with 105 million pounds last season, with a greater portion of this year's crop expected to be sold in the fourth quarter. Our vertically integrated farming operations remain an important differentiator.

They provide greater visibility into supply and quality, support customer programs during key seasonal windows, and give us the flexibility to allocate fruit across both North America and Europe, as well as Asia and other markets based on customer demand and relative returns. We expect our blueberry harvest to begin contributing more meaningfully as we move into its seasonally stronger quarters. Newer acreage continues to mature, and we remain focused on improving yields, per-unit costs, and returns from the infrastructure we have built in Peru. To close out the year, our priorities are straightforward: Protect profitable marketplace momentum, deliver the seasonal Peru and blueberry contribution, integrate Calavo thoughtfully, convert identified synergies into measurable financial results, and remain disciplined in the use of our capital. We are reaffirming our second-half outlook with a meaningful seasonal increase expected in the fourth quarter.

Bryan will provide the financial details and the principal drivers supporting that outlook. There is considerable work in front of us, but we exited Q3 with a larger category, stronger market positions, a broader and more capable operating platform, and increased visibility into the value available from the Calavo integration. Next month, we will host our Investor Day in New York. We will provide a more complete view of the company we are building, how each part of the platform fits together, the priorities that will drive our next phase, and the financial framework we will use to measure our progress moving forward. I want to thank the Mission and Calavo teams for their focus and commitment during an important period of change. I also want to thank our growers, customers, and partner for their continued trust. With that, I will turn the call over to Bryan.

Thank you, John, and good afternoon to everyone on the call. Fiscal '26 third quarter revenue totaled $450 million, an increase of 26% from the prior year period. Avocado volume increased 38%, reflecting the inclusion of Calavo and higher legacy Mission volume. Average per unit avocado sales prices were 9% lower versus the prior year, consistent with the higher industry supply environment we've discussed throughout the year. Gross profit was $44.7 million compared with $45.1 million last year, while gross margin decreased 270 basis points to 9.9%. Lower average selling prices reduced International Farming gross profit, while Marketing and Distribution benefited from Calavo's post-acquisition contribution, partially offset by integration-related costs and purchase accounting adjustments. SG&A expense, excluding transaction advisory and integration costs, was $31.6 million, compared with $24 million last year, primarily reflecting the addition of Calavo's cost structure.

Transaction advisory and integration costs were $12.6 million and included third-party legal and advisory fees, severance and retention expenses, and other acquisition and integration costs. Third quarter GAAP results also included $5.2 million of acquired inventory step-up amortization, $1.5 million of acquired intangible amortization, and $6.1 million of financing, tax, and supply chain optimization expenses associated with the transaction and integration. The inventory step-up increased cost of sales as the acquired inventory was sold and is temporary in nature, while the intangible amortization increased SG&A.

Net loss attributable to Mission Produce was $6.5 million, or negative $0.08 per diluted share, including transaction and integration costs, purchase accounting effects, and higher interest expense related to the acquisition. Adjusted net income was $15 million, or $0.18 per diluted share, compared with $18.2 million, or $0.26 per diluted share last year. Adjusted EBITDA was $32.4 million, compared with $32.6 million last year, and exceeded the high end of our $28 million to $32 million guidance range. The outperformance primarily reflected stronger than anticipated International Farming results and solid performance from Calavo during the post-acquisition period. Marketing and Distribution segment sales were $414.3 million compared to $344.1 million last year.

The increase is driven by higher avocado volumes sold, both from the Calavo contribution and the legacy Mission business, partially offset by lower average selling prices. Segment adjusted EBITDA was $24.7 million compared to $20 million last year. The increase primarily reflects higher gross margin attributed to the inclusion of Calavo's post-acquisition results. Last quarter, we discussed the temporary fruit size imbalance in April and the difficulty of operating in a predominantly single-origin sourcing environment. Those conditions improved as California and Peru became more meaningful parts of the Q3 supply mix, reporting sequential improvement in per unit margins from Q2. Prepared Foods is now a separate reportable segment following the Calavo acquisition. For the post-acquisition period, the segment generated sales of $15.5 million and adjusted EBITDA of $0.2 million.

Because Q3 includes only the post-acquisition period, these results should not be viewed as a full-quarter run rate. Our near-term focus is operating consistency, service, and throughput, and we expect to discuss the segment's attractive longer-term opportunity at our Investor Day. International Farming segment sales were $45.8 million compared with $49 million last year. Third-party sales were $14.8 million, and affiliated sales to Marketing and Distribution were $31 million. Segment adjusted EBITDA was $7.6 million compared with $12.1 million last year. Year-over-year decline primarily reflects lower average avocado sales prices. However, adjusted EBITDA results exceeded our expectations as average sales returns were stronger than we expected during the quarter.

As discussed last quarter, sales from our owned Peruvian production are weighted toward Q4 this year. We expect exportable production of approximately 120 to 130 million pounds, compared with 105 million pounds last season, of which approximately 53 million pounds has been sold through at the end of Q3. International Farming remains highly seasonal, with the majority of annual adjusted EBITDA generated in the third and fourth quarters. The allocation between periods can shift based on harvest timing, vessel schedules, destination market pricing, and customer sales timing. That dynamic is central to the expected sequential increase in consolidated adjusted EBITDA in Q4. Blueberry sales were $5.4 million compared with $4.5 million last year, while segment-adjusted EBITDA was negative $0.1 million compared with positive $0.5 million last year. Most sales and profitability for this segment are concentrated in the fourth and first quarters.

As John noted, we are increasing our annualized synergy estimate from at least $25 million to more than $30 million. The increase primarily reflects higher-than-anticipated SG&A cost savings and network efficiencies identified since closing. The broader opportunity includes organizational costs, distribution center optimization, freight, sourcing, packaging, testing, and vendor expenditures. We expect synergies to start contributing in Q4 and build more meaningfully throughout fiscal 2027. We incurred $12.6 million of transaction advisory and integration costs in Q3 and expect additional integration costs as facility, technology, organizational and process changes are implemented. These costs will vary by quarter based on the timing of the underlying actions. Cash and cash equivalents were $47.1 million at July 31st.

Total long-term debt, including the current portion and net debt issuance costs, was approximately $400.3 million at July 31st. Interest expense increased to $5.1 million from $2.4 million last year, primarily due to the incremental debt used to fund the transaction. Net cash used in operating activities was $25.9 million through the first nine months, compared with cash provided of $21.4 million last year, primarily reflecting lower income, driven in part by transaction advisory and integration costs, and working capital requirements. We expect a meaningful seasonal improvement in Q4 as the Peru avocado crop is sold through and blueberry activity increases. Capital expenditures were $32 million through the first nine months, compared with $39.8 million last year. For full year fiscal 2026, we continue to expect spend of approximately $45 million, inclusive of planned spending associated with the legacy Calavo business. During the first nine months of our fiscal year, we repurchased $9.4 million of Mission common stock.

Our near-term capital allocation priorities remain focused on integration support, maintaining appropriate liquidity, reducing debt, investing selectively in high return opportunities, and returning capital to shareholders through share repurchases when appropriate. Turning to our outlook, we are reaffirming the second-half adjusted EBITDA range of $84 to $88 million provided last quarter. With third quarter adjusted EBITDA of $32.4 million, we expect fourth quarter adjusted EBITDA of $52 to $55 million, including a full-quarter of Calavo. The sequential increase is expected to be driven by a greater concentration of sales from our owned Peruvian crop, the seasonal ramp in blueberries, a full-quarter of Calavo, and improved avocado margin dynamics. We also expect a small amount of synergies to begin contributing in Q4, building more meaningfully through fiscal 2027. Our focus is on delivering the fourth quarter plan, converting integration actions into measurable savings, generating cash, and reducing leverage over time.

That concludes our prepared remarks. Operator, please open the call for questions.

[Operator Instructions] Our first question is from Mark Smith with Lake Street Capital.

Hi, guys. I wanted to dig in first a little bit more on the annualized synergy target. Now, more than $30 million up from $25 million. Bryan, I know you talked a little bit about this, but just what specifically kind of drove this upside as we look at SG&A headcount, network logistics efficiencies, procurement, et cetera. I would love to just get more details on kind of that delta.

Hey, Mark, this is John. Good to hear your voice. We're going to plan on getting a lot more depth and coverage on this when we're together in New York in a couple of weeks here. So looking forward to seeing you there. But in regards to where we're at today, really it came down to the fact that the two organizations over the first five to eight weeks of working together started to really kind of put rubber to the road in regards to where the opportunities were, finding incremental transportation synergies, finding opportunities that the way we were co-operating our facilities in our Mexican packhouses, right? Just things that we weren't really able to get into the proverbial weeds on when we were doing due diligence.

But once we really opened those doors and started to have detailed conversations in regards to where things could come together, we started to see things in the $100,000, $200,000, et cetera range. And adding all of that up specifically around some of our operating efficiencies that we saw, some additional SG&A opportunities as we looked across our network, understanding exactly how our boards came together in regards to thinking about the way two public companies operate. The numbers started to add up fairly quickly, and we feel confident that moving from that $25 million to $30 million is the right thing to do for now.

Perfect. And then just looking at Peru avocado production here, you guys have sold, it looks like moved less than half of that already. Just kind of one more insight into kind of where your confidence comes from just on moving this remaining volume at acceptable margins, just given kind of what sounds like still an oversupplied market.

Yes. Well, a couple of things. Number one, we had probably the best year in regards to productivity and total output out of our Peruvian farms that we've ever had. So -- we are incredibly proud of the work that's been done by the teams and the farming organizations down there to ensure regardless of condition, regardless of what was going on with the rest of the industry, we produced. When we saw the rest of the Peruvian market moving their estimates southward, we maintained and/or moved our estimates northward.

So we felt really good about how we competed from a productivity standpoint. And then secondly, we spent a lot of time over the last 18 to 24 months ensuring that we had a very good quality network in regards to where we could sell that fruit. We spent significant time building and looking at opportunities all over Europe, all over North America, even into South America. And the extensive network that we had built, which is really built on top of what even as extensive as we were 1.5 years ago, we added a significant number of capabilities, particularly in Southern Europe that we didn't have just a year ago today.

We sold a record number of containers into an outlet that maybe 2 years ago, we had 0 sales into. It's public knowledge. I think we were the #1 importer of Peruvian avocados into Europe during this season. So we had an excellent team effort in making sure we have the right number and quality of sources to move that fruit. And then on top of that, we're sitting here in September at this particular time, and we know where our programs are. We know what we've been able to execute against those -- all those things together lead us to the confidence that we have in our fourth quarter.

Mark, I'd add one other thing on kind of the lift that we're seeing. Everything John said about volume and price markets, I think, is accurate. Also, it's probably worth sharing that just because of the way the mix of fruit that came off the trees balanced out, a lot of our lower-yielding farms, we saw some disparity between yields on our different farms this year. And the fruit that sold through in our Q3 tended to be higher-cost-basis fruit because a lot more of it came from the lower-yielding farms whereas Q4 we're leaning more heavily into our higher-yielding farms this year so that's going to help give us a little bit of a lift in the fourth quarter as well.

Our next question is from Gerry Sweeney with Roth Capital Partners.

I'm going to start with international just because that's where you guys ended up. But obviously fourth quarter is going to be the bigger quarter as you guided towards. I'm just curious with the fruit, is this picked and how much visibility you have on it? I imagine it's probably off the trees and moving through packing at this point, so pretty solid visibility. Is that a fair assumption?

That's a very fair assumption. We are approximately 1 week away from being fully wrapped up with that harvest. So all of the numbers that we're putting out there in regards to our productivity and our yields is, I don't want to say 100% in pocket, but pretty much in pocket. And in regards to where that fruit is heading, we have very good visibility into all of the outlets and all the allocations that have been completed in regards to distribution of that fruit over the next three to four weeks.

Got it. And then also, you touched upon it in the last questions with Mark. 120 to 130 million pounds step-up from last year. I know Mother Nature can be fickle from year to year. I'm just curious, how much of that jump was good weather versus operating improvements at the farms, if you could break that out.

Yes, I would it's -- that's a tough one because it's hard to put exact percentages to what occurred from a weather standpoint. But I would argue that we weren't thrilled with some of the productivity last year, and the teams did an excellent job from a recovery standpoint and an execution standpoint on delivering the right nutrition to those trees to allow them to deal with whatever weather came their way.

We had pretty good weather for the first six to seven months of this season in regards to growing conditions and flowering conditions, et cetera. We've been talking about El Niño related types of weather activities probably for the last six months. We have seen some hotspots and some spells, but our fruit and our trees have held up very well to some of those challenges, leading to our ability to hit some of the predictions, the forecasts that our teams put out there earlier in the year. And I would argue that some of the challenges we've seen in regards to the rest of Peru and some of the movement downward of some of those forecasts and when we didn't move downward would indicate that whatever farming we're doing, whatever steps we're taking is helping us to perform a little bit better than the rest of the market.

And Gerry, I would just add on to that. In 2023, when we started to see El Niño conditions, we started to see an impact on our farms the year that it happened. So 2024 was really the year that we saw significantly lower production, but we had an abrupt end to our 2023 harvest season because the trees weren't able to handle the weather pattern. I think the fact this year that we did not see that fall off is a good indicator of the health of the trees and the farming practices that are underway down in Peru.

Sorry, I didn't mean to cut you off there, but yes, understood.

Oh, no worries

Then, switching gears to marketing and distribution, you called out market share growth in retail. This was pre-Calavo, but maybe you could take a minute or two, three minutes and sort of highlight the optionality or the opportunity as you're layering Calavo, even on market share gains, because you said you all, you they probably have some customers that you weren't necessarily penetrating. I think you probably have more -- my words, maybe better or more sophisticated pricing and sourcing programs that you could drive market share with these guys, but then you have, I think just size in the industry as well as an increasing variety of fruit. What does this all do to maybe the market share potential down the road?

Yes, it's a great question, Gerry. You know, one of the things we've been talking about this combination is scale and optionality for our customers, right? So we're still very early in the integration process. We're working incredibly hard on bringing our organizations together, having detailed customer-facing conversations right now about the next 6 to 12 to 52 weeks in regards to how we execute and promote for their benefit to drive excellent returns for them at the store level. But ultimately with the additional capability from a packhouse perspective in Mexico, in California, the availability of fruit that we can pull through our network allows us to serve a much broader swath of customers for a longer period of time than we were able to do just a year ago.

So when the two companies together, X market share plus B market share should equal C plus market share in the future. We know that we modeled in some level of dis-synergy as we kind of predicted the fact that we would have a couple of customers that crossed hairs when thinking about overall share within that customer. So far, we've seen a minimal amount of that as we've wandered into conversations together collectively as a single organization.

But thinking about the future and our opportunity to share and service our customers across the country with broader access to fruit says to me that between 2027 and 2030, we should be able to move the needle on market share in a meaningful way without having to go out and buy that market share from an M&A perspective because we have access to fruit and access to programs and access to quality that doesn't, that our competitors can't come close to.

And I'll look forward to the Investor Day in October.

Our next question is from Pooran Sharma with Stephens.

Congrats on the results. Maybe just to start it off. Yes, sure thing. Just to start it off here. Wanted to understand a little bit more on the volume expectations for 4Q. I know in the release, and I think in the prepared comments, you had alluded to industry volumes growing at roughly 10% in 4Q. But I'm just trying to think about how much volume contribution came from Calavo in 2Q.

Now, it was 38% year-over-year growth. But if you kind of think that in your growth, legacy Mission, for example, matched industry growth of about 5% to 10% in 3Q, it would yield to about 20 million pounds or so of Calavo. And so when you think about 10% growth in Q4, is it more like 220 million pounds, when you think about the additional from Calavo? If you could maybe either help me with how to think about Calavo contribution from 3Q or how to maybe think about total aggregate volume growth for 4Q?

Pooran, when I think about it, you look at the amount of volume we saw in Q3, certainly we saw growth within our legacy business. We also saw growth from just the addition of Calavo into the fold. And that was for a two-month window, not a three-month window. It's difficult to pinpoint precise numbers because really from the day the deal closed, we started operating as one unit from a sales and sourcing standpoint. We still have different systems where we're collecting data, but there's so much collaboration and cross-selling activity that's taking place at this point that it's difficult to pinpoint a number, like a revenue or a volume number on one of the units. What I will say as we look at Q4 is that we think the industry volumes are going to be at about a 10% growth rate. And I think that was the intent as we're providing industry outlook not customer specific outlook.

So yeah, in theory, if we're growing with the industry and it was Mission standalone, we would be at 10%. We're not picking up the Calavo, the impact of the Calavo growth right in there. That's not what we intended to do with that guideline or that guidance. It was really just more about understanding what the market conditions were that we were going to be operating in, which is a higher volume environment that we were in a year ago, which is going to have some impact on the pricing environment that we're operating in.

Completely. No, I appreciate that. And that is helpful, just kind of delineating that. I guess as my follow-up here, and I know you're thinking about integration here and good kind of questions on the progress of that maybe shifting to something that might be on the back burner a bit but prepared foods, obviously, first quarter under the belt, with not a full-quarter, but wanted to just get your sense on biggest areas of opportunity in this business. And as your integration progresses what do you think those buckets are? Is it more manufacturing utilization, sourcing? Is it customer penetration? Any sort of color with this business would help.

Yeah, sure, Pooran. This is John. You know, much more to come as we get into the next couple quarters on this business and we continue to learn more. But I guess as an initial stab, the excitement around the Prepared Foods business is well-deserved in regards to the opportunity ahead for Mission Produce longer term. The Calavo team and the leaders of that organization who come over and are helping lead that organization internally here have done an outstanding job of building capabilities and customers and relationships and have been able to really kind of drive a name in the industry for quality supply around processed avocados and particularly around the guacamole area.

Now, since we've owned it and since we've become partners in that strategy process, we've seen some opportunities already. First of all, the capacity in that facility that is currently in Mexico more than likely needs to be addressed in regards to our outlook in regards to where that business can go. We're having conversations around what that means, how that could look, what the optionality is around our existing network, our network in regards to our global footprint, our capabilities in multiple countries of origin gives us a lot more optionality than Calavo standalone had in that space.

We've tied our customer networks together in regards to bringing all the sales organizations into a room and said, how do we work together? How do we provide each other opportunities? We've already seen doors opening based on those conversations in the first four or five weeks of being together in that space. And then third, much more longer term, is the global outlook in that business, right? There's things that we have access to in regards to relationships and operating footprint that I don't think the Calavo team had really been considering longer term in regards to the global nature of where that business can go. Those are just some highlights and some things that I'm seeing as being truly differentiators in regards to the way we've run this business over the last 15 years and what we could do over the next 5 to 10 if we pull that together the way I think we can.

Thank you. Ladies and gentlemen, at this time, I'm showing no further questions. This does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.

Good afternoon and welcome to the Mission Produce Fiscal Second Quarter 2026 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 call over to Andrew Pearson, Vice President of Investor Relations.

For Mission Produce. Sir, please go ahead. Thank you and good afternoon. Today's presentation will be hosted by John Pawlowski, President and Chief Executive Officer, and Brian Giles, Chief Financial Officer. The comments during today's call 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. 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. I would now like to turn the call over to John.

Thank you, Andrew, and good afternoon, everyone. Before I get into the quarter, let me say a brief word about our leadership transition that is now complete. Following our annual meeting in April, I formally stepped into the CEO role and Steve has moved into the Executive Chairman seat. and remains actively engaged with the team and the board. His perspective continues to be invaluable as we navigate this next chapter. On behalf of the entire mission team, I want to say thank you to Steve again for the four plus decades of leadership that have brought us here today. And I am incredibly proud to be carrying that legacy forward. I would also like to welcome Andrew Pearson, who recently joined Mission as our Vice President of Investor Relations and Strategy.

On today's call, I'll walk you through our second quarter results and the operating environment that shaped them, talk about our Colavo acquisition that closed earlier than anticipated on May 28th, and share how we're thinking about the path forward. Brian will then take you through the financial details, and we'll open it up for questions. Our second quarter was shaped by an unusually high supply of avocado environment with the largest Mexican crop in years. sales team executed with excellence while also maintaining a manageable margin in the face of multi-year low prices. In April, we saw an unfavorable step change in our per-unit margins driven by a temporary imbalance of supply and demand of core fruit sizes, which pressured margins further as we worked to fill in the shortfalls. Our decision to continue to support our customers in the face of compressing margins was deliberate to help our customers meet heightened demand and facilitate longer-term value creation. Supply continues to transition away from Mexico and toward other growing regions, including California and the start of our Peruvian harvest. That transition is allowing us to lean back into the multi-region sourcing network that has long been one of our most durable competitive advantages.

The supply of fruit and the sizing curves are now normalized and per-unit margins are recovering. relationships with customers are solid, and we expect to deliver strong performance the remainder of the year. Notably, in most avocado pricing environments, high or low, Mission maintains consistent and strong per-unit margins. Extreme low prices, like we just saw, can be an exception. but those environments are rare and Mission is still able to fare better than peers given our vertical integration and multi-region sourcing network. Our model is intentionally designed to perform across most environments and remains a key competitive advantage of ours. Importantly, we're encouraged by what Q2's high-volume dynamics did for the category. US avocado consumption reached new highs during the quarter, increasing strong double digits versus last year, while penetration continued to expand with more than 1.6 million new households entering the category. As we've seen in the past, when the category expands to new consumers and occasions like in Q2, periods of strong growth often follow.

To us, that reinforces that avocados remain a category with substantial runway. We believe this is one of the more durable growth categories in the grocery store, benefiting from steady penetration gains, broader everyday consumption, and consumer preferences that continue to favor fresh, nutrient-dense foods. is still meaningful opportunity to grow here in the U.S., as well as markets like Europe and Asia, where the category is still in much earlier stages. Turning now to our segments. In our marketing and distribution segment, we delivered 15% volume year-over-year growth in avocados sold for the quarter. Our commercial and operations teams did outstanding jobs supplying that fruit to our broad customer base and all the new consumers entering the category. And And despite the Q2 margin pressure, the marketing and distribution segments gross profit actually increased approximately 5% on a first half basis versus the prior year period. Our international farming results in the first half of the year are not particularly meaningful given the seasonality of this segment, with adjusted EBITDA concentrated in the third and fourth quarters in alignment to our Peruvian avocado harvest. segments performance versus prior year was impacted by lower third-party blueberry packing and storage volume versus the prior year and our strategy to invest behind the growing mango category Fruit development at our owned avocado production in Peru is progressing nicely, and we are expecting a robust crop this season, with total exportable production forecasted to be approximately 20% greater than last year. In the blueberry segment, the second quarter sits outside the peak Peruvian harvest window, which is concentrated in our fiscal first and fourth quarters.

The The newer acreage is continuing to mature, and we expect yields and per-unit costs to improve as those farms reach full productivity. We continue to like where this segment is headed, both as a standalone category and for what it contributes to our broader platform. With that, I now want to turn towards the future, because this is what we are really excited about and where our entire mission team and board of directors are focused. Following our close of the Colabo transaction on May 28th, we are now operating as one combined company. Although we are in the early stages, I am energized by what we are building together, both in terms of how it positions us strategically and in terms of the immediate value we believe this combination unlocks for both our customers and our shareholders. Our experience this quarter underscored exactly why we believe in this combination. With the market inundated with Mexican supply, our own packing capacity in Mexico was stretched, forcing us to utilize a greater mix of third-party packing services, which impacts profitability.

Next season, we will be able to manage higher-volume environments, leveraging our larger footprint with the additional of Calabo's packhouses. Also relevant to Q2, the combined platform should give us greater flexibility to align supply to demand, not just managing total volume, but matching the right size curves to the right customer programs. And Colabo strengthens our position as the most reliable year-round source of fresh avocados across North America, which is what our largest retail and food service customers truly value most. Beyond the avocado category, the prepared foods opportunity is one that I am particularly excited about. Calabo's guacamole and ready-to-eat product lines sit within a large and growing market, and they're a natural adjacency to our core business. spent two decades in the branded food industry before joining Mission, I have a deep appreciation for what it takes to drive category leadership. We see meaningful runway to build this capability over time, and we believe it genuinely will be additive to what Mission is already doing today. We continue to see a minimum of $25 million of annualized cost synergies achievable within 18 months of close with meaningful upside potential.

On that front, we have a dedicated integration workgroup made up of internal experts from each function to bring the industry insights and know-how and external support to bring established and disciplined. integration processes. The team has been in place and planning for day one for months already, so our first day owning Calavo simply allowed us to execute the planning that was already well underway. We expect our synergies to materialize from eliminating the redundant operations and SG&A cost structures that come with combining two organizations of this scale. With Colabo closing earlier than initially planned, it allows us to accelerate integration and synergy realization. We now expect to start seeing benefit in Q4 of this year with savings ramping up. into 2027. Importantly, the mission board, our management team, our talented and focused integration team, and our new colleagues coming over from Colabo are fully aligned around what this combined platform can become. That alignment is going to be central to how we execute over the next 12 to 18 months.

And I want to thank the teams across both organizations for the work that setting us up for success. I also want to extend a warm welcome to the entire Colabo team. We are happy to have you on board and look forward to more collaboration in the days and weeks ahead. With that, I'll turn it over to Brian for the financial details.

Thank you, John, and good afternoon to everyone on the call. Fiscal 2026 second quarter revenue totaled $290.9 million. This was down 24% from prior year and driven by a 36% decrease in per unit avocado sales prices relative to last year's peak price environment, given the high supply of Mexican fruit in the current quarter. In particular, the price of avocado was down by a little bit. Importantly, we drove 15% avocado volume growth in the quarter, attracting new consumers and occasions, which should support category demand growth in the future. Gross profit was $20.5 million in the second quarter, compared to $28.4 million in the prior year, with gross margin decreasing 50 basis points to 7% of revenue. The year-over-year change in gross profit this quarter was due largely to a mismatch in supply and demand of core fruit sizes within an environment of high overall supply.

This mismatch, which peaked in April, caused us to pay higher spot market pricing to fill shortfalls for high demand sizes, while having to reduce prices to move lower demand sizes. The situation compounded a tighter per unit margin environment related to the high supply, lower price avocado market, which in turn led to harvest delays in California and Peru. a unique and temporary situation which has improved meaningfully in recent weeks. Core SG&A expense was flat versus the prior year period and excludes $6.4 million of transaction advisory costs associated with the Colabo acquisition in the current year period that we've broken out as a separate line item for transparency. Adjusted net income for the quarter was $0.8 million, or one cent per diluted share, compared to $8.7 million, or 12 cents per diluted share in the prior year period. Adjusted EBITDA was $7.1 million in the second quarter compared to $19.1 million in the prior year period. The decline was driven primarily by the same elements impacting gross profit that I mentioned. Turning now to the segment financials, marketing distribution segment sales were $277.2 million compared to $362.5 million in the prior year period, which reflects lower avocado prices this year, partially offset by higher volume.

Segment adjusted EBITDA was $7.2 million compared to $16.8 million, reflecting the lower per unit margin dynamics we described. International farming segment sales were $7.7 million compared to $8.1 million in the prior year period. Segment sales are concentrated in the third and fourth quarters alongside our Peruvian avocado harvest, while second quarter sales tend to be concentrated in mango farming sales and the provision of blueberry packing services. Segment-adjusted EBITDA was a loss of $1.3 million compared to income of $1.5 million, driven by investments in mango production that did not drive yield improvements in the current harvest season, and lower blueberry packing volumes resulting from an earlier end to the blueberry harvest season relative to prior year. In blueberries, segment sales were $11 million compared to $15.7 million in the prior year period, primarily on lower volume sold, partially offset by higher average per unit pricing. Segment-adjusted EBITDA was $1.2 million compared to $0.8 million last year, with the improved per-unit pricing more than offsetting higher per-unit production costs from lower yields on newer acreage. Shifting to our balance sheet and cash flow, cash and cash equivalents were $33 million as of April 30, 2026.

Net cash used in operating activities was $21 million for the first six months of fiscal 2026, approximately $5 million of which related to transaction advisory costs. compared to 13 million in the prior year period, with the increase primarily reflecting lower year-to-date income, partially offset by lower working capital bill versus the prior year. As a reminder, our operating cash flows are seasonal in nature, given the build of inventory in our international farming segment through the first half of the fiscal year, with that inventory monetized through the back half of the year as the Peruvian avocado crop is harvested and sold. Capital expenditures were $22.9 million for the six months ended April 30th, 2026, compared to $28 million for the same period last year. consistent with the step down we've communicated previously. Moving to our outlook. For the third quarter of fiscal 2026, avocado industry volumes are expected to increase by approximately 5 to 10 percent versus the prior year period. From our own farms in Peru, we expect exportable avocado production to reach all-time highs ranging between 120 to 130 million pounds as compared to 105 million pounds in the 2025 harvest season, with sales of our own production weighted to our fiscal fourth quarter. Pricing is expected to be lower on a year-over-year basis by approximately 15% compared to the $1.75 per pound average experienced in the third quarter of fiscal 2025, which is a smaller percentage reduction than that experienced in the first half of our fiscal year. As is typical in our category, that change in pricing is directly correlated with expectations for higher volumes available in U.S. and international markets.

Supply has now begun transitioning from Mexico toward other growing regions, most notably California and Peru. enabling the multi-region sourcing capabilities that are an important driver of our per-unit margin performance to increase in prominence. The margin dynamics from Q2 are now behind us, and we expect pre-unit margins to meaningfully approve through the back half of the year. With our Colabo acquisition closing in the fiscal third quarter, we are providing select additional guidance to assist you in your modeling that includes combined Colabo results. Consolidated fiscal third quarter adjusted EBITDA is expected in the range of $28 to $32 million, including the partial quarter contribution from the Colabo acquisition. This is driven primarily by a later harvest of our own Peruvian farms pushing more sales into Q4, combined with some carryover impact in early May from the mismatched fruit supply dynamics previously noted. Consolidated second half adjusted EBITDA is expected in the range of $84 to $88 million, reflecting the drivers I mentioned for Q3, plus Q4 contributions from a full quarter of Colabo results, higher blueberry yields, and improving avocado margins. We do not anticipate material synergy realization during the fiscal year. fiscal third quarter, with actions becoming more visible in the fiscal fourth quarter and accelerating through fiscal 2027.

I'd also note that our intention is to be as clear as possible with respect to ongoing integration-related expenses associated with our $25 million synergy target. and anticipate detailing those as add-backs to our reconciliation of adjusted EBITDA and adjusted net income. In terms of CapEx, we expect to invest approximately $45 million in the current fiscal year, which includes modest expenditures related to the Colabo business. Finally, last week our board approved an increase in extension to our share repurchase program. see it as another reflection of our disciplined approach to capital allocation and our focus on creating long-term shareholder value. It gives us the flexibility to repurchase shares opportunistically when we believe the market price does not reflect the underlying value of the business, and it also underscores our confidence in Mission's long-term growth outlook. In closing, while the second quarter was shaped by an unusual supply environment, we believe it also highlighted the strength of our commercial execution, the resilience of avocado demand, and the value of the customer relationships we continue to build. As supply normalizes and we move through the back half of the year, we expect improving margin performance, stronger contributions from Peru, and increasing benefits from our expanded platform following the close of the Clabo transaction. Taken together, we believe that position's mission well, to drive profitable growth and create long-term value for shareholders.

That concludes our prepared remarks. Operator, now over to you. Please open the call to Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate a line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star 2 button. One moment, please, while we poll for questions. Our first question comes from the line of Puran Sharma with Stevens, Inc.

Please proceed with your question.

Good afternoon and thanks for the question. My first question, hey, good afternoon. Just on the first question here, wanted to maybe see if you could help bridge the 3Q adjusted EBITDA guide of $28 to $32 million to kind of the second half guide of $84 to $88 million. Obviously, you kind of detailed a little bit on the call. big step up for 4Q. Just wondering if you could kind of help me think about how much of that step up is just from your own brew production versus a full quarter of Colabo in there versus just more improved fundamentals for just marketing and distribution.

Sure thing, Poran. Let me give you a break, a little bit of a breakdown. We definitely see a more backloaded year this year in our international farming segment than what we saw last year. A lot of it has to do with the timing of harvest. Certainly last year, though, we were also in a much higher-priced environment in Q3, and we saw a deterioration in pricing as we transitioned into Q4. We're seeing a very different market today. we're actually starting to see prices lift and we expect more stability through the quarter. So it's both a pricing and a volume dynamic that's at play in the farming segment that's helping to drive or we anticipate to drive much stronger results in the fourth quarter than in the third quarter. Keep in mind, we also see our traditional season. ramp of the blueberries segment in the fourth quarter, where it has very little contribution in Q3.

If we look back at marketing distribution, I think that, yes, we expect to continue to see strong volume. We expect to start to see prices stabilize as the step down is not nearly as meaningful in Q3 as we've seen in Q1 and Q2. We expect that to continue into Q4, and that should give us room to continue to maintain margins kind of within our historical ranges that we've mentioned. It's not really a glide path where we need to experience dramatically higher per unit margins on third-party fruit that's being sold in the marketing distribution segment. I mean, I'd remind, you know, last year we generated close to 42 million of EBITDA in our fourth quarter. So, you know, with the business being more backloaded and bringing the Colabo business in on top of it, fourth quarter results that we're guiding towards. Okay.

Appreciate the clarity there. I guess on just Just on the follow up here, we've been hearing conditions of a super El Nino that might impact fruit conditions. or just growing conditions in some of the key production areas and was just wondering if you're able to help us think about what that could mean for Mexican production and potentially your own production? And would this be more of a current year impact or would this be more of something to watch out for next crop cycle?.

Hi, Perron. This is John. First, I'll address 2026. We're watching, as you can imagine, we're watching it very, very closely. We're having conversations weekly with our teams in all regions in regards to what's going on with the El Nino expectations. and temperatures and rainfall, et cetera. And I would let you know that to date, we haven't seen any significant impacts. We are anticipating some warmer weather in Peru over the next three, four months. As far as 2026 is concerned, we feel like we've done really a great job over the last 18 to 24 months. On several of these calls, we've talked about the investments we've made in the health of the trees and the nutrition plans that we put in place over the last two years.

And we feel good that our trees are in place. a really healthy spot to be able to handle some instability in regards to weather conditions over the next three to four months. So as far as our crop over the 2026 season, we feel confident in the numbers that we're putting out there right now, regardless of some of the weather challenges that could come our way. There are going to be, you know, we have to watch really closely. with when those particular heat spells hit and when those particular rain spells hit, if it has to do with when we're flowering or not, right? So we do think there could be an impact on 27, but we feel like we're in a spot where we can plan for that potential volume change accordingly as we think about next fiscal year. As far as Mexico is concerned, it really comes down to what happens from a rain perspective. And 26, as you know, we're in the process of moving from normal crop to local crop in Mexico. We don't see a significant impact of the weather- related issues in 2026, but do see potentially the potential impact of El Nino being slightly lower crops than anticipated in Mexico next year. But that is a trying to be crystal ball for you there as far as 2027 is concerned.

But hopefully the summary here is we don't see a significant impact on 26 right now based on what we've done from a health perspective of the trees. And 27, we're keeping an eye on to make sure we understand those impacts. But do see see some potential changes in volumes. Great. Thank you for the call.

Welcome. Thank you. Our next question comes from the line of Jerry. Sweeney with Ross Capital Partners. Please proceed with your questioning. Good afternoon, guys. Thanks for taking my call. Congratulations on closing the Colavo acquisition. First question relates to that, and I know you've given some synergies and opportunities on that front over the next 18 months, so $25 million. But now that it's closed and I don't want to get the carpet for the whole but I just want to get maybe what are the first steps or the lowest hanging fruit opportunities for growth from the combined entity? Is it an opportunity to get into additional supermarkets markets or locations or how do we look at that? Just if you can give anything on the preliminary front, that'd be great.

Yes, hi Jerry, this is John. Well, we've got about eight days under our belt in regards to being officially closed and we are working through, as I mentioned in my comments, we are working through the integration process and work and teams and people as effectively and efficiently as we can. Our number one focus right now is to make sure that there's minimal or quite frankly no disruption to the two businesses as they kind of become one over the course of the next couple of months. As far as low hanging fruit, it's really in the combined cost structures over the next six to 12 months, it's really about how do we optimize the distribution network over time, how do we look at redundant SG&A spends, redundant infrastructure costs that have been allocated to both P&Ls over the course of the last five to six years, and making sure we scrub those as efficiently and effectively as possible. That is our immediate focus. immediate focus. When we think about scale, though, and we do think about longer-term growth, there are opportunities for us to share a customer conversation in ways that we haven't been able to do that in the past. To bring, for instance, we're really excited about the guacamole business, the prepared foods business, one in which that We open a lot more doors than the Colabo business did on its own, not just here domestically in the United States, although that will be our focus for the first 12 months or so.

It starts to open up doors internationally as well where the Colabo team hasn't had the opportunity to take a bite at that apple. So that's one where we do see a nice ramp into the future. in regards to that type of a growth opportunity. The other piece is, as we think about leveraging scale between the combined businesses, we really think there's an opportunity, as we secure the sources and build the relationships, to really enhance that. the existing relationships across the enterprise, we see an opportunity to expand into or leverage that across our existing customer bases to find new customers in places where we traditionally haven't been able to get into in the past. So, expanding our food service footprint over time in ways that Mission hadn't been able to do and expanding our existing mango footprint in ways Mission hadn't been able to do. So, we do think there are new outlets.

and we're going to push those as we move forward. Got you. And then a question on the margins, this may be a little bit more for Brian, but obviously, I mean, you highlighted, you know, volumes and pricing, pricing hitting an extreme low, and then just some of the with your clients and supporting your clients. How much of the margin impact was it more the filling in the gap of that sourcing mismatch versus maybe falling outside of that sweet spot for price and volume?.

You know, Jerry, I think it's a little bit of both. It's tough to put my finger on exactly how much I would attribute to each component of that. What I will say is kind of the mismatch and the size curve tended to become more apparent and obvious during the back half of the quarter in April. We saw some pricing pressure post-Super Bowl in February, and that kind of tightened our margins up a bit. We did see some recovery from that during the March time frame. Things kind of seemed to be trending in the right direction. I think when we got to April, though, We started to see some challenges in aligning the size curve that we were getting out of the field with our customer base.

So I think that while I can't put an exact number on it from a timing standpoint, that aspect had a bigger impact on the back end of the quarter. I think one of the challenges we deal with is the fruit that comes off the tree. It's not a perfect science in terms of what sizes we're going to be able to get when we harvest. And certainly as we get towards the back end of the harvest season when we're clearing up the crop. So, yes. Certainly we had to go out and buy fruit on spot market in order to kind of fill those customer commitments. We also had a little bit on some of these shoulder sizes, some excess supply that we had to move through the market. It may be a little bit lower prices than we originally anticipated.

So, I would say, that overall our per box margins were significantly below our target ranges this quarter. I don't think if that hadn't happened at the end of the quarter, I think we would have been better off, but we likely still would have been below our target range for the quarter as a whole, just much, much closer to it.

Hey, Jerry, I want to add. Thanks, Brian. I want to add a couple of things. Number one, I think that when you think about the particular situation we found ourselves in this April, it's one that the new scale in regards to the combined companies moving forward allows us more mitigation skills or more mitigation capabilities because because we'll have access to more fruit from a broader perspective and can move fruit around our network in a way that we haven't been able to do in the past, and quite frankly, that not a single one of our competitors will be able to do in the future. Another thing to remember is we try to manage for the good of the customer and the good of the consumer on a 12-month basis. We really try to think about seasonality and cycles in a way that is the best for moving fruit through the system to help our customers and our consumers be as successful as possible. I think that when you look at the past and you look at other times where we've had significant fruit coming in from a single source, particularly Mexico, right, because usually it happens out of Mexico during these kind of late winter, early spring time frames. We see compression in some of the margin profiles of the industry in general, but we see nice acceleration. of what happens with the consumer and what happens with the category.

We had high watermarks in regards to household penetration during the quarter. We had per capita consumption go up to nearly 10%, if not breach 10% during the quarter. All things that bode well for category health and strength in the future. And one thing we don't really talk about here too much, I think we mentioned a little bit in the prepared remarks, is we also started to see both of those measures move nicely in Europe in a way that we haven't seen in the past. We've been preaching it's going to happen, and we really believed it was going to happen, and now we're seeing it happen. So as we think about the future of the category, these kind of periods happen on occasion, but we really like to manage to the full year, focus on our customers, and think about the health of the category for the long run. And that's exactly what happened here.

Got it. Understood. I really appreciate it. Thanks, guys. You're welcome, Jay. Thanks, Jerry.

Thank you. Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Hi guys, just to follow up a little bit on that margin compression question, just as we think about this issue kind of resolving itself as we move through May and today, can you just give us an update on the mismatch in supply and demand on fruit sizes and where.

today? Yes, we feel like we're in much better alignment right now. I mean, there's a few things that we saw happen during the month of May and leading into June. We started to... kind of see the harvest season in Mexico start to wind down a bit from where we were at. So we started to see some lift in pricing over the course of the quarter, which then also encouraged California growers to begin their harvest cycle for this year. They'd really been delaying in the price environment that we're in through most most of q2 so that helped kind of lift things up a bit it's good to get that nice mix in there the California fruit still early enough in the season where the the fruit has a little bit lower dry matter has a longer shelf life to it to help balance in with with the Mexican fruit that's that's near the end of its season and then but also a full opportunity to start bringing some Peruvian fruit in. We've been harvesting from our own farms now for several weeks. We've got, I think, our first arrivals coming in into the U.S. market very soon, but we've been marketing some third-party fruit already out of Peru.

So, again, it really... With Mexico slowing down a bit, it's enabling us to lean into some of the other options we have. It's lifting pricing up a bit. And in turn, it's providing a better margin environment for us to operate in. So we've definitely seen improvements after the first couple of weeks of May, definitely trending in the right direction towards the end of the year.

the back half of the month and leading into June. Perfect. Then I wanted to look at kind of some of the prepared foods business. You know, obviously a different kind of EBITDA margin profile in this business. I'm curious, two things here. If you can talk to kind of maybe what's built into the second half guidance or around EBITDA, if you can get that specific. And then also in that, just as we think about kind of pricing on prepared foods, has this moved historically as we've looked at low prices in avocados and maybe how that impacts margin in your prepared foods?.

business. Hi, Mark. This is John. I'll address, try to get to the point where I can get to the point where I can get to to adjust your second question and let Brian try to gap you on the EBITDA question there. But the prepared foods segment operates pretty differently than our traditional fresh segment, right? You're talking like it's more of a traditional CPG pricing environment where you're setting up six to 12-month pricing structures with your customers. you're trying to get out ahead of what's happening in regards to the longer term pricing, um, arrangement. You're holding that product for, um, three, four, five, six months. We freeze some of that product. So some of that product can hold for 12 to 15 months. Um, um, So the way the prepared food segment operates is we will buy when it's advantageous for us.

We'll do our best to make sure we're securing fruit at the right times of the year. And as I get to know that team a little bit more and I get to know exactly how they've managed that in the past, we'll definitely try to understand the best practices in the industry and make sure we align to those. But we're buying when we can in regards to the fruit we need. And then we're putting it through the ringer in regards to the production side of it. And then we're storing that product and moving it at the best possible time to assign the best possible price to it based on our contracts and our commitments. So the margin profile is very different from our current margin. and profile, so we'll share more details as we get into the months of September when we start talking about the detailed segments behind the combined business. You'll see when we get there that there's a significant step up from the fresh business to the food business in regards to that margin profile.

And that's because of, number one, the ability to optimize the source at the right time. But two, it's also the retailer and consumer expectations on pricing. The only thing I would add to that, Mark, is kind of getting back to your question around margin. I think it's our intent long term to be as transparent as we possibly can around the different components of the business, including Collado's operations. We're evaluating our segment structure as we speak today and certainly by the time we get to the end of the third quarter, it'll be clear as to how their business kind of fits into ours, so how we report publicly on it. And then that will ideally lead into further information that we'll be able to share with the street, leading into kind of an investor day that we're anticipating having. in late September. But at this point, eight days in, we're very much focused on just getting our arms around the business as a whole, looking at it in combination with the mission operation as we provided that guide for the second half of the year.

And we're not really prepared to kind of break that down.

into any further level of detail quite yet. That's fair. Maybe if I squeeze in one more here, just kind of big picture questions. You guys called out the, I think it's 1.6 million in new households and we kind of avocado category during the quarter. Can you just talk long-term kind of what the typical retention rate is like on some of these new customers coming in?.

Yes, it's approximately 50% of those households, or greater than 50% of those new households stick into the category longer term. And I think the younger the generations get, as we move in deeper and deeper, the higher that number gets. We've seen patterns over the last 10 years. that would suggest every time you have a situation like this, that bump is pretty sticky. So if you look at household penetration and per capita consumption over the last 10 to 15 years in the United States, you've seen a nice steady glide path from the left side of the graph to the right side of the graph moving upwards at a considerable pace. Now granted, we're getting into those mid-70s, high-70s numbers where some categories tend to peter out, but I believe confidently that we're in a category that is so health-focused, so consumer-forward, and it is so well-recognized by those that are involved in that category, particularly our retailers who appreciate the value associated with this category in regards to the the pricing and the margins that play out at retail level, that we've got significantly more room to grow in the United States alone. And that doesn't even take into account how we think about the international marketplaces and the size of the gap between where avocados are in mature markets versus where they are in places like Europe, where there's a lot more room to grow and we're starting to see... steam get behind that engine in the future. So we've seen these kind of situations before, Mark.

We've seen those families stick in the category, and we've seen those families be more resilient to price modification as supply restricts itself in future months, allowing us the honor and the right to gain a little bit more margin on it and the privilege to serve our customers into the future.

Excellent. Thank you, guys. Welcome. No problem.

Thank you. And ladies and gentlemen, 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.

Thank you, Operator, and thank you all for joining us today. While the second quarter reflected a unique supply environment that pressured near-term margins, it also reinforced the strength of our commercial execution, our customer relationships, and the underlying demand for the category. As we move through the back half of this year, we are already seeing supply dynamics improve, margins recover, and strong contributions ahead from our Peruvian harvest. Combined with the addition of Calabo, we believe we are even better positioned to serve our customers, drive operational efficiency, and create long-term value. We truly, truly appreciate your continued interest and mission and look forward to updating you.

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

[Call has ended.]

Good afternoon, and welcome to the Mission Produce Fiscal First Quarter 2026 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. Please go ahead.

Thank you. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; John Pawlowski, President and Chief Operating 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, 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?

Thank you, Jeff. Last quarter, we shared the news about our leadership transition. And next month, at our annual meeting, that transition becomes official. John steps into the CEO role, and I move to Executive Chairman. So this is my last earnings call in this seat, and I want to take a moment to say how grateful I am. 40-plus years building this company alongside an incredible team of people. There's nothing else like it. I'm proud of what we've accomplished together.

With that said, I'm even more excited about what's ahead. Between the momentum we're carrying, the pending Calavo acquisition we announced in January and the team we have in place, Mission has never been positioned better. John has brought a level of strategic rigor and global perspective that has elevated this organization, and I have complete confidence in his abilities and vision. I'll still be very much involved as Executive Chairman. This company is in my DNA, and that's not going to change. But the future belongs to John and this team, and I can't wait to watch it unfold.

With that context, I'll turn it over to John to walk you through the operational and commercial highlights of the quarter. John?

Thanks, Steve. And on behalf of the entire Mission team, thank you. What you've built over 4 decades speaks for itself, and it's a privilege to carry it forward. I want to use my time today to walk through our first quarter results and the operational progress we're making across the business. But I also want to spend some time talking about the future of Mission because we have a lot to be excited about.

We're off to a strong start in fiscal 2026, and the first quarter is a good illustration of how we are able to manage this business in a shifting supply and price environment. We are a volume-centric business. Volume and per unit margins are the metrics we manage to. In a quarter in which industry pricing normalized significantly from the elevated levels we experienced over the past year, our team delivered on both of those fronts, and I want to recognize their collaboration, which helped drive our results. We grew avocado volumes 14%. We expanded gross margin, and we grew adjusted EBITDA versus the prior year period. The headline revenue number reflects pricing dynamics that are outside of our control, but the underlying execution was strong, and that's what drives our results.

Our Marketing and Distribution segment is where the story really comes through. Despite the lower pricing backdrop, segment adjusted EBITDA increased 33%. Our commercial teams drove volume growth, improved per unit margins and continues to deepen the customer relationships that underpin our business. That's the combination we're always working towards. As expected, Mexican supply was abundant this quarter with higher yields in the current harvest season versus last year, and our teams programmed that fruit well across our customer base. We're expanding our reach, strengthening existing partnerships and leveraging our category management tools to add value for our retail and foodservice customers, precisely what our platform was built to do.

The broader demand environment continues to trend in our favor as well, and the structural tailwinds for avocado consumption are real. Domestic GLP-1 penetration continues to accelerate, and the recent inclusion of avocados in the USDA's updated dietary guidelines for Americans was a meaningful development, reinforcing what consumers are already telling us day in and day out with their purchasing behavior that avocados are simply a staple in America's diet. In fact, we are seeing these dynamics play out in syndicated data as well, which showed that household penetration of avocados reached a high watermark of approximately 72% in the fiscal fourth quarter this year. Per capita consumption has nearly tripled over the past 2 decades. And with the health and wellness trend continuing to accelerate, we see a long runway for category growth that our platform is uniquely positioned to serve.

Our International Farming segment plays an important role in driving year-round consumption here in North America and is also helping accelerate the category in [ emerging ] growth markets internationally. We have been working hard to maximize returns from our international asset base. For instance, we are focused on driving improved packhouse utilization in Peru by running our own blueberry volume and additional third-party fruit through our facilities to generate better overhead absorption all year round. Recently, we also modified a pack line in that same facility to support mangoes as well. These efforts, filling in the seasonal calendar and maximizing the productivity of our Peruvian assets, have been instrumental in helping us deliver more sustainable positive adjusted EBITDA in our International Farming segment during what was historically a seasonally softer quarter.

The Blueberries segment itself continues to grow. Revenue was up 12% in the quarter on higher volumes and modestly higher pricing. Per-acre yields on some of our newer acreage impacted profitability, but that's part of the natural maturation process, and we expect yields to improve as those farms reach full productivity. The volumes are building, and we like where this business model is headed, both as a stand-alone category and for what it contributes to our broader platform. It is this sort of thinking that exemplifies our broader strategy and informs our strategic designs for the future of this company, an area that I am especially excited about.

When we announced the Calavo acquisition in January, we described it as a unique opportunity to acquire a strategic and synergistic asset, one that strengthens our core avocado business, while adding capabilities in prepared foods through an established brand. Two months after announcing that transaction, I'm even more confident in this view. To be direct, we believe scaled assets in our space that contain this level of strategic fit are scarce. Calavo was a unique opportunity, and we believe Mission is the best positioned company to unlock value through this combination. This was an absolutely offensive move, an opportunity to accelerate our growth strategy from a position of strength, backed by 2 straight years of demonstrated execution, robust cash flow generation and a very strong balance sheet. Integration planning is underway, and deal progress is moving forward. In fact, we recently filed our preliminary proxy for the transaction, which is now under SEC review, and we are advancing the regulatory approval process in both the United States and Mexico. This is all coming together as planned, and we believe the transaction is on track to close during our fiscal third quarter, subject to satisfaction of the closing conditions.

On the strategic merits, we continue to believe the combined company will have greatly enhanced supply reliability for all of our customers. Calavo will also bring tomatoes and papayas into our distribution network, which we believe will further enhance the year-round facility utilization goal that I spoke to earlier, while helping reduce the seasonal troughs that have historically been a feature of the produce industry. But it's the prepared foods opportunity that I'm particularly excited about. Calavo's guacamole and ready-to-eat product lines sit within a large and growing market, and it's a natural adjacency to our core avocado business. Having spent 20 years in the branded food industry, I have a deep appreciation for leveraging the power of strong execution and category leadership into adjacent business line expansions. And we have a perfect opportunity with an established consumer brand and the operational scale to support its continued growth. We see significant runway to build up this new capability and one that is genuinely value-additive to what Mission does today.

On synergies, our conviction has only grown as we started our integration planning. We continue to see at least $25 million of annualized cost synergies achievable within 18 months of close. And we believe, as we have stated earlier, that there is meaningful upside potential to that number as we bring these 2 platforms together. And importantly, we also believe that this transaction will help create a clear path to delever back to normalized levels within approximately 2 years of our close, which is a priority for us as we consider our go-forward capital allocation strategy.

Stepping back for a moment, on a stand-alone basis, Mission has a significant runway in front of us, both domestically and internationally. The demand tailwinds I described earlier are durable, and our platform is built to lead category growth along with our customers. Layer on the Calavo acquisition with the expanded North American footprint, the diversified produce portfolio, entry into prepared foods and cost synergies, and the combined company has the potential to be something truly differentiated in the fresh produce industry. We are building a platform that we believe can drive meaningful EBITDA growth over the next several years through a combination of organic execution and the value we unlock through this combination.

Importantly, as we scale this platform and accelerate free cash flow, returning capital to shareholders is part of the equation that we are envisioning. We are actively developing a long-term capital allocation strategy that balances reinvestment in the business with meaningful return to our shareholders. And we look forward to laying that out, alongside our detailed strategic plan, at an Investor Day we are planning to hold following the closure of the Calavo acquisition this fall. But I want to be clear, the ambition here is significant. And I believe the foundation we have, combined with the capabilities Calavo brings, gives us a clear and credible path to get there.

With that, I'll turn it over to Bryan for the financial details.

Thank you, John, and good afternoon to everyone on the call. Fiscal 2026 first quarter revenue totaled $278.6 million, which was down 17% from prior year and driven by a 30% decrease in pricing, given higher industry supply, driven by greater availability of Mexican fruit resulting from higher yields in the current harvest season. However, we are pleased to see strong 14% volume growth in the quarter, which, as John mentioned, is the primary focus of our operating strategy.

Despite lower revenue, gross profit was consistent with the prior year at $31.6 million in the first quarter, enabling our gross margin to increase 190 basis points to 11.3% compared to the same period last year. As a reminder, profitability in our Marketing and Distribution segment is managed primarily on a per unit basis, which can lead to volatility in margin percentage when sales prices fluctuate. The increase in margin percentage was primarily driven by improved performance in our Marketing and Distribution segment, reflecting higher avocado volumes and improved per-unit margins compared to the prior year period. This performance was partially offset by lower gross profit in our Blueberries segment due to lower per acre yield resulting in higher per-unit fruit production costs.

SG&A expense increased $6.9 million or 31% compared to the same period last year. The increase was driven entirely by $7 million of transaction advisory costs associated with the pending acquisition of Calavo Growers. Excluding transaction advisory costs, SG&A was essentially flat with the prior year period.

Adjusted net income for the quarter was $7.3 million or $0.10 per diluted share, consistent with prior year results. Beyond the operating performance, we continued to benefit from a reduction in interest expense, down $0.5 million or approximately 23% versus prior year, reflecting our continued focus on maintaining a healthy balance sheet and the lower rates we incur on outstanding borrowings. We also realized a significant increase in equity method income to $1.5 million compared to $0.8 million in the prior year period, driven by strong performance from our joint venture investment in Henry Avocado Corporation.

Adjusted EBITDA increased 5% to $18.5 million compared to $17.7 million last year, driven by higher avocado volumes sold and year-over-year improvement in per-unit margins in our Marketing and Distribution segment, partially offset by higher per-unit fruit production costs in our Blueberries segment.

Turning now to the segments. Our Marketing and Distribution segment net sales decreased 21% to $234.8 million, driven by the avocado pricing dynamics previously described. As we've mentioned, we manage this business primarily to volume and per-unit margins. And on that basis, the segment performed well. Segment adjusted EBITDA increased 33% to $12.9 million, reflecting higher avocado volumes sold and solid per-unit margins.

In the first quarter, our International Farming results are typically focused on the provision of packing and processing services for our Blueberries segment and for third-party blueberry producers, though this will evolve over time as our operations develop in other areas such as Guatemala. With this seasonality in mind, our International Farming segment total sales increased 15% to $10.6 million. Segment adjusted EBITDA increased $0.5 million or 28% to $2.3 million compared to the prior year period due to improved packhouse utilization versus the prior year. As John discussed in his remarks, we are pleased to see the results of improved operating leverage in what has traditionally been a smaller quarter for that segment.

In Blueberries, total sales increased 12% to $40.8 million due to increases in average per-unit sales price and volumes sold of 9% and 3%, respectively. Segment adjusted EBITDA decreased to $3.3 million compared to $6.2 million last year. While our volumes were higher, overall yield per hectare was lower than the prior year, which drove up our per-unit production costs. As we've discussed previously, this is part of the natural maturation process for newer acreage, and we expect yields and per-unit costs to improve over time as these farms mature.

Shifting now to our balance sheet and cash flow. Cash and cash equivalents were $44.8 million as of January 31, 2026, compared to $64.8 million as of October 31, 2025. Net cash used by operating activities was $3 million for the quarter compared to $1.2 million in the prior year period. The slight increase in cash usage was driven by higher working capital requirements. As a reminder, the first quarter is typically our weakest period for cash generation, given the seasonality of our business. And we expect the customary improvement in operating cash flow as we move toward the latter half of our fiscal year.

Capital expenditures were $11.9 million for the quarter compared to $14.8 million for the same period last year, consistent with the anticipated step-down we communicated previously. For full fiscal 2026, we continue to expect total capital expenditures of approximately $40 million. This setup positions us for accelerated free cash flow generation going forward.

Now, let me provide some context on our near-term outlook. For the second quarter of fiscal 2026, avocado industry volumes are expected to increase by approximately 10% to 15% versus the prior year period, driven by a larger Mexican crop in the current harvest season. Pricing is expected to be lower on a year-over-year basis by approximately 30% to 35% compared to the $2 per pound average experienced in the second quarter of fiscal 2025. While we expect higher volumes, we anticipate contraction in our per unit margins for the second quarter due to the lower pricing environment, particularly in a setting where we are sourcing primarily from a single origin.

The lower price environment is leading to a delayed start of the California harvest season, which is expected to be about a month behind the prior year, as growers wait for improved market conditions. This delay reduces our ability to leverage our sourcing capabilities across regions and lowers asset utilization at our California packing facility in Q2 as we await volumes to ramp up. This is expected to result in lower levels of Q2 profitability in our Marketing and Distribution segment versus the prior year.

For Blueberries, harvest timing for the 2025-'26 Peruvian blueberry harvest season is accelerated in relation to the prior year, leaving 10% to 15% of the harvest to be sold through in the fiscal second quarter. We expect to see volume reductions from owned farms, resulting from earlier pruning and unfavorable weather conditions in the current year, which should translate to lower revenue despite expectations for higher sales prices, as well as create headwind for our International Farming segment as a result of lower packhouse utilization. Blueberries' profitability will continue to be impacted by higher costs resulting from lower projected yields per hectare as we close out the current harvest season in the second quarter.

Taking this all together, we anticipate our consolidated adjusted EBITDA performance to be below the prior year level.

Looking ahead, we remain focused on the fundamentals that drive long-term value creation, supporting consumption growth through building volume, strengthening customer partnerships and maximizing the productivity of our global asset base. The structural tailwinds supporting avocado consumption are accelerating, and our platform is uniquely positioned to capitalize on this sustained category growth. While we'll navigate some near-term supply dynamics in Q2, we have great conviction in the underlying strength of our business model and our team that is driving it forward. Combined with the opportunities afforded by the pending Calavo acquisition, Mission is building a differentiated platform with significant runway for EBITDA growth and value creation in the years to come.

That concludes our prepared remarks. With that, I will pass it back to the operator to take us to Q&A.

[Operator Instructions] Our first question comes from Pooran Sharma with Stephens.

Congrats on putting up those results in kind of this lower pricing environment. I did want to start off by asking about the Calavo acquisition. You've said a lot here in the past few months about it. But in your prepared comments, you said you feel more confident as you've had more time to maybe digest information about the deal. Does that mean that there could be even more upside to your previous comment about having further upside to the $25 million?

And then, just as a follow-on, could you give us a sense as to what buckets you're tackling? What do you see as lower-hanging fruit and higher-hanging fruit in terms of synergy realization?

Pooran, this is John. Thanks for the question. I hope you're doing well. In regards to the synergy question, I'm going to stick with my comments that I've been making over the last couple of months. We feel -- as we've been having conversations with the Calavo team and we're working towards consummating the relationship here and all the different elements that have to happen structurally, we feel really good about the estimate assumptions that we made around that $25 million. There -- the estimates around that $25 million were really built around some core cost structure items. And the buckets that we've been always talking about have been around the operating footprint and how synergistic that operating footprint is, around some duplicative costs in the overall structure, and feel really good about our ability to execute against cost-related synergies in a very expedited timely manner.

As we think about the buckets for the future, there's a lot of opportunity around how we think about growing together, how we think about engaging with our customers in regards to what we can do around the selling cycle and adding value in regards to how we think about the opportunities, particularly in adjacent spaces to where we're at today. I'm not going to give any more color in regards to where I think those go, except for -- to stress that I feel really confident in the word meaningful as I've been, quite frankly, pretty consistent in saying around where we go beyond that $25 million.

That's great. Appreciate the color there, John. And hope you're doing well as well. Just as my follow-up here, I wanted to ask about -- and this is, I guess, more on Bryan's comments around guidance here. I understand that we're going into a lower pricing environment, higher supply environment relative to last year and that you would expect your per-unit margins to show some compression in this type of environment. But I just wanted to get a sense of -- you're also getting a lot of volume throughput. And are you able to give us any color, qualitative or quantitative, into how much fixed cost deleveraging like benefit you would get from the increased volumes?

Pooran, this is Bryan. Yes, I mean, the vast majority of the costs, particularly this time of year, in our cost structure are variable in nature when we're buying third-party fruit. That is by far the most significant item in our cost of goods sold. And even at lower price points, it's still the most meaningful item in there. I mean, our goal is we focus on making margin on a per-unit basis, so we can be profitable in times when prices are high or when prices are low. There's no doubt, though, when prices are at the lower end that it does compress that a bit. It makes it a little more challenging to really sell customers on the -- to get them to pay every dollar for the premium service that we provide. So it creates challenges. It does tighten up a bit. I think when we're in a single-source market like we are today with Mexico and there's ample supply, again, it just makes it more difficult to lean into the competitive advantages that we really have.

I do think that the lower price environment I made reference to California getting a little bit later start this year. Last year, we were in a pricing environment that was more than 2x than where we're at today in the moment. It was meaningfully higher and priced to retail. So when I look at where we're at, there's fixed cost overhead that's associated with that facility that we're not able to utilize completely when we're not in the California season. So, that year-over-year comp is a little bit difficult. I don't think the general per-unit margins that we're going to generate are going to be dramatically lower than the historical ranges that we've seen. I just think that we've gone through a period of time where we were seeing elevated per-unit margins that were kind of above that normal range. I think that's what we're seeing in Q2 is this kind of continuation of what we saw in Q1, which is a bit of a reversion back to the historical levels on per-unit margins.

Next question, Mark Smith with Lake Street Capital Markets.

Alex Sturnieks on the line for Mark Smith today. First one for me, on the Blueberries segment, you mentioned the yield pressure is largely tied to newer acreage maturing. Can you talk about the timeline for those farms reaching full productivity and what the normalized margin profile for that business could look like once yields stabilize?

Yes. This is John. Alex, thanks for the question. And I'll start and maybe Bryan would jump in. But as you -- to help from a technicality perspective side of things, what we do on those farms is, we do what we call double-density introduction into the harvest. So what we're doing is, we're putting plants -- which is a very typical part of the process in blueberries and in many other crops. You're putting plants very, very tightly close together as they're maturing from like the year 1 into year 1.5 years when those plants are becoming much more productive and mature. And then you're spreading them out as they get into the later stages of maturity. And sometimes when you do that and you spread them out, you have a little bit less productivity for those first couple of months or couple -- first year of that -- of the time that, that plant is executing against what it's trying to do. And we're kind of in a phase where we just did that in a lot of the portions of our farm. Over the course of the next 12 to 18 months, we should really be reverting back to our traditional margins from both -- well, at least back to a better cost structure, the right cost structure as those plants become mature. So I would love to tell you, it's 3 months, but it's probably more along the lines of 12 to 18 months until we reach that the full zone where we'd like to be.

Yes. And I would -- just kind of building off what John said, I mean, there's a couple of metrics we look at. We're certainly looking at cost per hectare planted. We do that for our avocados and our blueberry farms. We're also looking at costs on a per unit basis. So the triangle here for profitability is overall like cost incurred, production yield and sales price. And we work those 3 together. Certainly, the cost per unit is driven heavily on the overall cost that we incur, as well as that yield number. And to the point that John made, we do expect those yields to improve as they mature. Blueberries do get into a mature production much faster than an avocado tree does. So many of these plantings where we're seeing the reduced yield this year, these are plants that are 1 to 2 years old. And we would expect them to ramp their productivity very quickly, whereas an avocado tree, it can take 4 years before you even get to breakeven production. So it's a meaningful difference. It's a faster ramp.

I think that we were planting a fair amount of new acreage in blueberries. We're up over 700 hectares in production today. But of that 700, probably 25% of it is new acreage that was impacted by this rollout. So certainly, as we go forward, we expect those yields to ramp fairly quickly. We do think that -- we mentioned other factors that play into this. Certainly, the timing of pruning in a harvest season, where we let the seasons run a little bit longer the year before and we ended them at a more normalized time this year, had a nominal impact. We're also -- and decisions around pruning are oftentimes driven by the weather conditions that exist at any given time as we're trying to -- the timing of pruning is going to determine when harvest is going to begin the following season. So we're making decisions, again, that are really the best in the long-term interest of the business. And sometimes, they don't always align with an individual quarter.

Okay. Yes, that's really helpful. And last one for me. You touched on in the prepared remarks about developing that long-term capital allocation strategy and your plans to discuss that at the Investor Day after the acquisition closes. But just at a high level, how should we think about the balance between reinvestment, deleveraging and returning capital to shareholders as free cash flow ramps?

I mean, I think we want to stop short of committing to specifics at this point, but I think this is really a continuation of the messaging we've started to deliver over the last 12 to 18 months, which is, initial priority, paying down debt. And I think we've spent 2 years doing that. With this acquisition, that will ramp back up a little bit again. So we will have a process to bring it back down. But these combined entities are going to create meaningful more -- meaningfully more operating cash flow than we did individually. So we feel like we can bring that debt back down in short order. We've already had discussions about consistent capital -- returning cash to shareholders, and those kind of discussions are going to continue to happen as we move forward. And I think the message that we want to deliver right now is that we're committed to a program to kind of look at that balance. We don't know what the figures are going to be yet. We don't know when it's going to start, but we understand it matters to us, and we feel that it creates value for our external stakeholders as well.

I would add to that, Alex, too, that I think in the past, we've been very clear on our priorities of using our capital, right, and that they were around debt management as well as investing in the growth of the business. At this time, I think we're pivoting a little on that by starting to say that as we develop this capital allocation strategy, the return to shareholder piece is rising on the priority list for us. And I would say that as a combined entity, as we think about the future, the priorities don't necessarily have to be mutually exclusive, that we think that there's opportunity to [ parallel path ] that over the course of the next 12 to 18 months, and we won't have to wait for that debt leveraging to be able to provide some of that shareholder return.

Ladies and gentlemen, at this time, I'm showing no further questions. I'd like to end the Q&A session and turn the conference call back over to management for any closing remarks.

Thanks, everybody. This is John. Thanks for joining us today. I hope you can feel the positive energy that we have here with respect to our future. We believe Mission is at a very critical juncture in our journey. And the pending acquisition of Calavo will only serve to accelerate our growth ambitions. We appreciate your interest in Mission Produce. I want to thank Steve for all his contributions and let him and I look forward to the future together, and we collectively look forward to speaking with you again next quarter.

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

Good afternoon, and welcome to the Mission Produce Fiscal Fourth Quarter 2025 Conference Call. [Operator Instructions] 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. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; John Pawlowski, President and Chief Operating 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, which can be found on the 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?

Thank you, Jeff. I'd like to start the call by addressing the leadership transition news that we announced concurrent with today's earnings results. We've been focused on succession planning for several years now, and the time is right to implement that plan. Effective at our annual meeting in April, our President and Chief Operating Officer, John Pawlowski will assume the role of Chief Executive Officer, and I will transition to Executive Chairman of the Board.

Let me be clear, though. This company is the culmination of my life's work, and I am very excited about this next chapter of Mission story. In my new role, I'll continue to support John and the leadership team while working closely with our Board to drive the business forward. Over the past 4 decades, we've built Mission into the global leader in avocados and John's immediate impact on harnessing our potential is being felt across our entire organization. His decades of experience in the global food industry make him the ideal leader to guide mission through its next phase of growth.

With 2 consecutive years of exceptional financial performance, the successful completion of our major capital investment cycle and a balance sheet that positions us to capitalize on future opportunities, there's no better time for this succession. I'd like to thank our entire organization for their support and focus over the years as we've reshaped industry and raise the bar on customer service.

With that, I'll turn it over to John to discuss the results.

Thanks, Steve, for your confidence and partnership. I want to start by saying how honored I am to have the opportunity to lead this organization. When I stepped into this role, I had high expectations. But what I've experienced over the past 20 months has surpassed them in every way. The depth of operational capability, the strength of our global relationships and the caliber of our team are truly remarkable. And this quarter, this year showcased exactly why that matters.

Steve and the team built something special over the past 40 years, and I don't take lightly the responsibility of carrying that forward, but I also couldn't be more excited about where we are headed. The foundation is strong, the team is executing at a high level and the opportunities in front of us are significant.

Now let me turn to our results because fiscal 2025 was a defining year for Mission Produce. We delivered record revenue of $1.39 billion, growing 13% on top of a strong 2024. Driving that was a 7% volume growth to achieve a record 691 million pounds of avocados sold through our marketing and distribution business. We also delivered record adjusted EBITDA in the fourth quarter. Capping off a 2-year period in which we generated more than $180 million of operating cash flow. These results didn't happen by accident. They reflect the power of our integrated global platform and most importantly, the exceptional execution of our team.

What truly sets Mission apart is our ability to execute on a truly global stage. We are a connected global team that can adjust and pivot in real time to seize opportunities, creating a genuine differentiator for our company. Throughout the year, our commercial organization demonstrated remarkable agility. We manage demand and supply shifts throughout the Peruvian season seamlessly across our U.S. and European operations. This coordination allowed our team in the United Kingdom to grow revenue by over 60% in 2025, while also enhancing our sales efforts in Southern Europe. These efforts combined to drive a 40% increase in European volumes sold, creating a foothold that enables us to cultivate deeper relationships and positions us for long-term growth in that region.

We leveraged our entire platform. Our global sourcing network, our distribution infrastructure, our forward positioning and our category management tools to drive the best possible outcomes for our customers, maximize value fruit across all channels and deliver quality products to global consumers.

We are a volume-centric business. Volume and per unit margins are the metrics we manage to. They represent areas that we can exert control and are what we underpin our ability to drive strong financial performance.

While we can't control the fluidity of industry pricing, our commercial and sales teams are continuously harnessing our data to provide our customers with value-added insights to drive category growth in support of our broader efforts to drive per capita consumption globally.

No matter the noise in the market, whether it's tariff uncertainty, pricing, volatility or supply disruptions, this team has repeatedly demonstrated the ability to execute for our customers. That's what I'm most proud of this year.

Let me walk through how this played out across our segments. First, our Marketing & Distribution segment delivered strong results. We achieved 7% avocado volume growth for the full year and 13% in the fourth quarter alone. The North American market was stable with modest growth, but where we really saw momentum was with greater international penetration. Europe and Asia both delivered strong volume growth in the quarter and for the full year. Importantly, we wouldn't have been able to capture that growth without our Peruvian product leverage. Having that supply consistently gave us the ability to build programs with large retailers and reinforces footholds in growth markets that will serve as a foundation to drive greater household penetration for years to come.

Our International Farming segment had an outstanding year as well. With our Peruvian orchards returning to normal growing conditions after last year's weather challenges, we more than doubled our exportable avocado production for the season. Selling approximately 105 million pounds compared to 43 million pounds in the previous harvest season.

The team's ability to program our own fruit across multiple global regions balancing customer commitments, market dynamics and value optimization in real time is a core differentiator. Our Peruvian production provides consistency of supply, quality control and the flexibility to direct food where it creates the most value, that's vertical integration at work. In blueberries, we saw higher volumes as new plantings came into production across our expanded acreage in Peru. We continue to see tremendous long-term potential in this category as consumer preferences shift towards healthy convenient snacking options. Our Blueberry strategy is focused on filling in the seasonal calendar and maximizing the productivity of our Peruvian assets. We are approaching the completion of our multiyear expansion efforts and now have approximately 700 hectares in production, focused on premium varietals that deliver superior flavor profiles and extended shelf life. Yields on newer acreage will take time to mature, but the volumes are building and position us well for growth in the years ahead.

I also want to touch briefly on our Mango business, where we continue to make meaningful progress. We managed supply and demand dynamics well this year and grew our market share to 5.2%, up approximately 150 basis points for the full year. That's real traction in a category where we see significant long-term potential. Our goals for mangoes are centered on building the domestic market. We seek to grow consumer awareness and drive household penetration. In fact, household penetration is approaching 40%, up from just 35%, 3 years ago. We are confident that our innovation, consumer engagement and customer programming is driving these results. This is the same playbook we employed with avocados and is the reasons we are building out our sourcing capabilities in mangoes.

Consumer engagement and supply consistency go hand-in-hand. It's the dual focus that's setting the stage for stronger growth as we look out towards the horizon.

Beyond the commercial execution, I want to highlight the foundational work we've done over the past 20 months to strengthen our organization. We focus specifically on 3 areas. First, we've deepened our focus on culture and collaboration. This starts with fostering a more connected global team, sharing ideas, aligning our priorities, working together to solve problems, that connectivity has shown up in our results day in and day out. Second, we've invested in data and tools. We're building systems that give our commercial teams better access to information in the U.S. and abroad to inform faster, smarter decision-making alongside our customers. And finally, we've built a more disciplined process around our cadence of decision-making. We're being more proactive and more structured in how we drive the business forward. These are not flashy initiatives but that they compound over time and are vitally important to achieving the results that we know our shareholders expect.

Looking ahead, we see significant runway for growth. In North America, there's meaningful opportunity both in growing overall avocado consumption and in taking share from competitors. Per capita consumption continues to climb, and we're well positioned to lead category growth with our customers. Internationally, we're building real penetration. The growth we achieved in Europe and Asia this year wasn't a onetime event. It was the result of deliberate investment and execution that we will build upon in future years.

Complementing this growth is an internal focus on driving enhanced free cash flow in the years ahead. We enter fiscal 2026 having largely completed our heavy capital investment cycle. With investments and growth infrastructure in place, CapEx is expected to step down and marked the beginning of a more modest cycle of spend. Combined with a healthy balance sheet and a team that knows how to execute, we have real flexibility to create value for shareholders in the years ahead.

With that, I'll turn it over to Bryan for the financial details.

Thank you, John, and good afternoon to everyone on the call. Fiscal 2025 fourth quarter revenue totaled $319 million, which was down 10% from prior year figures that were elevated by a high sales pricing environment for avocados. We experienced a 27% decrease in average per unit avocado sales prices during the period, which masked the 13% volume growth that was achieved.

The volume and price dynamics resulted from higher industry supply, both from greater availability of Mexican fruit, driven by a larger crop in the current harvest season and from higher Peruvian avocado production driven by more favorable weather conditions in the current year.

Gross profit was $55.7 million in the fourth quarter of fiscal 2025, essentially flat with the prior year, while our gross margin increased 180 basis points to 17.5% compared to the same period last year. While I will address gross profit movement in our segment discussion, the increase in margin percentage was primarily driven by lower avocado per unit pricing compared to last year. As a reminder, profitability in our marketing and distribution segment is managed on a per unit basis, which can lead to volatility and margin percentage when sales prices fluctuate.

SG&A expense increased by $0.5 million or 2% compared to the same period last year. The increase was primarily due to higher general operating costs, including performance-based stock compensation expense. SG&A growth was tempered by lower statutory profit sharing expense within our Peru and Mexico operations.

Adjusted net income for the quarter was $22.2 million or $0.31 per diluted share compared to $19.6 million or $0.28 per diluted share last year. Beyond the operating performance, we benefited from a reduction in interest expense down $0.4 million or 15% in the quarter, reflecting our continued focus on maintaining our healthy balance sheet through debt reduction and the resultant lower rates we incur on outstanding borrowings.

We also realized a 55% increase in equity method income to $1.7 million, driven by strong performance from our joint venture investment in Henry Avocado Corporation, which experienced robust results this period.

Adjusted EBITDA increased 12% to a record $41.4 million compared to $36.9 million last year, driven by increased avocado production in our International Farming segment and higher overall volumes sold in our Marketing & Distribution segment.

Turning now to the segments. Our Marketing & Distribution segment net sales decreased 15% to $271.9 million, driven by the pricing dynamics I described. And as mentioned, we manage this business primarily to volume and per unit margins, leveraging our global platform and sourcing network to optimize per unit margin performance regardless of the pricing environment. On that basis, the segment performed very well.

Segment adjusted EBITDA increased 11% to $28.3 million, reflecting the impact of higher avocado and mango volumes sold, supported by solid management of per unit margins. We are proud to achieve solid EBITDA growth despite comping against the prior year period, where per unit margins significantly exceeded our historical averages.

Our International Farming segment delivered another quarter of strong results. Total segment sales increased 97% to $59.7 million, and segment adjusted EBITDA more than tripled to $8.4 million. This was driven by a recovery in yields at our owned avocado orchards in Peru, leading to sales of owned production during the quarter that were greater than 3x prior year figures. While average per unit sales prices were lower compared to prior year, the effect of the higher yields on per unit production costs far outweighed the impact on our financial results.

Separate from farming production, we also continue to benefit from improved utilization of our facility infrastructure through providing higher volume of avocado packing and cooling services to third parties.

In blueberries, net sales increased 16% to $36.5 million, primarily due to higher volume produced on our farms as a result of our expanded total acreage. Segment adjusted EBITDA decreased to $4.7 million compared to $8.6 million last year as a result of lower per unit margin. While our volumes were higher due to new acreage coming into production, overall yield per hectare for the 2025-'26 harvest season is anticipated to be lower than prior year, which drove up our per unit cost. This is part of the natural maturation process for newer acreage, and we expect yields and per unit cost to improve over time as these farms mature.

Shifting to our balance sheet and cash flow. Cash and cash equivalents were $64.8 million as of October 31, 2025. For the full year, we generated $88.6 million in operating cash flow, bringing our 2-year cumulative total to more than $180 million. This strong cash generation, combined with our disciplined focus on debt reduction, has strengthened our balance sheet considerably. We reduced long-term debt by approximately $18 million during fiscal 2025, and our interest expense for the full year declined by $3.2 million or 25% compared to the prior year, a direct benefit of that debt reduction and the lower rates I mentioned previously.

Our net leverage as of fiscal year-end is very healthy at well below 1x EBITDA.

Capital expenditures were $51.4 million for the year, in line with our expectations. As we've discussed, we are now exiting our heavy capital investment cycle. And for fiscal 2026, we expect capital expenditures to step down to approximately $40 million. This setup positions us for accelerated free cash flow generation going forward.

Now let me provide some context on our near-term outlook. For the first quarter of fiscal 2026, avocado industry volumes are expected to increase by approximately 10% versus the prior year period, driven by a larger Mexican crop in the current harvest season. Pricing is expected to be lower year-over-year by approximately 25% compared to the $1.75 per pound average experienced in the first quarter of fiscal 2025, driven by higher supply conditions from the larger Mexican crop. Further, while we expect some sequential margin compression in the first quarter due to the current sourcing environment, this is consistent with typical seasonality patterns.

For blueberries, the harvest season in Peru will peak during the first quarter. We expect volume increases from our own farms as new acreage comes into production, which should translate to higher revenue as average sales prices are expected to be flat to slightly higher. Profitability will continue to be weighed on by higher unit costs resulting from lower projected yields per hectare in the current harvest season.

That concludes our prepared remarks. Operator, now over to you. Please open the call to Q&A.

[Operator Instructions] Our first question comes from Mark Smith with Lake Street Capital.

First question for me. I just was curious about your outlook for mangoes. You've had fantastic growth here the last several years. Kind of curious where we are in that cycle? And any insights you can give us into potential growth here this next fiscal year?

Really, the glide path on the mango side is going to be similar to last year's glide path, right? We're continuing to pursue market share penetration, we're continuing to try and push our global sourcing initiatives in regards to access to the right fruit at the right time. We feel like we've not only gained nice penetration with new customer base last year, but the opportunities continue to be in front of us in cross-selling where we're already doing our avocados and providing programs to some of those players out there that either aren't happy with or are open to new players in that space, helping them program things out and provide category insights. So the glide path you saw in '24 and '25, I would say, is consistent with the glide path that we're pushing and pursuing in '26.

Excellent. And then I wanted to ask about the cash flow story. Obviously, really attractive here, especially as you guys reach the end of kind of an investment cycle. I'm curious to the biggest risks in kind of accomplishing this free cash flow growth?

Mark, this is Bryan. When we look -- we've delivered 2 consecutive years of very strong operating cash performance, and that's driven off the operating results of the business. I do think we benefited some this year by the lower pricing environment we saw at the end of the year, and that did help to boost operating cash a bit. But I think in general, it's the strong operating performance of the business that's driving that.

On the CapEx side, as we look at free cash flow, we've been communicating for a number of years now that we were going through a cycle and we expected meaningful step downs. We've set kind of a target for $40 million of capital spend for the upcoming year. We believe that, that is still leaving us ample room to make growth CapEx investments at those levels. So I think that there is still flexibility in that number, and you will see future year periods where the spend will be lower than that still.

So I mean, I think we feel comfortable that we've got the business set up to a point where we can generate meaningful cash flow, and we can do it potentially at lower levels than where we're at today if by chance there was a year where -- there were weather or crop conditions that had a negative impact on the business.

Okay. And as we think about capital allocation with lower CapEx may be invested this year, leverage now under 1x. How should we think about use of cash kind of going forward? And are there other places from buybacks or anything else where you guys may put cash to work?

I mean I think that when we look at the business today, our priority is growth. And I think that with the strong performance we've had the last few years. It's provided us with a tremendous amount of flexibility as we look forward. I think that there -- we're always looking for potential opportunities, whether it comes from growth in our existing categories or expanding geographic reach or potentially even bolting on adjacent ones. But our primary focus is doing things that are going to create the most shareholder value.

So at this point, I think we feel very comfortable with where our leverage ratio is. We've -- I've done a really good job over the last couple of years paying down debt. I think certainly, that affords us now the opportunity to kind of look at a number of different options as we go forward. As you saw this year, we did share buyback. So history will tell you that we're comfortable doing that. And yes, we will continue to look for other ways to, again, maximize that value to shareholders as we go forward in a strong cash -- with a strong cash position.

Okay. And the last one for me, if I can squeeze one more in here. It's just with the changes in management coming up and congratulations, John, by the way, on the move here. Should we look for any changes in strategy? Because it sounds like it's really just kind of steady as she goes.

Thanks, Mark. I would offer that me and Steve have been working really closely together over the last -- my entire time here, specifically over the last year on understanding where this boat is and what's the right direction for this boat and how comfortable do we feel with the team steering that boat. And we're collectively very excited about the organization's direction right now and the team that's helping steer it, super proud of the results that we've been able to generate and do it consistently for in a year like '25, where things kind of worked out the way that we had planned, even though there's a lot of work that goes in and making a plan actually work. And then in '24, where things weren't exactly to plan, but the team was able to deliver consistently.

That being said, to Bryan's point, we're really in an interesting reflection point based on the CapEx that's been spent over the last 10 years to generate the infrastructure that's supporting the model that we're so proud of. And I would offer that the commercial outlook from a growth perspective over the next 5 to 10 years, is one that we are keenly focused on right now and trying to understand exactly how to deploy that capital appropriately and to line up the right investments to look at organically growing over the next 5 to 10 years and also considering inorganic opportunities as they present themselves.

So I think you'll hear more from me on that over the coming months. But the idea is we're really excited with where we are but really want to accelerate how we grow and how we attack some of the global challenges we see ahead of us and are prepared to do that from a cash position standpoint and are working on how to do that together.

Our next question comes from Pooran Sharma with Stephens.

Congrats on the strong quarter and then also congrats on the leadership transition here. Maybe just wanted to start off with CapEx. You kind of just talked about it. You mentioned we can still make growth CapEx in that $40 million for next year. Are you able to give us a sense as to how much of that $40 million could potentially be growth CapEx?

Yes, Pooran. I mean, we don't -- I mean, there's a lot of things that we do that it's kind of a gray line between whether it's growth or maintenance. I think we've invested significantly in farming operations that are still fairly young at this point. There's maintenance associated with keeping them up and running, but there's also still new acreage that's being put in the ground. And acreage, it's being maintained that isn't yet in production that I think we'd consider to be growth oriented.

I think on the commercial side of our business, when we look at it, I think the last few years, there's been investments associated with -- certainly, investments that we've made associated with growing the business in the U.K. I think as we look at Europe going forward, there could be certainly be opportunities there as well. And certainly, though, I think we're happy with the footprint that we have in North America today, maybe needs to add some additional capacity as volume continues to grow over time.

But if I had to ballpark it, Pooran, I'd say roughly $20 million of the spend that we have in the coming year is for maintenance and roughly $20 million of it is geared towards growth. And I don't think that, that's kind of an unreasonable mix as we look at years going forward in terms of what the maintenance CapEx requirements are.

I appreciate that color there. And maybe just wanted to ask about -- I mean, you mentioned key areas of growth. It looks like you were able to reach Europe and Asia this quarter. I did want to ask you now that your core infrastructure is built out, including the U.K. packing house, Laredo and some other investments that you have, including Guatemala, where do you see the most upside from growing into your footprint? Are there specific regions or facilities that you'd like to call out? I know you did mention Europe and Asia, but was just seeing if we could get a little bit more granularity here.

Yes. Hi, Pooran, this is John. Good to hear your voice. I would offer 2 kind of highlights there. Number one, we did call out. I think I made it in my comments that there's white space when we think about the opportunity to grow into the existing market share franchise here in the United States. We feel that this particular market is one where we have a right to play in a deeper level than we're playing today and feel that the infrastructure that we've built can both support that in meaningful ways with minimal CapEx required to support that type of a move and offering leverage on those assets.

The second piece is, when you think about our Peruvian production and the Peruvian fruit, there's an opportunity to explore and dive deeper into the European marketplace and that is high in our list of thinking about how to penetrate and understanding exactly how we want those investments to flow that support both of those things coming together. On top of that, as the Guatemalan fruit comes online over the next 2 to 3 years, both of those locations play into operational efficiencies and overhead absorption as we draw into the business.

Great. I appreciate that color, John. And maybe if I could just ask about the -- just the household penetration goals. I think in the past, you've mentioned that avocados are maybe closer to 70% and that you wanted to target penetration of maybe other mature fruits that approach about 80% to 90%. Given we're kind of entering a lower pricing environment, how long do you think it takes to get to that level of the other more mature fruits? And then how are those being in a lower pricing environment help accelerate that process?

That's a good question, and you're pulling back on some of the conversations we've had in the past, which thanks. I mean, I wish I had a crystal ball and can tell you exactly how long it's going to take, right? But these things go in cycles, right, where you have markets that create opportunities with an abundance of fruit or more fruit than is typical or you have markets where fruit is a little bit tighter.

And we're in the cycle here in the next -- at least the way we're thinking about 2026, where you're going to have more fruit than is traditionally available during the course of the year. And so these times provide some of the headwind that Bryan mentioned in regards to pricing being a little bit compressed during that time. But the tailwind there becomes an opportunity to move a lot of fruit and to run promotions and be strategic with retailers on how to think about household penetration and consumer engagement.

If you go back the last 15 years, you'll see it play out where you have lower price environments. Where you had jumps in household penetration and then the years after that where you had higher price environments, lower fruit, you maintained a lot of that household penetration and you kept those consumers engaged with that fruit even at slightly elevated prices.

So we're moving into that cycle where we're going to have -- at least we believe we're going to have, there's no perfection here, higher availability of fruit, going to be running a lot more promotions over the next 12 months. And yes, you're right, we're in that 70% range on household penetration. I would love to see that 73%, 75% achieved over the next couple of years. And if we stay in a consistent place with availability of fruit, and that, to me, becomes a 2- to 3-year goal to get to that point. But -- and which even gives us more tailwinds in the future in regards to thinking about the years after that to think about getting to those 80 numbers, which some of the other categories hold. Hopefully, that helps.

No, that's very helpful. I appreciate the color there. Congrats on the quarter again. Steve, congrats on moving to Chairman of the Board. And John, congrats on the move as well, looking forward to working with you.

We're looking forward to it.

At this time, there are 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.

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

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

Good afternoon, and welcome to the Mission Produce Fiscal Third Quarter 2025 Conference Call. [Operator Instructions] 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. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; John Pawlowski, President and Chief Operating 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, 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?

Thank you, Jeff. I'd like to start with pointing out that our third quarter results really demonstrate what we've been building here at Mission, specifically the ability to consistently deliver strong performance no matter what the market throws at us. We delivered record third quarter revenue of $357 million, up 10% with strong execution across our business, showcasing the value of our vertical integration to drive category consistency globally and ultimately support growth of our per capita consumption.

What stands out to me this quarter is our commercial team's exceptional execution in moving fruit globally, being in the right place at the right time with the right price for our customers. The international positioning and capabilities we've built over the past few decades, combined with strategic investments we've made more recently, enabled us to deliver what we think were great results for this quarter. With that context, I'll turn it over to John Pawlowski, our President and COO, to walk you through the operational and commercial highlights of the quarter. John?

Thanks, Steve. Before I dive into the operational highlights, I wanted to briefly share my perspective as someone who joined Mission in April of last year after spending over 25 years in the international food industry. Having led global operations at companies like J.M. Smucker and Lipari Foods, I came in with high expectations. But what I've experienced over the past 1.5 years here has been genuinely impressive. The level of operational sophistication and international reach here at Mission is remarkable, and this quarter really showcased why that matters.

Now let me walk you through what made this quarter successful from an operational and commercial perspective. Our Marketing & Distribution segment delivered outstanding results, generating $344.1 million in sales and demonstrates the power of our global sourcing and commercial execution capabilities when coupled with our vertically integrated International Farming business. We achieved a 10% increase in avocado volumes sold, while average per unit prices decreased only 5%, demonstrating our ability to maintain pricing discipline even as we moved significantly more volume through our system.

And we were pleased that our per unit margins were solidly within our historical averages as we comped against last year's exceptional performance where our per unit margins exceeded norms. I believe what really sets Mission apart is our ability to execute on a truly global stage. I'd emphasize Steve's comment around being in the right place at the right time with the right price and product for our customers. That's not by accident. It's the result of decades of strategic investments in building year-round avocado sourcing capabilities, establishing strong commercial teams and utilizing differentiated category management tools to elevate our customers' programs.

In the third quarter, this global sourcing strategy was on full display. With strong Peruvian production and improved Mexican supply this year, which contrasts with the industry conditions we experienced last year, we were able to optimize our sourcing mix across multiple countries of origin, which is a core competency that differentiates Mission in the marketplace and creates a recipe for greater financial consistency as well.

Further, our visibility to more normal levels of Peruvian production enabled our teams to execute the most proactive programming we've ever undertaken. We made investments, reallocated resources and completed more advanced contracting than we have over the past few years, securing favorable positioning with retail customers who are excited about the consistency that we are uniquely able to provide with our own production and deliver the value and service they've come to expect from Mission.

Higher levels of production also affords us opportunities to target strategic growth markets and support investments we've made internationally in areas such as Europe and Asia with greater impact. European sales increased 37% in the third quarter versus prior year, reflecting our improved ability to serve the broader European markets as our U.K. facility gains momentum through enhanced customer penetration and improved facility utilization. In Asia, we've been able to broaden our reach with new customers following some select investments we made to service demand in the region that we are uniquely able to address through the access to our Peruvian fruit.

Looking ahead to the fiscal fourth quarter, we remain focused on balancing the completion of our Peruvian season with the onset of the Mexican season. In preparation for the transition to Mexico-centric sourcing and in response to the operational disruption we experienced during last year's harvest season, we've made some enhancements to one of our Mexican packhouses that we expect to improve our capacity during peak season. This will allow us to not only pack more of our own product but create system efficiencies through our distribution network as a result of more streamlined handling en route to the end customer.

We expect these enhancements to be in place during this upcoming Mexican harvest and is an example of the things our team looks at on a recurring basis to both help drive margin and service improvements over the long term. Beyond avocados, our diversification strategy continues to deliver results. We're utilizing the same playbook and capabilities that we've developed in avocados to continue building market share in adjacent categories such as mangoes. We are in a great position to help further establish the category here in North America with retail customers through strategic pricing commitments, greater supply consistency and different packaging configurations that we believe are necessary for long-term category growth.

We are establishing Mission as a reliable year-round program provider with operational capabilities that others in this space simply cannot match. In blueberries, we continue to see benefits from our expanded acreage, which is expected to eclipse 700 hectares of production, along with the yield improvements that will follow. As we enter the peak of our blueberry harvest in the fourth and first quarters, we expect meaningful volume increases as we move through the season.

In summary, we are thrilled with the performance of our entire team. The combination of our Marketing & Distribution commercial execution, along with the recovery of volume from our International Farming and on top of that, the growth stemming from our diversification initiatives demonstrates the strength, durability and opportunity provided by our global platform. With that, I'll turn it over to Bryan for the financial details.

Thank you, John, and good afternoon to everyone on the call. Total revenue for the third quarter of fiscal 2025 increased 10% to $357.7 million. The revenue growth was primarily driven by a 10% increase in avocado volumes sold, which was only partially offset by a 5% decrease in average per unit sales prices. The volume and price movements resulted from improved supply conditions that were led by higher Peruvian avocado production during the current harvest season as a result of more favorable weather conditions in the current year and greater availability of Mexican avocados after experiencing harvest disruptions in the prior year.

Gross profit increased $8.1 million or 22% to $45.1 million in the third quarter, and gross profit percentage increased 120 basis points to 12.6% of revenue. The increase was driven by our International Farming segment, where avocado production was significantly higher due to increased yields at our own farms in Peru. SG&A expense increased $3.9 million or 19% compared to the same period last year, primarily due to higher employee-related costs, including incentive and performance-based stock compensation expense as well as higher statutory profit sharing expense in our International Farming segment associated with improved performance.

Adjusted net income for the quarter was $18.2 million or $0.26 per diluted share compared to $16.7 million or $0.23 per diluted share last year. Growth of adjusted net income was driven by an increase in operating income as well as a $0.8 million reduction in interest expense on lower rates and outstanding borrowings and a $0.3 million increase in equity method income that is primarily comprised of earnings from our investments in Henry Avocado Corporation. Adjusted EBITDA increased 3% to $32.6 million compared to $31.5 million last year, driven primarily by increased avocado production in the International Farming segment. Turning now to the segments.

Our Marketing & Distribution segment net sales increased 7% to $344.1 million for the quarter, primarily due to the avocado volume and pricing dynamics described previously. Segment adjusted EBITDA was $20 million compared to $26.8 million in the same period last year, which primarily reflects the normalization of per unit avocado gross margin in the current year period versus that of the prior year period, where per unit margin significantly exceeded our historical averages. Our International Farming segment delivered exceptional results. Gross sales increased 79% to $49 million, and segment adjusted EBITDA increased $7.5 million or 163% to $12.1 million compared to the same period last year.

This strong year-over-year improvement was driven by the significant recovery in our Peruvian avocado production following last year's weather-related impacts. The segment results also benefited from increases in avocado packing and cooling services provided to third-party growers during the quarter. Net sales in the Blueberries segment increased to $4.5 million from $1.6 million in the prior year period, and adjusted EBITDA increased to $0.5 million (sic) [ $0.4 million ], primarily due to higher volumes from growth in acreage and yield as well as higher average per unit sales prices.

Keep in mind that while sales in our Blueberries segment have traditionally been concentrated in the fourth and first quarters of our fiscal year in alignment with the Peruvian blueberry harvest season, our strategy within blueberries is to extend production over a larger portion of the year via pruning strategies and maturation of new genetic varieties. Shifting to our financial position. Cash and cash equivalents were $43.7 million as of July 31, 2025. Cash provided by operating activities was $21.4 million for the 9 months ended July 31, 2025, compared to $55.4 million for the same period last year.

The year-over-year difference was primarily driven by higher working capital requirements in the current year due to significantly higher avocado production and harvest timing in the International Farming segment, which has translated to higher inventory balances. At the same time, we had lower short-term grower payable balances as a result of reduced reliance on third-party growers during the period. Importantly, we began to realize the seasonal unlock of our working capital in the third quarter, stemming from sales of our International Farming segment inventory.

We generated $34 million of operating cash flow during the third quarter and expect to build upon this in the fourth quarter as we work through the balance of our Peruvian crop. Capital expenditures were $39.8 million for the fiscal year-to-date period, which were primarily attributed to avocado and blueberry farming-related investments in Latin America and construction costs for our new packhouse in Guatemala. Our full year fiscal 2025 CapEx guidance remains in the range of $50 million to $55 million, which includes approximately $10 million of projects that rolled over from fiscal 2024.

Our trajectory of moderating capital spending remains on track as we complete these investments through fiscal 2026, positioning us to generate meaningful free cash flow in future periods. During the quarter, we continued to focus on debt reduction as our near-term priority. Our balance sheet remains strong with a net debt to adjusted EBITDA leverage ratio of approximately 1x, which allows us the flexibility for opportunistic capital allocation as appropriate opportunities arise. Before I provide some context around our expectations for near-term industry conditions, I want to take an opportunity to address tariffs from a financial perspective.

While we expect to incur approximately $10 million of direct tariff impact on avocado and mango imports to the U.S. on an annualized basis, given the latest visibility we have from the administration, this is less than 1% of our total cost of goods, which we think is the right context when considering our exposure. Of that $10 million, approximately half is attributed to our South American production. Despite these headwinds, which we view as modest, our competitive position was not impacted, and we are pleased to deliver what we think is a great quarter in the face of these fluid dynamics.

As for the near-term outlook, industry volumes are expected to be approximately 15% higher in the fourth quarter compared to the prior year period due to a combination of ample Peruvian product in the supply chain as the harvest season nears completion and the transition to the new Mexican crop, which is expected to be larger than prior year due to favorable weather conditions. Exported avocado production from Mission's owned farms in Peru is expected to range between 105 million to 110 million pounds, of which approximately 48 million pounds were sold through as of the end of the fiscal third quarter.

Pricing is expected to be lower on a year-over-year basis by approximately 20% to 25% as compared to the $1.90 per pound average we experienced in the fourth quarter of fiscal 2024. The decrease in pricing is directly correlated with expectations of higher volumes available in U.S. and international markets. The blueberries harvest season in Peru will begin to ramp up during the fourth quarter. We expect to see meaningful volume increases from owned farms, but the impact on revenue will likely be partially offset by lower average sales prices. That concludes our prepared remarks. Operator, now over to you. Please open the call to Q&A.

[Operator Instructions] And our first question comes from the line of Ben Klieve with Lake Street Capital Markets.

Congratulations on a nice quarter here. First, a couple of questions on everybody's favorite topic of tariffs. Bryan, apologies if I'm going to make you repeat this, but you mentioned $10 million impact here within this fiscal year. Did you guys note the impact that has been seen either in the third quarter or through the first 9 months of the year?

We didn't note it, but we've spent a little over $5 million on tariff-related expenses through the 9 months ended. That's inclusive of the Mexico costs that we incurred back in Q2. So yes, we expect that what we see in Q4 will be largely in line with what we saw in Q3. Again, we'll see more volume coming out of Peru into the U.S. market, but at slightly lower selling prices than what we were seeing during the quarter that just finished.

Okay. That's helpful. And then just kind of a higher level kind of philosophical question on this topic is, I'm curious how this environment has impacted just kind of the order of trade. I mean, are you guys shipping more product out of Peru into Europe and into Asia? Are you seeing pricing in other international markets maybe come down as supply is shifting from the U.S. to those international markets? I mean is there anything to call out kind of from those perspectives?

Ben, this is John Pawlowski. Good to hear you. Really, unfortunately, there's not a silver bullet answer here that something has changed a lot because it really hasn't. I think from a supply and demand perspective, things have remained pretty stable. I think when you think back to January, February, March when things were first announced, there were definitely some concerns about potential shifts in that environment.

But as the overall environment has stabilized, what I mean by that is the tariff situation has become much more broad. You have a lot more different categories impacted, et cetera, that you're seeing a lot more stabilization, particularly around our category, we did not do any significant or really any immaterial shifting of where we placed product this year because of those things. We actually went to where the demand was, and we made sure we got product to where it needed to be in order to support that demand.

Got it. That's helpful. And one more for me, and I'll get back in queue. I mean you noted, especially in blueberry, some acreage increases this year. As we start looking to '26, can you talk a bit about your expectations for acreage expansion from '25 to '26 and perhaps beyond?

Let's just start with the blueberries. We're -- we have a target of about 600 or 1,000 hectares net. We only have, I think, 42 hectares left to go on our original plan. What we do and how we do that, we develop half of it and put in double plants. And then while they're maturing, we develop the balance of the irrigation in the fields and move them on. But I think by the end of this year, we'll be pretty well done with what we have budgeted to date on blueberries. We have a little bit left to do in Guatemala, but it's not really substantial on avocados. We have some extra land there. But it's starting to slow down, at least on the development of ranches.

Yes. Ben, I'll just clarify, too. In the last harvest season with blueberries, we had somewhere between 500 and 550 hectares that were in a productive state. This year, we'll be a little over 700 hectares. So that's a 25%-ish increase in harvest acreage. I think as Steve alluded to, when we finish, we're going to be close to 1,000 hectares and that will layer in over fiscal the '26, '27 and probably the last part into the '27, '28 harvest season. So kind of where we're at today is we still see a few more years of meaningful ramps in production from where we've been. And then things should start to level off a bit as we kind of evaluate what, if any, are our next steps through that joint venture.

Very good. And I guess -- sorry, a follow-up. I mean, other -- intended for that to be kind of a bigger picture question around acreage expansion across all of your categories, any other thoughts on kind of how we should look at harvest expansion in mangoes and avocados here over the next couple of years?

As far as planting, we don't have any big grand plan, maybe filling in some corners on ranches we have and maybe some replants here and there, but nothing like we've had in the past.

Yes. I think -- this is John. I think that when you think about the 3 different categories we're in, from an avocado perspective, there is no real need and/or desire on our side to invest further. I think the CapEx comments that Bryan made earlier are -- hold true to what our strategy is around leveraging those as they continue to mature because we'll see some productivity gains in those fields, but no plan to further expand those. On the blueberry side, we've committed to that acreage in our joint venture. We are -- we've put the money in place to make sure that, that happens appropriately, and we're glide pathing towards that.

On the mango side, we've been really happy with the productivity out of the farms that we have in place. But there's quite a few quality mango farmers around the world that are already doing a good job, and we plan on tapping into more of those partnerships to execute against our mango growth strategy. So as we think about the next 3 to 5 years, there's no plans to increase any kind of capital investments around acreage beyond what we've already shared.

And our next question comes from the line of Gerry Sweeney with ROTH Capital Partners.

Would you be able to talk a little bit more about the international side? Obviously, you highlighted a little bit more in this quarter, and it's becoming, I think, a little bit more prevalent in some of the commentary as we've moved through this year and -- from last year into this year. Just maybe some of the opportunities, maybe even investments on that side. Obviously, you also highlight the U.K. facility gaining steam. Is there an opportunity to expand further in Europe or in Asia using that playbook? And I also know layering on top of this long-winded question is pricing, opportunity of pricing regimens with supermarkets and retailers in Europe and all that. Maybe just how should we look at the international side?

Yes. Gerry, this is John. I think that we are strategically oriented to really optimize and support the U.S. market from a fulfillment standpoint based on the way we've set up our global sourcing strategy, all the investments we made over the years.

When we do have or what the playbook has been in the past is when we have available fruit and excess fruit or we know there's going to be seasons with excess fruit, then we have kind of pivoted and invested in and Steve and team were -- had the foresight a couple of years ago to say, hey, there's a lot of fruit coming into the marketplace over the next 10 to 15 years, and there's an opportunity from a consumption standpoint with per capita consumption starting to creep up and grow in Europe that let's put a facility in play there and plant a flag.

And I would say over the last 2 years, I think we've done an excellent job of working with that team and our team in Europe and executing against what our customers need most at the right times of the year based on what's coming in from a supply perspective. We -- our facility in the U.K. to highlight that, has done an excellent job, and our sales team in the U.K. has done an excellent job of building value in that marketplace with those retailers.

Some of the things that we're really known for and good at here in the U.S., optimizing global sourcing, programming all year round, helping with promotional planning and strategy and pricing, et cetera, we've brought to some key retailers in the U.K. and have seen some nice increases in their volumes as well as some nice shifts from a profitability standpoint in their categories. So we've been happy about that. And quite frankly, I see that continuing to grow. The challenge there, Gerry, is there's not -- it's not a big enough market to say, hey, this is going to be a really big deal for us in the long run, but it's a nice anchor head for us.

In Europe, we haven't kind of put in place a distribution facility. We have a partner there that we work through. And overall -- over the long term in Europe, a play from an inorganic standpoint may be something that makes some sense for us. We haven't really thought about that or evaluated it all that much over the last couple of years. But we've definitely looked at the customer landscape. And based on some learnings over the last few years, we've pivoted our focus to focus more on customers that need longer-term strategic programming with their fruit.

And we've kind of hitched our saddle to the 3 or 4 top customers that move volume, and that kind of proved to be very successful this year. In Asia...

Direct retail...

Which is the large direct retail firms, correct, that some of which also have a significant footprint here in the U.S. So we've got nice global partnerships with them. Shifting gears to Asia. We've got some great partners in Asia as well as develop some new partnerships in Asia. It's a market that we've -- I would say, has been fluid for us over the years, but we've also invested over the last 12 months on upgrading our team and talent there, so we can drive that business forward into the future and have some work to do strategically on what the long term means [ for our strategy ].

Got it. Are the international markets more dependent on the size of the harvest coming out of Peru and Mexico? Is that what opens up more opportunity for you on the margin? Or how should we think about that?

Yes. No, that's a great way to think of it. The way we're set up right now, that's exactly the way it works.

Got it. Okay. And then maybe a quick question for Bryan. I know SG&A was up, but you called out everything, performance and incentives, et cetera. And I'm not sure if that was due to the quarter or what would be maybe SG&A run rate on a go-forward basis, all things being equal?

Certainly, we do have a variable component to our SG&A, Gerry, the profit sharing component in particular out of the Farming segment. So when the results of the Farming segment tend to peak in Q3, Q4, it tends to have an impact on that SG&A figure. So I would say that probably north of 50% of the increase we saw was attributed to variable costs that we saw increase this Q3 versus Q3 last year. So that one, it just makes it hard to like peg a specific run rate because it isn't fixed in nature. But yes, just to give you a sense as to what the drivers were this year of what drove it up.

Yes. No, and obviously, a record quarter, and that makes sense. That's helpful. So record quarter is going to mean higher SG&A. Got it. Congrats on a really great quarter.

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

Well, thank you for your interest in Mission Produce, and we look forward to speaking with you again at the next quarter.

Thank you. Ladies and gentlemen, this does conclude today's conference call. We thank you for your attending. You may now disconnect your lines, and have a wonderful day.