Q2 2024 Mission Produce Inc Earnings Call

Operator: Good afternoon everyone, and welcome to the Mission PRdc fiscal second quarter 2024 conference call. All participants will be in a listen-only mode.

Good afternoon, everyone and welcome to the mission Proteus fiscal second quarter 2024 conference call.

All participants will be in a listen only mode.

After todays presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded.

Operator: 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 call over to Jeff Sonnek, Investor Relations at ICR. Please go ahead.

Speaker Change: At this time I would like to turn the call over to Jeff Sonic Investor Relations Investor Relations at ICR. Please go ahead Sir.

Jeff Sonnek: Thank you and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer, and Bryan Giles, Chief Financial Officer. The 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, and they are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events.

Jeff Sonnek: Thank you and good afternoon.

Speaker Change: Today's presentation will be hosted by Steve Barnard, Chief Executive Officer, and Brian Giles Chief Financial Officer.

Jeff Sonnek: Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those 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.missionprdc.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that said, I'd now like to turn the call over to Steve Barnard, CEO.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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 Dot mission produce dot com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measure.

Speaker Change: With that I'd now like to turn the call over to Steve Bartok CEO Steve.

Stephen J. Barnard: Thank you for joining us today. We are pleased to deliver a second consecutive quarter of record results fueled by continued strong momentum in our marketing and distribution segment. Total revenue for the second quarter of fiscal 2024 increased 35% to $298 million. Growth was driven by robust consumer demand for avocados, which translated into an 8% increase in avocado volume sold in our marketing and distribution segment, which is an encouraging sign given that our per unit sales prices were up 22% versus the prior year.

Stephen J. Barnard: Thank you for joining us today, we're pleased to deliver a second consecutive quarter of record results fueled by continued strong momentum in our marketing and distribution segment total revenue for the second quarter of fiscal 2024 increased 35% to 298 million.

Stephen J. Barnard: Growth was driven by robust consumer demand for avocados, which translated into an 8% increase in avocado volumes sold in our marketing and distribution segment, which is an encouraging sign giving our per unit sales prices were up 22% versus the prior year.

Stephen J. Barnard: Further, the volume growth demonstrates our ability to drive per capita consumption through providing consistent access to our customers through our global sourcing network. The stable industry environment in the first half of our year not only aids in volume growth, but it also allows our business to operate with greater efficiency. And this showed up again in the second quarter with another strong adjusted EBITDA performance. Adjusted EBITDA increased 166% to $20.2 million in the second quarter, and our cash flow from operations improved by $39 million year-to-date in fiscal 2024.

Stephen J. Barnard: Further the volume growth demonstrates our ability to drive per capita consumption to providing consistent access to our customers through our global sourcing network.

Stephen J. Barnard: The stable industry environment in the first half of our year and not only AIDS and volume growth, but it also allows our business to operate with greater efficiency and this showed up again in the second quarter with another strong adjusted EBITDA performance.

Adjusted EBITDA increased to 166% to $20 2 million in the second quarter and our cash flow from operations improved by 39 million year to date in fiscal 2024.

Stephen J. Barnard: Our performance was driven by a combination of factors that generated higher per unit avocado margins, including stable industry supply and a heavier emphasis on fruit sourced directly from growers in Mexico, an earlier start to the California harvest season, and tailwinds from the price increases we implemented for value-added services in the fall of 2023. We also progressed with our efforts to reduce corporate expenses.

Stephen J. Barnard: Our performance was driven by a combination of factors that generated higher per unit avocado margins, including stable industry supply and the heavier emphasis emphasis on fruit sourcing directly from growers in Mexico.

Stephen J. Barnard: An earlier start in California harvest season, and tail winds from the price increases we implemented for value added services in the fall of 2023, we also progressed with our efforts to reduce corporate expenses. The combination of higher volumes stronger per unit margin and cost control contributed meaningfully to our profitability and cash generation looking to this.

Stephen J. Barnard: The combination of higher volumes, a stronger premium margin, and cost control contributed meaningfully to our profitability and cash generation. Looking to the second half of the year, while El Nino weather conditions appeared to have eased, we are still seeing its effect on the development of the Peruvian avocado. The unseasonable warm temperatures, particularly during the night hours when the tree is recuperating, have stunted fruit development and reduced fruit sizing across the Peruvian growing region.

Stephen J. Barnard: Second half of the year, while El Nino weather conditions had appeared to have eased we are still seeing its effect on the development of the Peruvian avocado crop for this year, resulting in notable decreases in industry and on production volumes.

Stephen J. Barnard: The unseasonably warm temperatures, particularly during the night hours when the tree is recuperating has stunted fruit development and reduce fruit sizing across the Peruvian growing region.

Stephen J. Barnard: Although this will negatively impact the global supply of avocados, we remain better positioned than most to deliver the same quality of fruit that our customers have come to expect by leaning on the strength of our world-class sourcing team to augment these shortages by accessing third-party fruit from Peru and other regions. As I touched on last quarter, we started a rigorous cost optimization process within our international farming operations after the close of our 2023 Peru harvest season. Our actions here focus on driving down operating costs across our farming and packing operations.

Stephen J. Barnard: Although this will negatively impact the global supply of avocados, we remained better positioned than most to deliver the same quality of fruit that our customers have come to expect by leaning on the strength of our world class sourcing team to augment these shortages through accessing third party fruit from Peru and other regions.

Stephen J. Barnard: As I touched on last quarter, we started a rigorous cost optimization process within our international farming operations. After the close of our 2023, Peru harvest season.

Stephen J. Barnard: Our actions here are focused on driving down operating costs across our farming and packing operations, while the growing conditions in Peru won't allow us to showcase the impact we expected to see in our international farming margins. This year, the approximately $10 million of annualized cost savings we plan to achieve in fiscal 2024 are nevertheless, impactful and mitigating.

Stephen J. Barnard: While the growing conditions in Peru won't allow us to showcase the impact we expected to see in our international farming margins this year, the approximately $10 million of annualized cost savings we plan to achieve in fiscal 2024 are nevertheless impactful in mitigating the impact of the smaller crop on our second half results, and we expect these reductions will translate into improved financial performance when growing conditions improve. Mission has been in the avocado business for over four decades, and weather has always been a variable that has influenced our business and the industry. Over time, we've been intentional in taking steps to minimize the adverse impacts that weather can have on our results.

Stephen J. Barnard: The impact of the smaller crop on our second half results and we expect these reductions will translate into improved financial performance and growing conditions improve.

Stephen J. Barnard: Michigan has been in the avocado business for over four decades, and whether it has always been a variable that has influenced our business and the industry.

Stephen J. Barnard: Over time, we've been intentional and taking steps to minimize the adverse impacts that weather can have on our results.

Stephen J. Barnard: This is exactly why diversification has been a key component in our overall growth strategy, namely diversification across other crop types and geographies. For example, we have been making strategic investments to bolster our rapidly growing blueberry business, and we believe we are well positioned to lead the next revolution in the produce industry with mangoes. In 2023, we sold approximately 48 million pounds of mangoes. However, we believe we are still just beginning to tap into the fruit's immense potential, with current U.S. per capita consumption at only 3.5 pounds compared to avocados at over 8 pounds.

Stephen J. Barnard: This is exactly why diversification has been a key component in our overall growth strategy.

Stephen J. Barnard: Diversification across other crop types and geographies.

For example, we have been making strategic investments to bolster our rapidly growing blueberry business and we believe we are well positioned to lead the next revolution in the produce industry and mangoes.

Stephen J. Barnard: In 2023, we sold approximately 48 million pounds of mangoes.

Stephen J. Barnard: However, we believe we are still just beginning to tap into the fruits immense potential with current U S per capita consumption at only three and a half pounds compared to avocados at over eight pounds mangoes ranked 11th in produce volume velocity in 2023, demonstrating the opportunity retailers see in developing this category. This.

Stephen J. Barnard: Mangoes rank 11th in produce volume velocity in 2023, demonstrating the opportunity retailers see in developing this category. This fruit also aligns with key consumer trends like the increasing Hispanic and Asian populations, interest in health and wellness, and desire for diverse global flavors. Additionally, mangoes are a nice complement to our avocado business, with 87% of mango buyers also purchasing avocados. Our current capabilities in mangoes include advanced global sourcing of multiple popular varieties from six countries and leveraging our state-of-the-art avocado ripening technology across North America ripe centers to provide supply that meets the product quality, texture, and flavor that our customers expect. Our advanced global sourcing, ripening, and distribution network may have been built on the potential of avocados, but with all the synergies between both products, we're now in a prime position to replicate this success with mangoes.

This fruit also aligns with key consumer trends like the increasing Hispanic and Asian populations interest in health and wellness and desire for versatile global flavors.

Stephen J. Barnard: Additionally, mangoes very nice complement to our avocado business with 87% of mangled buyers also purchasing avocados.

Stephen J. Barnard: Our current capabilities and mangoes include advanced global sourcing of multiple popular varieties from six countries and leveraging our state of the art avocado ripening technology across North America ripe centers to provide supply that meets the product quality texture and flavor that our customers expect.

Stephen J. Barnard: Our advanced global sourcing ripening in distribution network may have been built on the potential of avocados, but with all the synergies between both products. We're now in a prime position to replicate this success with mangoes.

Stephen J. Barnard: The blueberry business was a highlight again this quarter. We've been allocating capital alongside our partner towards planting new premium blueberry varieties that offer higher yields and attractive returns. Moreover, these premium varieties are differentiated by their appearance and flavor profile, providing more optionality and added value for retailers and consumers.

Stephen J. Barnard: The blueberry business was a highlight again this quarter, we've been allocating capital alongside our partner towards planning.

Mauro: Planning, new premium blueberry varietals that offer higher yields and attractive returns Mauro.

Mauro: Moreover, these premium varietals are differentiated by their appearance and flavor profile, providing more optionality and added value for retailers and consumers.

Stephen J. Barnard: The Blueberry Business grants us additional levers to increase margins on a per-unit basis across our consolidated operations. We remain committed to continuing to invest in this growing business, and given the significant improvement in our operating cash flow performance within the joint venture, we are allocating incremental resources this year to advance projects that have been planned for future periods. We also continue to penetrate new regions and support opportunities in emerging growth markets such as Europe and Asia.

Mauro: The blueberry business grants us additional levers you increase margins on a per unit basis across our consolidated operations.

Mauro: We remain committed to continuing to invest in this growing business and given the significant improvement in our operating cash flow performance within the joint venture we are allocating.

Mauro: Incremental resources this year to advance projects that had been planned for future periods. We also continue to penetrate new regions in support opportunities in emerging growth markets, such as Europe, and Asia and the United Kingdom. We have finished construction on phase two build out of the former distribution Center. We opened in 2023. The Buildout includes additional ripening rooms.

Stephen J. Barnard: In the United Kingdom, we have finished construction on the Phase II build-out of the Forward Distribution Center we opened in 2023. The build-out includes additional ripening rooms, cold storage space, and handling capacity for our expanding mango category.

Mauro: Cold storage space in handling capacity for expanding mango category.

Stephen J. Barnard: While it would take some time to completely grow into our new capacity, we are excited about the opportunities that it affords us within the UK retail and food service market. In closing, Mission remains in a great position with our diversified network of global assets. I'm proud of our team for their tremendous focus and execution, keeping Mission well positioned to drive long-term growth, enhance profitability, and maintain a healthy balance sheet. With that, I'll pass the call over to our CFO, Bryan Giles, for his financial commentary. Thank you, Steve.

Mauro: Well it would take some time to completely grow into our new capacity.

Mauro: We are excited about the opportunities that it affords us with the U K retail and foodservice markets and closing mission remains in great position with our diversified network of global assets I'm proud of our team for their tremendous focus and execution keeping mission well positioned to drive long term growth enhanced profitability and maintain a healthy.

Mauro: Balance sheet.

Mauro: With that I'll pass the call over to our CFO, Brian Giles for his financial commentary.

Bryan E. Giles: Thank you, Steve, and good afternoon to everyone on the call. I'll start with a review of our fiscal second quarter financial performance, touching on some of the key drivers within our three reportable segments. Then I'll provide an update on our financial position and conclude with some thoughts on the current industry conditions that we are seeing. Total revenue for the second quarter of fiscal 2024 increased 35% to $297.6 million, driven by a 22% increase in avocado sales prices and an 8% increase in avocado volumes sold in our marketing and distribution sector.

Bryan E. Giles: Thank you, Steve and good afternoon to everyone on the call I'll start with a review of our fiscal second quarter financial performance touching on some of the key drivers within our three reportable segments, then I'll provide an update on our financial position and conclude with some thoughts on the current industry conditions that were seeing.

Bryan E. Giles: Results were also supported by our blueberry segment, where revenue growth was spurred by higher volumes attributed to an extended harvest season compared to the same period last year. Gross profit increased by $12.9 million to $31 million in the second quarter. And gross profit margin increased 220 basis points to 10.4% of revenue. These increases were primarily driven by stronger per-unit margins and higher volumes of avocados sold in our marketing distribution segment, and further supported by increased volumes sold in our blueberry segment. SG&A expense decreased $0.6 million, or 3%, compared to the same period last year, primarily due to a reduction in our general corporate expenses.

Bryan E. Giles: We continue to focus on reducing controllable expenses, and we have achieved approximately $2 million of cost savings in these areas during the first half of fiscal 2024. Net income for the second quarter of fiscal 2024 was $7 million, or $0.10 per diluted share, compared to a net loss of $4.6 million, or $0.07 per diluted share, for the same period last year. Adjusted net income for the same period was $9.8 million, or $0.14 per diluted share, compared to an adjusted net loss of $0.5 million, or $0.01 per diluted share last year.

Bryan E. Giles: Total revenue for the second quarter of fiscal 'twenty, 'twenty, four increased 35% to $297.6 million driven by a 22% increase in avocado sales prices and an 8% increase in avocado volumes sold in our marketing and distribution segment.

Bryan E. Giles: Results were also supported by our Blueberry segment, where revenue growth was spurred by higher volumes attributed to an extended harvest season compared to the same period last year.

Bryan E. Giles: Gross profit increased by $12 $9 million to $31 million in the second quarter and gross profit margin increased 220 basis points to 10.4% of revenue.

Bryan E. Giles: These increases were primarily driven by stronger per unit margins and higher volumes of avocados sold in their marketing and distribution segment and further supported by increased volumes sold in our blueberry segment.

Bryan E. Giles: SG&A expense decreased point $6 million or 3% compared to the same period last year, primarily due to a reduction of our general corporate expenses were.

Speaker Change: We continue to focus on reducing controllable expenses and we have achieved approximately $2 million of cost savings in these areas. During the first half of fiscal 2024.

Speaker Change: Net income for the second quarter of fiscal 'twenty, 'twenty, four with $7 million or 10 cents per diluted share compared to a net loss of $4 $6 million or seven cents per diluted share for the same period last year.

Speaker Change: Adjusted net income for the same period was $9 $8 million or 14 cents per diluted share compared to an adjusted net loss of <unk> 5 million or one cent per diluted share last year.

Bryan E. Giles: Adjusted EBITDA increased $12.6 million to $20.2 million as compared to $7.6 million for the same period last year. The improvement in each of these measures was driven primarily by the stronger gross profit performance in our marketing and distribution. Turning now to our segments, our marketing distribution segment net sales increased 33% to $287.1 million for the quarter, primarily due to the favorable avocado dynamics I described earlier. We believe that the lift in volume of avocados sold at these elevated sales price levels relative to last year is indicative of demand growth during the period.

Speaker Change: Adjusted EBITDA increased $12.6 million to $20 $2 million as compared to $7 $6 million for the same period last year improvement in each of these measures was driven primarily by the stronger gross profit performance in our marketing and distribution segment.

Speaker Change: Turning now to our segments, our marketing distribution segment net sales increased 33% to $287.1 million for the quarter, primarily due to the favorable avocado dynamics I described earlier.

Speaker Change: We believe that the lift in volume of avocados sold at these elevated sales price levels relative to last year are indicative of demand growth during the period.

Bryan E. Giles: Segment Adjusted EBITDA increased $13.1 million to $21.7 million as a result of higher per unit gross margins and higher volumes of avocados sold. During the quarter, we achieved avocado per unit margins that were above our targeted range, driven by stable industry supply and a heavier emphasis on fruit sourced directly from growers in Mexico. An earlier start to the California harvest season, which enables better absorption of fixed overhead costs, and success in capturing fee increases implemented for value-added services at the beginning of our fiscal year.

Speaker Change: Segment, adjusted EBIT increased $13 $1 million to $21.7 million as a result of higher per unit gross margins and higher volumes of avocados sold during.

Speaker Change: During the quarter, we achieved avocado per unit margins that were above our targeted range driven by stable industry supply and a heavier emphasis on fruit sourced directly from growers in Mexico.

An earlier start to the California harvest season, which enables better absorption of fixed overhead costs.

Speaker Change: And success in capturing the fee increases implemented for value added services at the beginning of our fiscal year. Our international farming business is concentrated in the second half of our fiscal year and alignment with the premium avocado harvest season, which typically starts in April and runs into September of each year.

Bryan E. Giles: Our international farming business is concentrated in the second half of our fiscal year, in alignment with the Peruvian avocado harvest season, which typically starts in April and runs into September of each year. Nominal sales activity that we typically see in our fiscal second quarter is tied to avocado packing and handling services provided to third-party Peruvian growers. These services have been negatively impacted by the reduced crop size and a delayed start to the avocado harvest season in the current year.

Speaker Change: Nominal sales activity that we typically see in our fiscal second quarter is tied to avocado packing and handling services provided to third party. Peruvian growers. These services have been negatively impacted by the reduced crop size and the delayed start to the avocado harvest season in the current year with this in mind total segment sales and adjusted <unk>.

Speaker Change: And the international farming segment were $1.4 million and negative $2.2 million, respectively, compared to $6 million in negative $1.1 million in the same period last year.

Bryan E. Giles: With this in mind, total segment sales and adjusted EBITDA in the international farming segment were $1.4 million and $2.2 million, respectively, compared to $6 million and $1.1 million in the same period last year. Activity in our blueberry segment has traditionally been concentrated in the first and fourth quarters of our fiscal year, in alignment with the Peruvian blueberry harvest season, which typically runs from July through February.

Speaker Change: Activity in our Blueberry segment has traditionally been concentrated in the first and fourth quarters of our fiscal year and alignment with the Peruvian blueberry harvest season, which typically runs from July through February.

Bryan E. Giles: This year, we experienced higher volumes in the second quarter attributed to the timing of the harvest season compared to the same period last year, and as a result, net sales increased to $10 million compared to $1.7 million in the prior year. Segment Adjusted EBITDA increased $0.6 million to $0.7 million as compared to last year, driven by the same increase in volume sold. Shifting to our financial position, cash and cash equivalents were $46.2 million as of April 30, 2024, compared to $42.9 million at October 31, 2023.

Speaker Change: This year, we experienced higher volumes in the second quarter attributed to the timing of the harvest season compared to the same period last year and as a result, net sales increased to $10 million compared to $1.7 million in the prior year period.

Speaker Change: Segment, adjusted EBITDA increased point $6 million $2.7 million as compared to last year driven by the same increase in volumes sold.

Speaker Change: Shifting to our financial position cash and cash equivalents were $46 $2 million as of April 30 of 2024 compared to $42 $9 million at October 31 2023.

Bryan E. Giles: Operating cash flows are seasonal in nature. We typically see increases in working capital during the first half of our fiscal year as our supply is predominantly sourced from Mexico under payment terms that are shorter than terms established for other source markets. In addition, we are building our growing crops inventory in our international farming segment during the first half of the year for ultimate harvest and sale that will occur during the second half of the fiscal year.

Speaker Change: Operating cash flows are seasonal in nature, we typically see increases in working capital during the first half of our fiscal year as our supply is predominantly sourced from Mexico under payment terms that are shorter than terms established for other source markets.

Speaker Change: In addition, we are building our growing crops inventory in our international farming segment. During the first half of the year for ultimate harvest and sell that will occur during the second half of the fiscal year.

Bryan E. Giles: That said, we are very pleased with our improved operating cash flow year-to-date. Net cash provided by operating activities was $12.9 million for the six months ended April 30, 2024, compared to cash used in operating activities of $26.1 million for the same period last year.

Speaker Change: That said, we are very pleased with our improved operating cash flow year to date.

Speaker Change: Net cash provided by operating activities was $12 $9 million for the six months ended April 32024, compared to cash used in operating activities of $26 $1 million for the same period last year.

Bryan E. Giles: The $39 million increase was driven by improved operating performance and management of the seasonal working capital dynamics I just described. However, working capital growth was mitigated in part in the current year by the lower growing crop inventory in Peru resulting from our cost savings initiative. Capital expenditures were $17.7 million for the six months ended April 30, 2024, compared to $34.9 million last year, and were attributed to avocado and blueberry farming related investments in Latin America as well as construction costs associated with expanding capacity at our UK distribution facility.

Speaker Change: The $39 million increase was driven by improved operating performance and management of the seasonal working capital dynamics I just described.

Working capital growth was mitigated in part in the current year by the lower growing crop inventory and Peru, resulting from our cost savings initiatives.

Speaker Change: Capital expenditures were $17 $7 million for the six months ended April 32024, compared to $34 $9 million last year.

Speaker Change: And were attributed to avocado and blueberry farming related investments in Latin America, as well as construction costs associated with expanding capacity at our U K distribution facility.

Bryan E. Giles: As we mentioned on our last call, the year-over-year reduction in capital spending reflects the tapering off of our recent multi-year heavy investment cycle in avocados. We remain committed to driving free cash flow as a means toward maintaining a healthy capital structure while continuing to support our ongoing farming expansion and facility improvement projects. However, alongside our joint venture partner in our blueberries operation, we have chosen to utilize incremental operating cash generated by the joint venture to accelerate investments in land development and plant cultivation that have been planned for future years in order to capitalize on the traction that the new varieties are having in the marketplace.

Speaker Change: As we mentioned on our last call the year over year reduction in capital spending reflects the tapering off of our recent multiyear heavy investment cycle and avocados.

Speaker Change: We remain committed to driving free cash flow is a means towards maintaining a healthy capital structure, while continuing to support our ongoing farm and expansion and facility improvement projects.

Speaker Change: However, alongside our joint venture partner in our Blueberries operation we.

Speaker Change: We have chosen to utilize incremental operating cash generated by the joint venture to accelerate investments in land development and plant cultivation that had been planned for future years in order to capitalize on the traction that the new varietals are having in the marketplace.

Bryan E. Giles: As a result, we are increasing our projected CapEx budget for fiscal 2024 to a range of $40 to $45 million, up approximately $10 million from our previous expectation. Even with this adjustment to our CapEx budget, we continue to believe the business is well positioned to generate positive free cash flow in Cisco 2020. I want to reiterate that our core capital allocation priority is maintaining a healthy capital structure that minimizes leverage. Debt paydown remains our near-term priority, and we expect to continue to strengthen our balance sheet during the second half of the fiscal year.

Speaker Change: As a result, we are increasing our projected capex budget for fiscal 2024 to a range of $40 million to $45 million up approximately $10 million from our previous expectation.

Speaker Change: Even with this adjustment to our Capex budget, we continue to believe the business is well positioned to generate positive free cash flow in fiscal 2024.

Speaker Change: I want to reiterate that our core capital allocation priority is maintaining a healthy capital structure that minimizes the leverage.

Speaker Change: Debt Paydown remains our near term priority and we expect to continue to strengthen our balance sheet during the second half of the fiscal year.

Bryan E. Giles: In terms of our near-term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions to help inform your modeling assumptions. Beginning with avocados, warmer temperatures associated with El Nino have persisted through the development of our 2024 Peruvian avocado crop, and it is now clear that this will negatively affect harvest yields for the second half of the fiscal year, reducing exportable volumes from our own farms by more than 50% from last year.

Speaker Change: In terms of our near term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions to help inform your modeling assumptions.

Speaker Change: Beginning with avocados warmer temperatures associated with El Nino have persisted through the development of our 'twenty 'twenty four Peruvian avocado crop and it is now clear that this will negatively affect harvest yields for the second half of the fiscal year, reducing exportable volumes from our own farms by more than 50% from last year.

Bryan E. Giles: This decrease in volume will negatively impact absorption of fixed costs at our Peruvian farms despite the cost reduction initiatives that have been implemented. And although lower volumes generally support higher prices, we do not expect the higher pricing levels to fully offset the negative impact of volume decreases on gross profit for the international farming segment for the fiscal year. We intend to work aggressively to offset the impact of lower owned production with sourcing from third-party suppliers from various supply markets, but we will be limited to some extent by the total supply available.

Speaker Change: This decrease in volume will negatively impact absorption of fixed costs at our Peruvian farms. Despite the cost reduction initiatives that have been implemented and although lower volumes generally support higher pricing, we do not expect the higher pricing levels to fully offset the negative impact of volume decreases on gross profit for the international farming segment for the fiscal year.

Speaker Change: We intend to work aggressively to offset the impact of lower own production with sourcing from third party suppliers from various supply markets, but we will be limited to some extent by total supply available we expect.

Bryan E. Giles: We expect industry volumes to decline by 10-15% during our fiscal 2024 third quarter as compared to the prior year as a result of an earlier conclusion to the 2023-24 Mexican harvest season combined with a weaker Peruvian harvest outlook driven by the weather factors previously discussed. Avocado prices are expected to be relatively flat on a sequential basis, which translates to an increase of approximately 15% year-over-year compared to the $1.36 per pound average experienced in the third quarter of fiscal 2023.

Speaker Change: The industry volumes to decline by 10% to 15% during our fiscal 'twenty 'twenty four third quarter as compared to prior year as a result of an earlier conclusion to the 2023 24 Mexican harvest season, combined with a weaker Peruvian harvest outlook driven by the weather factors previously discussed.

Speaker Change: Avocado pricing is expected to be relatively flat on a sequential basis, which translates to an increase of approximately 15% year over year compared to the dollar 36 per pound average experienced in the third quarter of fiscal 2023.

Our expectation for pricing assumes that volume aligns with industry expectations.

Operator: Our expectation for pricing assumes that volume aligns with industry expectations. That concludes our prepared remarks. Operator, now over to you. Please open the call for Q&A.

Speaker Change: That concludes our prepared remarks, operator now over to you. Please open the call to Q&A.

Speaker Change: Thank you Sir.

Operator: Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. And our first question comes from the line of Jerry Sweeney with Roth Capital Partners. Please proceed.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to.

Speaker Change: Remove your question from the queue.

Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

And our first question comes from the line of Gerry Sweeney with Roth Capital Partners. Please proceed.

Gerard J. Sweeney: Hi Steve, Bryan, thanks for taking my call.

Gerard J. Sweeney: Hey, Steve Brian Thanks for taking my call.

Stephen J. Barnard: Hey, good talking to you, Jerry.

Speaker Change: Okay.

Speaker Change: Jerry.

Gerard J. Sweeney: You know, in your prepared remarks, you discussed robust demand and prices. And this, I think this has been a little bit different from a couple of years ago, the past couple of years. I'm just curious if this is driven by just more consistent supply out of Mexico. And, you know, what that supply is doing to the market, especially with the prices that are moving up with, you know, improved volume.

Gerard J. Sweeney: In your prepared remarks, you discussed robust demand and prices and this I think this has been a little bit different from a couple of years. The past couple of years I'm. Just curious if there's if this is driven by just more consistent supply out of Mexico.

Gerard J. Sweeney: And you know what what.

Gerard J. Sweeney: Supply is doing to the market, especially with the prices that moving up with.

Gerard J. Sweeney: Demand.

Stephen J. Barnard: Well, Jerry, it appears that consumption continues to go up, and the higher prices haven't really affected it. When you take a couple steps back, and you look at the overall...

Jerry: Well it appears Jerry that the consumption continues to go up and prices the higher prices haven't really affected it when you look back up a couple of steps and you look at the overall.

Jerry: Volume.

Stephen J. Barnard: Compared to a year ago or two years ago, it's at actually higher prices per pound. So I think we're somewhat in a revolution here where this consumption continues to grow. With times of more volume and longer term, as Bryan said on the sheet, I mean, in Peru, it's lower, but in Mexico it is, in California, we've had some weeks here compared to years past that were higher volumes at higher prices. So it's a pretty good situation all the way around, at least for now.

Jerry: So compared to a year ago or two years ago.

Speaker Change: Is it actually higher prices per pound, so I think we're.

Speaker Change: Somewhat in a revolution here with this consumption continues to grow.

Speaker Change:

Bryan E. Giles: With times of more volume and long term as Brian said on the cheat.

Speaker Change: Chi I mean in Peru, its lower but in Mexico, It's a.

Speaker Change: In California, we've had some weeks here compared to years past that were higher volumes at <unk>.

Jerry: Higher prices, so it's a pretty good situation all the way round at least for now yeah, Jerry I'll kind of add onto that I mean, I think that there's some you know certainly in the last few years when we've seen big increases in supply, it's had a negative impact on pricing and vice versa.

Bryan E. Giles: Yeah, Jerry, I'll kind of add to that. I mean, I think that there are some, you know, certainly in the last few years when we've seen big increases in supply, it's had a negative impact on pricing, and vice versa. I think there was some after effect from COVID that likely played into it. I think we're seeing more normalized shopping patterns now than we saw previously. I think there's more interest and engagement in the category maybe than we've seen over the last few years, and I think consistent supply probably ties into that.

Jerry: I think there was some after effect from Covid that likely played into it I think we're seeing more normalized shopping patterns now than we saw previously I think theres more interest and engagement in the category maybe than we've seen over the last few years and I think consistent supply probably ties into that.

Bryan E. Giles: You know, we're seeing more aggressiveness with our customers, our retail customers, in particular, in promoting the category, and I think that's a big positive. I think a higher level of it than we've seen in a while, and as a result, we're seeing deeper household penetration and greater consumption among consumers, particularly here in the U.S. market. So I think we should view it as a positive. You know, I don't know how you couldn't view it as a positive when volumes are up and prices are up.

Jerry: You know, we're seeing more aggressiveness with our customers our retail customers in particular at promoting the category and I think those are those are big positives I think a higher level than what we've seen in a while and as a result, we're seeing a deeper household penetration and greater consumption among our consumers, particularly.

Jerry: Here in the U S market. So I think we view it as a positive Oh I don't know how you Couldnt view it as a positive when volumes are up and pricing is up I think that our numbers, maybe a little more extreme than what retail is seeing I think prices are up at retail and consumption is up but I do believe that some of that car.

Bryan E. Giles: I think that our numbers may be a little more extreme than what retail is seeing. I think prices are up at retail, and consumption is up, but I do believe that some of that cost is likely being borne by our customers to some extent because they're excited about the category and they're moving significant volumes, so they're making the decision to promote it.

Jerry: As likely being borne by our customers to some extent again, because they're excited about the category and they're moving significant volume so they're making the decision to promote it.

Gerard J. Sweeney: Okay, take volume over price to some degree. Is that fair?

Speaker Change: Okay chicken volume over price to some degree.

Speaker Change: Is that fair.

Bryan E. Giles: Yeah. I would say so, yeah.

Speaker Change: Yeah, I would say so yeah.

Yeah I'm also on the R&D side, you talked about gross margins being up and you gave a couple of different reasons stable supply early California season, and then I think some fee increases.

Gerard J. Sweeney: Also, on the M&D side, you talked about gross margins being up, and you gave a couple different reasons. Stable supply, early California season, and then I think some fee increases. Is there any way you can sort of bucket those out just to see what's driving each, and then the follow-up would be to that would be just on the fee side? Are you at a level where you feel as though fees are at an appropriate level, or is there still some catch-up to do on that front due to inflation and some other... I've only called Ted once in the past several years.

Speaker Change: Are there any way you can sort of either one bucket those out just to see what's driving each and then the follow up would be to that would be just on the fee side are you at a level, where you feel as though fees are at appropriate level or is there still some catch up to do on that front due to inflation and some other.

Speaker Change: Cost headwinds from the past several years.

Bryan E. Giles: I'll answer the last question first. I think we made the adjustments that we felt were necessary at the end of last year to bring our rates in line with the value that we provide to our customers. We'd gone an extended period of time without raising rates in any meaningful way for things like ripening and distribution services, for bagging product, and our transportation as well. We did everything we could to try to hold back on increases, not certain whether some of the increases we were seeing were transitory in nature. As it became more apparent that these cost increases were sticky, we had to look at raising those fees, and that's what we did.

Speaker Change: Hey, Jerry I think I'll answer the last question first.

Speaker Change: I think we made the adjustments that we felt were necessary at the end of last year to bring our rates in line to the value that we provide to our customers. We'd gone an extended period of time without raising rates in any meaningful way for things like ripening and distribution services for.

Speaker Change: For bagging product are in really in our transportation as well we did everything we could to try to hold back on increases.

Speaker Change: Not certain whether some of the increase were seeing were transitory in nature I'm sure as it became more apparent that the that the these cost increases were sticky we had to look at raising those fees and that's what we did I think we felt we raised them to a level that is appropriate for the service, you're providing and in line with what Ed.

Stephen J. Barnard: I think we felt we raised them to a level that is appropriate for the service we're providing and in line with what others in the industry are doing. I don't necessarily see the need at this point to extend those increases further, though we will continue to evaluate them as we move through the year.

Speaker Change: There's in the industry are doing.

Speaker Change: I don't necessarily see the need at this 0.2 to extend those increases further though we will continue to evaluate.

Speaker Change: As we move through the year.

Speaker Change: Getting I don't know Steve has just going to add to it one thing that that helps those cost as the volume of mango is going through the same facilities being put on the same trucks. So we're getting a little bit.

Bryan E. Giles: One thing that helps those costs is the volume of mangoes going through the same facilities being put on the same truck. So we're getting a little bit more efficiency also to help cover those costs. I think that's absolutely true, and getting back to your first question, it's tough to pinpoint exactly because it's such a dynamic environment that we work in; it's tough to pinpoint the exact drivers of gross margin performance at the moment that we're actually achieving it.

Speaker Change: More efficiency also to help cut.

Speaker Change: Cover those costs.

Speaker Change: I think and then stopped.

Speaker Change: Absolutely true and then getting back to your first question you know it it's tough to pinpoint exactly.

Speaker Change: It's such a dynamic environment that we work in it's tough to pinpoint the exact drivers of the gross margin performance and the moment that we're actually achieving it I mean, I will say that yeah. We consistently expected I think we referenced in the prior call that you know in Mexico crop what.

Bryan E. Giles: I mean, I will say that we consistently expected, and I think we referenced in the prior call, that it was not going to be any larger this year than it was last year. In fact, we expected it to be slightly smaller.

Speaker Change: It's just not going to be any larger this year than it was last year. If anything we expect it would be slightly smaller I think we continue to expect that crop those those constraints on the harvest to hit that yeah, well throughout the quarter and transitioning out of the quarter I don't think we saw as much of a reduction in.

Bryan E. Giles: I think we continue to expect that crop, those constraints on the harvest, to hit throughout the quarter and transition out of the quarter. But I don't think we saw as much of a reduction in volume during the quarter as we'd been expecting. It's where the industry as a whole is expecting and what we were communicating to our customer base. I think that was likely keeping pricing a little bit elevated, not knowing exactly what the supply conditions were going to look like as we've been caught in challenging situations in the past.

Speaker Change: During the quarter as we'd been expecting is where the industry as a whole is expecting and what we were communicating to our customer base. So I think that was likely keeping pricing a little bit elevated not knowing exactly what the supply conditions are going to look like as we've been caught in challenging situations in the past so that certainly plays a part of it.

Bryan E. Giles: So that certainly plays a part of it. I think you can't underestimate the impact of starting the California season earlier this year. We have a lot of fixed costs in our Oxnard location that we carry on a year-round basis. We definitely ramp up during the season when the harvest season begins, but when we're starting to run product through, the contribution margin from that California fruit is certainly higher than what we see when we're buying fruit from third parties, co-packers in Mexico, or running fruit through our other locations.

Speaker Change: I think.

Speaker Change: It's you can't underestimate the.

Speaker Change: The impact of starting the California season earlier. This year, we have a lot of fixed costs in our oxnard location that we carry on a year round basis, we definitely ramp during the season when the harvest season begins but when we're starting to run product through the contribution margin from that California fruit is certainly higher than what we see.

Speaker Change: See when we're buying a fruit from third parties co Packers in Mexico or running fruit through to our other locations. So I think they all they they have a meaningful impact yeah. I don't think we're really you know we can really explain how.

Bryan E. Giles: They have a meaningful impact. I don't think we can really explain how one... They both play off each other, and it's very difficult to pinpoint the margin accretion of one versus the other, but the fact that we made reference to them, we believe that both have a meaningful impact.

One they both play off each other and it's very difficult to kind of pinpoint the margin accretion to one versus the other but the fact that we made reference to them. We believe that both had a meaningful impact gotcha, no that's fair and I get it it's very very extremely dynamic.

Gerard J. Sweeney: Gotcha. No, that's fair. And I get it. It's very, very, extremely dynamic. Final question and then I'll jump back in line is you talked about the international farming side, specifically the Peru crop, down 50% year over year. But offsetting that is maybe some prices and then some efficiency that you put into it, into the operations there, but maybe you could potentially translate some of this into terms of maybe just the deep endowed potential for international farming.

Speaker Change: Situation there.

Speaker Change: Final question, then I'll jump back in queue was you talked about the international farming size.

Speaker Change: Specifically the crop.

Speaker Change: Maybe down 50% year over year, but offsetting that is maybe some prices and then some efficiency that you put into it.

Speaker Change: Into the operations there, but maybe you could essentially translate some of this too in terms of maybe adjusted EBITDA potential for the international segment.

Bryan E. Giles: Yeah, I'll kind of talk specific to the numbers, and then maybe Steve can jump in and give a little bit more perspective kind of on what we've been experiencing down in Peru over this last season and what we expect to see happen going forward from a weather standpoint. Where we're at today, it was we kind of came in when our last harvest season ended. I don't think any of us were pleased with the results we achieved last year, and our big focus coming out of the season was how we could reduce costs within our farming operation to improve its profitability. So that process began towards the back end of last summer and has continued on through this year.

Speaker Change: Yeah, I'll I'll kind of talk specific to the numbers and then maybe Steve can jump in and give a little bit more perspective kind of on what we've been experiencing down in Peru I'm over this last season, and what we expect to see happen going forward from a weather standpoint.

Speaker Change: Where we're at today. It was we've we kind of came in when their last harvest season ended I I don't think any of US were pleased with with the results. We achieved last year and our big focus coming out of season was how can we reduce cost within our farming operation to improve its profitability. So that process began.

Speaker Change: Yeah.

Speaker Change: Towards the backend of last summer and has continued on through this year. So those cost savings initiatives that we're benefiting from now are a result of those actions that we took.

Bryan E. Giles: So those cost savings initiatives that we're benefiting from now are a result of those actions that we took. I think when we look at volume, certainly, we're expecting numbers to be significantly lower than what we were planning for, significantly lower than what we've seen in the last few years. As a result of those supply constraints, we do expect prices to be up. What we're seeing on our farms is not unique. I mean, we're looking at industry estimates out of Peru, we're talking with other suppliers down that market, and we believe that the reduction that we're seeing on our own farms is relatively in line with what we're hearing across the board. So we're going to have a limited supply, but the industry as a whole is going to have a limited supply as well as we move through the second half of our fiscal year.

Speaker Change: I think when we look at volume certainly we're expecting numbers to be significantly lower than what we were planning for a significant lower than what we've seen in the last few years.

Speaker Change: As a result of those supply constraints, we do expect pricing to be up and what we're seeing on our farms is not unique I mean, we're looking at industry estimates out of Peru, where we're talking with other suppliers down that market and we believe that the reduction that we're seeing our own farms Ah is relatively in line.

Speaker Change: And with with what we're hearing across the board. So we're gonna have limited supply, but the industry as a whole is going to have limited supply as well as we move through the second half of our fiscal year.

Bryan E. Giles: I think when we look at it, we certainly had expectations for this year that we could generate EBITDA that's significantly higher than what we did last year. I think, as a result of the lack of volume, we're more likely to see results in the farming segment that are more in line with what we saw last year and not achieve the recovery that we were expecting this year. So again, if I look year over year,

Speaker Change: I think when we look at it.

Speaker Change: We certainly had expectations for this year that we could generate EBITDA, that's significantly higher than what we did last year I think as a result of the lack of volume we're more likely to see results in the farming segment that are more in line with what we saw last year and would not achieve the recovery that we were.

Speaker Change: <unk> this year, so again, if I look year over year.

Bryan E. Giles: There may not be dramatic movement, but it's certainly going to fall well short of the expectations that we have for that segment. We believe at this point that it's isolated to this year with the weather events that we've discussed. We certainly see some positive signs with the weather that I think Steve will discuss after I'm done. But certainly, we wanted to be transparent about what we think is going to happen for the year that we're in right now. We're going to work to get through this, and then I think we will remain excited about the possibilities that exist going forward.

Speaker Change: There may not be dramatic movement, but it's certainly fall should kind of fall well short of the expectations that we have for that segment. We believe at this point that it's you know that it's isolated to this year with our with the weather events that we've discussed we we certainly see some positive signs that our deal with weather.

Speaker Change: That I think Steve will discuss them after I'm done, but you know certainly we wanted to be transparent about what we think is going to happen for the year that we're in right now we're going to work to get through it and then you know I think we remain excited about the possibilities.

Speaker Change: That exist going forward.

Stephen J. Barnard: Yeah, just to expand on that, Jerry... You know, these nil ninos come by about every 10 years, and Peru is probably, you know, the closer you are to the equator, the more of them you get. I mean, California had its fair share too, but one of the things we did notice early, and what we did, we went out and locked up a lot of our facilities. A lot of those Peruvian packers have great orchards and a packing house, but they don't really have a marketing or distribution arm.

Speaker Change: Yeah, just to expand on that Gerry.

Gerry: You know there's no ninos come by about every 10 years.

Speaker Change: <unk> is probably.

Speaker Change: The closer you are to the equator either.

Speaker Change: The more of it you get I mean.

<unk> had its fair share too but.

Speaker Change: One of the things we did notice early and what we did we went out and locked up a lot of our a lot of those Peruvian Packers have great orchards in our packing house, but they don't really have a marketing or distribution arm. So we went out and locked up a lot of loads to help fill the gap that we could see coming on our own production.

Speaker Change: Is helped out in China.

Stephen J. Barnard: On a consignment basis, so everybody wins when the market goes up, and it's not covering everything we would have had on our own, but it's filling the gap pretty well and providing a pretty good income for us too. It appears El Nino is moving offshore. The trees will recover in time and put on a good show here later in the year. I'll be down there in a couple weeks and have a better idea of it.

Speaker Change: I'm, saying that basis, so everybody wins, when the market goes up and it's.

Speaker Change: Not covering everything we would have had on our own but it's filling the gap pretty well and providing a pretty good income for us too. So it appears el ninos moving off shore. So.

Speaker Change: Yeah.

Speaker Change: The trees recover in time and put on a good sat here later in the year that'll be down there in a couple of weeks have a better idea of it.

Okay.

Operator: I appreciate it. Thanks guys. I'll jump back in the queue. Take care, Jerry.

Speaker Change: I appreciate it thanks, guys I'll jump back in queue.

Speaker Change: Take care Jerry Thanks, Jerry.

Speaker Change: Okay.

Operator: And the next question comes from the line of Ben Cleave with Lake Street Capital Markets. Please proceed.

Speaker Change: And the next question comes from the line of Van Cleef with Lake Street Capital markets. Please proceed.

Benjamin Shelton Bienvenu: All right, thanks for taking my questions and congratulations on a nice quarter here. First question on the Blueberry Initiative: you talked about kind of accelerating the investments in the expansion, and I'm wondering if you can first of all confirm that the targets that you had set for that initiative, which I think were 2,600 acres by the end of 2028, you know, is that still kind of the end goal that you have for that segment, but maybe now that's just accelerated by a couple of years? And then second, the CapEx going into that initiative on a total basis, is that unchanged, and you're just accelerating it, or have you increased the total level of CapEx you're expecting to put in?

Van Cleef: Alright, Thanks for taking my questions and congratulations on a nice quarter here.

Van Cleef: First question on the Blueberry initiative.

Speaker Change: <unk> talked about.

Speaker Change: It kind of accelerating the investments into the expansion and I'm wondering if you can first of all confirm that the targets that you had for that initiative, which I think was 2600 acres by the end of 2028.

Speaker Change: Is that still kind of the end goal that you have for that segment, but maybe now thats just accelerated by a couple of years and then second on the Capex going into that initiative.

Speaker Change: Total basis.

Speaker Change: Is that unchanged.

Speaker Change: And Youre just accelerating it or have you increased the total level of Capex you are expecting them to put it.

Bryan E. Giles: Our expectations, Ben, at this point, the assumptions around total production are still the same. We have roughly 450 hectares planted down in the Chao region in Peru, which is where our original plantings were, and the plan is to develop around 600 hectares of land up in the Olmos region in the northern part of Peru. So yeah, 1,050 hectares, around 2,600 acres in total.

Speaker Change: Our our expectations band at this point E. The assumptions around total production or still the same and we have roughly 450 hectares planted are down in the Chow raging in Peru, which is why our original plantings wear and the plan is to develop around 600 hectares of land.

Speaker Change: And the almost region of northern part of Peru, So yeah, a thousand and 50 actors around 2600 acres in total nothing has changed at this point with that plan in terms of the overall capital spend we were planning to roll this out over a three year timeframe roughly I mean, I will say our plan for this year our original.

Bryan E. Giles: Nothing's changed at this point with that plan. In terms of the overall capital spend, we were planning to roll this out over a three-year time frame, roughly. I mean, I will say our plan for this, our original plan. I think what we're planning to do now is more in line with what our original plan was when we approved the project a couple of years ago. However, when we went into the budget for this year, we scaled back.

Speaker Change: I think what we're planning to do now is more in line with what our original plan was when we approved the project a couple of years ago.

Speaker Change: When we went into budget for this year, we scaled back we made some efforts to reduce the outflow because we were coming off of a relatively rough blueberry harvest season in 2022 23.

Bryan E. Giles: We made some efforts to reduce the outflow because we were coming off of a relatively rough blueberry harvest season in 2022-23. As we've gone through this year with the success that we've had with the higher price points and the positive cash flow that's been generated, we've taken a closer look at how we phased the project and decided to just pull some of the development back in. So, we're going to develop 100 hectares of land this year, start doing it towards the back half of the year, so some costs will be incurred this year, some will roll into our next fiscal year, but that's cost that we would have been planning to do next year, and we're just pulling it forward.

As we've gone through this year with the success that we've had with the higher price points and the positive cash flow. That's been generated we've taken a closer look at how we phase the project and decided to just pull some of the development back in so we're going to develop 100 hector's of land this year start doing it.

Speaker Change: Towards the back half of the year. So some more costs will be incurred this year some will roll into our next fiscal year, but that's cost that we would have been planning to do next year and we're just pulling it forward. The overall capex related to the project has not changed and I think as a matter of fact, I mean, we're looking for opportunities as we move through developed through the development of <unk>.

Bryan E. Giles: The overall CapEx related to the project has not changed, and I think, as a matter of fact, we're looking for opportunities as we move through the development to actually reduce that cost of development. So, I think that's kind of where we stand today.

Actually reduce that cost of development so.

I think that's kind of where where we stand today.

Benjamin Shelton Bienvenu: Got it. That's super helpful.

Speaker Change: Got it that's super helpful. Thanks, Brian.

Speaker Change: And.

Speaker Change: A question regarding the blueberry outlook.

Benjamin Shelton Bienvenu: Thanks, Bryan. And a question regarding the Blueberry Outlook. You noted that last year you had a phenomenal performance in that segment. I'm wondering, maybe it's too early to indicate one way or the other, but the weather conditions that are problematic for your other operations, is there any indication that the Blueberry Outlook is going to be compromised at all because of weather, or is it too early to say, or is there no effect?

Speaker Change: Note that last year, you had just a phenomenal performance out of that segment I'm wondering if maybe it's too early to indicate one way or the other but the weather conditions that are problematic for other operations is there any indication that the blueberry outlook is gonna be compromise at all because of weather or is it too early to say or is there no. It back.

Stephen J. Barnard: It doesn't appear that... They affect the blueberries as much, and one of the things that's different... We're all as new plantings on these blueberries banners, these super new varieties. Special Genetics out of Driscoll to produce a berry that they get a big premium on, not only because of the flavor and the size, but the production is run-of-the-mill varieties, so... As Bryan said, we wanted to accelerate this as fast as possible. We have the land available, we have the team to do it, and we got the cash to do it because of the great year we had. Get through it and enjoy it earlier.

It doesn't appear that.

Speaker Change: They affect the blueberries as much in one of the things that's different.

Speaker Change: Where all this new plantings on these blueberries banner.

Speaker Change: Super New varieties of <unk> spend.

Special genetics out of Driscoll that Purdue.

Speaker Change: Produce a very that they get a big premium on not only because of the flavor and the size, but the production is almost double compared to the <unk>.

Speaker Change: None of the mill variety so.

As Brian said, we wanted to accelerate this as fast as possible we have the land available. So we have the team to do it and we've got the cash to do it because of the great year, we had.

Speaker Change: Get through it and enjoy it earlier, yes, I think to Steve's point, Ben that crop, we have no indication that there's going to be challenges with the crop size. This year I think with.

Bryan E. Giles: Yeah, I think to Steve's point, Ben, the crop, we have no indication that there's going to be challenges with the crop size this year. I think, one of the things with planting further to the north, we should start harvesting blueberries a little earlier this year than we've traditionally seen. So I don't know if it's going to have a dramatic impact in the third quarter, but we'll likely see a little more activity in Q3 with blueberries than we've seen in prior years.

Speaker Change: One of the things with the planting further to the north we should start harvesting blueberries a little earlier this year than what we've traditionally seen so I don't know if it's going to have a dramatic impact in the third quarter, but will likely see a little more activity in Q3 with blueberries there than what we've seen in prior years.

Benjamin Shelton Bienvenu: You know, certainly, we benefited from an extremely high pricing environment last year due to supply constraints. But I don't necessarily think that we're planning for that type of a pricing environment this coming year. We think it'll likely settle in at more rational levels, but again, it will be dependent upon the overall supply that's available. I think, to Steve's point, one of the things that we believe will insulate our pricing to some extent are the new varieties that we're planning with opportunities to get them into premium markets, whether here in the U.S. or in Asia.

Speaker Change: Certainly we benefited from an extremely high pricing environment. This last year due to the supply constraints I don't necessarily think that we're planning for that type of a pricing environment. This coming year, we think it will likely settle in at more rational levels, but again it will be dependent upon the overall supply that's it.

Steve: Bailable I think to Steve's 0.1 of the things that we believe will insulate our pricing to some extent are the new varieties that were planning with opportunities to get them into premium premium markets weather here in the U S or in Asia, and as those become a larger percentage of the overall blueberries that we market.

Benjamin Shelton Bienvenu: And as those become a larger percentage of the overall blueberries that we market, we see that being the primary driver for keeping our average sales prices higher than the market as a whole out of Peru.

Steve: We see that being the primary driver for keeping our average sales prices higher than kind of the market as a whole out of Peru.

Benjamin Shelton Bienvenu: Got it, got it. That's all good to hear.

Speaker Change: Got it got it that's all good to hear.

Speaker Change: One more question for me and I'll jump back in queue regarding the cost reductions in the international farming operation.

Benjamin Shelton Bienvenu: One more question for me, and I'll go back in line regarding the cost reductions in the international farming operation. Ten million dollars of annualized savings, to what extent are those savings enabled by the lower volume that you're going to be getting out of Peru? I'm just curious if there's, if that's, that ten million dollars you think is kind of a sustainable number going forward, or if you get more normalized kinds of volume next fiscal year that you're going to see those costs pick up.

Speaker Change: $10 million.

Speaker Change: Fuel saving to what extent.

Speaker Change: Are those savings enabled by the lower volume that youre going to be getting out of Peru, I'm. Just curious if there's if that that $10 million. Do you think is kind of a sustainable number going forward or if you get more normalized kind of volume.

Speaker Change: Our next fiscal year that youre going to see those cost pick up.

Bryan E. Giles: These initiatives were put in place, Ben, long before we knew what the crop size for this year was even going to look like. These are very much fixed costs related to the farming operations themselves. Some related to our packing operation. I think it's just operating leaner from a labor standpoint than what we have historically. I think there are some other things that we're doing beyond that, but labor is certainly the biggest driver.

Speaker Change: No I did these initiatives are put in place spend long before we knew what the crop size for this year was even going to look like these are very much fixed costs related to the farming operations themselves some related to our packing operation I think it's just operating leaner from a labor standpoint.

Speaker Change: And then what we have historically I think there are some other things that we're doing beyond that but labor is certainly the biggest driver when we look the biggest variable costs. We have in our farms is actually related to harvesting and that is that's roughly 10% or so of the overall cost within our farming operation. So.

Bryan E. Giles: The biggest variable cost we have in our farms is actually related to harvesting. That's roughly 10% or so of the overall cost of our farming operation. That 10% is going to see a benefit of a lower cost as a result of less volume, but the rest of the costs are more driven on a per hectare or per acre basis, and they're not directly correlated with the volume that's coming off the tree. Maybe they're not 100% fixed, maybe there's a little bit of variability in it, but we would expect the vast majority of those cost savings to carry forward to future periods

Speaker Change: That 10% is going to see a benefit of a lower cost as a result of less volume, but the rest of the costs are more driven on a per Hector a per acre basis, and theyre not directly correlated with the volume that's coming off the tree. So maybe they're not 100% fixed maybe theres a little bit of variability into.

Speaker Change: But we would expect the vast majority of those cost savings to carry forward to future periods.

Benjamin Shelton Bienvenu: Got it. Okay. Very helpful. Well, congratulations again on a nice quarter here. Best of luck in the third quarter, and I'll get back. Hey, thank you very much.

Speaker Change: Got it okay very helpful well, congratulations again on a nice quarter here best of luck in the third quarter and I'll get back in queue.

Hey, Thank you very much guys. Thanks Ben.

Operator: Thank you. Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to management for closing remarks.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, there are no further questions at this time I would like to turn the call back to management for closing remarks.

Operator: Thank you for your interest in Mission PRdc, and we look forward to speaking with you again soon. This concludes today's conference. You may now disconnect your lines at this time. Thank you.

Speaker Change: Thank you for your interest in mission produce and we look forward to speaking with you again soon.

Operator: This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's conference you may now disconnect your lines at this time.

Operator: .. .. .. .. .. .. .. .. .. .. ...

Speaker Change: Thank you for your participation.

Yeah.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: Hmm.

Speaker Change: Hum.

Speaker Change: Hum.

Speaker Change: Oh.

Speaker Change: Oh.

Speaker Change: Hum.

Speaker Change: Hum.

Speaker Change: Hum.

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: Hum.

Speaker Change: Uh-huh.