SEC Filing | Calavo Growers, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

California

33-0945304

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)


1141-A Cummings Road, Santa Paula, California		93060
(Address of principal executive offices)		(Zip Code)

(805) 525-1245

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	CVGW	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Registrant's number of shares of common stock outstanding as of August 31, 2023 was 17,761,061

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains statements relating to future events and results of Calavo Growers, Inc. and its consolidated subsidiaries (referred to in this report as “Calavo,” the “Company,” “we,” “us” or “our”), including certain projections and business trends, that are "forward-looking statements," as defined in the Private Securities Litigation and Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements are based on our current expectations and are not promises or guarantees. If any of the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, gross profit, expenses, income/(loss) from unconsolidated entities, earnings, earnings per share, tax provisions, cash flows and currency exchange rates; the impact of acquisitions or debt or equity investments or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration (including information technology systems integration) plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance, whether attributable to Calavo or any of its unconsolidated entities; any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; any statements about future risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds, restrictions as a result of COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or quotas); any risks associated with receivables from and/or equity investments in unconsolidated entities; system security risk and cyber-attacks and any statements of assumptions underlying any of the foregoing. The use of words such as "anticipates," "estimates," "expects," "projects," "intends," "plans" and "believes," among others, generally identify forward-looking statements.

Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the ability of our new management team to work together successfully; the impact of operational and restructuring initiatives on our business, results of operations, and financial condition, including uncertainty as to whether the desired effects will be achieved; and potential long-term adverse effects from reducing capital expenditures; the impact of weather of on market prices and operational costs; seasonality of our business; sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper; potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel, and access to labor necessary for us to render services; susceptibility to wage inflation; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the impact of environmental regulations, including those related to climate change; risks associated with the environment and climate change, especially as they may affect our sources of supply; our ability to develop and transition new products and services and enhance existing products and services to meet customer needs; risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and restrictions as a result of COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or quotas and currency fluctuations); risks associated with receivables from, loans to and/or equity investments in unconsolidated entities; volatility in the value of our common stock; the impact of macroeconomic trends and events; and the resolution of pending investigations, legal claims and tax disputes, including an assessment imposed by the Mexican Tax Administrative Service (the “SAT”) and our defenses against collection activities commenced by the SAT.

For a further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K for the fiscal year ended October 31, 2022 filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q (including this Quarterly Report on Form 10-Q) and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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CALAVO GROWERS, INC.

INDEX

		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Consolidated Balance Sheets – July 31, 2023 and October 31, 2022	4

	Consolidated Statements of Operations – Three and Nine Months Ended July 31, 2023 and 2022	5

	Consolidated Statements of Cash Flows –Nine Months Ended July 31, 2023 and 2022	6

	Consolidated Statements of Shareholders’ Equity – Three and Nine Months Ended July 31, 2023 and 2022	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

	Signatures	35

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED, in thousands)


	July 31,		October 31,
	2023		2022

Assets
Current assets:
Cash and cash equivalents	$	1,402	$	2,060
Restricted cash		761		1,074
Accounts receivable, net of allowances of $4,020 (2023) and $4,199 (2022)		76,417		59,016
Inventories		38,878		38,830
Prepaid expenses and other current assets		12,913		8,868
Advances to suppliers		15,839		12,430
Income taxes receivable		4,150		3,396
Total current assets		150,360		125,674
Property, plant, and equipment, net		114,224		113,310
Operating lease right-of-use assets		49,744		54,518
Investments in unconsolidated entities		3,383		3,782
Deferred income taxes		5,776		5,433
Goodwill		28,653		28,653
Intangibles, net		6,074		7,206
Other assets		56,726		47,170
	$	414,940	$	385,746
Liabilities and shareholders' equity
Current liabilities:
Payable to growers	$	22,712	$	20,223
Trade accounts payable		16,425		10,436
Accrued expenses		42,183		51,795
Other current liabilities		11,000		11,000
Current portion of term loan		404		—
Current portion of operating leases		6,911		6,925
Current portion of long-term obligations and finance leases		1,674		1,574
Total current liabilities		101,309		101,953
Long-term liabilities:
Borrowings pursuant to line of credit, long-term		36,768		1,200
Long-term portion of term loan		3,055		—
Long-term portion of operating leases		47,281		52,140
Long-term portion of obligations and finance leases		5,198		4,447
Other long-term liabilities		2,229		2,635
Total long-term liabilities		94,531		60,422
Commitments and contingencies
Shareholders' equity:
Common stock ($0.001 par value, 100,000 shares authorized; 17,761 (2023) and 17,732 (2022) shares issued and outstanding)		18		18
Additional paid-in capital		175,653		171,223
Noncontrolling interest		1,405		1,015
Retained earnings		42,024		51,115
Total shareholders' equity		219,100		223,371
	$	414,940	$	385,746

The accompanying notes are an integral part of these consolidated financial statements.

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CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)


	Three months ended				Nine months ended
	July 31,				July 31,
	2023		2022		2023		2022

Net sales	$	259,875	$	341,991	$	730,768	$	947,501
Cost of sales		234,850		323,477		676,274		894,017
Gross profit		25,025		18,514		54,494		53,484
Selling, general and administrative		17,842		16,659		52,271		48,404
Expenses (recovery) related to Mexican tax matters		(1,203)		303		1,231		1,148
Impairment and charges related to Florida facility closure		—		—		—		959
Operating income		8,386		1,552		992		2,973
Interest expense		(793)		(485)		(1,482)		(1,272)
Other income, net		230		278		862		1,433
Unrealized net income (loss) on Limoneira shares		—		1,225		—		(5,803)
Income (loss) before income taxes and loss from unconsolidated entities		7,823		2,570		372		(2,669)
Income tax benefit (expense)		(617)		(984)		(21)		363
Net loss from unconsolidated entities		(498)		(269)		(398)		(812)
Net income (loss)		6,708		1,317		(47)		(3,118)
Add: Net loss (income) attributable to noncontrolling interest		(82)		(17)		(390)		185
Net income (loss) attributable to Calavo Growers, Inc.	$	6,626	$	1,300	$	(437)	$	(2,933)

Calavo Growers, Inc.’s net income (loss) per share:
Basic	$	0.37	$	0.07	$	(0.02)	$	(0.17)
Diluted	$	0.37	$	0.07	$	(0.02)	$	(0.17)

Number of shares used in per share computation:
Basic		17,756		17,667		17,746		17,661
Diluted		17,856		17,769		17,746		17,661

The accompanying notes are an integral part of these consolidated financial statements.

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CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine months ended July 31,
	2023		2022

Cash Flows from Operating Activities:
Net loss	$	(47)	$	(3,118)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		12,815		12,472
Non-cash operating lease expense		64		40
Net loss from unconsolidated entities		398		812
Realized and unrealized net loss on Limoneira shares		—		5,803
Divesture of Calavo Salsa Lisa		624		—
Impairment and non-cash charges related to closure of Florida facility		—		317
Provision for uncollectible Mexican IVA taxes receivable		1,404		—
Stock-based compensation expense		4,382		2,123
Gain on sale of Temecula packinghouse		(162)		(162)
Loss on disposal of property, plant, and equipment		40		—
Effect on cash of changes in operating assets and liabilities:
Accounts receivable, net		(17,401)		376
Inventories		(437)		4,594
Prepaid expenses and other current assets		(3,673)		(30)
Advances to suppliers		(2,481)		(4,945)
Income taxes receivable/payable		(754)		3,022
Other assets		(11,622)		(3,205)
Payable to growers		2,489		12,716
Trade accounts payable, accrued expenses and other liabilities		(4,837)		11,369
Net cash provided by (used in) operating activities		(19,198)		42,184
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(10,092)		(7,738)
Net cash used in investing activities		(10,092)		(7,738)
Cash Flows from Financing Activities:
Payment of dividend to shareholders		(8,654)		(20,330)
Proceeds from revolving credit facilities		215,818		221,500
Payments on revolving credit facilities		(180,250)		(233,600)
Payments of debt issuance cost		(693)		—
Payments of minimum withholding taxes on net share settlement of equity awards		—		(95)
Proceeds from term loan		3,459		—
Payments on long-term obligations and finance leases		(1,409)		(1,357)
Proceeds from stock option exercises		48		47
Net cash provided (used in) by financing activities		28,319		(33,835)
Net increase (decrease) in cash, cash equivalents and restricted cash		(971)		611
Cash, cash equivalents and restricted cash, beginning of period		3,134		2,855
Cash, cash equivalents and restricted cash, end of period	$	2,163	$	3,466
Noncash Investing and Financing Activities:
Right of use assets obtained in exchange for new financing lease obligations	$	2,016	$	—
Settlement of Agricola Belher infrastructure advance offset against payable to growers	$	1,700	$	1,060
Property, plant, and equipment included in trade accounts payable and accrued expenses	$	869	$	309

The accompanying notes are an integral part of these consolidated financial statements.

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CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)



				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total

Balance, April 30, 2022	17,742	$	18	$	169,453	$	53,130	$	1,166	$	223,767
Issuance of common stock in connection with stock-based compensation, net of tax witholdings	(10)		—		—		—		—		—
Stock-based compensation expense	—		—		755		—		—		755
Avocados de Jalisco noncontrolling interest	—		—		—		—		17		17
Net income attributable to Calavo Growers, Inc.	—		—		—		1,300		—		1,300
Balance, July 31, 2022	17,732	$	18	$	170,208	$	54,430	$	1,183	$	225,839



				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total

Balance, April 30, 2023	17,752	$	18	$	174,674	$	37,176	$	1,323	$	213,191
Issuance of common stock in connection with stock-based compensation, net of tax witholdings	9		—		—		—		—		—
Stock-based compensation expense	—		—		979		—		—		979
Dividend declared to shareholders (0.10 per share)	—		—		—		(1,778)		—		(1,778)
Avocados de Jalisco noncontrolling interest	—		—		—		—		82		82
Net income attributable to Calavo Growers, Inc.	—		—		—		6,626		—		6,626
Balance, July 31, 2023	17,761	$	18	$	175,653	$	42,024	$	1,405	$	219,100


				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total
Balance, October 31, 2021	17,686	$	18	$	168,133	$	57,363	$	1,368	$	226,882
Issuance of common stock in connection with stock-based compensation, net of tax witholdings	46		—		(48)		—		—		(48)
Stock-based compensation expense	—		—		2,123		—		—		2,123
Avocados de Jalisco noncontrolling interest	—		—		—		—		(185)		(185)
Net loss attributable to Calavo Growers, Inc.	—		—		—		(2,933)		—		(2,933)
Balance, July 31, 2022	17,732	$	18	$	170,208	$	54,430	$	1,183	$	225,839


				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total
Balance, October 31, 2022	17,732	$	18	$	171,223	$	51,115	$	1,015	$	223,371
Issuance of common stock in connection with stock-based compensation, net of tax witholdings	29		—		48		—		—		48
Stock-based compensation expense	—		—		4,382		—		—		4,382
Dividend declared to shareholders (0.4875 per share)	—		—		—		(8,654)		—		(8,654)
Avocados de Jalisco noncontrolling interest	—		—		—		—		390		390
Net loss attributable to Calavo Growers, Inc.	—		—		—		(437)		—		(437)
Balance, July 31, 2023	17,761	$	18	$	175,653	$	42,024	$	1,405	$	219,100

See accompanying notes to consolidated financial statements.

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CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the business

Business

Calavo Growers, Inc. (referred to in this report as “Calavo”, the “Company”, “we’, “us” or “our”), is a global leader in the avocado industry and a provider of value-added fresh food. Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers on a worldwide basis. We procure avocados from California, Mexico and other growing regions around the world. Through our various operating facilities, we (i) sort, pack, and/or ripen avocados, tomatoes and/or Hawaiian grown papayas, (ii) create, process and package a portfolio of healthy fresh foods including fresh-cut fruit and vegetables, and prepared foods and (iii) process and package guacamole and salsa. We distribute our products both domestically and internationally and we report our operations in two different business segments: Grown and Prepared.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

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2. Information regarding our operations in different segments

We report our operations in two different business segments: Grown and Prepared. The Grown segment consists of fresh avocados, tomatoes and papayas. The Prepared segment comprises all other products including fresh cut fruits and vegetables, ready-to-eat sandwiches, wraps, salads and snacks, guacamole, and salsa sold at retail and food service as well as avocado pulp sold to foodservice. These two business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. Selling, general and administrative expenses, as well as other non-operating income/expense items, are evaluated by our Chief Executive Officer in the aggregate. We do not allocate assets, or specifically identify them, to our operating segments. The sales data in the following tables is presented in thousands:


	Three months ended July 31, 2023						Three months ended July 31, 2022

	Grown		Prepared		Total		Grown		Prepared		Total

Avocados	$	127,328	$	—	$	127,328	$	196,443	$	—	$	196,443
Tomatoes		15,662		—		15,662		8,990		—		8,990
Papayas		2,338		—		2,338		2,679		—		2,679
Other fresh income		10		—		10		54		—		54
Fresh-cut products		—		101,150		101,150		—		117,541		117,541
Guacamole		—		18,049		18,049		—		19,606		19,606
Salsa		—		49		49		—		524		524
Total gross sales		145,338		119,248		264,586		208,166		137,671		345,837
Less sales allowances		(795)		(3,442)		(4,237)		(577)		(2,799)		(3,376)
Less inter-company eliminations		(474)		—		(474)		(470)		—		(470)
Net sales	$	144,069	$	115,806	$	259,875	$	207,119	$	134,872	$	341,991


	Nine months ended July 31, 2023						Nine months ended July 31, 2022

	Grown		Prepared		Total		Grown		Prepared		Total

Avocados	$	352,858	$	—	$	352,858	$	538,882	$	—	$	538,882
Tomatoes		45,669		—		45,669		36,331		—		36,331
Papayas		8,193		—		8,193		8,462		—		8,462
Other fresh income		75		—		75		87		—		87
Fresh-cut products		—		283,588		283,588		—		316,804		316,804
Guacamole		—		52,601		52,601		—		56,976		56,976
Salsa		—		756		756		—		1,349		1,349
Total gross sales		406,795		336,945		743,740		583,762		375,129		958,891
Less sales allowances		(3,510)		(8,296)		(11,806)		(2,591)		(7,240)		(9,831)
Less inter-company eliminations		(1,166)		—		(1,166)		(1,559)		—		(1,559)
Net sales	$	402,119	$	328,649	$	730,768	$	579,612	$	367,889	$	947,501

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