Mission Produce, Inc.

Good afternoon, everyone, and welcome to the Mission Produce Fiscal Second Quarter 2024 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the call over to Jeff Sonick, Investor Relations at ICR. Please go ahead, sir.

Thank you, and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer, and Brian Giles, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on our investor relations website, investors.missionproduce.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that, I'd now like to turn the call over to Steve Barnard, CEO.

Steve? 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, giving our per-unit sales prices were up 22% versus the prior year. 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. 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 in 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. The combination of higher volumes, 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 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 own production volumes. The unseasonable warm temperatures, particularly during the night hours when the tree is recuperating, has stunted fruit development and reduced fruit sizing across the Peruvian growing region. 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 through 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 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 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. 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 in 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. 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 versatile 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 networks 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. The blueberry business was a highlight again this quarter. We've been allocating capital alongside our partner towards planning new premium blueberry varietals that offer higher yields and attractive returns. Moreover, these premium varietals are differentiated by their appearance and flavor profile, providing more optionality and added value for retailers and consumers. 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. In the United Kingdom, we have finished construction on the phase two 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. 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 markets. In 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, enhance profitability, and maintain a healthy balance sheet. With that, I'll pass the call over to our CFO, Brian Giles, for his financial commentary.

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 segments. 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 blueberries 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. 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 10 cents per diluted share, compared to a net loss of $4.6 million, or 7 cents per diluted share for the same period last year. Adjusted net income for the same period was $9.8 million, or 14 cents per diluted share, compared to an adjusted net loss of $0.5 million, or 1 cent per diluted share last year. 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 distribution segment. 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 are indicative of demand growth during the period. 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 source 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. 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. With this in mind, total segment sales and adjusted EBITDA in the international farming segment were $1.4 million and negative $2.2 million, respectively. compared to $6 million and negative $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. 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. 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 30th, 2024, compared to $42.9 million at October 31st, 2023. 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. 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. 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 in Peru, resulting from our cost savings initiatives. 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 facilities. 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 varietals are having in the marketplace. 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 fiscal 2024. 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. 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. 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. 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 total supply available. We expect industry volumes to decline by 10 to 15% during our fiscal 2024 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. 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 $1.36 per pound average experienced in the third quarter of fiscal 2023. 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 to Q&A.

Thank you, sir. 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 star keys. And our first question comes from the line of Jerry Sweeney with Roth Capital Partners. Please proceed.

Hi, Steve, Brian. Thanks for taking my call.

Hey, good talking to you, Jerry.

You know, in your prepared remarks, you discussed robust demand and prices. And I think this has been a little bit different from 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, you know, especially with the prices that are moving up with, you know, improved volumes of demand.

Well, it appears, Jerry, that the consumption continues to go up and the higher prices haven't really affected it. When you look back up a couple steps and you look at the overall volume sold 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 long term, as Brian said on the sheet, I mean, in Peru, it's lower. But in Mexico, it's 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.

Yeah, Jerry, I'll kind of add on to that. I mean, I think that there's some. 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. You know, we're seeing more aggressiveness with our customers, our retail customers in particular, at promoting the category. And I think those are big positives. 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 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 pricing is up. 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, again, because they're excited about the category and they're moving significant volumes. So they're making the decision to promote it.

Okay, taking volume over price to some degree. Is that fair?

Yeah. I would say so, yeah.

Yeah. 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 either one bucket those out just to see what's driving each, and then the follow-up to that would be just on the fee side specifically? 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 cost headwinds from the past several years?

Hey, Jerry, I think 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 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 bagging product in 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. 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 as we move through the year. I'm just going to add to it.

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, You know, it's tough to pinpoint exactly. It's such a dynamic environment that we work in. It's tough to pinpoint the exact drivers of the gross margin performance in the moment that we're actually achieving it. I mean, I will say that, you know, we consistently expected, and I think we referenced in the was not going to be any larger this year than it was last year. If anything, we expect it to be slightly smaller. I think we continue to expect that crop, those constraints on the harvest, to hit throughout the quarter and transitioning out of the quarter. 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. 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. 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 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. So I think they have a meaningful impact. I don't think we can really explain how 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 a very, very extremely dynamic situation there. Final question, then I'll jump back in queue. You talked about the international farming side, specifically the grew crop being maybe 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 adjusted EBITDA potential for the international segment.

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've 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 can we 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. 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 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 in our own farms is relatively in line with what we're hearing across the board. So we're going to 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. 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, 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 weather that I think Steve will discuss. 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, you know, the possibilities that exist going forward.

Yeah, just to expand on that, Jerry, you know, these Nel Ninos come by about every 10 years and Peru is probably, you know, the closer you are to the equator, the the more of it 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, a lot of those Peruvian packers have great orchards and a 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, which is helped out. And it's 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. So it appears El Nino is moving offshore, so hopefully the trees recover in time and put on a good set here later in the year. I'll be down there in a couple weeks and have a better idea of it.

Okay. I appreciate it. Thanks, guys. I'll jump back in queue. Thanks.

Take care, Jerry.

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

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 into 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 was 2,600 acres by the end of 2028. Um, you know, is that still kind of the end goal that you have for that segment, but maybe now that's just accelerated by, by a couple of years. And then second, um, the, the CapEx going into that initiative on a, on a total basis, uh, is that unchanged? Um, and you're just accelerating it or have you increased the total level of CapEx you're expecting to put in?

Our expectations, Ben, at this point, the assumptions around total production are still the same. We have roughly 450 hectares planted down in the Chow 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. 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. 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. 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 costs 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 the development to actually reduce that cost of development. So I think that's kind of where we stand today.

Got it. That's super helpful. Thanks, Brian. And, and the question regarding the blueberry outlook that, you know, you noted that last year you had just a phenomenal performance out of that segment. I'm wondering if it's, maybe it's too early to indicate one way or the other, but you know, the weather conditions that are, you know, 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?

It doesn't appear that they affect the blueberries as much. And one of the things that's different, all these new plantings on these blueberries banner, these super new varieties, special genetics out of Driscoll that produce a berry 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 run-of-the-mill varieties. As Brian said, we wanted to accelerate this as fast as possible. We have the land available. We have the team to do it, and we've got the cash to do it because of the great year we had. Let's get through it and enjoy it earlier.

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 with... You know, 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 we'll likely see a little more activity in Q3 with blueberries than what we've seen in prior years. You know, 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'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. And as those become a larger percentage of the overall blueberries that we market, we see that being, you know, the primary driver for keeping our average sales prices higher than kind of the market as a whole out of Peru.

Got it. Got it. That's all good to hear. One more question for me, and I'll go back in queue regarding the cost reductions in the international farming operation. Ten million 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 that $10 million you think is kind of a sustainable number going forward, or if you get more normalized kind of volume next fiscal year that you're going to see those costs pick up.

No, 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. When we look, the biggest variable cost we have in our farms is actually related to harvesting. And that's roughly 10% or so of the overall cost within our farming operation. So 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. So maybe they're not 100% fixed. Maybe there's a little bit of variability into it. But we would expect the vast majority of those cost savings to carry forward to future periods.

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 to you.

Hey, thank you very much, Ben.

Thanks, Ben.

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.

Thank you for your interest in Mission Produce, 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 for your participation.