Calavo Growers, Inc.

Greetings and welcome to the Colabo Growers Incorporated first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Mueller, Investor Relations. Thank you, Lisa. You may begin.

Thank you, Operator, and thank you all for joining us today to discuss Colavo Growers' first quarter 2021 financial results. This afternoon, we issued our earnings release, and this document is available in the investor relations section of our website at ir.colavo.com. I'm here today with Jim Gibson, Chief Executive Officer of Colavo, and Kevin Mannion, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open the call up for your questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our outlook for revenue and adjusted EBITDA, are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would now like to turn the call over to Jim Gibson. Jim, please go ahead.

Thank you, Lisa, and good afternoon, everyone. We hope you and your families are healthy and safe during this challenging time. We appreciate you joining us to discuss our 2021 first quarter results. Today, I'll kick things off with a high level overview of the quarter and current state of our company and the industry. Then Kevin will provide commentary on our first quarter financial results, balance sheet and guidance. We will then open up the line for Q&A. It seems incredible that one year ago we were facing the first real effects of COVID pandemic. And while we have been successfully adapting to the new environment over the last several quarters, our first quarter results were mixed, reflecting improvement in some areas and challenges in others due to the ongoing impact of the pandemic. Our core avocado business delivered improved results for the quarter. Market demand for avocados continues to rise, albeit at a slower pace due to the pandemic, and supply remains plentiful given the strong crop out of Mexico. These dynamics continue to weigh on prices, which on average were down 14% year over year. However, we grew our volume and delivered higher avocado gross margins in the quarter as we did a good job of managing our pricing spread and our sales mix. Our RFG business was negatively impacted by industry-wide supply chain disruptions, namely delivery delays at most of the U.S. ports due to the implementation of additional safety measures related to the pandemic. This dynamic impacted the availability and quality of some fresh fruit and vegetables, which created added challenges. We also continued to be impacted by the closure of our co-packing partner in the Midwest from April of 2020. Our food segment was again adversely impacted by lower food service demand resulting from the pandemic, offset slightly by favorable input commodity prices. Taken in the aggregate, our first quarter results were generally in line with our expectations, and adjusted EBITDA was at the high end of our guidance range. With respect to our fresh business, it bears repeating that even with increasing demand, when we are sourcing avocados, we are buying a full spectrum of sizes and grades that come off the trees, and our sales team then moves to match these sizes and grades with appropriate customers. Food service has historically represented about 20% of our avocado business, usually serves to absorb the supply of number two grade fruit and at the same time allows us to retain margin and good volume growth. This has been a challenge over the last several quarters as our expectation is that as demand returns from our food service customers in the second half of 2021, we will be able to return to our pre-pandemic sales and gross margin levels. In terms of operations, we saw good results and savings from increasing utilization of our Europan packinghouse. With respect to our RFG business, we believe the challenges we encountered during the quarter are short-term in nature, and we are cautiously optimistic that we'll return to top-line growth and increased profitability in the second half of the year as the country ports are returning to more normalized conditions, and we move beyond the anniversary of the closure of our Midwest packinghouse from April of 2020. In addition, as the pandemic becomes less of an operational risk, many of our facilities will return to more normalized operations, which should boost margins as well. Finally, our food segment continued to be adversely affected by lower food service demand resulting from the pandemic, offset slightly by favorable input commodity prices as we take advantage of the excess supply of avocados from Mexico. Our efforts to grow our international sales in this segment are still in the early stages as we selectively seek distribution partners in our targeted markets. We have made investments to support this side of the business, which we expect to show returns in the second half of the year. We have made great strides with our ESG initiatives this quarter. We joined the Packing Sustainability Council and the House Avocado Task Force on Avocado Sustainability to contribute to the industry's sustainability commitment. We have also begun developing a carbon footprint measurement so we can better measure our impact and report on this metric to our stakeholders. In Mexico, we are now saving upwards of 5,000 liters of water per week following new efforts to optimize water usage in the fruit washing area. We have also expanded our relationship with food technology company Appeal, bringing their plant-based technology to customers in Florida and Texas, And our use of Shelf Engine's intelligent forecast system has been implemented in one of our largest retail partners and is already reducing food waste by reducing spoilage and eliminating shrinkage. Finally, our upcoming annual shareholder meeting is mainly virtual, and our use of notice and access saves costs and is environmentally friendly. Turning to governance, it is our long-term objective to both right-size and refresh our board. Lee Cole recently stepped down from our board following his retirement as CEO and chairman last year. We are grateful to Lee for his decades-long commitment to Colabo and the strong foundation he put in place that we are building upon today. Lee's departure and that of two other longstanding directors, Dorca Steele and Gene Carboni, are in line with our board's commitment to reduce its size to nine members by 2023. of which seven will be independent. We are thrilled to now also have Farah Aslam on our board as of January 2021. She serves on our audit, compensation, and sustainability committees, and she has already made great contributions. Our board independence rate now stands at over 63%, with seven independent directors out of a total of 11. Our governance activities in the quarter includes the board's creation of a sustainability and corporate responsibility committee and the implementation of an anti-hedging and anti-pledging policy. Both initiatives reflect longstanding values of our company and yet are an opportunity for us to continue to formalize and lay the foundation for strong ESG leadership in the years to come. Looking ahead, we expect to see a continuation of current trends at least through the first half of 2021 with a large supply of avocados from Mexico continuing to weigh on prices and food service demand unable to fully recover until a majority of the country is vaccinated and we move closer to herd immunity. I want to thank our entire team of 4,000 colleagues across our global operations for their tireless efforts and their ability to be both flexible and innovative regardless of the many obstacles we have had to overcome. In the meantime, we continue to implement strategic initiatives designed to enhance our long-term growth prospects, capitalizing on opportunities to increase operating leverage and realize synergies across our entire organization. We remain committed to investing in our people and advancing our sustainability initiatives, as well as maintaining best-in-class communication with our investors, all with a focus on long-term growth improve profitability, and enhance value for our shareholders. With that, I'll turn the call over to Kevin.