Calavo Growers, Inc.

Greetings and welcome to the Calavo Growers Incorporated second 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 Colabo Growers' second 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.colabo.com. I am here today with Jim Gibson, Chief Executive Officer of Colabo, and Kevin Mannion, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open up the call 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 differ 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 appreciate you joining us to discuss our 2021 second quarter results. I'll kick off the call with a high level overview of the quarter and current state of our company and the industry. Kevin will then, as in past quarters, address our second quarter financial results, our balance sheet, and provide you with guidance based on our near-term outlook and the evolving trends we are seeing in the U.S. economy as it begins to emerge from the pandemic. Then we will open up The line for questions. We are very pleased to report revenue that was essentially on par with last year, especially considering second quarter 2021 was impacted by the pandemic for the full three months compared to only one and a half months last year. We are also pleased with a nine and a half percent increase in EBITDA compared to last year. This gives us comfort that the long-term trends for the business are positive. Our core avocado business continues to experience solid demand. With the first half of 2021, we recorded the highest volume we have seen in the last five years, reflecting growing consumer acceptance across all of our end markets. Avocado volume grew 9% in the second quarter, although elevated supply from the strong crop out of Mexico suppressed pricing. However, with our team's skillful management of both sourcing and volume growth, we reported fresh segment gross profit in line with historical norms. With our RFG and food segments, we saw a return to year-over-year sales growth from improved demand in the retail grocery channel. The RFG segment did experience headwinds at the start of the quarter with extreme weather events in Texas and the Pacific Northwest, which caused us and our customers to close some facilities and also created quite a bit of disruption for our employees and their families. Weather also led to poor quality of imported fruit, which also often delayed products coming in from our ports. We are now in the domestic season, so this issue is not expected to impact us in the next quarter. Despite these challenges and excluding the comparative impact from the April 2020 closure of our Midwest co-packing partner, I am proud of the team's efforts as RG sales increased 16% year over year. We continue to introduce new seasonally relevant products in the fresh cut produce category that align with our commitment to provide our customers with healthy and convenient meal solutions. While we are seeing positive signs as the economy reopens, we have yet to see a full recovery of the food service industry, which includes hospitality, lodging, and restaurants. Anecdotally, We are hearing from some of our hospitality customers that they are forecasting a return to normalcy by the fall, at which time they expect to relaunch their food service offerings. We are encouraged about that timing, but for many food service operators, it is not as easy as turning on a light switch. The process to start things up again takes time, particularly given the current tight labor market. While we expect our food service business to fully recover, it is likely to take more time. We are fully poised to benefit when it does happen. We are also quite encouraged by the continued growth in our international business in both the fresh and food segments. Demand for guacamole, for example, continues to increase, and our near-term outlook remains favorable with a number of new customer opportunities. We are seeing good traction in Asia and are preparing to launch in Europe in the third quarter. We are invested and additional personnel earlier this year, and we are very excited about our future growth potential. We also believe that our guacamole offering expands into these markets. It opens the door for our avocado business as well. While these business lines will have different supply chains, we see a great opportunity because our customer base is pretty much the same. While the international business is small as a percentage of our overall revenue base, It represents a meaningful growth opportunity going forward, and we should continue to see more lift in the third quarter. Another potential upside for our international business is our Jalisco packing house. The Mexican government has rescinded its ban on importing potatoes from the U.S., so regulatory limitations on exporting avocados from Jalisco should be lifted soon. This would pave the way for the USDA to approve the region to sell into the US and will also have the effect of opening up the international side as well. For example, Japan and China do not accept fruit from Alisco because they follow USDA guidelines and the state of Alisco does not yet have USDA approval. We have been shipping to these markets out of Michoacan, but if USDA approval were to open these regions, our shipping from Jalisco would be a smoother way for us to build our international business to these markets. With respect to labor, we, like many businesses across the country right now, are experiencing challenges in staffing. We are experimenting with different options to attract and retain people, such as wage increases, periodic bonuses, and company-sponsored vaccinations. Our internal teams are working to create tailored employee retention plans that will reduce turnover and lead to a more stable and loyal workforce at our facilities. And, as always, employee safety and well-being remain our top priority. We have spent a significant amount of time evaluating our portfolio of products and manufacturing facilities to determine the optimal mix and will continue this process, particularly in light of labor shortages and rising freight costs. From an ESG perspective, Colabo is looking to the future with a focus on a number of fronts, including building our brand to bring innovative, healthy, and convenient value-added products to our customers and the marketplace, utilizing technology to enhance our operations and improve our supply chain, embracing agricultural innovation, focusing on reducing food waste, and continuing our sustainability commitment in all the communities where we operate. We are pleased to share that despite the challenges presented by the pandemic, we were able to make great strides on our transformational journey to become a more nimble company. Our third quarter annual sustainability report will be published later this month. I am proud of our recent achievements that include an 8% reduction in our scope one and two carbon emissions from 2019 to 2020, new projects to address food waste and electrical usage, and a retail shrink reduction through the use of food preservation technologies we have deployed. Finally, at our annual meetings of shareholders, we confirmed our plans to reduce the size of our board over time from 11 to nine directors, which is more in line with the company of our size. We also presented our three-year plan to the board, which included succession planning and information technology investments necessary to address growing data and security needs as we continue to consolidate under our one company initiative. Included in that plan is our goal to drive double-digit growth based on three pillars, organic growth, international expansion, and strategic M&A activity. In the meantime, we remain focused on the things we can control and on advancing our near-term objectives. We continue to monitor inflation, the labor market across the hospitality and food service industries, and our various supply chains to get a better read on how the second half of the year will evolve. We are optimistic about our long-term prospects and continue to focus on our strategic initiatives, capitalizing on opportunities to increase operating leverage, furthering our sustainability initiatives, and realizing synergies across the entire organization with the goal of improving profitability, sustainability, and shareholder value. To that end, we are launching Project Uno, which is a strategic review of our business from top to bottom. We will be engaging a consultant for this project to identify opportunities to enhance revenue growth, streamline operations, drive efficiencies, and make investments that strengthen our competitive position and improve margins over the long term. The project is in its early stages, and we will provide more details as it progresses. With that, I'll turn the call over to Kevin.