Quarterly Report for Quarter Ending January 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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This information should be read in conjunction with the interim financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the fiscal year ended October 31, 2025, as amended.

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Recent Developments

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Merger with Mission Produce

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As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025, as amended, on January 14, 2026, the Company, Mission Produce and certain of Mission Produce's subsidiaries entered into the Merger Agreement. There have been no material changes to the terms of the Merger Agreement during the three months ended January 31, 2026. On March 9, 2026, Mission Produce filed a Registration Statement on Form S-4 with the SEC that includes a joint proxy statement of the Company and Mission Produce and a prospectus of Mission Produce relating to the proposed transaction.

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Dividends

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On January 28, 2026, we paid a dividend of $0.20 per share, or an aggregate of $3.6 million to shareholders of record on January 13, 2026. On March 9, 2026, the Board declared a quarterly cash dividend of $0.20 per share to be paid on April 29, 2026, to shareholders of record on April 1, 2026.

Supply Chain Disruptions

In February 2026, the Mexican avocado industry temporarily paused certain operations following a security-related event in the state of Jalisco. In response to the situation, U.S. government officials directed U.S. Department of Agriculture personnel supporting the avocado export program to limit certain field activities and remain at authorized packinghouse locations while continuing to oversee fruit inspections and related program protocols. As a result of the broader industry pause, operations at our facility in Mexico were temporarily suspended for approximately one day. The disruption did not have a material impact on our operations or financial results to date.

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Critical Accounting Estimates

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In preparing our financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, and costs and expenses that are reported in the interim financial statements and accompanying disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates and assumptions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

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There have been no material changes in our critical accounting estimates during the three months ended January 31, 2026, as compared to those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" in our Annual Report on Form 10-K for our fiscal year ended October 31, 2025, as amended.

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Results of Operations

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Net sales

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The following table summarizes our net sales by business segment for each of the three months ended January 31, 2026 and 2025 (in thousands):

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Summary

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Net sales for the three months ended January 31, 2026, decreased by $32.2 million, or 21%, compared to the same period in fiscal 2025, to $122.2 million. This decrease was driven primarily by a 35% decrease in price per avocado carton, partially offset by a 17% increase in avocado carton volume and a 20% year-over-year increase in Prepared segment sales, primarily due to increased sales volumes.

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We remain focused on expanding grower partnerships and strengthening relationships with retail and foodservice customers to support long-term net sales growth across both segments. Our Fresh and Prepared businesses are subject to seasonal trends, which may impact the volume and quality of raw materials sourced in any given quarter.

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Fresh products

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First Quarter 2026 vs. First Quarter 2025

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Net sales for the Fresh segment decreased by approximately $35.1 million, or 25%, for the three months ended January 31, 2026 compared to the same period in fiscal 2025. The decrease was primarily driven by lower avocado sales.

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Prepared products

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First Quarter 2026 vs. First Quarter 2025

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Net sales for the Prepared segment increased by $2.9 million, or 20%, for the three months ended January 31, 2026, compared to the same period in fiscal 2025. The increase was primarily driven by a 21% increase in pounds sold of guacamole and related products, partially offset by a 1% decrease in average selling price per pound. Growth reflected expanded sales to existing customers and meaningful new customer wins across retail and foodservice customers in both domestic and international markets. Net sales also included a $0.8 million favorable adjustment to sales allowances based on recent claims experience and customer mix.

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Gross profit

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The following table summarizes our gross profit and gross profit percentages by business segment for the three months ended January 31, 2026, and 2025 (in thousands):

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Summary

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Our cost of goods sold consists primarily of ingredient costs (including fruit and other food products), packing materials, freight and handling, labor, and overhead (including depreciation) associated with packing, distributing, and/or preparing food products, as well as other direct expenses related to products sold.

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Gross profit decreased by approximately $0.5 million, or 3%, for the three months ended January 31, 2026, compared to the corresponding period in fiscal 2025. The decrease primarily reflects lower gross profit in the Fresh segment resulting from lower avocado and tomato pricing, partially offset by higher gross profit in the Prepared segment driven by increased sales volumes, lower fruit input costs, and improved operating efficiencies.

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Fresh products

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Gross profit decreased by approximately $1.8 million, or 15% for the Fresh segment declined in the three months ended January 31, 2026, primarily due to lower pricing in avocados and tomatoes, as well as reduced tomato volumes.

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Prepared products

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Prepared segment gross profit increased 36% to $4.9 million, driven primarily by higher sales volumes and improvement in unit profitability. Gross profit per pound for the Prepared segment increased by approximately 12% in the three months ended January 31, 2026 compared to the corresponding period in fiscal 2025, reflecting higher sales volumes and a favorable adjustment to sales allowances of approximately $0.8 million based on recent claims experience and customer mix.

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Selling, general and administrative

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Selling, general, and administrative ("SG&A") expenses totaled $16.4 million for the three months ended January 31, 2026. These expenses consist primarily of legal and consulting fees, marketing and advertising costs, sales expenses (including broker commissions), and other general and administrative costs.

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SG&A expenses for the three months ended January 31, 2026 increased by $6.1 million, or 59%, compared to the corresponding period in fiscal 2025. The increase was primarily driven by $4.9 million of M&A-related costs associated with the pending merger with Mission Produce and higher stock-based compensation of approximately $1.8 million. SG&A also included approximately $1.1 million of other non-recurring costs, consisting primarily of $0.6 million related to a claim under California's Private Attorneys General Act ("PAGA") associated with our former Fresh Cut business, which was divested in the fourth fiscal quarter of 2024, and $0.5 million of onboarding and transition costs associated with recent senior leadership changes. These increases were partially offset by approximately $0.8 million of lower professional fees, including a reduction in insurance expense.

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Foreign currency gain (loss)

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Our foreign operations in Mexico are subject to exchange rate fluctuations and foreign currency transaction costs. The functional currency of our foreign subsidiaries in Mexico is the United States dollar ("USD"). As a result, monetary assets and liabilities are remeasured into USD at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are remeasured at historical rates. Sales and expenses are remeasured using a weighted-average exchange rate for the period.

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Due to the change in the Mexican peso to the USD exchange rates, foreign currency remeasurement gains, net of losses, for the three months ended January 31, 2026, were $2.6 million. Foreign currency remeasurement losses, net of gains for the three months ended January 31, 2025, were $1.0 million.

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Income (loss) from unconsolidated entities

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Income (loss) from unconsolidated entities includes our participation in earnings or losses from our investments in Don Memo. For the three months ended January 31, 2026 and 2025, we realized a loss of $0.5 million and a gain of $0.9 million from Don Memo.

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Provision for income taxes

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The effective tax rates for each of the three months ended January 31, 2026 and 2025 were 26%. Our effective tax rates for the three months ended January 31, 2026 and January 31, 2025 differ from the U.S. federal statutory rate of 21% due to the U.S. state tax and foreign tax rate differential in Mexico.

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Liquidity and Capital Resources

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Cash used in operating activities was $8.7 million for the three months ended January 31, 2026, compared to cash used in operating activities of $4.4 million for the corresponding period in fiscal 2025. The cash used in operating activities during the three months ended January 31, 2026 was primarily driven by $13.5 million of cash used by changes in operating assets and liabilities, partially offset by net income of $0.8 million and $4.0 million of non-cash adjustments.

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Changes in operating assets and liabilities primarily reflected an increase in inventories of $4.2 million, an increase in prepaid expenses and other current assets of $1.4 million, an increase in advances to suppliers of $2.2 million, an increase in accounts payable, accrued expenses and other liabilities of $4.0 million, and an increase in payable to growers of $4.3 million, partially offset by an increase in income taxes payable of $0.1 million and an increase in other assets of $5.0 million.

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The increase in our inventory as of January 31, 2026, compared to October 31, 2025, was primarily driven by higher inventory volumes of Mexican avocados, partially offset by lower average fruit costs during the period. The increase in our prepaid and other current assets is primarily due to timing of prepayments. The increase in advances to suppliers is mainly due to pick and pack expenses paid to our consignment growers at the start of the tomato season. The decrease in accounts payable, accrued expenses and other liabilities is primarily related to the timing of payments. The decrease in payable to growers is mostly due to lower tomato volumes.

Cash used in investing activities was $0.8 million for the three months ended January 31, 2026, compared to cash used in investing activities of $0.3 million for the corresponding period in fiscal 2025. Cash used in investing activities relates principally to purchases of property, plant, and equipment.

Cash used in financing activities was $4.0 million for the three months ended January 31, 2026, compared to cash used in financing activities of $3.8 million for the corresponding period in fiscal 2025. Cash used in financing activities relates principally to payments of $3.6 million in dividends, payments on long-term obligations of $0.2 million and the payment of minimum withholding of taxes on the net settling of shares of $0.2 million.

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Our principal sources of liquidity are our existing cash reserves, cash generated from operations, and amounts available for borrowing under our Credit Facility (as defined below). Cash and cash equivalents as of January 31, 2026 and October 31, 2025, totaled $47.7 million and $61.2 million. Our working capital at January 31, 2026 was $83.6 million, compared to $89.0 million at October 31, 2025.

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We believe that our cash balance, cash flows from operations, availability under our Credit Facility (as defined below), and other sources will be sufficient to satisfy our capital expenditures, working capital needs, and other operating requirements for at least the next 12 months. Longer-term capital allocation decisions, including capital expenditures, may be affected by the timing and completion of the pending merger with Mission Produce.

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We maintain a credit agreement with Wells Fargo Bank, N.A. providing for a revolving credit facility of up to $75.0 million, which matures on June 26, 2028 (as amended, the "Credit Facility").

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Borrowings under the revolving facility are asset-based and subject to a borrowing base calculation based on eligible accounts receivable and inventory, less applicable reserves. In December 2025, we removed the equipment component of the borrowing base given we were not borrowing on the Credit Facility and the administrative burden associated with the blanket lien over our vehicles. This reduced our availability under the facility by approximately $1.3 million.

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Borrowings bear interest at either a base rate or Standard Overnight Financing Rate plus an applicable margin. The applicable margin ranges from 0.50% to 1.50% for the Revolving Loans, depending on the rate selected.

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As of January 31, 2026, we were in compliance with the financial covenants in the Credit Facility. As of January 31, 2026, approximately $32.1 million was available for borrowing, based on our borrowing base calculation discussed above.

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The weighted-average interest rate under the Credit Facility was 7.3% at January 31, 2026. Under the Credit Facility, there were no amounts outstanding related to the revolving loans or term loan as of January 31, 2026.

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In March 2025, our Board authorized a stock repurchase program of up to $25 million. While no shares have been repurchased to date under this program, the timing and volume of repurchases will depend on market conditions, our capital allocation priorities, and other strategic considerations.

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Contractual Commitments

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There have been no other material changes to our contractual commitments from those previously disclosed in our Annual Report on Form 10-K for our fiscal year ended October 31, 2025, as amended.

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