UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________

FORM 10-Q

_____________

(Mark One)

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

For the quarterly period ended July 31, 2021

OR

☐ 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: 001-39561

_____________

MISSION PRODUCE, INC.

(Exact name of Registrant as specified in its charter)

_____________

Delaware

(State or Other Jurisdiction of

Incorporation or Organization)

2710 Camino Del Sol

Oxnard, California

(Address of Principal Executive Offices)

95-3847744

(I.R.S. Employer

Identification No.)

93030

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (805) 981-3650

_____________

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, par value $0.001 per share	AVO	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 Act). Yes  ☐    No  ☒

As of September 6, 2021, the registrant had 70,609,485 shares of common stock at $0.001 par value outstanding.

MISSION PRODUCE, INC.

TABLE OF CONTENTS

FORM 10-Q

FISCAL THIRD QUARTER 2021

INDEX

PART I- FINANCIAL INFORMATION		5
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	7
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II- OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	Signatures	26

FORWARD LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “could”, “intends”, “target”, “projects”, “contemplates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the following:

•Risks related to our business, including: limitations regarding the supply of avocados, either through purchasing or growing; the loss of one or more of our largest customers or a reduction in the level of purchases by customers; doing business internationally, including Mexican and Peruvian economic, political and/or societal conditions; fluctuations in market prices of avocados; increasing competition; inherent farming risks; variations in operating results due to the seasonality of the business; general economic conditions; the effects of the COVID-19 pandemic; increases in costs of commodities or other products used in our business; food safety events and recalls of our products; changes to USDA and FDA regulations, U.S. trade policy, and/or tariff and import/export regulations; restrictions due to health and safety laws; significant costs associated with compliance with environmental laws and regulations; acquisitions of other businesses; the ability of our infrastructure to handle our business needs; supply chain optimization failures or disruptions; disruption to the supply of reliable and cost-effective transportation; loss of key personnel and an adequate labor supply; information system security risks, data protection breaches and systems integration issues; changes in privacy and/or information security laws, policies and/or contractual arrangements; failure to maintain or protect our brand; and changes in tax rates or international tax legislation.

•Risks related to our common stock, including: the viability of an active, liquid, and orderly market for our common stock; volatility in the trading price of our common stock; failure to meet continued Nasdaq listing requirements; concentration of control in our executive officers, directors and principal stockholders over matters submitted to stockholders for approval; limited sources of capital appreciation; the sale into the market of restricted shares; reduced disclosure requirements due to our emerging growth company status; significant costs associated with being a public company and the allocation of significant management resources thereto; reliance on analyst reports; failure to maintain proper and effective internal control over financial reporting; restrictions on takeover attempts in our charter documents and under Delaware law; and the selection of Delaware as the exclusive forum for substantially all disputes between us and our stockholders.

•Other risks and factors listed under “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the year ended October 31, 2020 and elsewhere in this report.

We have based the forward-looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the year ended October 31, 2020 and elsewhere in this report. These risks are not exhaustive. Other sections of this report include additional factors that could adversely impact our business and financial performance. Furthermore, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this report, including documents that we reference and exhibits that have been filed, in this report and have filed as exhibits to this report, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this report relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this report or to conform such statements to actual results or revised expectations, except as required by law.

This quarterly report may also include trademarks, tradenames and service marks that are the property of the Company and also certain trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this quarterly report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.

3

We maintain a website at www.missionproduce.com, to which we regularly post copies of our press releases as well as additional information about us. Our filings with the Securities and Exchange Commission (“SEC”), are available free of charge through our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information contained in our website does not constitute a part of this report or our other filings with the SEC.

4

PART I- FINANCIAL INFORMATION

Item 1.         Financial Statements

MISSION PRODUCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions, except for shares)	July 31, 2021		October 31, 2020
Assets
Current Assets:
Cash and cash equivalents	$	70.9	$	124.0
Restricted cash	4.2		1.4
Accounts receivable
Trade, net of allowances of $0.2 and $0.3, respectively	69.8		57.5
Grower and fruit advances	1.5		1.5
Miscellaneous receivables	15.5		13.4
Inventory	66.6		38.6
Prepaid expenses and other current assets	12.4		8.8
Loans to equity method investees	3.2		—
Income taxes receivable	5.9		2.9
Total current assets	250.0		248.1
Property, plant and equipment, net	418.6		379.1
Equity method investees	49.4		46.7
Loans to equity method investees	1.8		4.5
Deferred income taxes	7.1		4.4
Goodwill	76.4		76.4
Other assets	18.1		18.1
Total assets	$	821.4	$	777.3
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable	$	24.0	$	20.5
Accrued expenses	30.1		28.3
Income taxes payable	2.9		1.7
Grower payables	26.7		18.8
Long-term debt—current portion	8.8		7.4
Capital leases—current portion	1.2		1.2
Total current liabilities	93.7		77.9
Long-term debt, net of current portion	159.7		166.7
Capital leases, net of current portion	2.4		3.3
Income taxes payable	3.5		3.8
Deferred income taxes	35.3		27.8
Other long-term liabilities	23.1		24.3
Total liabilities	317.7		303.8
Commitments and contingencies (Note 5)
Shareholders' Equity
Common stock ($0.001 par value, 1,000,000,000 shares authorized; 70,609,485 and 70,550,922 shares issued and outstanding as of July 31, 2021 and October 31, 2020, respectively)	0.1		0.1
Additional paid-in capital	224.8		222.8
Notes receivable from shareholders	—		(0.1)
Accumulated other comprehensive loss	(0.4)		(0.5)
Retained earnings	279.2		251.2
Total shareholders' equity	503.7		473.5
Total liabilities and shareholders' equity	$	821.4	$	777.3

See accompanying notes to unaudited condensed consolidated financial statements.

5

MISSION PRODUCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended July 31,				Nine Months Ended July 31,
(In millions, except for per share amounts)	2021		2020		2021		2020
Net sales	$	246.8	$	236.4	$	654.7	$	655.5
Cost of sales	205.9		192.2		564.0		570.4
Gross profit	40.9		44.2		90.7		85.1
Selling, general and administrative expenses	17.2		13.5		48.1		39.4
Operating income	23.7		30.7		42.6		45.7
Interest expense	(1.0)		(1.1)		(2.7)		(5.5)
Equity method income	2.1		1.2		4.2		1.6
Impairment on equity method investment	—		—		—		(21.2)
Other expense	(0.5)		(1.2)		(0.8)		(0.2)
Income before income taxes	24.3		29.6		43.3		20.4
Provision for income taxes	5.9		6.2		15.3		10.4
Net income	$	18.4	$	23.4	$	28.0	$	10.0
Net income per share:
Basic	$	0.26	$	0.37	$	0.40	$	0.16
Diluted	$	0.26	$	0.37	$	0.39	$	0.16
Other comprehensive income, net of tax
Foreign currency translation adjustments	(0.2)		(0.2)		0.1		(0.3)
Comprehensive income	$	18.2	$	23.2	$	28.1	$	9.7

See accompanying notes to unaudited condensed consolidated financial statements.

6

MISSION PRODUCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(In millions, except for shares and per share data)	Common stock			Additional paid-in capital		Notes receivable from shareholders		Accumulated other comprehensive loss		Retained earnings		Total shareholders' equity
	Shares	Amount
Balance at October 31, 2019	63,386,251	$	0.1	$	139.7	$	(0.1)	$	—	$	239.3	$	379.0
Dividends declared ($0.12 per share)	—	—		—		—		—		(7.5)		(7.5)
Stock-based compensation	—	—		0.1		—		—		—		0.1
Exercise of stock options	17,000	—		—		—		—		—		—
Net income		—		—		—		—		1.4		1.4
Balance at January 31, 2020	63,403,251	$	0.1	$	139.8	$	(0.1)	$	—	$	233.2	$	373.0
Stock-based compensation	—	—		0.2		—		—		—		0.2
Reclassification of liability-based awards	—	—		0.3		—		—		—		0.3
Purchase and retirement of stock	(306,000)	—		—		—		—		(3.7)		(3.7)
Net loss	—	—		—		—		—		(14.8)		(14.8)
Other comprehensive loss	—	—		—		—		(0.1)		—		(0.1)
Balance at April 30, 2020	63,097,251	$	0.1	$	140.3	$	(0.1)	$	(0.1)	$	214.7	$	354.9
Issuance of common stock	7,921	—		0.1		—		—		—		0.1
Stock-based compensation	—	—		0.4		—		—		—		0.4
Purchase and retirement of stock	(4,250)	—		—		—		—		(0.2)		(0.2)
Net income	—	—		—		—		—		23.4		23.4
Other comprehensive loss	—	—		—		—		(0.2)		—		(0.2)
Balance at July 31, 2020	63,100,922	0.1		140.8		(0.1)		(0.3)		237.9		378.4
Balance at October 31, 2020	70,550,922	$	0.1	$	222.8	$	(0.1)	$	(0.5)	$	251.2	$	473.5
Stock-based compensation	—	—		0.8		—		—		—		0.8
Repayment of stock option notes receivable	—	—		—		0.1		—		—		0.1
Net income	—	—		—		—		—		2.2		2.2
Other comprehensive loss	—	—		—		—		0.5		—		0.5
Balance at January 31, 2021	70,550,922	$	0.1	$	223.6	$	—	$	—	$	253.4	$	477.1
Issuance of common stock for equity awards	50,000	—		—		—		—		—		—
Stock-based compensation	—	—		0.7		—		—		—		0.7
Net income	—	—		—		—		—		7.4		7.4
Other comprehensive loss	—	—		—		—		(0.2)		—		(0.2)
Balance at April 30, 2021	70,600,922	$	0.1	$	224.3	$	—	$	(0.2)	$	260.8	$	485.0
Issuance of common stock for equity awards	8,563	—		—		—		—		—		—
Stock-based compensation	—	—		0.5		—		—		—		0.5
Net income	—	—		—		—		—		18.4		18.4
Other comprehensive loss	—	—		—		—		(0.2)		—		(0.2)
Balance at July 31, 2021	70,609,485	$	0.1	$	224.8	$	—	$	(0.4)	$	279.2	$	503.7

See accompanying notes to unaudited condensed consolidated financial statements.

7

MISSION PRODUCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

	Nine Months Ended July 31,
(In millions)	2021		2020
Operating Activities
Net income	$	28.0	$	10.0
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	13.7		12.6
Amortization of debt issuance costs	0.2		0.2
Equity method income	(4.2)		(1.6)
Impairment on equity method investment	—		21.2
Stock-based compensation	2.0		1.1
Dividends received from equity method investees	1.7		1.7
Net gains and losses on asset impairment, disposals and sales, net of insurance recoveries	0.2		0.1
Deferred income taxes	4.8		(0.4)
Other	(0.2)		(2.6)
Unrealized (gains) losses on derivative financial instruments	(0.1)		3.3
Effect on cash of changes in operating assets and liabilities:
Trade accounts receivable	(12.3)		(7.4)
Grower fruit advances	(0.1)		1.6
Miscellaneous receivables	(0.2)		(3.1)
Inventory	(29.1)		(5.0)
Prepaid expenses and other current assets	(0.5)		(1.4)
Income taxes receivable	(3.1)		(3.5)
Other assets	(4.9)		(2.4)
Accounts payable and accrued expenses	10.9		9.8
Income taxes payable	0.8		0.9
Grower payables	7.9		(1.1)
Other long-term liabilities	(0.3)		(1.1)
Net cash provided by operating activities	$	15.2	$	32.9
Investing Activities
Purchases of property and equipment	(61.3)		(40.4)
Proceeds from sale of property, plant and equipment	2.3		0.1
Insurance proceeds for the replacement of property, plant and equipment	0.8		—
Investment in equity method investees	(0.2)		(2.9)
Loans to equity method investees	(2.0)		—
Loan repayments from equity method investees	1.5		—
Other	—		(0.2)
Net cash used in investing activities	$	(58.9)	$	(43.4)
Financing Activities
Borrowings on revolving credit facility	—		14.0
Payments on revolving credit facility	—		(14.0)
Principal payments on long-term debt obligations	(5.7)		(4.7)
Principal payments on capital lease obligations	(0.9)		(0.7)
Payments for long-term supplier financing	—		(1.1)
Dividends paid	—		(7.5)
Repayment of stock option notes receivable	—		0.1
Debt issuance costs	—		(0.1)
Purchase and retirement of stock	—		(1.9)
Net cash used in financing activities	$	(6.6)	$	(15.9)
Effect of exchange rate changes on cash	—		0.2
Net decrease in cash, cash equivalents and restricted cash	(50.3)		(26.2)
Cash, cash equivalents and restricted cash, beginning of period	127.0		65.6
Cash, cash equivalents and restricted cash, end of period	$	76.7	$	39.4

8

	Nine Months Ended July 31,
(In millions)	2021		2020
Summary of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:
Cash and cash equivalents	$	70.9	$	36.5
Restricted cash	4.2		1.5
Restricted cash included in other assets	1.6		1.4
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	76.7	$	39.4

See accompanying notes to unaudited condensed consolidated financial statements.

9

MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     General

Business

Mission Produce, Inc. together with its consolidated subsidiaries (“Mission,” “the Company,” “we,” “us” or “our”), is a global leader in the avocado industry. The Company’s expertise lies in the farming, packaging, marketing and distribution of avocados to food retailers, distributors and produce wholesalers worldwide. The Company procures avocados principally from California, Mexico and Peru. Through our various operating facilities, we grow, sort, pack, bag and ripen avocados for distribution to domestic and international markets. We distribute our products both domestically and internationally and report our results of operations in two operating segments: Marketing & Distribution and International Farming (see Note 10).

Basis of presentation and consolidation

The unaudited interim condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and include the Company’s consolidated domestic and international subsidiaries. Certain information and disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company’s Annual Report for the year ended October 31, 2020. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair statement have been included in the unaudited condensed consolidated financial statements. Interim results of operations are not necessarily indicative of future results, including results that may be expected for the twelve months ended October 31, 2021.

Recently issued accounting standards

As a company with less than $1.07 billion of revenue during our last fiscal year, we qualify as an “emerging growth company” (“EGC”), as defined in the Jumpstart Our Business Startups Act. This classification allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. The Company expects to lose its EGC status on October 31, 2021, when it expects to qualify as a large accelerated filer based on its market capitalization as of April 30, 2021, according to Rule 12b-2 of the Securities Exchange Act of 1934, as amended. As a result, the Company intends to adopt all accounting pronouncements currently deferred under the EGC election according to public company standards at October 31, 2021 on the Company’s 2021 Form 10-K filing. The adoption dates for the new accounting pronouncements disclosed below have been presented as such.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform, and a subsequent update following, which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The optional expedients in this ASU are available for adoption as of March 12, 2020 through December 31, 2022. The Company is evaluating the impact of electing the adoption of this ASU on our financial condition, results of operations and cash flows.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, as such we plan to adopt this ASU beginning November 1, 2021. The Company is continuing to assess the impact of the adoption of this ASU on our financial condition, results of operations and cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. It also requires credit losses on available-for-sale debt securities to be presented as an allowance, rather than reducing the carrying amount. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is also permitted. The Company plans to adopt Topic 326 as of November 1, 2020 at October 31, 2021 on our 2021 Form 10-K filing. Though we are still evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, we do not expect the impact of the adoption of this standard to be material.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and subsequent updates following, which requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases

10

MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

will result in the lessee recognizing a right-of use asset (“ROU”) and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. Topic 842 is effective for our fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company plans to adopt Topic 842 as of November 1, 2020 at October 31, 2021 on our 2021 Form 10-K filing, using the modified retrospective method. Though we are still evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, we expect to report increased assets and liabilities as a result of recording right-of-use assets and lease liabilities.

2.     Inventory

Major classes of inventory were as follows:

(In millions)	July 31, 2021		October 31, 2020
Finished goods	$	41.8	$	16.3
Crop growing costs	10.9		11.9
Packaging and supplies	13.9		10.4
Inventory	$	66.6	$	38.6

3.    Details of Certain Account Balances

Accrued expenses

Accrued expenses consisted of the following:

(In millions)	July 31, 2021		October 31, 2020
Employee-related	$	12.7	$	15.3
Freight	5.0		4.4
Customer advances	3.0		—
Construction-in-progress	.6		1.8
Interest rate swaps	2.2		2.2
Outside fruit purchase	.5		.8
Other	6.1		3.8
Accrued expenses	$	30.1	$	28.3

Other expense

Other expense consisted of the following:

	Three Months Ended July 31,				Nine Months Ended July 31,
(In millions)	2021		2020		2021		2020
Losses (gains) on derivative financial instruments	$	0.2	$	0.8	$	(0.1)	$	4.2
Foreign currency loss (gain)	1.0		1.1		2.8		(2.1)
Interest income	(0.3)		(0.6)		(1.4)		(1.9)
Other	(0.4)		(0.1)		(0.5)		—
Other expense	$	0.5	$	1.2	$	0.8	$	0.2

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MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.     Debt

Credit facility

Long-term debt under our credit facility with Bank of America (“BoA”) Merrill Lynch consisted of the following:

(In millions)	July 31, 2021		October 31, 2020
Revolving line of credit. The interest rate is variable, based on LIBOR plus a spread that varies with the Company’s leverage ratio. As of July 31, 2021 and October 31, 2020, the interest rate was 1.84% and 1.90%, respectively. Interest is payable monthly and principal is due in full in October 2023.	$	—	$	—
Senior term loan (A-1). The interest rate is variable, based on LIBOR plus a spread that varies with the Company’s leverage ratio. As of July 31, 2021 and October 31, 2020, the interest rate was 1.84% and 1.90%, respectively. Interest is payable monthly, principal is payable quarterly and due in full in October 2023.	91.2		95.0
Senior term loan (A-2). The interest rate is variable, based on LIBOR plus a spread that varies with the Company’s leverage ratio. As of July 31, 2021 and October 31, 2020, the interest rate was 2.34% and 2.40% respectively. Interest is payable monthly, principal is payable quarterly and due in full in October 2025.	72.9		73.5
Notes payable to BoA. Payable in monthly installments including interest at a weighted average rate of 4.56% and 4.52% as of July 31, 2021 and October 31, 2020, respectively. Principal is due September 2025.	4.8		6.2
Total long-term debt	168.9		174.7
Less debt issuance costs	(0.4)		(0.6)
Long-term debt, net of debt issuance costs	168.5		174.1
Less current portion of long-term debt	(8.8)		(7.4)
Long-term debt, net of current portion	$	159.7	$	166.7

The credit facility requires the Company to comply with financial and other covenants, including limitations on investments, capital expenditures, dividend payments, amounts and types of liens and indebtedness, and material asset sales. The Company is also required to maintain certain leverage and fixed charge coverage ratios. As of July 31, 2021, the Company was in compliance with all covenants of the credit facility.

Interest rate swaps

The Company has four separate interest rate swaps with a total notional amount of $100 million to hedge changes in the variable interest rate on $100 million of principal value of the Company’s term loans. The Company has not designated the interest rate swaps as cash flow hedges, and as a result, changes in the fair value of the interest rate swaps have been recorded in other expense in the condensed consolidated statements of comprehensive income and changes in the liability are presented in net cash provided by operating activities in the condensed consolidated statements of cash flow. Refer to Note 7 for more details.

5.      Commitments and Contingencies

Litigation

The Company is involved from time to time in claims, proceedings, and litigation, including the following:

On April 23, 2020, former Mission Produce, Inc. employees filed a class action lawsuit in the Superior Court of the State of California for the County of Los Angeles against us alleging violation of certain wage and labor laws in California, including failure to pay all overtime wages, minimum wage violations, and meal and rest period violations, among others. Additionally, on June 10, 2020, former Mission Produce, Inc. employees filed a class action lawsuit in the Superior Court of the State of California for the County of Ventura against us alleging similar violations of certain wage and labor laws. The plaintiffs in both cases seek damages primarily consisting of class certification and payment of wages earned and owed, plus other consequential and special damages. While the Company believes that it did not violate any wage or labor laws, it nevertheless decided to settle these class action lawsuits. In May 2021, the plaintiffs in both class action lawsuits and the Company agreed preliminarily to a comprehensive settlement to resolve both class action cases for a total of $0.8 million, which the Company recorded as a loss contingency in selling, general and administrative expenses in the condensed consolidated statements of comprehensive income during the three months ended April 30, 2021. This preliminary settlement is subject to approval by the applicable courts.

The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and if one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that period could be materially adversely affected.

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MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.     Income Taxes

The income tax expense recorded for the three and nine months ended July 31, 2021 and July 31, 2020, differs from the income taxes expected at the U.S. federal statutory tax rate of 21.0%, primarily due to income attributable to foreign jurisdictions which is taxed at different rates, changes in foreign exchange rates taxable in foreign jurisdictions, state taxes, nondeductible tax items, changes in uncertain tax positions (“UTP”), and changes in tax law affecting the rate in future years.

As of July 31, 2021, the Company had $15.7 million in UTP accrued, of which $7.9 million relates to interest and penalties, inclusive of inflationary adjustments. The period for assessing interest and penalties has expired. However, the Company continues to record certain statutory adjustments related to inflation. During the three and nine months ended July 31, 2021, the Company recognized $0.3 million and $0.8 million, respectively, as income tax expense related to inflationary and other adjustments. Changes in the UTP related to changes in foreign exchange rates during the period are included in other expense in the condensed consolidated statements of comprehensive income.

Additionally, the Company recorded a discrete tax expense of $5.1 million during the three months ended January 31, 2021, related to the remeasurement of our deferred tax liabilities in Peru due to the enactment of tax rate changes for future years. On December 30, 2020, Peru enacted certain tax law changes effective January 1, 2021 that repealed existing tax laws which provided benefits to agribusiness entities. The new law will subject the Company to higher Peruvian tax rates than the current rate of 15% as follows: 20% for calendar years 2023 to 2024, 25% for calendar years 2025 to 2027, and 29.5% thereafter.

7.     Fair Value Measurements

Financial liabilities measured and recorded at fair value on a recurring basis included in the condensed consolidated balance sheets were as follows:

	July 31, 2021								October 31, 2020
(In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap liability	$	4.7	$	—	$	4.7	$	—	$	6.5	$	—	$	6.5	$	—

The fair value of interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves (“significant other observable inputs”). The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded, as of July 31, 2021 and October 31, 2020, that the fair value associated with the “significant unobservable inputs” relating to the Company’s risk of non-performance was insignificant to the overall fair value of the interest rate swap agreements and, as a result, the Company has determined that the relevant inputs for purposes of calculating the fair value of the interest rate swap agreements, in their entirety, were based upon “significant other observable inputs”. The liabilities associated with the interest rate swaps have been included in accrued expenses and other long-term liabilities in the condensed consolidated balance sheets and gains and losses for the interest rate swaps have been included in other expense in the condensed consolidated statements of comprehensive income.

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MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.    Earnings Per Share

	Three Months Ended July 31,				Nine Months Ended July 31,
	2021		2020		2021		2020
Numerator:
Net income available to shareholders (in millions)	$	18.4	$	23.4	$	28.0	$	10.0
Denominator:
Weighted average shares of common stock outstanding, used in computing basic earnings per share	70,607,000		63,097,901		70,572,874		63,252,020
Effect of dilutive stock options	630,036		21,862		444,564		22,674
Effect of dilutive RSUs	7,400		n/a		26,352		n/a
Weighted average shares of common stock outstanding, used in computing diluted earnings per share	71,244,436		63,119,763		71,043,790		63,274,694
Earnings per share
Basic	$	0.26	$	0.37	$	0.40	$	0.16
Diluted	$	0.26	$	0.37	$	0.39	$	0.16

Equity awards representing shares of common stock outstanding that were excluded in the computation of diluted EPS because their effect would have been anti-dilutive as a result of applying the treasury stock method, were as follows:

	Three Months Ended July 31,		Nine Months Ended July 31,
	2021	2020	2021	2020
Anti-dilutive stock options	—	1,700,000	141,392	1,700,000
Anti-dilutive RSUs	5,736	n/a	3,068	n/a

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MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.     Related Party Transactions

Transactions with related parties included in the condensed consolidated financial statements were as follows:

	Condensed Consolidated Balance Sheets
	July 31, 2021						October 31, 2020
(In millions)	Accounts receivable		Loans to equity method investees		Accounts payable & accrued expenses		Accounts receivable		Loans to equity method investees		Accounts payable & accrued expenses
Equity method investees:
Henry Avocado	$	0.9	$	—	$	—	$	—	$	—	$	—
Mr. Avocado	1.7		—				0.6		—		—
Moruga(1)	0.2		3.0		—		2.0		4.5		—
Copaltas(4)	—		2.0		—		—		—		—
Other:
Directors/Officers(2)	0.4		—		0.6		0.3		—		0.2
Employees(3)	—		—		0.1		—		—		—

	Condensed Consolidated Statements of Comprehensive Income
	Net sales		Cost of sales		Selling, general and administrative expenses		Other income		Net sales		Cost of sales		Selling, general and administrative expenses		Other income
(In millions)	Three Months Ended July 31, 2021								Nine Months Ended July 31, 2021
Equity method investees:
Henry Avocado	$	1.3	$	—	$	—	$	—	$	1.3	$	—	$	—	$	—
Mr. Avocado	1.7		—		—		—		3.6		—		—		—
Moruga(1)	0.1		—		—		0.3		2.7		—		—		0.4
Other:
Directors/Officers(2)	0.9		1.6		—		—		2.5		3.0		0.1		—
Employees(3)	—		2.1		—		—		—		8.1		—		—
	Three Months Ended July 31, 2020								Nine Months Ended July 31, 2020
Equity method investees:
Henry Avocado	$	0.3	$	0.6	$	—	$	—	$	0.3	$	0.8	$	—	$	—
Mr. Avocado	0.7		—		—		—		1.4		—		—		—
Moruga(1)	—		—		—		—		2.0		—		—		—
Other:
Directors/Officers(2)	0.6		1.9		0.1		—		1.9		4.3		0.2		—

(1)The Company has provided loans to Moruga Inc. S.A.C. to support growth and expansion projects, bearing interest at 6.5%, due December 31, 2022.

(2)The Company purchases from and sells avocados to a small number of entities having full or partial ownership by some of our directors/officers. These transactions are made under substantially similar terms as with other growers and customers. The Company entered into a consulting agreement with a director in 2018 to provide consulting and advice on current business operations, as well as to analyze opportunities for fresh avocado farming and packing facilities in South and Central America, which was terminated in June 2021.

(3)The Company utilizes a transportation vendor in Mexico owned by key management employees under similar terms as other transportation vendors. The Company purchases avocados from a small number of entities having full or partial ownership by some employees. These transactions are made under substantially similar terms as with other growers.

(4)The Company has provided loans to Copaltas to support growth and expansion projects, bearing interest at 6.66%, due December 31, 2021.

10.     Segment Information

We have two operating segments which are also reporting segments. Our reporting segments are presented based on how information is used by our CEO, who is the chief operating decision maker, to measure performance and allocate resources. These reporting segments are Marketing and Distribution and International Farming. Our Marketing and Distribution reporting segment sources fruit from growers and then distributes the fruit through our global distribution network. Our International Farming segment owns and operates avocado orchards (principally located in Peru) and supplies our Marketing and Distribution business with a stable supply of avocados. Substantially all of the avocados produced by our International Farming segment are sold to our Marketing and Distribution segment.

The CEO evaluates and monitors segment performance primarily through segment sales and segment adjusted earnings before interest expense, income taxes and depreciation and amortization (“adjusted EBITDA”). Management believes that adjusted EBITDA by segment provides useful information for analyzing the underlying business results as well as allowing investors a means to evaluate the financial results of each reportable segment in relation to the Company as a whole. These measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures.

Adjusted EBITDA refers to net income (loss), before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expense, other income (expense), and income (loss) from equity method investees, further adjusted by any special, non-recurring, or

15

MISSION PRODUCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

one-time items (asset impairment and disposals, net of insurance recoveries, impairment of equity method investment and legal settlement) that are distortive to results.

Net sales from each of our reportable segments were as follows:

	Marketing & Distribution		International Farming		Total		Marketing & Distribution		International Farming		Total
	Three Months Ended July 31,
(In millions)	2021						2020
Third party sales	$	239.6	$	7.2	$	246.8	$	230.9	$	5.5	$	236.4
Affiliated sales	—		58.9		58.9		—		48.9		48.9
Total segment sales	239.6		66.1		305.7		230.9		54.4		285.3
Intercompany eliminations	—		(58.9)		(58.9)		—		(48.9)		(48.9)
Total net sales	$	239.6	$	7.2	$	246.8	$	230.9	$	5.5	$	236.4
	Nine Months Ended July 31,
	2021						2020
Third party sales	$	641.6	$	13.1	$	654.7	$	644.9	$	10.6	$	655.5
Affiliated sales	—		61.1		61.1		—		49.2		49.2
Total segment sales	641.6		74.2		715.8		644.9		59.8		704.7
Intercompany eliminations	—		(61.1)		(61.1)		—		(49.2)		(49.2)
Total net sales	$	641.6	$	13.1	$	654.7	$	644.9	$	10.6	$	655.5

Adjusted EBITDA for each of our reporting segments was as follows:

	Three Months Ended July 31,				Nine Months Ended July 31,
(In millions)	2021		2020		2021		2020
Marketing & Distribution adjusted EBITDA	$	13.1	$	21.0	$	43.0	$	48.8
International Farming adjusted EBITDA	17.0