UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON,~~Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended January 31, ~~2021~~2022

ORor

☐

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: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

California

33-0945304

(State or other jurisdiction of ~~incorporation)~~

incorporation or organization)

(I.R.S. Employer Identification No.)


1141-A Cummings Road, Santa Paula, California		93060
(Address of principal executive offices)		(Zip Code)

~~1141-A Cummings Road~~

~~Santa Paula~~, ~~California~~~~93060~~

~~(Address of principal executive offices) (Zip code)~~

(805) 525-1245

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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, $0.001 par value per share	CVGW	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~~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,”~~filer”, “accelerated filer”, “smaller reporting company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller ~~Reporting Company~~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 ~~7(a)(2)(B)~~13(a) of the ~~Securities~~Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Registrant's number of shares of common stock outstanding as of January 31, ~~2021~~2022 was ~~17,686,249~~17,716,314

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains statements relating to future events and results of Calavo Growers, Inc. and its consolidated subsidiaries (Calavo, the Company, we, us or our), including certain projections and business trends, that are "forward-looking statements," as defined in the Private Securities Litigation and Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements are based on our current expectations and are not promises or guarantees. If any of the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, gross profit, expenses, gain/(loss) on Limoneira shares, income/(loss) from unconsolidated entities, earnings, earnings per share, tax provisions, cash flows and currency exchange rates; the impact of COVID-19 on our business, results of operations and financial condition; the impact of acquisitions or debt or equity investments or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration (including information technology systems integration) plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance, whether attributable to Calavo or any of its unconsolidated entities; any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; any risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or quotas); any risks associated with receivables from and/or equity investments in unconsolidated entities; system security risk and cyber-attacks and any statements of assumptions underlying any of the foregoing.

Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the impact of the COVID-19 pandemic on our business, results of operations, and financial condition, including, but not limited to, disruptions in the manufacturing of our products and the operations of the related supply chains supporting our ability to deliver our products to consumers, impacts on our employees and uncertainty regarding our ability to implement health and safety measures for our employees, uncertainties regarding consumer demand for our products, ~~in light of COVID-19,~~impact on our food service customers, increased costs, ~~that we must incur as a result of COVID-19,~~ the impact of governmental trade restrictions imposed as a result of COVID-19 and the possible adverse impact of COVID-19 on our goodwill and other intangible assets; our ability to raise prices, particularly in our RFG and Foods segments, to offset increased costs of goods sold, and the impact of ~~macroeconomic trends~~such price increases on future net sales; seasonality of our business; sensitivity of our business to changes in market prices of avocados and ~~events;~~other agricultural products and other raw materials including fuel, packaging and paper; potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel and the ability of our management team to work together successfully; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, ~~faced by Calavo's business;~~including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the ~~development~~impact of environmental regulations, including those related to climate change; our ability to develop and transition of new products and services ~~(and the enhancement of~~and enhance existing products and ~~services)~~services to meet customer needs; ~~integration and other risks associated with acquisitions of other businesses; our ability to hire and retain key employees; the resolution of pending investigations, legal claims and tax disputes; the~~ risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or ~~quotas)~~quotas and currency fluctuations); ~~any~~ risks associated with receivables from, loans to and/or equity investments in unconsolidated ~~entities; and potential cyber-attacks on our information technology systems or on~~entities, volatility in the ~~information technology systems~~value of our ~~suppliers or customers.~~common stock; the impact of macroeconomic trends and events; and the resolution of pending investigations, legal claims and tax disputes, including an assessment imposed by the Servicio de Administracion Tributaria in Mexico (the “SAT”) and our defenses against collection activities commenced by the SAT.

For a further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K for the fiscal year ended October 31, ~~2020~~2021 filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q (including this Quarterly Report on Form 10-Q) and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

CALAVO GROWERS, INC.

INDEX

		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Consolidated Condensed Balance Sheets – January 31, ~~2021~~2022 and October 31, ~~2020~~2021	4

	Consolidated Condensed Statements of Operations – ThreeMonths Ended January 31, ~~2021~~2022 and ~~2020~~2021	5

	Consolidated Condensed Statements of Cash Flows – Three Months Ended January 31, ~~2021~~2022 and ~~2020~~2021	6

	Consolidated Condensed Statements of Shareholders’ Equity – Three Months Ended January 31, 2022 and 2021	7

	Notes to Consolidated Condensed Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3033

Item 4.	Controls and Procedures	30
		33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3034

Item 1A.	Risk Factors	3134

Item 5.	Other Information	34

Item 6.	Exhibits	3135

	Signatures	3236

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS ~~(UNAUDITED)~~

(UNAUDITED, in thousands)

January 31,

October 31,

2021

2020

Assets







Current assets:

Cash and cash equivalents

$
8,168

$
4,055

Accounts receivable, net of allowances of $3,791 (2021) and $3,498 (2020)

71,603

63,668

Inventories, net

41,706

41,787

Prepaid expenses and other current assets

12,031

10,733

Advances to suppliers

4,909

5,061

Income taxes receivable

6,703

10,591

Total current assets

145,120

135,895

Property, plant, and equipment, net

131,888

130,270

Operating lease right-of-use assets

59,565

60,262

Investment in Limoneira Company

26,786

23,197

Investments in unconsolidated entities

5,909

6,065

Deferred income taxes

2,486

2,486

Goodwill

28,568

28,568

Intangibles, net

9,925

10,323

Other assets

36,205

32,558

$
446,452

$
429,624

Liabilities and shareholders' equity

Current liabilities:

Payable to growers

$
11,556

$
11,346

Trade accounts payable

14,417

9,384

Accrued expenses

46,961

36,922

Borrowings pursuant to credit facilities, current

—

20,550

Dividend payable

—

20,343

Current portion of operating leases

6,674

6,443

Current portion of long-term obligations and finance leases

1,529

1,343

Total current liabilities

81,137

106,331

Long-term liabilities:

Borrowings pursuant to credit facilities, long-term

37,150

—

Long-term operating leases, less current portion

57,357

58,273

Long-term obligations and finance leases, less current portion

5,835

5,716

Other long-term liabilities

3,247

3,302

Total long-term liabilities

103,589

67,291

Commitments and contingencies

Shareholders' equity:

Common stock ($0.001 par value, 100,000 shares authorized; 17,686 (2021) and 17,661 (2020) shares issued and outstanding)

18

18

Additional paid-in capital

165,487

165,000

Noncontrolling interest

1,432

1,472

Retained earnings

94,789

89,512

Total shareholders' equity

261,726

256,002

$
446,452

$
429,624


	January 31,		October 31,
	2022		2021

Assets
Current assets:
Cash and cash equivalents	$	7,826	$	1,885
Restricted cash		970		970
Accounts receivable, net of allowances of $5,012 (2022) and $4,816 (2021)		89,467		78,866
Inventories		52,402		40,757
Prepaid expenses and other current assets		10,905		11,946
Advances to suppliers		9,951		6,693
Income taxes receivable		8,016		11,524
Total current assets		179,537		152,641
Property, plant, and equipment, net		116,034		118,280
Operating lease right-of-use assets		58,568		59,842
Investment in Limoneira Company		24,925		27,055
Investments in unconsolidated entities		3,810		4,346
Deferred income taxes		5,316		5,316
Goodwill		28,653		28,653
Intangibles, net		8,381		8,769
Other assets		43,408		40,500
	$	468,632	$	445,402
Liabilities and shareholders' equity
Current liabilities:
Payable to growers	$	37,798	$	23,033
Trade accounts payable		11,848		9,794
Accrued expenses		47,761		42,063
Dividend payable		—		20,330
Other current liabilities		11,000		11,000
Current portion of operating leases		6,876		6,817
Current portion of long-term obligations and finance leases		1,593		1,587
Total current liabilities		116,876		114,624
Long-term liabilities:
Borrowings pursuant to credit facilities, long-term		64,000		37,700
Long-term operating leases, less current portion		56,277		57,561
Long-term obligations and finance leases, less current portion		5,171		5,553
Other long-term liabilities		3,026		3,081
Total long-term liabilities		128,474		103,895
Commitments and contingencies
Shareholders' equity:
Common stock ($0.001 par value, 100,000 shares authorized; 17,716 (2022) and 17,686 (2021) shares issued and outstanding)		18		18
Additional paid-in capital		168,692		168,133
Noncontrolling interest		1,251		1,368
Retained earnings		53,321		57,364
Total shareholders' equity		223,282		226,883
	$	468,632	$	445,402

The accompanying notes are an integral part of these consolidated condensed financial statements.

Table of Contents

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)

Three months ended

January 31,

2021

2020

Net sales

$
220,578

$
273,348

Cost of sales

202,739

257,540

Gross profit

17,839

15,808

Selling, general and administrative

14,174

16,298

Gain on sale of Temecula packinghouse

54

54

Operating income (loss)

3,719

(436)

Interest expense

(174)

(187)

Other income, net

201

994

Unrealized net gain on Limoneira shares

3,589

1,006

Income before income taxes and loss from unconsolidated entities

7,335

1,377

Income tax (provision) benefit

(1,943)

650

Net loss from unconsolidated entities

(155)

(3,028)

Net income (loss)

5,237

(1,001)

Less: Net loss attributable to noncontrolling interest

40

63

Net income (loss) attributable to Calavo Growers, Inc.

$
5,277

$
(938)

Calavo Growers, Inc.’s net income (loss) per share:

Basic

$
0.30

$
(0.05)

Diluted

$
0.30

$
(0.05)

Number of shares used in per share computation:

Basic

17,599

17,536

Diluted

17,669

17,536


	Three months ended
	January 31,
	2022		2021

Net sales	$	274,092	$	220,578
Cost of sales		260,864		202,739
Gross profit		13,228		17,839
Selling, general and administrative		15,337		14,174
Expenses related to Mexican tax matters		367		—
Impairment and charges related to RFG Florida facility closure		565		—
Gain on sale of Temecula packinghouse		(54)		(54)
Operating income (loss)		(2,987)		3,719
Interest expense		(327)		(174)
Other income, net		659		201
Unrealized net gain (loss) on Limoneira shares		(2,130)		3,589
Income (loss) before income taxes and loss from unconsolidated entities		(4,785)		7,335
Income tax (provision) benefit		1,160		(1,943)
Net loss from unconsolidated entities		(535)		(155)
Net income (loss)		(4,160)		5,237
Add: Net loss attributable to noncontrolling interest		117		40
Net income (loss) attributable to Calavo Growers, Inc.	$	(4,043)	$	5,277

Calavo Growers, Inc.’s net income (loss) per share:
Basic	$	(0.23)	$	0.30
Diluted	$	(0.23)	$	0.30

Number of shares used in per share computation:
Basic		17,653		17,599
Diluted		17,653		17,669

The accompanying notes are an integral part of these consolidated condensed financial statements.

Table of Contents

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three months ended January 31,

2021

2020

Cash Flows from Operating Activities:







Net income (loss)

$
5,237

$
(1,001)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

4,294

3,567

Non-cash operating lease expense

16

65

Net loss from unconsolidated entities

155

3,028

Unrealized net gain on Limoneira shares

(3,589)

(1,006)

Interest income on notes to FreshRealm

—

(871)

Stock-based compensation expense

907

931

Gain on sale of Temecula packinghouse

(54)

(54)

Effect on cash of changes in operating assets and liabilities:

Accounts receivable, net

(7,935)

(15,231)

Inventories, net

81

(5,348)

Prepaid expenses and other current assets

(1,298)

(1,799)

Advances to suppliers

152

3,466

Income taxes receivable/payable

3,888

(1,139)

Other assets

(3,638)

(1,924)

Payable to growers

210

7,589

Trade accounts payable, accrued expenses and other long-term liabilities

14,739

3,206

Net cash provided (used) by operating activities

13,165

(6,521)

Cash Flows from Investing Activities:

Purchases of property, plant, and equipment

(4,768)

(3,331)

Net cash used in investing activities

(4,768)

(3,331)

Cash Flows from Financing Activities:

Payment of dividend to shareholders

(20,343)

(19,354)

Proceeds from revolving credit facility

91,000

53,500

Payments on revolving credit facility

(74,400)

(26,000)

Payments of minimum withholding taxes on net share settlement of equity awards

(467)

(1,179)

Proceeds (payments) on long-term obligations and finance leases

(121)

(198)

Proceeds from stock option exercises

47

47

Net cash provided (used) in financing activities

(4,284)

6,816

Net increase (decrease) in cash and cash equivalents

4,113

(3,036)

Cash and cash equivalents, beginning of period

4,055

7,973

Cash and cash equivalents, end of period

$
8,168

$
4,937

Noncash Investing and Financing Activities:

Right of use assets obtained in exchange for new financing lease obligations

$
301

$
390

Property, plant, and equipment included in trade accounts payable and accrued expenses

$
863

$
935


	Three months ended January 31,
	2022		2021

Cash Flows from Operating Activities:
Net income (loss)	$	(4,160)	$	5,237
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		4,312		4,294
Non-cash operating lease expense		49		16
Net loss from unconsolidated entities		535		155
Unrealized net loss (gain) on Limoneira shares		2,130		(3,589)
Impairment and non-cash charges related to closure of RFG Florida facility		317		—
Stock-based compensation expense		556		907
Gain on sale of Temecula packinghouse		(54)		(54)
Effect on cash of changes in operating assets and liabilities:
Accounts receivable, net		(10,601)		(7,935)
Inventories, net		(11,735)		81
Prepaid expenses and other current assets		(1,559)		(1,298)
Advances to suppliers		(3,258)		152
Income taxes receivable/payable		3,508		3,888
Other assets		(308)		(3,638)
Payable to growers		14,765		210
Trade accounts payable, accrued expenses and other liabilities		7,891		14,739
Net cash provided by operating activities		2,388		13,165
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(2,044)		(4,768)
Net cash used in investing activities		(2,044)		(4,768)
Cash Flows from Financing Activities:
Payment of dividend to shareholders		(20,330)		(20,343)
Proceeds from revolving credit facility		96,300		91,000
Payments on revolving credit facility		(70,000)		(74,400)
Payments of minimum withholding taxes on net share settlement of equity awards		(44)		(467)
Payments on long-term obligations and finance leases		(376)		(121)
Proceeds from stock option exercises		47		47
Net cash provided by (used in) financing activities		5,597		(4,284)
Net decrease in cash, cash equivalents and restricted cash		5,941		4,113
Cash, cash equivalents and restricted cash, beginning of period		2,855		4,055
Cash, cash equivalents and restricted cash, end of period	$	8,796	$	8,168
Noncash Investing and Financing Activities:
Right of use assets obtained in exchange for new financing lease obligations	$	—	$	301
Property, plant, and equipment included in trade accounts payable and accrued expenses	$	173	$	863

The accompanying notes are an integral part of these consolidated condensed financial statements.

Table of Contents

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)



				Additional											Additional
	Common Stock			Paid-in		Retained		Noncontrolling				Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total		Shares	Amount		Capital		Earnings		Interest		Total

Balance, October 31, 2019	17,595	$	18	$	161,606	$	122,557	$	1,688	$	285,869
Cumulative effect adjustment on ASC 842 related to leases	—		—		—		1,165		—		1,165
Balance, October 31, 2020												17,661	$	18	$	165,000	$	89,512	$	1,472	$	256,002
Exercise of stock options and income tax benefit	2		—		47		—		—		47	2		—		47		—		—		47
Payment of min. withholding of taxes on net share settlement of equity awards												—		—		(467)		—		—		(467)
Stock compensation expense	—		—		931		—		—		931	—		—		907		—		—		907
Restricted stock issued	17		—		—		—		—		—	23		—		—		—		—		—
Avocados de Jalisco noncontrolling interest contribution	—		—		—		—		(63)		(63)	—		—		—		—		(40)		(40)
Net income attributable to Calavo Growers, Inc.	—		—		—		(938)		—		(938)	—		—		—		5,277		—		5,277
Balance, January 31, 2020	17,614		18		162,584		122,784		1,625		287,011
Balance, January 31, 2021												17,686		18		165,487		94,789		1,432		261,726



				Additional											Additional
	Common Stock			Paid-in		Retained		Noncontrolling				Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total		Shares	Amount		Capital		Earnings		Interest		Total

Balance, October 31, 2020	17,661	$	18	$	165,000	$	89,512	$	1,472	$	256,002
Balance, October 31, 2021												17,686	$	18	$	168,133	$	57,364	$	1,368	$	226,883
Exercise of stock options and income tax benefit	2		—		47		—		—		47	2		—		47		—		—		47
Payment of min. withholding of taxes on net share settlement of equity awards	—		—		(467)		—		—		(467)	—		—		(44)		—		—		(44)
Stock compensation expense	—		—		907		—		—		907	—		—		556		—		—		556
Restricted stock issued	23		—		—		—		—		—	28		—		—		—		—		—
Avocados de Jalisco noncontrolling interest contribution	—		—		—		—		(40)		(40)	—		—		—		—		(117)		(117)
Net loss attributable to Calavo Growers, Inc.	—		—		—		5,277		—		5,277	—		—		—		(4,043)		—		(4,043)
Balance, January 31, 2021	17,686		18		165,487		94,789		1,432		261,726
Balance, January 31, 2022												17,716		18		168,692		53,321		1,251		223,282

See accompanying notes to consolidated condensed financial statements.

Table of Contents

CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the business

Business

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a global leader in the avocado industry and a provider of value-added fresh food. Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers on a worldwide basis. We procure avocados from California, Mexico and other growing regions around the world. Through our various operating facilities, we (i) sort, pack, and/or ripen avocados, tomatoes and/or Hawaiian grown papayas, (ii) create, process and package a portfolio of healthy fresh foods including fresh-cut fruit and vegetables, and prepared foods and (iii) process and package guacamole and salsa. We distribute our products both domestically and internationally and report our operations in 3 different business segments: Fresh products, ~~Calavo Foods and~~ Renaissance Food Group (RFG). and Calavo Foods.

The accompanying unaudited consolidated condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, ~~2020.~~2021.

Recently Adopted Accounting Standards

In ~~October 2018,~~December 2019, the Financial Accounting Standards Board ~~(FASB)~~("FASB") issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting ~~Standards Updated (ASU) 2018-17,~~ ~~Targeted Improvements~~for Income Taxes," which amends and simplifies the accounting for income taxes by removing certain exceptions and providing new guidance to ~~Related Party Guidance for Variable Interest Entities~~.reduce complexity in certain aspects of the current guidance. This ASU provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This ASUguidance was ~~effective for us beginning~~adopted by the Company during the first ~~day~~quarter of ~~our 2021 fiscal year. The adoption of this ASU~~2022 and did not ~~have an~~ impact on the Company’s ~~consolidated~~ financial ~~statements.~~statements or related disclosures.

~~On November 1, 2020, the Company adopted an ASU~~~~, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred~~2. Information regarding our operations in ~~a Cloud Computing Arrangement That Is a Service Contract.~~ This update provides guidance regarding the capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU was adopted prospectively and cloud computing implementation costs incurred on November 1, 2020 or later are included in other noncurrent assets in the consolidated balance sheet and are presented within operating cash flows. As of January 31, 2021, capitalized implementation costs included in other noncurrent assets were less than $0.1 million and there was no accumulated amortization or amortization expense recorded during the three months ended January 31, 2021.different segments

~~In January 2017,~~We report our operations in 3 different business segments: (1) Fresh products, (2) RFG, and (3) Calavo Foods. These 3 business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. The Fresh products segment includes operations that involve the ~~FASB issued an ASU,~~ ~~Simplifying~~distribution of avocados and other fresh produce products. The RFG segment represents operations related to the ~~Test for Goodwill Impairment,~~ ~~which removes~~manufacturing and distribution of fresh-cut fruit, fresh-cut vegetables, and prepared foods. The Calavo Foods segment represents operations related to the ~~requirement to compare the implied fair value~~purchase, manufacturing, and distribution of ~~goodwill with its carrying amount~~prepared avocado products, including guacamole, and salsa. Selling, general and administrative expenses, as part of step 2 of the goodwill impairment test. The ASU permits an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU was effective for us beginning the first day of our 2021 fiscal year. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.well as other non-operating income/expense

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~~On November 1, 2020, the Company adopted ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326)~~. This standard requires a financial asset to be presented at the net amount expected to be collected. The financial assets of the Company in scope of ASU 2016-13 were primarily accounts receivable. The Company estimates an allowance for expected credit losses on accounts receivable that result from the inability of customers to make required payments. In estimating the allowance for expected credit losses, consideration is given to the current aging of receivables, historical experience, and a review for potential bad debts. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

~~2. Information regarding our operations in different segments~~

~~We report our operations in 3~~ ~~different business segments: (1) Fresh products, (2) Calavo Foods, and (3) RFG. These~~ 3 business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. The Fresh products segment includes operations that involve the distribution of avocados and other fresh produce products. The Calavo Foods segment represents operations related to the purchase, manufacturing, and distribution of prepared avocado products, including guacamole, and salsa. The RFG segment represents operations related to the manufacturing and distribution of fresh-cut fruit, fresh-cut vegetables, and prepared foods. Selling, general and administrative expenses, as well as other non-operating income/expense items, are evaluated by our Chief Executive Officer in the aggregate. We do not allocate assets, or specifically identify them, to our operating segments. ~~Data~~The sales data in the following tables is presented in thousands:


	Three months ended January 31, 2022								Three months ended January 31, 2021

	Fresh				Calavo				Fresh				Calavo
	products		RFG		Foods		Total		products		RFG		Foods		Total

Avocados	$	150,505	$	—	$	—	$	150,505	$	103,858	$	—	$	—	$	103,858
Tomatoes		9,987		—		—		9,987		9,187		—		—		9,187
Papayas		3,040		—		—		3,040		2,751		—		—		2,751
Other fresh income		25		—		—		25		326		—		—		326
Fresh-cut fruit		—		43,373		—		43,373		—		42,944		—		42,944
Fresh-cut vegetables		—		28,086		—		28,086		—		29,589		—		29,589
Prepared products		—		24,818		18,409		43,227		—		18,718		16,838		35,556
Salsa		—		—		421		421		—		—		712		712
Total gross sales		163,557		96,277		18,830		278,664		116,122		91,251		17,550		224,923
Less sales allowances		(972)		(513)		(1,702)		(3,187)		(663)		(945)		(1,092)		(2,700)
Less inter-company eliminations		(603)		—		(782)		(1,385)		(526)		—		(1,119)		(1,645)
Net sales	$	161,982	$	95,764	$	16,346	$	274,092	$	114,933	$	90,306	$	15,339	$	220,578

Three months ended January 31, 2021

Three months ended January 31, 2020


Fresh



Calavo



Fresh



Calavo


products

RFG

Foods

Total

products

RFG

Foods

Total

Avocados

$
103,858

$
—

$
—

$
103,858

$
117,884

$
—

$
—

$
117,884

Tomatoes

9,187

—

—

9,187

12,992

—

—

12,992

Papayas

2,751

—

—

2,751

2,643

—

—

2,643

Other fresh income

326

—

—

326

127

—

—

127

Prepared avocado products

—

—

16,838

16,838

—

—

21,800

21,800

Salsa

—

—

712

712

—

—

719

719

Fresh-cut fruit & veg. and prepared foods

—

91,251

—

91,251

—

121,470

—

121,470

Total gross sales

116,122

91,251

17,550

224,923

133,646

121,470

22,519

277,635

Less sales incentives

(663)

(945)

(1,092)

(2,700)

(457)

(535)

(2,036)

(3,028)

Less inter-company eliminations

(526)

—

(1,119)

(1,645)

(408)

—

(851)

(1,259)

Net sales

$
114,933

$
90,306

$
15,339

$
220,578

$
132,781

$
120,935

$
19,632

$
273,348


	Fresh				Calavo		Interco.
	products		RFG		Foods		Elimins.		Total

	(All amounts are presented in thousands)
Three months ended January 31, 2022
Net sales	$	162,585	$	95,764	$	17,128	$	(1,385)	$	274,092
Cost of sales		150,919		96,416		14,914		(1,385)		260,864
Gross profit (loss)	$	11,666	$	(652)	$	2,214	$	—	$	13,228

Three months ended January 31, 2021
Net sales	$	115,459	$	90,306	$	16,458	$	(1,645)	$	220,578
Cost of sales		102,314		90,329		11,741		(1,645)		202,739
Gross profit (loss)	$	13,145	$	(23)	$	4,717	$	—	$	17,839

Fresh



Calavo

Interco.


products

RFG

Foods

Elimins.

Total

(All amounts are presented in thousands)

Three months ended January 31, 2021

Net sales

$
115,459

$
90,306

$
16,458

$
(1,645)

$
220,578

Cost of sales

102,314

90,329

11,741

(1,645)

202,739

Gross profit

$
13,145

$
(23)

$
4,717

$
—

$
17,839

Three months ended January 31, 2020

Net sales

$
133,189

$
120,935

$
20,483

$
(1,259)

$
273,348

Cost of sales

126,607

118,059

14,133

(1,259)

257,540

Gross profit

$
6,582

$
2,876

$
6,350

$
—

$
15,808

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For the three months ended January 31, ~~2021~~2022 and ~~2020,~~2021, intercompany sales and cost of sales of ~~$0.5~~$0.6 million and ~~$0.3~~$0.5 million between Fresh products and RFG were eliminated. For the three months ended January 31, ~~2021~~2022 and ~~2020,~~2021, intercompany sales and cost of sales of ~~$1.1~~$0.8 million and ~~$0.9~~$1.1 million between Calavo Foods and RFG were eliminated.

Sales to customers outside the U.S. were approximately ~~$8.1~~$7.1 million, and ~~$7.9~~$8.1 million for the three months ended January 31, ~~2021~~2022 and ~~2020.~~2021.

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 (U.S. dollar). As a result, monetary assets and liabilities are translated into U.S. dollars at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated at historical rates. Sales and expenses are translated using a weighted-average exchange rate for the period. Gains and losses resulting from those remeasurements and foreign currency transactions are recognized within cost of sales. We recognized foreign currency remeasurement ~~gains~~losses in the current quarter. These ~~gains~~losses were due primarily to certain long-term net peso receivables. ~~The Mexican peso strengthened compared to~~Foreign currency remeasurement losses, net of gains, for the ~~U.S. dollar from 21.25 (MX peso to U.S. dollar) at October 31, 2020 to 20.22 (MX peso to U.S. dollar) at~~three months ended January 31, ~~2021.~~2022 was $0.6 million. Foreign currency remeasurement gains, net of losses, for the three months ended January 31, 2021 ~~and 2020~~ was $1.0 ~~million and less than $0.1~~ million.

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Long-lived assets attributed to geographic areas as of January 31, ~~2021~~2022 and October 31, ~~2020,~~2021, are as follows (in thousands):


	United States		Mexico		Consolidated		United States		Mexico		Consolidated
January 31, 2021	$	95,785	$	36,103	$	131,888
October 31, 2020	$	95,110	$	35,160	$	130,270
January 31, 2022							$	79,245	$	36,789	$	116,034
October 31, 2021							$	81,059	$	37,221	$	118,280

3.	Inventories

Inventories consist of the following (in thousands):


	January 31,		October 31,		January 31,		October 31,
	2021		2020		2022		2021

Fresh fruit	$	15,973	$	14,677	$	29,704	$	17,648
Packing supplies and ingredients		12,078		12,540		14,642		13,088
Finished prepared foods		13,655		14,570		8,056		10,021
	$	41,706	$	41,787	$	52,402	$	40,757

Inventories are stated at the lower of cost or net realizable value. We periodically review the value of items in inventory and record any necessary write downs of inventory based on our assessment of market conditions. Inventory includes reserves of ~~$0.3~~$0.5 million and $0.2 million in slow moving and obsolete packing supply inventory as of January 31, ~~2021~~2022 and October 31, ~~2020.~~2021. NaN additional inventory reserve was considered necessary as of January 31, ~~2021~~2022 and October 31, ~~2020.~~2021.

4.	Related party transactions

Certain members of our Board of Directors market California avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. For the three months ended January 31, ~~2020,~~2022, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $0.2 million. There were 0 avocados procured from entities owned or controlled by members of our Board of ~~Directors~~directors for the three months ended January 31, 2021. Amounts payable to these Board members were $0.2 million as of January 31, 2022. We did ~~not~~0t have any amounts payable to these Board members as of ~~January 31, 2021 and~~ October 31, ~~2020.~~2021.

During the three months ended January 31, ~~2021~~2022 and ~~2020,~~2021, we received $0.1 million as dividend income from Limoneira Company (Limoneira). In addition, we lease office space from Limoneira for our corporate office. We paid rent expense to Limoneira totaling $0.1 million for the three months ended January 31, ~~2021~~2022 and ~~2020.~~2021. Harold Edwards,

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who isresigned as a member of our Board of Directors in February 2022, is the Chief Executive Officer of Limoneira Company. As of January 31, ~~2021,~~2022, we own approximately 9%9% of Limoneira’s outstanding shares.

~~We currently~~ In February 2022, Limoneira ended its marketing agreement with Calavo. The termination of this agreement is not expected to have a ~~board member who served as a partner in the law firm~~significant effect on either sales or results of TroyGould PC, which has represented Calavo as legal counsel on certain matters, until his retirement in December 2020. During the three months ended January 31, 2021 and 2020, Calavo Growers, Inc. paid fees totaling $0.1 million to TroyGould PC.operations.

Calavo and Agricola Belher (“Belher”) have an equal one-half ownership interest in Agricola Don Memo, S.A. de C.V. (“Don Memo”). Pursuant to a management service agreement, Belher, through its officers and employees, has day-to-day power and authority to manage the operations.

As of January 31, ~~2021,~~2022, and October 31, ~~2020,~~2021, we had an investment of ~~$5.9~~$3.8 million and ~~$6.0~~$4.3 million, representing Calavo’s 50% ownership in Don Memo, which was included as an investment in unconsolidated entities on our balance sheet. We make advances to Don Memo for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under our marketing program to Don Memo, net of our commission and aforementioned advances. As of January 31, ~~2021~~2022 and October 31, ~~2020,~~2021, we had outstanding advances of ~~$1.5~~$4.2 million and ~~$2.4~~$4.2 million to Don Memo. In October 2020, we entered into an infrastructure loan agreement with Don Memo for up to $2.4 million secured by certain property and equipment of Don Memo. This infrastructure loan ~~will incur~~

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accrues interest at 7.25%. In October 2020, we funded $0.7 million related to this loan agreement, and we funded an additional $0.7 million, and $0.6 million in the first, ~~quarter~~and second quarters of fiscal ~~2021.~~2021, for a total outstanding balance at January 31, 2022 of $2.0 million ($0.4 million is included in prepaids and other current assets and $1.6 million in other assets). This infrastructure loan agreement will mature in fiscal 2024. During the three months ended January 31, 2022 and 2021, ~~and 2020,~~ we ~~recorded $3.5~~incurred $3.4 million and ~~$4.0~~$3.5 million of cost of sales to Don Memo pursuant to our purchase consignment agreement.

We make advances to Belher for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under our marketing program to Belher, net of our commission and aforementioned advances. We had grower advances due from Belher totaling $4.5 million and $4.5 million as of January 31, ~~2021~~2022 and October 31, ~~2020,~~2021, which are netted against the grower payable. In addition, we had infrastructure advances due from Belher of ~~$1.8~~$0.9 million as of January 31, ~~2021~~2022 and October 31, ~~2020. Of these~~2021. These infrastructure advances ~~$0.6 million was~~were recorded as a receivable in prepaid and other current assets as of January 31, ~~2021~~2022 and October 31, ~~2020. The remaining $1.2~~2021. In July 2021, we made a bridge loan of $3.5 million to Belher. This loan is secured by certain farmland in Mexico and accrues interest at 10%. In the first quarter of ~~these infrastructure advances were~~fiscal 2022, this loan has been amended to be due with installments of $0.9 million on July 31, 2022, $0.9 million on July 31, 2023 and $1.7 million on July 31, 2024. This bridge loan has been recorded as $0.9 million in prepaid expenses and other current assets and $2.6 million in other assets. During the three months ended January 31, 2022 and 2021, ~~and 2020,~~ we ~~recorded $3.3~~incurred $3.4 million and ~~$7.2~~$3.3 million of cost of sales to Belher pursuant to our purchase consignment agreement.

In August 2015, we entered into a Shareholder’s Agreement with various Mexican partners and created Avocados de Jalisco, S.A.P.I. de C.V. (“Avocados de Jalisco”). Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados. As of January 31, ~~2021,~~2022, this entity was approximately 83% owned by Calavo and was consolidated in our financial statements. Avocados de Jalisco built a packinghouse located in Jalisco, Mexico, which began operations in June of 2017. During the three months ended January 31, ~~2021~~2022 and ~~2020,~~2021, we purchased approximately ~~$2.2~~$3.5 million and ~~$0.4~~$2.2 million of avocados from the partners of Avocados de Jalisco.

~~FreshRealm is a start-up company, engaged in activities relating to the marketing of food products directly to consumers or other entities.~~ ~~Prior to the FreshRealm Separation Agreement, signed on February 3, 2021 (see Note 12), we had an equity investment in FreshRealm representing approximately 37%~~ ownership of FreshRealm as of January 31, 2021 and October 31, 2020. We recorded an impairment of 100% of this equity investment, or $2.8 million, in the third quarter of fiscal 2020. We had a note receivable and trade receivables of approximately $34.5 million at October 31, 2020 (which includes accrued interest) from FreshRealm. We recorded a reserve of $34.5 million during fiscal 2020 which continues to be fully reserved as of January 31, 2021.

~~On February 3, 2021, Calavo, and FreshRealm, entered into a Limited Liability Company Member Separation and Release Agreement. See Note 12 for more information.~~

~~NaN officer and 5~~ members of our board of directors have investments in FreshRealm as of January 31, 2021 and October 31, 2020. Prior to the FreshRealm Separation and Release Agreement, three members of our board of directors served as board members of FreshRealm.

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We provide storage services to FreshRealm from select Value-Added Depots and RFG facilities. We have recorded $0.3 million and $0.2 million in storage services revenue from FreshRealm in the three months ended January 31, 2021 and 2020. For the three months ended January 31, 2020, RFG has ~~sold less than $0.2~~ ~~million of products to FreshRealm.~~

The previous owners of RFG, one of which is currently the CEO of Calavo, have a majority ownership of certain entities that historically provided various services to RFG, specifically LIG Partners, LLC and THNC, LLC who leased property to certain RFG operating entities. In the first quarter of fiscal 2020, these facilities were sold to an unaffiliated third party and our lease has transferred to those new owners.

5.	Other assets and Intangibles

Other assets consist of the following (in thousands):


	January 31,		October 31,		January 31,		October 31,
	2021		2020		2022		2021
Mexican IVA (i.e. value-added) taxes receivable (see note 11)	$	33,185	$	30,126	$	38,217	$	37,493
Infrastructure advance to Agricola Belher and Agricola Don Memo		1,895		1,215
Infrastructure advances to Agricola Belher						1,641		1,641
Bridge loan to Agricola Belher						2,600		—
Other		1,125		1,217		950		1,366
	$	36,205	$	32,558	$	43,408	$	40,500

Intangible assets consist of the following (in thousands):


		January 31, 2021						October 31, 2020							January 31, 2022						October 31, 2021
	Weighted-	Gross				Net		Gross				Net		Weighted-	Gross				Net		Gross				Net
	Average	Carrying		Accum.		Book		Carrying		Accum.		Book		Average	Carrying		Accum.		Book		Carrying		Accum.		Book
	Useful Life	Value		Amortization		Value		Value		Amortization		Value		Useful Life	Value		Amortization		Value		Value		Amortization		Value
Customer list/relationships	7 years	$	17,340	$	(8,968)	$	8,372	$	17,340	$	(8,613)	$	8,727	7 years	$	17,340	$	(10,335)	$	7,005	$	17,340	$	(9,989)	$	7,351
Trade names	11 years		4,060		(2,883)		1,177		4,060		(2,852)		1,208	8 years		4,060		(3,010)		1,050		4,060		(2,980)		1,080
Trade secrets/recipes	9 years		630		(529)		101		630		(517)		113	9 years		630		(579)		51		630		(567)		63
Brand name intangibles	indefinite		275		—		275		275		—		275	indefinite		275		—		275		275		—		275
Intangibles, net		$	22,305	$	(12,380)	$	9,925	$	22,305	$	(11,982)	$	10,323		$	22,305	$	(13,924)	$	8,381	$	22,305	$	(13,536)	$	8,769

We anticipate recording amortization expense of $1.2 million for the remainder of fiscal ~~2021, $1.6 million for fiscal year~~ 2022, $1.5 million for fiscal year 2023, $1.5 million for fiscal year 2024, $1.5 million for fiscal year 2025, and ~~$3.9~~$2.4 million thereafter.

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6.	Stock-Based Compensation

In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive Plan (the “2011 Plan”). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 Plan. UpShares were issuable under the 2011 Plan through December 2020. On April 21, 2021, the shareholders of Calavo approved the Calavo Growers, Inc. 2020 Equity Incentive Plan (the “2020 Plan”). This is a five-year plan, with up to 1,500,000 shares ~~of common stock~~that are issuable pursuant to awards that may be ~~issued by Calavo under the 2011 Plan.~~made through December 9, 2025.

On ~~November 2, 2020, 11~~December 13, 2021, certain of our non-employee directors were each granted 1,500 restricted shares, as part of their annual compensation, (total of 16,500 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $67.97. On January 2, 2022, as long as the directors are still serving on the board, these shares lose their restriction and become non-forfeitable and transferable. These shares were granted pursuant to our 2011 Plan. The total recognized stock-based compensation expense for these grants was $0.1 million for the three months ended January 31, 2021.

~~On November 2, 2020, our executive~~ officers were granted a total of ~~9,334~~5,355 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was ~~$67.97~~$40.53. These shares vest in ~~one-half increments,~~over two years, on an annual basis, beginning ~~November 2, 2021.~~December 13, 2022. These shares were granted

~~Table of Contents~~

pursuant to our ~~2011~~2020 Plan. The total recognized stock-based compensation expense for these grants was less than $0.1 million for the three months ended January 31, 2022.

On January 3, 2022, all 10 of our current directors were granted 2,814 restricted shares each (for a total of 28,140 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing share price of our stock on such grant date was $42.64. As of January 3, 2023, these shares will vest and become unrestricted subject to the continued service of the director. The total recognized stock-based compensation expense for these grants was $0.1 million for the three months ended January 31, ~~2021.~~2022.

On ~~November 2, 2020, key employees were~~January 20, 2022, one of our current directors was granted 1,500 unrestricted shares as a ~~total~~component of ~~2,600 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted.~~her compensation for services rendered during the 2021 fiscal year. The closing share price of our stock on such grant date was ~~$67.97. These shares vest in~~ ~~one-third increments, on an annual basis, beginning November 2, 2021. These shares were granted pursuant to our 2011 Plan.~~$41.73. The total recognized stock-based compensation expense for ~~these grants were insignificant~~this grant was $0.1 million for the three months ended January 31, ~~2021.~~2022.

On February 1, 2022, Brian Kocher, our new Chief Executive Officer, was granted 28,993 of restricted shares as part of his employment agreement. The closing share price of our stock on such grant date was $41.39. These shares will vest over three years on an annual basis, beginning February 1, 2023.

A combined summary of restricted stock activity, related to our 2011 ~~Management Incentive Plan,~~and 2020 Plans, is as follows (in thousands, except for per share amounts):

Weighted-Average

Aggregate


Number of Shares

Grant Price

Intrinsic Value

Outstanding at October 31, 2020

76

$
80.45

Vested

(36)

$
85.32

Granted

28

$
67.97

Outstanding at January 31, 2021

68

$
74.03

$
5,142


		Weighted-Average		Aggregate
	Number of Shares	Grant Price		Intrinsic Value
Outstanding at October 31, 2021	43	$	64.89
Vested	(27)	$	42.28
Granted	35	$	42.28
Outstanding at January 31, 2022	51	$	47.41	$	2,112

The total recognized stock-based compensation expense for restricted stock was $0.6 million and $0.9 million for the three months ended January 31, ~~2021~~2022 and ~~2020.~~2021. Total unrecognized stock-based compensation expense totaled ~~$4.6~~$2.5 million as of January 31, ~~2021~~2022 and will be amortized through fiscal year ~~2023.~~2024.

Stock options are granted with exercise prices of not less than the fair market value at grant date, generally vest over one to five years and generally expire two to five years after the vest date. We settle stock option exercises with newly issued shares of common stock.

We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. We measure the fair value of our stock-based compensation awards on the date of grant.

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A summary of stock option activity, related to our 2011 ~~Management Incentive Plan,~~and 2020 Plans, is as follows (in thousands, except for per share amounts):

Weighted-Average

Aggregate

Exercise

Intrinsic

Number of Shares

Price

Value

Outstanding at October 31, 2020

16

$
44.21

Exercised

(2)

$
23.48

Outstanding at January 31, 2021

14

$
47.17

$
406

Exercisable at January 31, 2021

12

$
45.59

$
367


		Weighted-Average		Aggregate
		Exercise		Intrinsic
	Number of Shares	Price		Value
Outstanding at October 31, 2021	19	$	42.89
Exercised	(2)	$	23.48
Outstanding at January 31, 2022	17	$	47.62	$	106
Exercisable at January 31, 2022	12	$	51.12	$	117

At January 31, ~~2021,~~2022, outstanding and exercisable stock options had a weighted-average remaining contractual term of ~~3.3~~ 2.2years. The total recognized and unrecognized stock-based compensation expense was insignificant for the three months ended January 31, ~~2021~~2022 and ~~2020.~~2021.

7.	Other events

Dividend payment

On December ~~4, 2020,~~3, 2021, we paid a $1.15 per share dividend in the aggregate amount of $20.3 million to shareholders of record on November ~~13, 2020.~~12, 2021.

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Litigation

From time to time, we are involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.

Mexico tax audits

We conduct business both domestically and internationally and, as a result, one or more of our subsidiaries files income tax returns in U.S. federal, U.S. state and certain foreign jurisdictions. Accordingly, in the normal course of business, we are subject to examination by taxing authorities, primarily in Mexico and the United States.

2011 Assessment

During our third quarter of fiscal 2016, our wholly-owned subsidiary, Calavo de Mexico (CDM), received a written communication from the Ministry of Finance and Administration of the government of the State of Michoacan, Mexico (MFM) containing preliminary observations related to a fiscal 2011 tax audit of such subsidiary. MFM’s preliminary observations outline certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and Value Added Tax (IVA). During the period from our fourth fiscal quarter of 2016 through our first fiscal quarter of 2019, we attempted to resolve our case with the MFM through working meetings attended by representatives of the MFM, CDM and PRODECON (Local Tax Ombudsman). However, we were unable to materially resolve our case with the MFM through the PRODECON process.

As a result, in April 2019, the MFM issued a final tax assessment to CDM (the “2011 Assessment”) totaling approximately $2.2 billion Mexican pesos ~~(approx. $108.8~~ ~~million USD at January 31, 2021)~~ related to Income Tax, Flat Rate Business Tax, and ~~Value Added Tax,~~value added tax, corresponding to the fiscal year 2011 tax audit. ~~We have consulted~~

On June 16, 2021, Calavo reached a settlement agreement with an internationally recognized tax advisor and continue to believe this tax assessment is without merit. Therefore, we filed an administrative appeal challenging the MFM’s 2011 assessment on June 12, 2019. The filing of an administrative appeal in Mexico is a process in which the taxpayer appeals to a different office within the Mexican tax authorities, forcing the legal office within the MFM to rule on the matter. This process preserves the taxpayer’s right to litigate in tax court if the administrative appeal process ends without a favorable or just resolution. Furthermore, in August 2018, we received a favorable ruling from Mexico’s Federal Tax Administration Service, Servicio de Administracion Tributaria’s (the “SAT”) central legal department in Mexico City on another tax matter (see footnote 11 regarding ~~IVA refunds) indicating that they believe that our legal interpretation is accurate on a matter that is also central to~~ the 2011 Assessment. ~~We believe this recent ruling undermines~~Under the ~~Assessment we received~~terms of the settlement, Calavo agreed to pay approximately $47.8 million Mexican pesos (approximately $2.4 million USD) as a full and final settlement of all taxes, fines and penalties asserted by the MFM. The settlement included $1.5 million USD of income taxes and $0.9 million USD of value added taxes, with both amounts including penalties and interest and inflationary adjustments, which have been recorded in ~~April 2019.~~the financial statements as a discrete item in Income Tax Provision and in Expenses related to Mexican tax matters, respectively.

~~Additionally, we also received notice from the SAT, that CDM is currently under examination related to fiscal year 2013.~~ 2013 Assessment

In January 2017, we received preliminary observations from ~~SAT~~the Servicio de Administracion Tributaria in Mexico (the “SAT”) related to an audit for fiscal year 2013 outlining certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and IVA. We provided a written rebuttal to

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these preliminary observations during our second fiscal quarter of 2017. During the period from our third fiscal quarter of 2017 through our third fiscal quarter of 2018, we attempted to resolve our case with the SAT through the conclusive agreement submitted before PRODECON, having several working meetings attended by representatives of the SAT, CDM and the PRODECON. However, we were unable to materially resolve our case with the SAT through the PRODECON process.

As a result, in July 2018, the SAT’s local office in Uruapan issued to CDM a final tax assessment (the “2013 Assessment”) totaling approximately $2.6 billion Mexican pesos ~~(approx. $128.6~~(which includes annual adjustments for inflation, and equals approximately $126.6 million USD at January 31, ~~2021)~~2022) related to Income Tax, Flat Rate Business Tax, and ~~Value Added Tax,~~value added tax, related to this fiscal 2013 tax audit. This amount has been adjusted for inflation as of January 31, 2022 to the amount of $3.08 billion Mexican pesos (approx. $148.6 million USD). Additionally, the tax authorities have determined that we owe our employee’s profit-sharing liability, totaling approximately $118 million Mexican pesos (approx. ~~$5.8~~$5.7 million USD at January 31, ~~2021)~~2022).

We have consulted with both an internationally recognized tax advisor as well as a global law firm with offices throughout Mexico, and we continue to believe that this tax assessment is without merit. In August 2018, we filed an ~~administrative appeal~~Administrative Appeal on the 2013 ~~Assessment. CDM has appealed~~Assessment, appealing our case to the SAT’s central legal department in ~~Mexico City.~~Michoacan. Furthermore, ~~and as noted in the preceding paragraphs,~~ in August 2018, we received a favorable ruling from the SAT’s central legal department in ~~Mexico City~~Michoacan on another tax matter (see ~~footnote~~Note 11 regarding IVA refunds) indicating that they believe that our legal interpretation is accurate on a matter that is also central to the 2013 Assessment. We believe this recent ruling significantly undermines the 2013 ~~Assessment we received in July 2018.~~Assessment.

On June 25, 2021, we became aware that the Administrative Appeal had been resolved by the SAT against CDM on March 12, 2021, and that we had allegedly failed to timely respond to and challenge the SAT’s notification of such resolution, therefore rendering the 2013 Assessment as definitive. Based on legal counsel from our tax advisory firm, we and our tax advisory firm have concluded that the March notification was not legally communicated. In addition, the SAT has placed liens on the fixed assets of CDM, with a net book value of approximately $26 million USD, and on bank accounts of CDM totaling approximately $1 million USD in order to guaranty the 2013 Assessment. For reasons explained below, we do not believe that these liens pose a risk to the ongoing business operations of CDM.

We strongly disagree with above actions taken and conclusions reached by the SAT. We have taken several measures in vigorous defense of our position, as explained below.

On August 27, 2021, we filed a formal complaint, or queja, (the Complaint) before the PRODECON to request its assistance with having the SAT act upon the Reconsideration. This complaint was withdrawn in September, but may still be reinstated if deemed appropriate in the future. It should be noted that although the SAT is not obligated to act upon the Reconsideration, however, we believe that having the option of re-filing the PRODECON Complaint makes it likely that the SAT will respond to the Administrative Reconsideration and be open to settlement discussions.

On August 18, 2021, we filed an Administrative Reconsideration (the Reconsideration) before the Central Legal Department of the SAT located in Mexico City, asserting that the resolution in March of the Administrative Appeal was wrongly concluded, in particular with respect to the following matters:

Failure to recognize CDM as a “maquiladora”

Considering the Company to have a permanent establishment in Mexico,

Including fruit purchase deposits transferred by the Company to CDM as taxable,

Application of 16% IVA tax to fruit purchase deposits

Imposing double-taxation on the fruit purchase transactions

On September 22, 2021, we had an initial in-person meeting with the SAT in Mexico City to formally present and discuss the Reconsideration. The SAT agreed to review our Reconsideration in more detail; however, on January 3, 2022, the SAT formally rejected our request for the Reconsideration. In response to this rejection, on January 21, 2022, we filed an Injunction Suit (Juicio de Amparo) with a federal district court seeking to nullify the arguments against the Reconsideration made by the SAT on constitutional grounds. On February 25, 2022, we filed a supplemental Injunction Suit in which we seek to have the liens against the bank accounts of CDM lifted. The injunction suits have been accepted

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~~In light~~by the court and we are expecting a response by September 2022. The main purpose of the ~~foregoing,~~Amparo was to challenge the ~~Company~~response issued to the Reconsideration, and with that, to keep the Reconsideration alive until the Amparo is ~~currently considering~~decided. This would allow time to continue the discussions with SAT at the administrative level and would give SAT the legal basis to issue a new resolution in terms of what may be agreed in the ongoing discussions with SAT. This Amparo represents a further opportunity as well for a Court of Law to analyze this matter from a constitutional perspective.

On February 4, 2022, we had a follow-up meeting with the SAT in Mexico City to begin a dialog with the objective of reaching a settlement of the 2013 Assessment. The SAT agreed in principle to continue this dialog, but requested that we provide a financial guaranty to secure the related tax as a pre-requisite to these discussions. On March 10, 2022, we met with the SAT and offered an Administrative Guaranty (Embargo en Via Administrativa) to secure the 2013 Assessment, which provides the SAT with certain administrative rights to CDM assets in the unlikely event we do not prevail in our actions through the Federal Tax Court (see below) or in the Reconsideration process. Once the Administrative Guaranty is in place, the existing liens over the assets of CDM will be removed and the SAT collection process will be suspended.

On August 20, 2021 we filed an Annulment Suit (the Annulment Suit) with the Federal Tax Court, which among other things, strongly contends that the notifications made by the SAT to CDM and its ~~options for~~designated advisors of the resolution of the ~~two tax assessments:~~Administrative Appeal in March 2021 were not legally communicated. In addition, the Annulment Suit asserts the same matters central to the Reconsideration, as described above, as wrongly concluded in the resolution of the Administrative Appeal.

In the unlikely event of an unfavorable resolution of the administrative appeal, we could file a nullification suit with the Mexican Tax Court. In order to file such suit, we would be required to post collateral or a bond for the total amount of the tax assessment (including inflation adjustments, penalties and surcharges) while the suit is in process, which could last from two to three years. If the suit results in an unfavorable ruling, there is an option to appeal to the Collegiate Circuit Court while maintaining the collateral or bond in place.

On March 4, 2022, the Annulment Suit was formally accepted by the Federal Tax Court, which simultaneously granted a provisional suspension of the collections proceedings by the SAT. The acceptance by the court of the Annulment Suit renders the 2013 Assessment as non-definitive, until such time as the suit is resolved. The Company has presented the Federal Tax Court with evidence of the above offer of the Administrative Guaranty to the SAT, and in connection therewith, expects that the Federal Tax Court will issue a definitive suspension of collections proceedings.

In the event of filing a nullification suit, the collateral or bonding requirement may be avoided by filing a nullification suit on substantive matters (“Juicio de Fondo”). This type of suit permits only arguments on the legal merits of the taxpayer’s case, and limits arguments on procedural matters.

~~The estimated time for resolution of this matter could be affected by the situation related to the COVID-19 pandemic.~~

WeWhile we continue to believe that the ~~ultimate resolution~~2013 Assessment is completely without merit, and that we will prevail on the Annulment Suit in the Tax Court, we also believe it is in the best interest of ~~these matters is unlikely~~CDM and the Company to settle the 2013 Assessment as quickly as possible. Furthermore, we believe that the above actions taken by CDM will encourage the SAT agree to reach a settlement. In accordance with our cumulative probability analysis, based on factors such as recent settlements made by the SAT in other cases, the 2011 Assessment settlement reached by CDM with the MFM, and the value of CDM assets, we recorded a provision of $11 million USD, in the third quarter of fiscal 2021, as a discrete item in Income Tax Provision. The provision includes estimated penalties, interest and inflationary adjustments. We believe that this provision remains appropriate as of January 31, 2022 based on or cumulative probability analysis. We incurred $0.4 million of related professional fees for the three months ended January 31, 2022, which have ~~a material effect on our consolidated financial position.~~been recorded in Expenses related to Mexican Tax matters.

8.	Fair value measurements

A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).

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The following table sets forth our financial assets and liabilities as of January 31, ~~2021~~2022 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(All amounts are presented in thousands)								(All amounts are presented in thousands)
Assets at Fair Value at January 31, 2021:
Assets at Fair Value at January 31, 2022:
Investment in Limoneira Company⁽¹⁾	$	26,786		-		-	$	26,786	$	24,925		-		-	$	24,925
Total assets at fair value	$	26,786		-		-	$	26,786	$	24,925		-		-	$	24,925

Assets at Fair Value at October 31, 2020:
Assets at Fair Value at October 31, 2021:
Investment in Limoneira Company⁽¹⁾	$	23,197		-		-	$	23,197	$	27,055		-		-	$	27,055
Total assets at fair value	$	23,197		-		-	$	23,197	$	27,055		-		-	$	27,055

(1) The investment in Limoneira Company consists of marketable securities in the Limoneira Company common stock. We currently own approximately 9% of Limoneira’s outstanding common stock. These securities are measured at fair value using quoted market prices. For the three months ended January 31, ~~2021~~2022 and ~~2020,~~2021, we recognized losses of $2.1 million and gains of ~~$3.6 million and losses of $1.0~~$3.6 million on the consolidated condensed statement of operations.

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9.	Noncontrolling interest

The following table reconciles shareholders’ equity attributable to noncontrolling interest related to Avocados de Jalisco (in thousands).


	Three months ended January 31,				Three months ended January 31,
Avocados de Jalisco noncontrolling interest	2021		2020		2022		2021

Noncontrolling interest, beginning	$	1,472	$	1,688	$	1,368	$	1,472
Net loss attributable to noncontrolling interest of Avocados de Jalisco		(40)		(63)		(117)		(40)
Noncontrolling interest, ending	$	1,432	$	1,625	$	1,251	$	1,432

10.

Earnings per share

Basic and diluted net income per share is calculated as follows (data in thousands, except per share data):


		Three months ended January 31,				Three months ended January 31,
	2021		2020		2022		2021
Numerator:
Net income (loss) attributable to Calavo Growers, Inc.	$	5,277	$	(938)	$	(4,043)	$	5,277
Denominator:
Weighted average shares – Basic		17,599		17,536		17,653		17,599
Effect of dilutive securities – Restricted stock/options(1)		70		—		—		70
Weighted average shares – Diluted		17,669		17,536		17,653		17,669
Net income (loss) per share attributable to Calavo Growers, Inc:
Basic	$	0.30	$	(0.05)	$	(0.23)	$	0.30
Diluted	$	0.30	$	(0.05)	$	(0.23)	$	0.30

(1)

At January 31, 2022, approximately 43,000 shares of common stock equivalents were excluded in the computation of diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.

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11.

Mexican IVA taxes receivable

Included in other assets are tax receivables due from the Mexican government for value-added taxes (IVA) paid in advance. CDM is charged IVA by vendors on certain expenditures in Mexico, which, insofar as they relate to the exportation of goods, translate into IVA amounts ~~receivable~~recoverable from the Mexican government.

As of January 31, ~~2021,~~2022, and October 31, ~~2020,~~2021, CDM IVA receivables totaled ~~$33.2~~$38.2 million ~~(671.2~~(792.6 million Mexican pesos) and ~~$30.2~~$37.5 million ~~(640.7~~(762.1 million Mexican pesos). Historically, CDM received IVA refund payments from the Mexican tax authorities on a timely basis. Beginning in fiscal 2014 and continuing into fiscal ~~2021, however,~~2022, the tax authorities began carrying out more detailed reviews of our refund requests and our supporting documentation. Additionally, they are also questioning the refunds requested attributable to IVA paid to certain suppliers that allegedly did not fulfill their own tax obligations. We believe these factors and others have contributed to delays in the processing of IVA claims by the Mexican tax authorities. Currently, we are in the process of collecting such balances primarily through regular administrative processes, but ~~certain~~these amounts may ultimately need to be recovered ~~via~~through Administrative Appeals and/or legal ~~means and/or administrative appeals.~~means.

During the first quarter of fiscal 2017, the tax authorities informed us that their internal opinion, based on the information provided by the local SAT office, considers that CDM is not properly documented relative to its declared tax structure and therefore CDM cannot claim the refundable IVA balance. CDM has strong arguments and supporting documentation to sustain its declared tax structure for IVA and income tax purposes. CDM started an ~~administrative appeal~~Administrative Appeal for the IVA related to the request of the months of July, August and September of 2015 (the “2015 Appeal”) in order to assert its argument that CDM is properly documented and to therefore change the SAT’s internal assessment. In August 2018, we received a favorable ruling from the SAT’s ~~central legal department~~Legal Administration in ~~Mexico City~~Michoacan on the 2015 Appeal indicating that they believe CDM’s legal interpretation of its declared tax structure is indeed accurate. While favorable on this central matter of CDM’s declared tax structure, the ruling, however, still does not recognize the taxpayers right to a full refund for the IVA related to the months of July, August and September 2015. Therefore, in October 2018, CDM filed a

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substance-over-form ~~annulment suit~~Annulment Suit in the Federal Tax Court to recover its full refund for IVA over the subject period, which is currently pending resolution.

In spite of the favorable ruling from the SAT’s ~~central legal department~~Legal Administration in ~~Mexico City,~~Michoacan, as discussed above, the local SAT office continues to believe that CDM is not properly documented relative to its declared tax structure. As a result, they believe CDM cannot claim certain refundable IVA balances, specifically regarding our IVA refunds related to ~~January through December of~~ 2013, 2014, ~~and~~ 2015, and 2016, and January and February of 2017. CDM has strong arguments and supporting documentation to sustain its declared tax structure for IVA and income tax purposes. With assistance from our internationally recognized tax advisory firm, as of January 31, ~~2021,~~2022, CDM has filed ~~(or has plans to file) administrative~~Administrative Appeals for months for which IVA refunds have been denied by the SAT, and will continue filing such appeals for any months for which refunds are denied in the ~~IVA related to the preceding months.~~future. A response to these ~~administrative appeals~~Administrative Appeals is currently pending resolution.

In light of the foregoing, the Company is currently considering its options for resolution of the VAT receivables. In the unlikely event of an unfavorable resolution of the ~~administrative appeals,~~Administrative Appeals, we plan to file ~~nullification suits~~Annulment Suits with the Mexican Federal Tax Court. If ~~the~~these suits result in an unfavorable ruling, there is an option to appeal to the Collegiate Circuit Court. The estimated time for the resolution of these suits could be 2 – 3 years. ~~This estimated time could be impacted by the situation of the COVID-19 pandemic.~~

We believe that our operations in Mexico are properly ~~documented. Furthermore,~~documented, and our internationally recognized tax advisors believe that there are legal grounds to prevail in collecting the ~~Federal Tax Court and~~corresponding IVA amounts. Therefore, we believe that ~~therefore,~~it is probable that the Mexican tax authorities will ultimately authorize the refund of the corresponding IVA amounts.

12. ~~FreshRealm Separation~~Credit Facility

On ~~February 3,~~December 1, 2021, ~~Calavo, and FreshRealm,~~we entered into ~~a Limited Liability Company Member Separation~~the Fourth and ~~Release~~Fifth Amendments to the Credit Agreement ~~(the “Separation Agreement”~~with Bank of America, N.A., as administrative agent (“Bank of America”) ~~described below.~~

~~Calavo was previously a limited liability company member in FreshRealm~~, and ~~was a party~~Farm Credit West, PCA (together with Bank of America, the “Lenders”), relating to ~~that certain FreshRealm, LLC Seventh Amended and Restated Limited Liability Company~~our Credit Agreement dated as of ~~February 27, 2019, by~~June 14, 2016, The Fourth and among FreshRealm and its members. Calavo and FreshRealm were also parties to that certain Sixth Amended and Restated Senior Promissory Note, effective August 10, 2018, as amended (the “Prior Note”), pursuant to which Calavo loaned to FreshRealm principal plus accrued interest in the total sum of $34.5 million.

~~Pursuant to the Separation Agreement,~~Fifth Amendments, among other ~~terms: (i)~~terms, included Calavo terminated its limited liability company interest and equity ownership in FreshRealm; (ii) Calavo and FreshRealm simultaneously entered into an Amended and Restated Senior Secured Loan Agreement and Promissory Note (the “Amended Note”), which amended and restatedde Mexico (CDM) as a guarantor, increased the Prior Note; (iii) FreshRealm issued an additional Secured Promissory Note to Calavo in the amount of approximately $5 million that is subordinated to the Amended Note (the “Second Note”, together with the Amended Note, the “Notes”)); (iv) in the event FreshRealm pays Calavo the sum of $6 million (the “Loan Payoff Amount”) by March 31, 2022 (the “Loan Payoff Period”), the Notes shall be deemed paid in full; (v) the parties agreed to a mutual release of any claims; and (vi) the parties agreed to indemnify each other from any subsequent third party claims.

In the event FreshRealm fails to pay the Loan Payoff Amount by the Loan Payoff Period, the Notes shall remain in full force and effect, and pursuant to a warrant issued to Calavo, Calavo shall have the right to purchase 4,207,397 equity units in Fresh Realm. The Notes have an interest rate ~~of 1.46% per annum with a maturity date of April 1, 2022~~by 0.5% and ~~are secured in all of~~amended the ~~assets and collateral of FreshRealm pursuant to that certain Third Amended and Restated Security Agreement dated February 3, 2021.~~

If FreshRealm (i) pays to Calavo the Loan Payoff Amount within the Loan Payoff Period; and (ii) undergoes a “Success Event” in the future, including: a merger, a majority sale of FreshRealm’s assets or equity ownership interests, a private placement, or an initial public offering where FreshRealmfinancial covenant requirements as ~~a company is valued at $100 million or more, FreshRealm shall pay to the Company additional compensation in accordance with the following:~~follows:

●

~~FreshRealm shall pay Calavo a $10 million payment upon the closing of a Success Event if the~~

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●

~~valuation of FreshRealm at~~The Fixed Charge Coverage Ratio (FCCR) covenant will be waived for the ~~time of~~quarters ended October 31, 2021, January 31, 2022 and April 30, 2022. The covenant will resume for the ~~Success Event is equal to or greater than $100 million, but less~~

~~than $230 million;~~

quarter ended July 31, 2022.

●

The quarterly FCCR covenant will be replaced by a cumulative monthly minimum Consolidated EBITDA covenant, with the first measurement to occur as of January 31, 2022 for the three months then ended, and continuing monthly thereafter through June 2022.

●

Consolidated financial statements must be submitted monthly for the month and year-to-date period, beginning with the financial statements for the month of November 2021 and continuing through June 2022.

The Company also pledged the 1,677,000 shares it holds of Limoneira stock as collateral (which was in addition to the general business assets of the Company that already secure the credit facility).

The above terms and conditions will remain in effect until such time as the Company has certified compliance with a 1.15 to 1.0 minimum FCCR for two consecutive fiscal quarters.

As of January 31, 2022, the Company was not in compliance with the cumulative monthly minimum Consolidated EBITDA covenant, and the Consolidated Leverage Ratio (CLR) covenant. In March 2022, the Company and the Lenders entered into the Sixth Amendment, Limited Waiver, and Limited Consent to Credit Agreement (the “sixth Amendment”). The Sixth Amendment, among other terms, waived the non-compliance of the financial covenants as of January 31, 2022 and amended the financial covenant requirements as follows:

●

~~FreshRealm shall pay Calavo~~The cumulative monthly minimum Consolidated EBITDA testing has been waived and the CLR covenant testing is waived through July 31, 2022.

●

Minimum Consolidated EBITDA of $3 million, $3 million and $5 million for the months of February, March and April 2022 will be required.

●

Monthly cumulative FCCR of 1.20 starting with the quarter ended April 30, 2022, converting to trailing 12 months calculation starting as of October 31, 2022 and quarterly thereafter. For April through September 2022, dividends paid in December 2021 are included on a ~~$20 million payment upon the closing of a Success Event if the~~

~~valuation of FreshRealm at the time of the Success Event is equal to or greater than $230 million, but less~~

~~than $380 million; or~~pro-rata basis.

●

~~FreshRealm shall pay Calavo a $34 million payment upon the closing of a Success Event if the~~

~~valuation of FreshRealm at the time of the Success Event is equal to or greater than $380 Million.~~

Aside from the above, if FreshRealm undergoes a sale of its business either through a merger or a majority sale of its assets or equity interests before February 3, 2022, FreshRealm shall pay Calavo $6 million, if it hasn’t already paid the Loan Payoff Amount, plus twenty percent (20%)The interest rate of the ~~purchase price proceeds from such sale of FreshRealm. Due~~facility increased to BSBY plus 3.0%, until the ~~above uncertainty, 0 amounts have been recorded as of January 31, 2021.~~

~~13. Credit Facility~~

On January 29, 2021, we entered into the Third Amendment to Credit Agreement (the “Third Amendment”) with Farm Credit West, PCA and Bank of America, N.A. relating to our Credit Agreement dated as of June 14, 2016, First Amendment to Credit Agreement dated as of August 29, 2016, and Second Amendment to Credit Agreement dated as of February 28, 2019. This Third Amendment, among other things, provides for a ~~five-year extension~~first business day of the ~~maturity date to January 29, 2026, a $20 million increase in~~month after we certify that no default or event of default exists for the ~~revolving commitment to~~period ended July 31, 2022, at which point the interest rate will range between BSBY plus 1.25 – 1.75% based on our CLR. The total facility reduced from $100 million ~~(from~~to $80 ~~million) (for~~million and will be limited to a ~~total facility size~~borrowing base consisting of ~~$150 million if~~ the ~~$50 million accordion is exercised, up from a total size~~sum of ~~$130 million)~~eligible accounts receivable (80%), eligible US inventory (50%), and a Limoneira shares (60%), less grower payables.25 ~~basis point increase in the interest rate. The new interest rate schedules are effective mid-June 2021. For our current credit agreement, the weighted-average interest rate was~~ 2.8% and 1.9% at January 31, 2021 and October 31, 2020. Under these credit facilities, we had $37.2 million and $20.6 million outstanding as January 31, 2021 and October 31, 2020. In accordance with the extended due date, the outstanding balance of this credit facility has been reclassified

We expect to ~~long-term in the accompanying balance sheet as of January 31, 2021.~~

This Credit Facility contains customary affirmative and negative covenants for agreements of this type, including the following financial covenants applicable to the Company and its subsidiaries on a consolidated basis: (a) a quarterly consolidated leverage ratio of not more than 2.50 to 1.00 and (b) a quarterly consolidated fixed charge coverage ratio of not less than 1.15 to 1.00. We areremain in compliance with ~~all financial covenants.~~

the Credit Agreement, as so amended, through March 2023.

~~14.~~13. COVID-19 Pandemic Impact

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The COVID-19 pandemic has created challenging and unprecedented conditions for our business, and we are committed to taking action in support of a Company-wide response to the crisis. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. This has resulted in inflationary and cost pressures that have significantly increased, and continue to adversely impact, our production and distribution costs, including costs of raw materials, packaging, labor, and freight. We are also experiencing pressure in our supply chain due to strained transportation capacity and lack of sufficient labor availability. We believe, however, that we are well-positioned for the future as we continue to navigate the crisis and ~~prepare for an eventual return to a more normal operating environment. We~~ have successfully implemented contingency plans in the U.S. and in Mexico to monitor the evolving needs of our businesses, ~~in those countries,~~ as well as those related to our Peru partner in consignment avocado sales.

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The COVID-19 pandemic began to have an adverse impact on our results of operations in the month of March 2020, resulting in cancelled orders, altered customer buying patterns, delays in potential new business opportunities, losses on product unable to be sold, reductions in margins related to lower manufacturing throughput, and changes to integration plans for an acquired entity. The effects of the pandemic have been more pronounced in the portions of our business

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servicing foodservice customers and to a lesser extent certain segments of our retail business, including behind-the-glass deli and grab-and-go convenience items.

In early 2021, health agencies approved vaccines for combating the COVID-19 virus. In November 2021, the omicron variant of the SARS-COV-2 virus has started to spread throughout the world, which led to further pandemic restrictions. While many of such restrictions have since been lifted, the pace of the recovery from the COVID-19 pandemic is not presently known. We ~~may~~cannot reasonably estimate the duration or extent of the pandemic’s adverse impact on our business, operating results, and long-term liquidity position.

14. Closure of RFG Florida facility

On November 15, 2021, the Green Cove facility of RFG has ceased operations. The Company’s Fresh avocado operations at this facility will continue in operation and are not affected. RFG will continue to serve customers of this location from its other food processing locations, primarily in Georgia.

The closure resulted in a reduction of 140 employees, impairment of leasehold improvements, writedowns of inventory and other assets, and certain cash expenditures for the relocation of machinery and equipment and the closure of the leased facilities. During the fourth quarter of fiscal 2021, we wrote down $8.7 million of leasehold improvements, $0.1 million of equipment, and $0.6 million of inventory (recognized through cost of goods sold). We also ~~experience additional costs~~paid $0.4 million in employee severance. The impairment related to ~~increased workers’ compensation claims, health and safety inspections and group health insurance expenses as a result~~the RFG Florida closure has been recorded on the face of the ~~COVID-19 pandemic. We~~income statement under “Impairment and charges related to RFG Florida facility closure”.

As of January 31, 2022 and October 31, 2021, the Company had right of use assets with a net book value of $4.4 million and $4.8 million respectively, and lease liabilities of $5.5 million and $6.0 million, respectively, recorded on the balance sheet related to the closed facility. The facility lease has a maturity date of October 31, 2031. The Company intends to seek a sub-lease tenant to assume the vacated space, and believes such a sub-lease can be obtained at a lease rate, and for a lease period, sufficient to realize the right of use asset. Management will continue to evaluate the actual amounts and duration of expected future sub-lease revenues. Should the actual sub-lease revenues be less than those currently expected, the Company may ~~also be subject~~need to ~~lawsuits from employees~~record impairment of some or all of its investment in the right of use asset.

During the first quarter of fiscal 2022, we incurred $0.7 million of incremental restructuring and ~~others exposed~~related costs due to ~~COVID-19 at our production and~~the transition to other facilities. Our professional and general liability insurance may not cover all claims against us. In addition, our operations and financial results may be further adversely affected by federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the current COVID-19 pandemic. While we have managed the pandemic well, with improving results in April 2020 and minimal disruption to our overall business thus far, the continuing impact of the pandemic on our future consolidated results, financial position and cash flows are uncertain.

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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report, 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, ~~2020~~2021 of Calavo Growers, Inc. ~~(we, Calavo,~~(“we”, “Calavo”, or the ~~Company)~~“Company”).

Recent Developments

Mexican Avocado Imports

On February 11, 2022, the United States Department of Agriculture halted all imports of avocados coming into the United States from Mexico. This ban was lifted on February 18, 2022. This stoppage of imports did not significantly impact our operations or our customers and we do not expect this to have a negative impact on our financial results.

COVID-19 Pandemic Impact

The COVID-19 pandemic has created challenging and unprecedented conditions for our business, and we are committed to taking action in support of a Company-wide response to the crisis. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. This has resulted in inflationary and cost pressures that have significantly increased, and continue to adversely impact, our production and distribution costs, including costs of raw materials, packaging, labor, and freight. We are also experiencing pressure in our supply chain due to strained transportation capacity and lack of sufficient labor availability. We believe that we are well-positioned for the future as we continue to navigate the crisis and ~~prepare for an eventual return to a more normal operating environment. We~~ have successfully implemented contingency plans in the U.S. and in Mexico to monitor the evolving needs of our businesses in those countries, as well as those related to our Peru partner in consignment avocado sales.

~~We may also experience additional costs related to increased workers’ compensation claims,~~In early 2021, health ~~and safety inspections and group health insurance expenses as a result~~agencies approved vaccines for combating the COVID-19 virus. In November 2021, the omicron variant of the SARS-COV-2 virus has started to spread throughout the world, which led to further pandemic restrictions. While many of such restrictions have since been lifted, the pace of the recovery from the COVID-19 ~~pandemic.~~pandemic is not presently known. We ~~may also be subject to lawsuits~~cannot reasonably estimate the duration or extent of the pandemic’s adverse impact on our business, operating results, and long-term liquidity position.

COVID-19 Recovery Economic Impact

The recovery from ~~employees~~the COVID-19 pandemic and ~~others exposed to COVID-19 at~~the current economic climate is increasing labor costs, commodity costs and logistical costs. We are experiencing operational challenges that impact our production facilities and ~~other facilities. Our professional~~our logistics network; the impact of prices for petroleum-based products, packaging materials and ~~general liability insurance may not cover all claims against us.~~ commodity costs; and the availability of sufficient labor is increasing costs companywide.

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In ~~addition,~~response to the inflationary costs described above, we notified our ~~operations~~customers of our plans to institute price increases for our RFG and ~~financial results may~~Foods products. Management believes the price increases will largely be ~~further adversely affected~~accepted by ~~federal or state laws, regulations, orders, or other governmental or regulatory actions addressing~~our customers without significant loss of sales, will reverse the ~~current COVID-19 pandemic. While we have managed~~margin compression experienced by RFG and Foods segments during the pandemic, ~~well, with improving results~~and will enable us to continue to invest in ~~April 2020 and minimal disruption to our overall business thus far, the continuing impact of the pandemic on our future consolidated results, financial position and cash flows are uncertain.~~initiatives that drive growth.

Dividend payment

On December ~~4, 2020,~~3, 2021, we paid a $1.15 per share dividend in the aggregate amount of $20.3 million to shareholders of record on November ~~13, 2020.~~12, 2021.

Litigation

From time to time, we are involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.

Project Uno

During the third quarter of 2021, the Company launched Project Uno, a strategic set of initiatives that seeks to identify areas of operating efficiencies and cost savings to expand profit margins, cash flow and return on invested capital. We have undertaken multiple productivity and transformation initiatives, including (1) closure of the RFG Florida plant and transfer of its viable operations into RFG Georgia, (2) implementing broader supply chain operational improvements, (3) integrating our commercial, logistics, IT, procurement and accounting functions across the three divisions, (4) product rationalization initiatives which are aimed at eliminating unprofitable or slow moving SKUs and (5) outsourcing certain functions in our North American business to third-party service providers and the associated implementation of new procurement technology solutions. The Company will continue to carry out the existing productivity initiatives as well as additional initiatives under this strategy in fiscal 2022.

Mexico tax audits

2011 Assessment

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observations outline certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and Value Added Tax (IVA). During the period from our fourth fiscal quarter of 2016 through our first fiscal quarter of 2019, we attempted to resolve our case with the MFM through working meetings attended by representatives of the MFM, CDM and PRODECON (Local Tax Ombudsman). However, we were unable to materially resolve our case with the MFM through the PRODECON process.

As a result, in April 2019, the MFM issued a final tax assessment to CDM (the “2011 Assessment”) totaling approximately $2.2 billion Mexican pesos ~~(approx. $108.8 million USD at January 31, 2021)~~ related to Income Tax, Flat Rate Business Tax, and ~~Value Added Tax,~~value added tax, corresponding to the fiscal year 2011 tax audit. ~~We have consulted~~

~~Additionally, we also received notice from the SAT, that CDM is currently under examination related to fiscal year 2013.~~ 2013 Assessment

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of 2017 through our third fiscal quarter of 2018, we attempted to resolve our case with the SAT through the conclusive agreement submitted before PRODECON, having several working meetings attended by representatives of the SAT, CDM and the PRODECON. However, we were unable to materially resolve our case with the SAT through the PRODECON process.

On June 25, 2021, we became aware that the Administrative Appeal had been resolved by the SAT against CDM on March 12, 2021, and that we had allegedly failed to timely respond to and challenge the SAT’s notification of such resolution, therefore rendering the 2013 Assessment as definitive. Based on legal counsel from our tax advisory firm, we and our tax advisory firm have concluded that the March notification was not legally communicated. In ~~light~~addition, the SAT has placed liens on the fixed assets of CDM, with a net book value of approximately $26 million USD, and on bank accounts of CDM totaling approximately $1 million USD in order to guaranty the ~~foregoing,~~2013 Assessment. For reasons explained below, we do not believe that these liens pose a risk to the ~~Company is currently considering its options for resolution~~ongoing business operations of ~~the two tax assessments:~~CDM.

We strongly disagree with above actions taken and conclusions reached by the SAT. We have taken several measures in vigorous defense of our position, as explained below.

On August 27, 2021, we filed a formal complaint, or queja, (the Complaint) before the PRODECON to request their assistance with having the SAT act upon the Reconsideration. This complaint was later withdrawn in September, but may still be reinstated if deemed appropriate in the future. It should be noted that although the SAT is not obligated to act upon the Reconsideration, however, we believe that having the option of re-filing the PRODECON Complaint makes it likely that the SAT will respond to the Administrative Reconsideration and be open to settlement discussions.

-o

InFailure to recognize CDM as a “maquiladora”

Considering the ~~event~~Company to have a permanent establishment in Mexico,

Including fruit purchase deposits transferred by the Company to CDM as taxable,

Application of filing a nullification suit, the collateral or bonding requirement may be avoided by filing a nullification suit on substantive matters (“Juicio de Fondo”). This type of suit permits only arguments16% IVA tax to fruit purchase deposits

Imposing double-taxation on the ~~legal merits of the taxpayer’s case, and limits arguments on procedural matters.~~fruit purchase transactions

On September 22, 2021, we had an initial in-person meeting with the SAT in Mexico City to formally present and discuss the Reconsideration. The ~~estimated time~~SAT agreed to review our Reconsideration in more detail; however, on January 3, 2022, the SAT formally rejected our request for ~~resolution of~~the Reconsideration. In response to this ~~matter could be affected~~rejection, on January 21, 2022, we filed an Injunction Suit (Juicio de Amparo) with a federal district court seeking to nullify the arguments against the Reconsideration made by the ~~situation related~~SAT on constitutional grounds. On February 25, 2022, we filed a supplemental Injunction Suit in which we seek to have the ~~COVID-19 pandemic.~~liens against the bank accounts of CDM lifted. The injunction suits have been accepted by the court and we are expecting a response by September 2022. The main purpose of the Amparo was to challenge the

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Weresponse issued to the Reconsideration, and with that, to keep the Reconsideration alive until the Amparo is decided. This would allow time to continue the discussions with SAT at the administrative level and would give SAT the legal basis to issue a new resolution in terms of what may be agreed in the ongoing discussions with SAT. This Amparo represents a further opportunity as well for a Court of Law to analyze this matter from a constitutional perspective.

On August 20, 2021 we filed an Annulment Suit (the Annulment Suit) with the Federal Tax Court, which among other things, strongly contends that the notifications made by the SAT to CDM and its designated advisors of the resolution of the Administrative Appeal in March 2021 were not legally communicated. In addition, the Annulment Suit asserts the same matters central to the Reconsideration, as described above, as wrongly concluded in the resolution of the Administrative Appeal.

While we continue to believe that the ~~ultimate resolution~~2013 Assessment is completely without merit, and that we will prevail on the Annulment Suit in the Tax Court, we also believe it is in the best interest of ~~these matters is unlikely~~CDM and the Company to settle the 2013 Assessment as quickly as possible. Furthermore, we believe that the above actions taken by CDM will encourage the SAT agree to reach a settlement. In accordance with our cumulative probability analysis, based on factors such as recent settlements made by the SAT in other cases, the 2011 Assessment settlement reached by CDM with the MFM, and the value of CDM assets, we recorded a provision of $11 million USD, in the third quarter of fiscal 2021, as a discrete item in Income Tax Provision. The provision includes estimated penalties, interest and inflationary adjustments. We believe that this provision remains appropriate as of January 31, 2022 based on or cumulative probability analysis. We incurred $0.4 million of related professional fees for the three months ended January 31, 2022, which have ~~a material effect on our consolidated financial position.~~been recorded in Expenses related to Mexican Tax matters.

Closure of RFG Florida facility

~~Non-GAAP Financial Measures~~On November 15, 2021, the Green Cove facility of RFG has ceased operations. The Company’s Fresh avocado operations at this facility will continue in operation and are not affected. RFG will continue to serve customers of this location from its other food processing locations, primarily in Georgia.

The closure resulted in a reduction of 140 employees, impairment of leasehold improvements, writedowns of inventory and other assets, and certain cash expenditures for the relocation of machinery and equipment and the closure of the leased facilities. During the fourth quarter of fiscal 2021, we wrote down $8.7 million of leasehold improvements, $0.1 million of equipment, and $0.6 million of inventory (recognized through cost of goods sold). We also paid $0.4 million in employee severance. The impairment related to the RFG Florida closure has been recorded on the face of the income statement under “Impairment and charges related to RFG Florida facility closure”.

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rate, and for a lease period, sufficient to realize the right of use asset. Management will continue to evaluate the actual amounts and duration of expected future sub-lease revenues. Should the actual sub-lease revenues be less than those currently expected, the Company may need to record impairment of some or all of its investment in the right of use asset.

During the first quarter of fiscal 2022, we incurred $0.7 million of incremental restructuring and related costs due to the transition to other facilities.

Critical Accounting Estimates

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 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.

There have been no material changes in our critical accounting estimates during the three months ended January 31, 2022, 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, 2021.

Non-GAAP Financial Measures

The below tables include non-GAAP measures EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS, which are not prepared in accordance with U.S. generally accepted accounting principles, or “GAAP.”

EBITDA is defined as net income (loss) attributable to Calavo Growers, Inc. excluding (1) interest income and expense, (2) income taxes (benefit) provision, (3) depreciation and amortization and (4) stock-based compensation expense. Adjusted EBITDA is EBITDA with further adjustments for (1) non-cash net losses ~~(income)~~ recognized from unconsolidated entities, (2) goodwill impairment, (3) write-off of long-lived assets, (4) acquisition-related costs, (5) ~~restructuring and~~restructuring-related costs, including certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted EBITDA is a primary metric by which management evaluates the operating performance of the business, on which certain operating expenditures and internal budgets are based and by which, in addition to other factors, the Company’s senior management is compensated. The adjustments to calculate EBITDA and adjusted EBITDA are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded.

Adjusted net income is defined as net income (loss) attributable to Calavo Growers, Inc. excluding (1) non-cash net losses ~~(income)~~ recognized from unconsolidated entities, (2) goodwill impairment, (3) write-off of long-lived assets, (4) acquisition-related costs, (5) ~~restructuring and~~restructuring-related costs, including certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted net income and the related measure of adjusted diluted EPS exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. We believe adjusted net income affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income (loss) attributable to Calavo Growers, Inc.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the financial tables below.

Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. One-time items are identified in the notes to the reconciliations in the financial tables below.

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Non-GAAP information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. None of these metrics are presented as measures of liquidity. The way the Company measures EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in Company agreements.

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Adjusted Net Income (Non-GAAP, Unaudited)

The following table presents adjusted net income and adjusted diluted EPS, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., and Diluted EPS, which are the most directly comparable GAAP measures. See “Non-GAAP Financial Measures” above (in thousands, except per share amounts).

Three months ended January 31,


2021

2020
Net income (loss) attributable to Calavo Growers, Inc.

$
5,277

$
(938)
Non-GAAP adjustments:




Non-cash losses recognized from unconsolidated entities (a)

155

3,028
Income from FreshRealm Recovery (b)

(130)

—
Acquisition costs (c)

262

290
Net gain on Limoneira shares (d)

(3,589)

(1,006)
RFG rent expense add back (e)

108

—
Professional expenses related to FreshRealm

91

—
Tax impact of adjustments (f)

840

(602)
Adjusted net income attributed to Calavo Growers, Inc.

$
3,014

$
772

Calavo Growers, Inc.’s net income (loss) per share:




Diluted EPS (GAAP)

$
0.30

$
(0.05)
Adjusted Diluted EPS

$
0.17

$
0.04

Number of shares used in per share computation:




Diluted

17,669

17,536


	Three months ended January 31,
	2022		2021
Net income (loss) attributable to Calavo Growers, Inc.	$	(4,043)	$	5,277
Non-GAAP adjustments:
Non-cash losses recognized from unconsolidated entities (a)		535		155
Loss (Recovery) from FreshRealm and other related expenses (b)		—		(39)
Acquisition costs (c)		—		262
Net (gain) loss on Limoneira shares (d)		2,130		(3,589)
RFG rent expense add back (e)		108		108
Restructure costs - consulting, management recruiting and severance (f)		1,118		—
Mexican tax matters (g)		367		—
Impairment and charges related to closure of RFG Florida facility (h)		654		—
Tax impact of adjustments (i)		(1,238)		840
Adjusted net income attributed to Calavo Growers, Inc.	$	(369)	$	3,014

Calavo Growers, Inc.’s net income (loss) per share:
Diluted EPS (GAAP)	$	(0.23)	$	0.30
Adjusted Diluted EPS	$	(0.02)	$	0.17

Number of shares used in per share computation:
Diluted		17,653		17,669

(a)

For the three months ended January 31, ~~2020, FreshRealm realized losses totaling $9.3 million, of which we recorded $3.5 million of non-cash losses during the first quarter of fiscal 2020. For the three months ended January 31,~~2022 and 2021, we realized losses from Agricola Don Memo totaling $0.5 million and $0.2 ~~million. For the three months ended January 31, 2020, we realized income from Agricola Don Memo totaling $0.5~~ million.

(b)

As part of the FreshRealm Separation Agreement, ~~(See Note 12),~~ we received $0.1 million ~~for~~of previously reserved ~~receivables.~~receivables for the three months ended January 31, 2021. Partially offsetting this benefit, we had professional fees related to the FreshRealm Separation Agreement.

(c)

In the first quarter of 2021, ~~these are~~we incurred professional service costs related to a considered ~~and subsequently cancelled~~but non-consummated acquisition. ~~In the first quarter of 2020, we incurred transaction expenses related to the acquisition of SFFI Company, Inc. doing business as Simply Fresh Fruit.~~

(d)

For the three months ended January 31, ~~2021~~2022 and ~~2020,~~2021, we recorded ~~$3.6~~$2.1 million in unrealized losses and ~~$1.0~~$3.6 million in unrealized gains related to these mark-to-market ~~adjustments.~~adjustments, respectively.

(e)

For the three months ended January 31, 2022 and 2021, we incurred $0.1 million related to rent paid for RFG corporate office space that we have vacated and plan to sublease.

(f)

~~Tax impact~~For the three months ended January 31, 2022, we recorded $1.1 million of ~~non-GAAP adjustments are based on~~consulting expenses related to an enterprise-wide strategic business operations study conducted by a third-party management consulting organization for the ~~prevailing year-to-date tax rates.~~purpose of restructuring to improve the profitability of the organization and efficiency of our operations.

(g)

For the three months ended January 31, 2022, we incurred $0.4 million of related professional fees related to the Mexican tax matters. See Note 7 to the consolidated condensed financial statements included in this Quarterly Report for further information.

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(h)

On October 18, 2021, we announced the closure of RFG’s food processing operations at our Green Cove Springs (near Jacksonville), Florida facility, as part of our Project Uno profit improvement program. As of November 15, the Green Cove facility of RFG has ceased operations. We incurred $0.7 million of expenses in the first quarter of fiscal 2022, related to the closure of this facility.

(i)

Tax impact of non-GAAP adjustments are based on effective year-to-date tax rates.

Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP, Unaudited)

The following table presents EBITDA and adjusted EBITDA, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., which is the most directly comparable GAAP measure. See “Non-GAAP Financial Measures” above (in thousands, except per share amounts).

Three months ended January 31,


2021

2020
Net income (loss) attributable to Calavo Growers, Inc.

$
5,277

$
(938)
Interest Income

(72)

(946)
Interest Expense

174

187
Provision (benefit) for Income Taxes

1,943

(650)
Depreciation & Amortization

4,294

3,567
Stock-Based Compensation

907

931
EBITDA

$
12,523

$
2,151

Adjustments:




Non-cash losses recognized from unconsolidated entities (a)

155

3,028
Net gain on Limoneira shares (d)

(3,589)

(1,006)
Income from FreshRealm recovery (b)

(130)

—
Professional expenses related to FreshRealm

91

—
RFG rent expense add back (e)

108

—
Acquisition costs (c)

262

290
Adjusted EBITDA

$
9,420

$
4,463
Adjusted EBITDA per diluted share

$
0.53

$
0.25


	Three months ended January 31,
	2022		2021
Net income (loss) attributable to Calavo Growers, Inc.	$	(4,043)	$	5,277
Interest Income		(133)		(72)
Interest Expense		327		174
Provision (benefit) for Income Taxes		(1,160)		1,943
Depreciation & Amortization		4,312		4,294
Stock-Based Compensation (d)		556		907
EBITDA	$	(141)	$	12,523

Adjustments:
Non-cash losses recognized from unconsolidated entities (a)		535		155
Net (gain) loss on Limoneira shares (d)		2,130		(3,589)
Loss (Recovery) from FreshRealm and other related expenses (b)		—		(39)
RFG rent expense add back (e)		108		108
Acquisition costs (c)		—		262
Restructure costs - consulting and management recruiting and severance (f)		1,118		—
Expenses related to Mexican tax matters (g)		367		—
Impairment and charges related to closure of RFG Florida facility (h)		618		—
Adjusted EBITDA	$	4,735	$	9,420
Adjusted EBITDA per dilutive share	$	0.27	$	0.53

See prior page for footnote references

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Net Sales

The following table summarizes our net sales by business segment for each of the three months ended January 31, ~~2021~~2022 and ~~2020:~~2021:

Three months ended January 31,

2021

Change

2020

Gross sales:










Fresh products

$
115,459

(13)
%
$
133,189

RFG

90,306

(25)
%

120,935

Calavo Foods

16,458

(20)
%

20,483

Less intercompany eliminations

(1,645)

31
%

(1,259)

Total net sales

$
220,578

(19)
%
$
273,348

As a percentage of sales:

Fresh products

52.0
%

48.5
%

RFG

40.6
%

44.0
%

Calavo Foods

7.4
%

7.5
%

100.0
%

100.0
%


	Three months ended January 31,
	2022			Change		2021
Gross sales:
Fresh products	$	162,585		41	%	$	115,459
RFG		95,764		6	%		90,306
Calavo Foods		17,128		4	%		16,458
Less intercompany eliminations		(1,385)		(16)	%		(1,645)
Total net sales	$	274,092		24	%	$	220,578

As a percentage of sales:
Fresh products		59.0	%				52.0	%
RFG		34.8	%				40.6	%
Calavo Foods		6.2	%				7.4	%
		100.0	%				100.0	%

~~Table~~Results of ~~Contents~~Operations

Summary

Net sales for the three months ended January 31, ~~2021,~~2022, compared to the corresponding period in fiscal ~~2020, decreased~~2021, increased by ~~$52.8~~$53.5 million, or approximately ~~19%~~24%. The ~~decrease in sales for the three months ended January 31, 2021, when compared to the same corresponding prior year period,~~increase was due to ~~declines~~increases across all ~~segments.~~segments, but most significantly in Fresh products.

For the three months ended January 31, ~~2021,~~2022, the ~~decrease~~increase in Fresh product sales was primarily due to an increase in sales of avocados. For the three months ended January 31, 2022, the increase in RFG sales was due primarily to ~~decreased~~increased sales from fresh-cut fruit & vegetables and prepared foods products. ~~The decrease~~For the three months ended January 31, 2022, the increase in Calavo Foods was due primarily to ~~a decrease~~an increase in the sales of prepared avocado products. See discussion below for further details. ~~The decrease in Fresh products sales was due primarily to a decrease in sales of avocados and tomatoes.~~

All three segments of our business are subject to seasonal trends which can impact the volume and/or quality of raw materials sourced in any particular quarter. All intercompany sales are eliminated in our consolidated results of operations.

Fresh products

~~First Quarter~~Three Months Ended January 31, 2022 vs. Three Months Ended January 31, 2021 ~~vs. First Quarter 2020~~

~~Sales~~Net sales for the Fresh products business ~~decreased~~increased by approximately ~~$17.7~~$47.1 million, or ~~13%~~41%, for the first quarter of fiscal ~~2021 when~~2022 compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2020.~~2021. This ~~decrease~~increase in Fresh product sales during the first quarter of fiscal ~~2021~~2022 was primarily related to ~~decreased~~increased sales prices of avocados due to ~~higher~~increased demand and lower overall supply of avocados in the marketplace. In addition, tomato sales ~~decreased~~increased due to an increase in overall sales volume, partially offset by a ~~decline of tomato~~decrease in sales prices.

Sales of avocados ~~decreased $14.2~~increased $46.3 million, or ~~12%~~45%, for the first quarter of ~~2021, when~~2022 compared to the ~~same~~ prior year period. The average avocado sales price per carton ~~decreased 14%~~increased 64% compared to the ~~same~~ prior year period. This ~~decrease~~increase in the sales price per carton iswas mainly due to ~~an increase~~a decrease of ~~volume~~supply of avocados in the marketplace. The volume of avocados sold ~~increased 2% during~~in the first quarter of 2022 decreased 12% compared to the prior year period.

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Sales of tomatoes ~~decreased $3.8~~increased $0.8 million, or ~~29%~~9%, for the first quarter of ~~2021,~~2022, when compared to the ~~same~~ prior year period. This ~~decrease~~increase in tomato sales was primarily due to a ~~28% decrease~~24% increase in the ~~average~~cartons sold of tomatoes, partially offset by a 12% decline in the sales price per ~~carton compared to the same prior year period, in addition to a decrease of 2% of the number of tomato cartons sold due to a delay in the start of the growing season.~~carton.

RFG

~~First Quarter~~Three Months Ended January 31, 2022 vs. Three Months Ended January 31, 2021 ~~vs. First Quarter 2020~~

~~Sales~~Net sales for RFG for the quarter ended January 31, ~~2021, when~~2022, compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2020, decreased $30.6~~2021, increased $5.5 million, or ~~25%~~6%. ~~The decrease~~This increase was primarily ~~due to lower sales out~~reflecting a volume increase of the Midwest, relating to the closure of RFG’s co-packing partner in that region, which occurred in April 2020. This was partially offset by additional sales in regions where RFG has added manufacturing capacity. Additionally, changing consumer demand2%, favorable product mix and ~~buying patterns related to COVID-19 adversely impacted RFG’s sales during the quarter.~~price increases.

Calavo Foods

~~First Quarter~~Three Months Ended January 31, 2022 vs. Three Months Ended January 31, 2021 ~~vs. First Quarter 2020~~

~~Sales~~Net sales for Calavo Foods for the quarter ended January 31, ~~2021, when~~2022, compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2020, decreased $4.0~~2021, increased $0.7 million, or ~~20%~~4%. Sales of prepared avocado products ~~decreased~~increased by approximately ~~$4.0~~$1.0 million, or ~~20%~~6%, primarily related to ~~a decrease~~an increase in the total volume of pounds sold. Sales of prepared avocado products were impacted primarily by a decline in demand from foodservice customers related to COVID-19 during the quarter. Foodservice customers comprised approximately 48% and 57% of revenue for the quarters ended January 31, 2021 and 2020.

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Gross Profit

The following table summarizes our gross profit and gross profit percentages by business segment for the three months ended January 31, ~~2021~~2022 and ~~2020:~~2021:

Three months ended January 31,

2021

Change

2020

Gross Profit:










Fresh products

$
13,145

100
%
$
6,582

RFG

(23)

(101)
%

2,876

Calavo Foods

4,717

(26)
%

6,350

Total gross profit

$
17,839

13
%
$
15,808

Gross profit percentages:

Fresh products

11.4
%

4.9
%

RFG

(0.0)
%

2.4
%

Calavo Foods

28.7
%

31.0
%

Consolidated

8.1
%

5.8
%


	Three months ended January 31,
	2022			Change		2021


Gross profit (loss):
Fresh products	$	11,666		(11)	%	$	13,145
RFG		(652)		n/m	%		(23)
Calavo Foods		2,214		(53)	%		4,717
Total gross profit	$	13,228		(26)	%	$	17,839

Gross profit (loss) percentages:
Fresh products		7.2	%				11.4	%
RFG		(0.7)	%				(0.0)	%
Calavo Foods		12.9	%				28.7	%
Consolidated		4.8	%				8.1	%

Summary

Our cost of goods sold consists predominantly of ingredient costs (fruit, vegetables and other food products), packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products, and other direct expenses pertaining to products sold.

Gross profit ~~increased~~decreased by approximately ~~$2.0~~$4.6 million, or ~~13%~~26%, for the first quarter of fiscal ~~2021 when~~2022 compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2020.~~2021. The ~~increase~~decrease was primarily attributable to gross profit ~~improvement in the Fresh products segment.~~declines across all segments.

Fresh products

~~During our three months ended January 31, 2021, as compared to the same prior year period, the increase~~The decrease in our Fresh products segment gross profit percentage for the quarter ended January 31, 2022, was the result of ~~increased~~decreased gross profit for avocados. For the first quarter ~~ended January 31, 2021,~~of fiscal 2022, the gross profit percentage for avocados

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was ~~11.5%~~7. 2% compared to ~~4.3% in~~11.4% for the first quarter of ~~2020. In fiscal 2021, we were able to manage~~2021. Gross profit change is the ~~spread between the sales price~~result of lower volumes and ~~the fruit cost of avocados more effectively compared to the same prior year period.~~increases in labor, and freight costs.

Gross profit for the quarter was also affected by the ~~strengthening~~weakening of the U.S. ~~Dollar~~dollar in relation to the Mexican ~~Peso~~peso during the quarter, ~~resulted~~resulting in a ~~$1.0~~$0.6 million net ~~gain~~loss related the remeasurement of ~~peso dominated~~peso-dominated net assets at our Mexican subsidiaries. During the same period last year, we had a remeasurement gain of ~~less than $0.1~~$1.1 million.

Note that any additional significant fluctuations in the exchange rate between the U.S. ~~Dollar~~dollar and the Mexican ~~Peso~~peso may have a material impact on future gross profits for our Fresh products segment.

RFG

RFG’s gross profit (loss) percentage for the quarter ended January 31, ~~2021~~2022 was ~~0.0%~~(0.7)%, compared to ~~2.4% in~~less than (0.0)% for the ~~same~~ prior year period. The ~~decline~~declines in gross profit for the quarter ended January 31, ~~2021 was~~2022, were due to increased commodity costs, lack of availability of key commodities, lower supply and higher turnover of labor~~weaker overhead absorption as a result of COVID-19 related volume declines.~~. In addition, ~~we experienced losses~~ ~~out~~results were negatively impacted by costs associated with the consolidation of ~~regions served by co-packing partners mainly due~~our Jacksonville, Florida facility into our Georgia facility.

We continue to experience operational challenges to our production facilities and logistics networks, shortage of labor and impacts from increases in prices of petroleum-based products, packaging materials and commodities, all of which are increasing costs companywide with the effects especially pronounced at RFG.

In response to the ~~closure~~inflationary costs described above, we notified our customers of our ~~Midwest co-packing partner.~~plans to institute price increases for our RFG and Foods products. Management believes the price increases will largely be accepted by our customers without significant loss of sales, will reverse the margin compression experienced by RFG and Foods segments during the pandemic, and will enable us to continue to invest in initiatives that drive growth. However, we cannot assure you that such price increases will not cause a loss of sales, will improve margins in our RFG and Foods segments or that we will be able to undertake future initiatives to drive growth.

Management has considered the impact of current operating results as well as expected future results and has concluded that there were no impairment indicators with regard to intangible assets carried on the balance sheet as of January 31, 2022. This is consistent with the Company’s previous assessments which had reflected a significant cushion between the Company’s fair value determinations and the recorded carrying values of the respective intangible assets. Management will continue to evaluate the impact of operating results on these considerations in future quarters.

Calavo Foods

Calavo Foods’ gross profit percentage for the ~~three months ended January 31, 2021~~first quarter of fiscal 2022 was ~~28.7%~~12.9%, compared to ~~31.0% in~~28.7% for the ~~same~~ prior year period. The ~~decrease~~decreases in Calavo Foods gross profit percentage ~~was~~were due primarily to higher ~~per~~

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~~pound manufacturing costs primarily related to less pounds produced. Partially offsetting this higher cost, we had a decline in overall~~ fruit costs ~~due to a large supply of avocados in the marketplace. Note that any~~and manufacturing costs. Any significant fluctuation in the cost of fruit used in the production process or the exchange rate between the U.S. ~~Dollar~~dollar and the Mexican ~~Peso~~peso may have a material impact on future gross profit for our Calavo Foods segment.

Selling, General and Administrative

Three months ended January 31,

2021

Change

2020

(Dollars in thousands)

Selling, general and administrative
$
14,174

(13)
%
$
16,298


Percentage of net sales

6.4
%

6.0
%


	Three months ended January 31,
	2022			Change		2021

	(Dollars in thousands)
Selling, general and administrative	$	15,337		8	%	$	14,174
Percentage of net sales		5.6	%				6.4	%

Selling, general and administrative expenses of ~~$14.2~~$15.3 million for the three months ended January 31, ~~2021~~2022 include costs of marketing and advertising, sales expenses (including broker commissions) and other general and administrative costs. Selling, general and administrative expenses ~~decreased~~increased by ~~$2.1~~$1.2 million, or ~~13%~~8%, for the three months ended January 31, ~~2021 when~~2022 compared to the ~~same period for fiscal 2020.~~prior year period. This increase was primarily due to an increase in consulting services related

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to restructuring efforts ($1.1 million), and an increase in salaries and benefits expense related to the investment in key personnel to advance Project Uno ($0.6 million). Partially offsetting this increase was a decrease of ~~salary and benefit expense~~stock-based compensation due to ~~eliminations of staff positions~~less amortization related to Management Incentive stock awards from prior years ($~~1.9~~0.4 million), and a decrease ~~of broker commission~~in the bonus accrual ($~~0.3~~0.4 million).

Loss from unconsolidated entities

Three months ended January 31,

2021

Change

2020

(Dollars in thousands)

Loss from unconsolidated entities

$
(155)

(95)
%
$
(3,028)


	Three months ended January 31,
	2022		Change		2021

	(Dollars in thousands)
Loss from unconsolidated entities	$	(535)	245	%	$	(155)

Losses from unconsolidated entities includes our participation in earnings or losses from our investments in ~~FreshRealm and~~ Don Memo. For the three months ended January 31, ~~2021,~~2022, we ~~recognized $0.2 million of~~realized losses ~~related to~~from Agricola Don Memo ~~compared to~~totaling $0.5 million ~~of income in the three months ended January 31, 2020. For the three months ended January 31, 2020, we recognized $3.5 million of losses related to FreshRealm.~~and $0.2 million.

Income Taxes (Provision) Benefit

Three months ended January 31,

2021

Change

2020

Income tax (provision) benefit

$
(1,943)

NA

$
650


Effective tax rate

27.1
%

39.4
%


	Three months ended January 31,
	2022			Change		2021

Income tax benefit (provision)	$	1,160		NM	%	$	(1,943)
Effective tax rate		21.8	%				27.1	%

Our tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter.

~~In the first quarter ended in fiscal 2020, we recorded a discrete income tax benefit of approximately $0.2 million, pursuant to ASU 2016-09,~~ ~~Improvements to Employee Share-based Payment Accounting~~. Our effective tax rate was higher in the first quarter of fiscal 2020 as a result of discrete excess tax benefits on vesting share-based compensation in addition to the tax benefit associated with the quarter-to-date loss. We recognize the effects of tax legislation in the period in which the law is enacted. Our deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years we estimate the related temporary differences to reverse.

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Liquidity and Capital Resources

Cash provided by operating activities was ~~$13.2~~$2.4 million for the three months ended January 31, ~~2021,~~2022, compared to cash ~~used~~provided by operating activities of ~~$6.5~~$13.2 million for the ~~similar~~corresponding period in fiscal ~~2020.~~2021. Cash used by operating activities for the three months ended January 31, ~~2021~~2022 reflect primarily our net ~~income~~loss of ~~$5.2~~$4.2 million, plus add-backs for non-cash activities (depreciation and amortization, stock-based compensation expense, provision for losses on accounts receivable, losses from unconsolidated entities, net gains or losses on Limoneira shares, deferred taxes, loss on disposal of property, plant and equipment, ~~loss on the reserve for FreshRealm~~ and gain on the sale of the Temecula packinghouse) of ~~$1.7~~$7.8 million and a net ~~increase~~decrease in the components of our working capital of approximately ~~$6.2~~$1.3 million.

~~Increases~~Decreases in operating cash flows caused by working capital changes include ~~a net increase in accounts payable and accrued expenses of $14.7 million, a decrease in income taxes receivable of $3.9 million,~~ an increase in ~~payable to growers of $0.2 million, a decrease in advances to suppliers of $0.2 million, and a decrease in~~ inventory of ~~$0.1~~$11.7 million, ~~partially offset by~~ an increase in accounts receivable of ~~$7.9~~$10.6 million, an increase in ~~other assets~~advances to suppliers of ~~$3.6~~$3.3 million, ~~and~~ an increase in prepaid expenses and other current assets of ~~$1.3~~$1.6 million and an increase in other assets of $0.3 million, partially offset by an increase in payable to growers of $14.8 million, a net increase in accounts payable, accrued expenses and other liabilities of $7.9 million and a decrease in income taxes receivable of $3.5 million.

The increase in our inventory, as of January 31, 2022 when compared to October 31, 2021, is primarily due to higher inventory of California and Mexican Avocados. The increase in our accounts receivable, as of January 31, 2022, when compared to October 31, 2021, is primarily due an increase in sales in January 2022 compared to October 2021. The increase in advances to suppliers is mainly due to advances to our tomato growers in the first three months of fiscal 2022. The increase in payable to growers is mostly due to increased volumes and sales prices for California and Mexican avocados in the month of January 2022 compared to October 2021. The increase in accounts payable, ~~and~~ accrued expenses and other liabilities is primarily related to an increase in payables related to an increase in the ~~volume~~price of California and Mexican ~~avocados and copacker purchases.~~avocados. The decrease in income taxes receivable is due to the ~~net~~receipt of an income and the timing of estimated payments made during the three months ended January 31, 2021. The increase in our accounts receivable, as of January 31, 2021 when compared to October 31, 2020, is primarily due an increase in sales in January 2021 compared to October 2020 and an increase in the days sales outstanding. The increase in other assets is primarily related to the increase in IVA receivabletax refund in the first quarter of fiscal ~~2021. The increase in prepaids and other current assets is primarily due to an increase in prepaid insurance.~~2022.

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Cash used in investing activities was ~~$4.8~~$2.1 million for the three months ended January 31, ~~2021,~~2022, which primarily related to the purchases of property, plant and ~~equipment of $4.8 million.~~equipment.

Cash ~~used~~provided by financing activities was ~~$4.3~~$5.6 million for the three months ended January 31, ~~2021,~~2022, which related principally to the ~~payment of our $20.3 million dividend and the payment of minimum withholding taxes on net share settlement of equity awards of $0.5 million, partially offset by~~ net proceeds on our credit facilities totaling ~~$16.6~~$26.3 million, ~~among other items.~~partially offset by, the payment of a $20.3 million dividend and payments on long-term obligations of $0.4 million.

Our principal sources of liquidity are our existing cash ~~balances,~~reserves, cash generated from operations and amounts available for borrowing under our existing ~~Credit Facility, and our investment in Limoneira shares. Cash~~credit facilities. Restricted cash, cash and cash equivalents as of January 31, ~~2021~~2022 and October 31, ~~2020~~2021 totaled ~~$8.2~~$8.8 million and ~~$4.1~~$2.9 million. Our working capital at January 31, ~~2021~~2022 was ~~$64.0~~$62.7 million, compared to ~~$29.6~~$38.0 million at October 31, ~~2020.~~2021.

We believe that cash flows from operations, the available Credit Facility, and other sources will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements for at least the next twelve months. We will continue to pursue grower recruitment opportunities and expand relationships with retail and/or foodservice customers to fuel growth in each of our business segments. We have a revolving credit facility with Bank of America as administrative agent and Farm Credit West as joint lead arranger. Under the terms of this agreement, we ~~are advanced~~may draw on funds for both working capital and long-term productive asset purchases. Total credit available under this agreement is ~~$100~~$80 million and ~~will expire~~it expires in January 2026. ~~See Note 13 for more information. Upon notice to Bank of America, we may from time to time, request an increase in the~~For our Credit Facility, ~~by an amount not exceeding $50 million. For our current credit agreement,~~ the weighted-average interest rate was ~~2.8~~1.9% and ~~1.9%~~2.2% at January 31, ~~2021~~2022 and October 31, ~~2020.~~2021. Under ~~these credit facilities,~~the Credit Facility, we had ~~$37.2~~$64.0 million and ~~$20.6~~$37.7 million outstanding as January 31, ~~2021~~2022 and October 31, ~~2020.~~2021.

~~This~~

On December 1, 2021, we entered into the Fourth and Fifth Amendments to the Credit ~~Facility contains customary affirmative~~Agreement with Bank of America, N.A., as administrative agent (“Bank of America”), and ~~negative covenants~~Farm Credit West, PCA (together with Bank of America, the “Lenders”), relating to our Credit Agreement dated as of June 14, 2016, The Fourth and Fifth Amendments, among other terms, included Calavo de Mexico (CDM) as a guarantor, increased the interested rate by 0.5%, and amended the financial covenant requirements as follows:

●

The Fixed Charge Coverage Ratio (FCCR) covenant will be waived for the quarters ended October 31, 2021, January 31, 2022 and April 30, 2022. The covenant will resume for the quarter ended July 31, 2022.

●

The Company also pledged the 1,677,000 shares it holds of Limoneira stock as collateral (which was in addition to the general business assets of the Company that already secure the credit facility).

The above terms and conditions will remain in effect until such time as the Company has certified compliance with a 1.15 to 1.0 minimum FCCR for ~~agreements~~two consecutive fiscal quarters.

As of ~~this type, including~~January 31, 2022, the ~~following financial covenants applicable to~~Company was not in compliance with the cumulative monthly minimum Consolidated EBITDA covenant, and the Consolidated Leverage Ratio (CLR) covenant. In March 2022, the Company and ~~its subsidiaries on a consolidated basis: (a) a quarterly consolidated leverage ratio~~Bank of ~~not more than 2.50~~America, N.A. have entered into the Sixth Amendment, Limited Waiver, and Limited Consent to ~~1.00~~Credit Agreement (the “Sixth Amendment”). The Sixth Amendment, among other terms, waived the non-compliance of the financial covenants as of January 31, 2022 and ~~(b) a quarterly consolidated fixed charge coverage ratio of not less than 1.15 to 1.00. We are in compliance with all such covenants.~~amended the financial covenant requirements as follows:

●

The cumulative monthly minimum Consolidated EBITDA testing has been waived and the CLR covenant testing is waived through July 31, 2022.

●

Minimum Consolidated EBITDA of $3 million, $3 million and $5 million for the months of February, March and April 2022, respectively, will be required.

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●

Monthly cumulative FCCR of 1.20 will be required starting with the quarter ended April 30, 2022, converting to trailing 12 months calculation starting as of October 31, 2022 and quarterly thereafter. For April through September 2022, dividends paid in December 2021 are included on a pro-rata basis.

The interest rate of the facility increased to BSBY plus 3.0%, until the first business day of the month after we certify that no default or event of default exists for the period ended July 31, 2022, at which point the interest rate will range between BSBY 1.25 – 1.75% based on our CLR. The total facility reduced from $100 million to $80 million and will be limited to a borrowing base consisting of the sum of eligible accounts receivable (80%), eligible US inventory (50%), and Limoneira shares (60%), less grower payables.

We expect to remain in compliance with the Credit Agreement, as so amended, through March 2023.

Contractual ~~Obligations~~Commitments

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, ~~2020.~~2021. For a summary of the contractual commitments at October 31, ~~2020,~~2021, see Part II, Item 7, in our ~~2020~~2021 Annual Report on Form 10-K.

Impact of Recently Issued Accounting Pronouncements

See Note 1 to the consolidated condensed financial statements ~~that are~~ included in this Quarterly ~~Report on Form 10-Q.~~Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and cash equivalents, accounts receivable, payable to growers, accounts payable, current and long-term borrowings pursuant to our ~~credit facilities with financial institutions,~~Credit Facility, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. The table below summarizes interest rate sensitive financial instruments and presents principal cash flows in U.S. dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of January 31, ~~2021.~~2022.

(All amounts in thousands)

Expected maturity date January 31,


2022

2023

2024

2025

2026

Thereafter

Total

Fair Value

Assets

Cash and cash equivalents (1)

$
8,168

$
—

$
—

$
—

$
—

$
—

$
8,168

$
8,168

Accounts receivable (1)

71,603

—

—

—

—

—

71,603

71,603

Advances to suppliers (1)

4,909

—

—

—

—

—

4,909

4,909

Liabilities

Payable to growers (1)

$
11,556

$
—

$
—

$
—

$
—

$
—

$
11,556

$
11,556

Accounts payable (1)

14,417

—

—

—

—

—

14,417

14,417

Borrowings pursuant to credit facilities (1)

37,150

—

—

—

—

—

37,150

37,150


(All amounts in thousands)	Expected maturity date January 31,
	2023		2024		2025		2026		2027		Thereafter		Total		Fair Value
Assets
Restricted cash, cash and cash equivalents (1)	$	8,796	$	—	$	—	$	—	$	—	$	—	$	8,796	$	8,796
Accounts receivable (1)		89,467		—		—		—		—		—		89,467		89,467
Advances to suppliers (1)		9,951		—		—		—		—		—		9,951		9,951

Liabilities
Payable to growers (1)	$	37,798	$	—	$	—	$	—	$	—	$	—	$	37,798	$	37,798
Accounts payable (1)		11,848		—		—		—		—		—		11,848		11,848
Borrowings pursuant to credit facilities (1)		—		—		—		64,000		—		—		64,000		64,000

(1)

We believe the carrying amounts of cash and cash equivalents, accounts receivable, advances to suppliers, payable to growers, and accounts payable approximate their fair value due to the short maturity of these financial instruments and the carrying amount of borrowings pursuant to credit facilities approximates fair market value dodue to the variable rate of interest.

We were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility.

Our Mexican-based operations transact a significant portion of business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. We do not currently use derivative instruments to hedge fluctuations in the Mexican peso to U.S. dollar exchange rates. Management does, however, evaluate this opportunity from time to time. Total foreign currency remeasurement losses for the three months ended January 31, 2022, net of gains, was $0.6 million. Total foreign currency remeasurement gains for the three months ended January 31, 2021, ~~and 2020,~~ net of losses, was ~~$1.0 million and $0.1~~$1.1 million.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting during the quarter ended January 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in litigation arising in the ordinary course of our ~~business that~~business. We have provided information about certain legal proceedings in which we ~~do not believe will have a material adverse impact on our~~are involved in Note 7 to the consolidated condensed financial ~~statements.~~statements included in this Quarterly Report for further information.

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ITEM 1A. RISK FACTORS

For a discussion of our risk factors, see Part 1, item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended October 31, ~~2020.~~2021. There have been no material changes from the risk factors set forth in such Annual Report on Form 10-K. However, the risks and uncertainties that we face are not limited to those set forth in the ~~2020~~2021 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.

ITEM 5. OTHER INFORMATION

Because this Quarterly Report on Form 10-Q is being filed within four business days after the applicable triggering events, the information below is being disclosed under this Item 5 instead of under Item 1.01 (Entry into a Material Definitive Agreement) and Item 2.03 (Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of Registrant) of Form 8-K.

On March 14, 2022, the Company and Bank of America, N.A., as administrative agent (“Bank of America”), and Farm Credit West, PCA (together with Bank of America, the “Lenders”) entered into the Sixth Amendment, Limited Waiver, and Limited Consent to Credit Agreement (the “Sixth Amendment”). The Sixth Amendment, among other terms, waived non-compliance with certain financial covenants as of January 31, 2022 and amended the financial covenant requirements as follows:

●

The cumulative monthly minimum Consolidated EBITDA testing has been waived and the CLR covenant testing is waived through July 31, 2022.

●

Minimum Consolidated EBITDA of $3 million, $3 million and $5 million for the months of February, March and April 2022, respectively, will be required.

●

The interest rate of the facility increased to BSBY plus 3.0%, until the first business day of the month after we certify that no default or event of default exists for the period ended July 31, 2022, at which point the interest rate will range between BSBY plus 1.25 – 1.75% based on our CLR. The total facility reduced from $100 million to $80 million and will be limited to a borrowing base consisting of the sum of eligible accounts receivable (80%), eligible US inventory (50%), and Limoneira shares (60%), less grower payables.

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ITEM 6. EXHIBITS

	10.1	Form of Notice of Restricted Stock Award *

	10.2	Form of Notice of Stock Option Award *

	10.3	Fourth Amendment, joinder, Limited Waiver and Limited Consent to Credit Agreement, dated December 1, 2021.

	10.4	Fifth Amendment to Credit Agreement, dated December 1, 2021.

	10.5	Employment Agreement, between the Company and Brian Kocher, dated December 20, 2021.

	10.6	Severance and Release Agreement, between the Company and Brian Kocher, dated December 20, 2021.

	31.1	Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

	31.2	Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

	32.1	Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350. *

	101	The following financial information from the Quarterly Report on Form 10-Q of Calavo Growers, Inc. for the quarter ended January 31, ~~2021,~~2022, formatted in Inline XBRL (Extensible Business Reporting Language): (1) Consolidated Condensed Balance Sheets as of January 31, ~~2021~~2022 and October 31, ~~2020;~~2021; (2) Consolidated Condensed Statements of ~~Income~~ Operationsfor the three months ended January 31, ~~2021~~2022 and ~~2020;~~2021; (3) Consolidated Condensed Statements of Cash Flows for the three months ended January 31, ~~2021~~2022 and ~~2020;~~2021; (4) Consolidated Statements of ~~Shareholders~~Shareholders’ Equity for the three months ended January 31, ~~2021~~2022 and ~~2020;~~2021; and (5) Notes to ~~Unaudited~~Consolidated Condensed ~~Consolidated~~ Financial Statements.

	104	Cover Page Interactive Data File (formatted as Inline XBRL).

*









			Filed with this Form 10-Q.

3135

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Calavo Growers, Inc.
	(Registrant)


Date: March ~~10, 2021~~14, 2022
	By	/s/ ~~James Gibson~~Brian Kocher
		~~James Gibson~~Brian Kocher
		President and Chief Executive Officer
		(Principal Executive Officer)


Date: March ~~10, 2021~~14, 2022
	By	/s/ ~~Kevin Manion~~Mariela Matute
		~~Kevin Manion~~Mariela Matute
		Chief Financial Officer
		(Principal Financial Officer)

3236


	Three months ended January 31, 2021								Three months ended January 31, 2020

	Fresh				Calavo				Fresh				Calavo
	products		RFG		Foods		Total		products		RFG		Foods		Total

Avocados	$	103,858	$	—	$	—	$	103,858	$	117,884	$	—	$	—	$	117,884
Tomatoes		9,187		—		—		9,187		12,992		—		—		12,992
Papayas		2,751		—		—		2,751		2,643		—		—		2,643
Other fresh income		326		—		—		326		127		—		—		127
Prepared avocado products		—		—		16,838		16,838		—		—		21,800		21,800
Salsa		—		—		712		712		—		—		719		719
Fresh-cut fruit & veg. and prepared foods		—		91,251		—		91,251		—		121,470		—		121,470
Total gross sales		116,122		91,251		17,550		224,923		133,646		121,470		22,519		277,635
Less sales incentives		(663)		(945)		(1,092)		(2,700)		(457)		(535)		(2,036)		(3,028)
Less inter-company eliminations		(526)		—		(1,119)		(1,645)		(408)		—		(851)		(1,259)
Net sales	$	114,933	$	90,306	$	15,339	$	220,578	$	132,781	$	120,935	$	19,632	$	273,348


(All amounts in thousands)	Expected maturity date January 31,
	2022		2023		2024		2025		2026		Thereafter		Total		Fair Value
Assets
Cash and cash equivalents (1)	$	8,168	$	—	$	—	$	—	$	—	$	—	$	8,168	$	8,168
Accounts receivable (1)		71,603		—		—		—		—		—		71,603		71,603
Advances to suppliers (1)		4,909		—		—		—		—		—		4,909		4,909

Liabilities
Payable to growers (1)	$	11,556	$	—	$	—	$	—	$	—	$	—	$	11,556	$	11,556
Accounts payable (1)		14,417		—		—		—		—		—		14,417		14,417
Borrowings pursuant to credit facilities (1)		37,150		—		—		—		—		—		37,150		37,150