Quarterly Report for Quarter Ending July 31, 2025 (Form 10-Q)

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

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This information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto (the "interim financial statements") 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, 2024 of Calavo Growers, Inc. ("we", "Calavo", or the "Company").

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Recent Developments

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Dividends

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On July 28, 2025, we paid a dividend of $0.20 per share, or an aggregate of $3.6 million to shareholders of record as of June 30, 2025. The Board of Directors declared a quarterly cash dividend of $0.20 per share to be paid on October 31, 2025, to shareholders of record on September 30, 2025.

Compliance Matters

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On September 2, 2025, the U.S. Department of Justice officially notified us that it has closed its Foreign Corrupt Practices Act ("FCPA") inquiry related to our operations in Mexico.

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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 impact on our financial position, results of operations, or cash flows.

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Mexican Tax Issues

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During the second quarter of fiscal 2025, the SAT refunded 36.7 million Mexican pesos in VAT (approximately $1.9 million USD), including inflationary adjustments, relating to refund claims for March, April, and November 2019. These refunds were secured directly from the tax authority rather than through the court system and provide positive momentum as we continue working to recover additional outstanding balances. Management views these outcomes as a sign of progress in our broader tax strategy and of improved engagement with the SAT.

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In August 2025, the Fifth Collegiate Circuit Court issued a ruling recognizing Calavo de México ("CDM") as a maquila and directing the SAT to refund IVA balances for January through June 2013. Management believes this decision provides important judicial confirmation of CDM's maquila status, strengthens our position to recover outstanding IVA receivables, and bolsters our defense in the 2013 Assessment described in Note 6 to the consolidated financial statements. In August 2025, the SAT appealed this decision to the Mexican Supreme Court. We will continue to pursue collection of IVA refunds through administrative processes and, where necessary, legal remedies.

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Market Trends and Uncertainties

We continue to be impacted by macroeconomic challenges, including inflationary pressures and shifts in trade policies, which have affected our operations in the past and may continue to do so in the future. These challenges drive cost fluctuations in key areas such as fruit procurement, labor, corrugated and plastic packaging, and overall operating expenses. To manage these pressures, we implement various strategies, including adjusting selling prices and optimizing

global sourcing strategies. We anticipate that inflationary and other cost pressures will persist in the remainder of fiscal 2025 and there is no assurance that we will be able to fully offset these cost increases.

In July 2025, the U.S. Food and Drug Administration (the "FDA") placed our CDM facility on a detention hold after trace levels of Imazalil were detected in a single shipment of conventional avocados. All subsequent third-party tests were clean, and the hold was lifted in September 2025. While this was the first such event in our Mexican operations since they began in 1998, the detention hold caused incremental third-party inspection and testing costs, incremental logistics/handling costs, and inventory write-downs on fruit diverted or sold at distressed prices. Regulatory actions of this type, if repeated, could continue to disrupt our supply chain, increase costs, and adversely impact our operating results.

During our fourth quarter of 2025, we submitted an insurance claim seeking recovery of costs associated with the FDA detention hold described above. The claim remains under review, and while we are pursuing recovery and believe it is achievable, as of the date of this report we have not yet obtained sufficient information to conclude that recovery of recognized losses is probable under applicable accounting guidance. Accordingly, no insurance receivable has been recorded. We will recognize any recovery up to the amount of recognized losses when realization becomes probable, and will recognize any amounts in excess of recognized losses, if any, when realized.

In addition, ongoing uncertainty surrounding U.S. trade policy-particularly as it relates to Mexico-could adversely affect our business. On February 2, 2025, the United States announced tariffs of up to 25 percent on imports from several countries (including Mexico and Canada) and higher duties on selected Chinese goods; all of these measures were subsequently put on hold. A separate 25 percent tariff on Mexican imports was briefly in effect from March 4 to March 6, 2025, before being suspended. As of May 30, 2025, no further reciprocal tariffs are scheduled, but the situation remains fluid and additional trade actions could be announced without advance notice.

At present, it remains uncertain whether, and to what extent, any of the proposed tariffs or duties will apply to the fresh fruit and prepared products we import from Mexico. Given that a substantial portion of our produce originates there, new or increased trade barriers could raise our input costs. If we cannot pass along these extra costs to customers, renegotiate grower pricing, alter sourcing patterns, or implement other mitigation strategies, then our margins, operating results, and cash flows could be materially adversely affected.

Although tariffs on imports from Mexico introduce additional costs, we do not currently expect them to have a material impact on our long-term profitability. Given the evolving nature of trade policies and recent short-term financial impacts, we will continue to assess the situation, adjust our sourcing and pricing strategies as needed, and take proactive measures to mitigate potential challenges.

The U.S. Department of Commerce also terminated the U.S.-Mexico Tomato Suspension Agreement ("TSA") on July 14, 2025. Such termination automatically imposes a 17 percent anti-dumping duty on Mexican tomatoes. Industry groups such as the Texas International Produce Association warned that ending the TSA could sharply raise tomato prices, disrupt national supply chains, and threaten roughly 46,900 U.S. jobs tied to $3.1 billion in annual Mexican tomato imports. Because we source and distribute significant volumes of tomatoes, any resulting supply shortages or cost increases could materially adversely affect our sales volumes and customer relationships.

For additional information, see the risk factor entitled "Tariffs on Imported Goods Could Materially Impact Our Business, Financial Condition, and Results of Operations" in Part II, Item 1A. Risk Factors, in our Quarterly Report on Form 10-Q filed on March 12, 2025.

Supply Chain Disruptions

During our first fiscal quarter of 2025, one of our Mexican packinghouses temporarily paused its operations due to the detection of a small number of avocado weevils in a pre-production area. After completing remedial measures, including those described below, the affected packinghouse was re-certified by the relevant authorities and resumed

normal operations. During our second fiscal quarter of 2025, we implemented enhanced monitoring protocols in our pre-production areas, which have effectively prevented any further avocado weevil outbreaks.A severe outbreak of the avocado weevil in the future, however, could result in reduced avocado supply and higher procurement costs, impacting our ability to meet consumer demand and maintain product quality standards. Any sustained disruption caused by this pest could materially and adversely affect our business, financial condition, and results of operations.

Regulatory responses, such as quarantine measures or restrictions on avocado imports from affected regions, could further disrupt our supply chain, limit our sourcing options, and reduce the volume of avocados available for sale. The implementation of such measures, whether in response to pests or other phytosanitary or chemical compliance issues, may also continue to increase logistical complexities, delay shipments, and introduce additional compliance costs.

For additional information, see the risk factor entitled "The Spread of the Avocado Seed Weevil Could Disrupt Our Supply Chain and Adversely Impact Our Business" in Part II, Item 1A. Risk Factors, in our Quarterly Report on Form 10-Q filed on March 12, 2025.

Critical Accounting Estimates

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

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There have been no material changes in our critical accounting estimates during the three and nine months ended July 31, 2025, 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, 2024.

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Results of Operations

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Net Sales

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The following table summarizes our net sales by business segment for each of the three and nine months ended July 31, 2025 and 2024 (dollar amounts in thousands):

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Summary

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Net sales for the three months ended July 31, 2025, decreased by $0.8 million, or less than 1%, compared to the same period in fiscal 2024, reaching $178.8 million. This stability was driven primarily by a 2% increase in price per avocado

carton, partially offset by a 5% decrease in avocado carton volume, while Prepared segment sales increased by 40% year-over-year due primarily to increased sales volumes. Net sales for the nine months ended July 31, 2025, compared to the corresponding period in fiscal 2024, increased by $32.2 million, or approximately 7%. This growth was driven by a 6% increase in Fresh segment sales, primarily due to higher avocado pricing, partially offset by a decline in carton volume, while Prepared segment sales increased by 10% year-over-year due primarily to increases in sales volumes, while average selling prices remained steady.

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

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Fresh products

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Third Quarter 2025 vs. Third Quarter 2024

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Net sales for the Fresh segment decreased by approximately $7.4 million, or 5%, for the third quarter of fiscal 2025 compared to the same period in fiscal 2024. The decrease was primarily driven by lower avocado sales.

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Nine Months Ended July 31, 2025 vs. Nine Months Ended July 31, 2024

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Net sales for the Fresh segment increased by approximately $27.3 million, or 6%, for the nine months ended July 31, 2025, compared to the corresponding period in fiscal 2024. The increase was primarily due to higher average avocado selling prices, partially offset by a decline in avocado and tomato sales.

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Prepared products

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Third Quarter 2025 vs. Third Quarter 2024

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Net sales for the Prepared segment increased by $6.6 million, or 40%, for the three months ended July 31, 2025, compared to the same period in fiscal 2024. The increase was primarily driven by a 35% increase in pounds sold and a 3% increase in average selling price per pound. Growth reflected expanded sales to existing customers and meaningful new customer wins across retail and foodservice in both domestic and international markets. Net sales also benefited from an updated estimate of sales allowances, which increased revenue by approximately $0.5 million based on recent

claims experience and customer mix. Our avocado squeeze pouch product contributed modestly to the quarter, supported by its extended shelf life and portion control format.

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Nine Months Ended July 31, 2025 vs. Nine Months Ended July 31, 2024

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Net sales for the Prepared segment increased by $4.9 million, or 10%, for the nine months ended July 31, 2025, compared to the same period in fiscal 2024. The increase was primarily due to an 11% increase in pounds sold, partially offset by a 1% decrease in average selling price per pound. In the third quarter, strong volume growth and customer program expansion more than offset earlier softness, with momentum driven by expanded sales to existing customers, new wins across retail and foodservice in both domestic and international markets, modestly higher pricing on certain products, lower fruit input costs, and improved operating efficiencies. Our avocado squeeze pouch product also contributed modestly to year-to-date growth. Based on recent trends, including the third-quarter ramp, we currently estimate Prepared segment sales of approximately $115 million in fiscal 2026, subject to demand, pricing, and execution.

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Gross Profit

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The following table summarizes our gross profit and gross profit percentages by business segment for the three and nine months ended July 31, 2025, and 2024 (dollar amounts in thousands):

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Summary

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

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Gross profit decreased by approximately $1.9 million, or 9%, for the third quarter of fiscal 2025, compared to the corresponding period in fiscal 2024. The decline was primarily driven by approximately $4.2 million of discrete costs associated with the FDA detention hold on certain avocado imports from Mexico, where the fungicide was present on fruit purchased from a grower and is never applied in Calavo facilities, as well as lower volumes and pricing pressure in tomatoes due to abundant U.S. supply that reduced import demand.

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Gross profit increased by $0.5 million, or 1%, for the nine months ended July 31, 2025, compared to the same period in fiscal 2024. Prepared segment gross profit rose by $2.8 million, or 27%, driven by an 11% increase in pounds sold, continued operating leverage, and lower fruit input costs. This improvement offset a $2.3 million, or 6%, decline in Fresh segment gross profit, which reflected lower avocado and tomato volumes and included approximately $4.2 million of discrete costs associated with the FDA detention hold on certain avocado imports from Mexico in the third quarter.

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Fresh products

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The decrease in Fresh products gross profit for the third quarter of fiscal 2025 was primarily driven by lower volumes for both avocados and tomatoes.

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The decrease in Fresh products gross profit for the nine months ended July 31, 2025, was primarily driven by lower avocado and tomato volumes along with regulatory costs such as third-party inspection and testing costs, incremental logistics/handling costs, and inventory write-downs on fruit diverted or sold at distressed prices related, to the FDA detention hold in the third quarter and a temporary tariff event in the second quarter.

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Prepared products

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Gross profit per pound for guacamole products increased during the third quarter of fiscal 2025 compared to the same period last year, reflecting improved operational efficiency and stronger cost management. For the nine months ended July 31, 2025, Prepared segment gross profit increased 14.6% to $13.4 million, reflecting higher sales volumes, lower fruit input costs compared to the prior year, and improved operating efficiencies.

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Selling, General and Administrative

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Selling, general, and administrative (SG&A) expenses totaled $9.2 million for the three months ended July 31, 2025. These expenses include marketing and advertising costs, sales expenses (including broker commissions), and other general and administrative costs.

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SG&A expenses for the three months ended July 31, 2025 decreased by $1.3 million, or 12%, compared to the three months ended July 31, 2024. The decrease was driven by a $2.0 million reduction in professional and consulting fees, including lower FCPA-related legal expenses, partially offset by a $0.3 million increase in bonus expense.

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SG&A expenses for the nine months ended July 31, 2025 decreased by $7.2 million, or 19%, compared to the prior year period. The decrease was driven by a $5.1 million reduction in professional and consulting fees, primarily related to lower legal costs (including reduced FCPA investigation-related legal expenses), a $1.7 million reduction in compensation expenses reflecting lower headcount and severance costs, and a $0.8 million decrease in stock-based compensation, mainly related to the Chief Executive Officer's compensation structure.

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Foreign currency loss

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

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Due to the change in the Mexican peso to the U.S. dollar exchange rates, foreign currency remeasurement losses, net of gains, for the three and nine months ended July 31, 2025, were $2.5 million. Net foreign currency remeasurement (losses), for the three and nine months ended July 31, 2024, were $(4.2) million and $(2.8) million.

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Income (loss) from unconsolidated entities

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Income (loss) from unconsolidated entities includes our participation in earnings or losses from our investments in Agricola Don Memo. For the three months ended July 31, 2025 and 2024 we realized losses of $0.4 million and $0.6 million from Agricola Don Memo. For the nine months ended July 31, 2025 and 2024 we realized income (loss) of $0.2 million and $(0.4) million from Agricola Don Memo.

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Income tax benefit (expense)

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The effective tax rates for the three months ended July 31, 2025 and July 31, 2024 were 26% and (37)%. The effective tax rates for the nine months ended July 31, 2025 and July 31, 2024 were 26% and (5)%. The Company's effective tax rate for the three and nine months ended July 31, 2025 differs from the U.S. federal statutory rate of 21% due to the U.S. state tax and foreign tax rate differential in Mexico. The Company's effective tax rate for the three and nine months ended July 31, 2024 differs from the U.S. federal statutory rate of 21% due to valuation allowances on domestic deferred tax assets that were not more likely than not to be realized, and foreign exchange losses in Mexico.

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Liquidity and Capital Resources

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Cash provided in operating activities was $19.2 million for the nine months ended July 31, 2025, compared to cash provided by operating activities of $13.6 million for the corresponding period in fiscal 2024. Cash provided in operating activities for the nine months ended July 31, 2025 reflects primarily our net income of $16.1 million, combined with non-cash activities (depreciation and amortization, non-cash operating lease expense, stock-based compensation expense, income from unconsolidated entities, and loss on disposal of property, plant and equipment) of $6.1 million which was partially offset by a net effect of changes in operating assets and liabilities of $3.0 million.

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Changes in operating assets and liabilities included a decrease in inventories of $3.8 million, a decrease in prepaid expenses and other current assets of $2.2 million, a net decrease in accounts payable, accrued expenses and other liabilities of $17.0 million, an increase in payable to growers of $13.5 million, and a decrease in income tax payable of $1.0 million, partially offset by a decrease in other assets of $4.7 million.

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The decrease in our inventory as of July 31, 2025, compared to October 31, 2024, was primarily due to revaluations of the inventory on hand. The decrease in our prepaid and other current assets is primarily due to an increase in amortization of prepaid expenses, and the timing of rebate receipts. The increase in payable to growers is mostly due to an increase in farming activity of tomatoes as farming production for the spring/summer cycle (May-October) is scaling up.

Cash used in investing activities was $1.1 million for the nine months ended July 31, 2025, compared to cash used by investing activities of $2.5 million for the corresponding period in fiscal 2024. Cash used in investing activities relates principally to purchases of property, plant, and equipment.

Cash used in financing activities was $11.4 million for the nine months ended July 31, 2025, compared to cash used by financing activities of $12.8 million for the corresponding period in fiscal 2024. Cash used in financing activities relates principally to payments of $10.7 million in dividends, payments on long-term obligations of $0.7 million and the payment of minimum withholding of taxes on the net settling of shares of less than $0.1 million.

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Our principal sources of liquidity are our existing cash reserves, cash generated from operations, and amounts available for borrowing under our credit facility. Cash and cash equivalents as of July 31, 2025 and October 31, 2024, totaled $63.8 million and $57.0 million. Our working capital at July 31, 2025 was $89.9 million, compared to $85.4 million at October 31, 2024.

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We believe that our cash balance, cash flows from operations, availability under our credit facility, and other sources will be sufficient to satisfy our future capital expenditures and commitments, grower recruitment efforts, working capital and other financing requirements for the foreseeable future.

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On June 26, 2023, we entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as agent and lender ("Agent" or "Wells Fargo"). The Credit Agreement provided for a revolving credit facility (the "Revolving Loans") of up to $90.0 million, along with a capex credit facility of up to $10.0 million (the "Term Loan").

On August 15, 2024, we entered into a First Amendment to Credit Agreement and Consent with Wells Fargo whereby (i) the Credit Agreement was amended to reduce the revolving commitments thereunder from $90.0 million to $75.0 million, among other minor adjustments to align the borrowing base with our asset base excluding the Fresh Cut business (which was sold on August 15, 2024); and (ii) we obtained consent from Agent for entry into the Asset Purchase Agreement and Purchase and Sale Agreement with respect to the sale of the Fresh Cut business.

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Borrowings of the Revolving Loans under the Credit Agreement are asset based and are subject to a borrowing base calculation that includes a certain percentage of eligible accounts receivable, inventory and equipment, less any reserves implemented by Agent in its permitted discretion, provided that the equipment-based portion of such borrowing base calculation reduces monthly according to scheduled amortization.

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Borrowings under the Credit Agreement bear interest at a rate per annum equal to an applicable margin, plus, at our option, either a base rate or a secured overnight financing rate ("SOFR") term rate (which includes a spread adjustment of 0.10% and is subject to a floor of 0.00%). The applicable margin is (i) for Revolving Loans, 0.50% for base rate borrowings and 1.50% for SOFR term rate borrowings, and (ii) for Term Loan, 1.00% for base rate borrowings and 2.00% for SOFR term rate borrowings. The credit facility matures on June 26, 2028.

As of July 31, 2025, we were in compliance with the financial covenants in the Credit Agreement, as amended. As of July 31, 2025, approximately $50.5 million was available for borrowing, based on our borrowing base calculation discussed above.

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The weighted-average interest rate under the credit facility was 8.0% at July 31, 2025. Under the credit facility, there was less than $0.1 million outstanding related to the Revolving Loans and Term Loan as of July 31, 2025.

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

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Contractual Commitments

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There have been no other material changes to our contractual commitments from those previously disclosed in our Annual Report on Form 10-K for our fiscal year ended October 31, 2024.

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