Good afternoon, welcome to the Q1 2023 Calavo Growers earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I will now turn the conference over to your host, Julie Kegley, Investor Relations for Calavo. You may begin. Good afternoon, thank you for joining us today to discuss Calavo Growers financial results for the Q1 of fiscal 2023. This afternoon, we issued our earnings release, and it is available in the investor relations section of our website at ir.calavo.com. With me on today's call are Brian Kocher, President and Chief Executive Officer, and Shawn Munsell, Chief Financial Officer. We will begin with prepared remarks and then open up the call for your questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under Federal Securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about expected improvement in revenue and operating profit, are also forward-looking statements. Our actual results may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in our results compared to these forward-looking statements is contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I will now turn the call over to Brian Kocher. Thank you, Julie, and good afternoon, everyone. We appreciate you joining us today. Our fiscal Q1 results reflect challenging conditions in both segments, but we have taken action and expect that our results will improve as we progress through the fiscal year. In the Grown segment, high volumes of Mexican avocados, especially small fruit, combined with still high retail shelf prices, pressured wholesale prices and margins more than anticipated during the quarter. While we expected industry avocado volume to increase during the quarter, we did not anticipate prices and margins to contract as much as they did. The average case price in our Q1 fell to about $28 versus around $34 in the Q4 and $43 in the prior year quarter. We also expected prices and margins to improve approaching the Super Bowl. Conditions did improve later in January, the impact was more muted than anticipated. Prepared segment performance was better than the prior year but was weaker than expected due to a combination of volume softness and winter weather. We expected a decline in Prepared segment earnings versus the Q4 due to seasonality in our Fresh Cut division. We experienced softness in volume that exceeded typical seasonality, with total Prepared segment volume down about 13%. Velocity slowed in the quarter, which we partly attribute to a decline in volume sales across retail food categories as consumers reacted to inflation and tough general economic conditions. Separately, we incurred weather events during the quarter that cost about $1 million of unfavorable incremental costs in the Fresh Cut division, mainly from the temporary closure of some of our manufacturing facilities. Understanding our Q1 results in the context of the market around us is important. Avocado import volume from Mexico grew over 8% versus the same quarter in 2022. Retail sales volume only grew about 3%, while total U.S. inventories rose almost 7%. We attribute the relatively lower retail volumes in part to retail prices, which haven't declined to the same extent as wholesale prices. Higher inventories also pressured wholesale prices of avocados and compressed margins as the industry worked through aging inventory. During the quarter, our Prepared segment faced the pressures from a declining category. In retail, dollar volume sales are up across almost all Prepared categories in which we participate. According to IRI, unit volumes declined in produce categories as a whole and almost every category in which we participate by anywhere from 2%-5% in the second half of 2022. Consumers either traded down or passed on certain convenience categories in the store perimeter. As unit volume declines on a store-by-store basis, our margins suffer in Prepared as we lose benefits from fixed cost absorption. We believe the worst is behind us for the fiscal year, and we expect to see sequential improvement in our results as we progress throughout the year. Margin volatility in Grown and volume softness in Prepared may persist in the near term. We did see conditions in the Grown segment improve in February, and we've realized volume increases versus the prior year in the 7%-9% range and avocado margins within our targeted range of $3-$4 per case for most of the Q2. However, the start of the avocado seasons in California and Peru may lead to ongoing volatility in Grown margins. In our Prepared segment, the one perimeter of the store category that saw unit volume growth in the second half of 2022 was deli grab-and-go items. As mentioned during our last call, our new customer acquisition strategy has been focused on deli grab-and-go items, and we are on schedule to onboard new prepared deli and grab-and-go volume with two national customers in the second half of the year. We expect volume weakness to persist until then. The operating environment, coupled with our Q1 results, has caused us to lower our fiscal year margin expectations for both segments. For 2023, we estimate adjusted EBITDA in the range of $40 million-$45 million. While we are not setting the precedent of giving annual EBITDA guidance, we believe it is important to provide an indication of our expectations for this year given the Q1 results. Investing to grow the business resulting in long-term shareholder value is undeniably our top capital allocation priority. We are also committed to paying a dividend with competitive yield and payout metrics relative to benchmarks. However, the metrics associated with our current dividend rate have been elevated since fiscal to 2020 and remain elevated under the current operating environment. We plan to reset the dividend to a level that provides more market-aligned metrics. We anticipate the board of directors will declare a dividend of $0.10 per share for the Q2. We remain committed to growing the business, we also plan to reduce our fiscal 2023 capital expenditures while we navigate near-term uncertainties. We now expect capital expenditures for fiscal 2023 of approximately $13 million. These adjustments reflect deliberate fiscal discipline that allow us to continue prioritizing investment for growth while maintaining competitive dividend metrics. The start to the fiscal year has been disappointing, we remain focused on making steady, lasting improvement to the business. During the Q2, we initiated activity on several fronts that will offer immediate benefits to earnings. As an example, we recently went live with the first phase of a new transportation management system that enables RFPs on most of our outsourced freight, which will significantly improve the competitiveness of our freight costs. This system will be fully implemented during the Q2. In early March, we implemented a restructuring of our U.S. and Mexico operations that will allow us to upgrade essential organizational capabilities and to streamline and reduce costs related to certain functions. We recently consolidated activities within our grown distribution network to streamline operations and reduce costs. We recently entered into an agreement to exit our non-core salsa business as we intend to direct more resources towards guacamole growth. Pricing is always a focus for us. As you probably know, we price our grown product on a daily basis. However, our prepared business has been comprised of almost exclusively annual or multiyear fixed price contracts. Over the course of the last six months, we have converted more than 50% of our expected annual Prepared revenue stream to contractually committed pricing windows that range between 2x and 4x a year, allowing us to react quickly to changes we see in market dynamics, inflation, and industry costs. These actions do not represent an exhaustive list of improvement activities that are underway, but I wanted to highlight some of the most influential and relevant, the items that will have immediate impacts. I'd like to wrap up my prepared comments by saying that despite market and category performance that was less than our expectations, our commitment hasn't wavered. We are still focused on performance improvement, on growth, and on generating shareholder value. It's our job to manage through a challenging market condition, and we must be and are nimble in our response to changing market dynamics. The path to growth isn't a straight line, there are obstacles, but we will keep driving forward. Now I'll turn the call over to Shawn to report on the financials. Thank you, Brian. As we stated on our full year 2022 earnings call in December, seasonality plays a significant role in the cadence of our earnings. While the Q1 is typically our seasonally weakest quarter, this year we experienced some additional market-driven pressures which adversely impacted our results. As Brian said, we do expect to deliver sequentially improving results as we progress through the fiscal year. On a consolidated basis, Q1 revenue was $226 million, a decrease of $48 million from the Q1 of 2022. Grown segment revenue was $118 million, down $45 million from last year as the average selling price of avocados decreased by 35% as prices continued to adjust from their highs in the summer. Avocado sales volumes were up over 3% due to increased supply from Mexico. Industry imports from Mexico were estimated to be up over 8% versus the prior year quarter, while industry avocado retail sales were estimated to be up by about 3%. Prepared segment revenue was $108 million, down $4 million from the prior year quarter, as higher prices partly offset volume declines of about 13%. Consolidated gross profit was $14 million, up over $1 million from the prior year quarter, primarily driven by a $3 million increase in Prepared segment gross profit, partially offset by a $2 million decline in Grown segment gross profit. Grown segment gross profit for the Q1 was $9.5 million compared to $11.7 million for the Q1 last year. Our margin per case for avocados fell to about $2.20 in the quarter versus about $3 per case last year. Generally tighter spreads between field costs and sales drove margins lower, with avocado prices continuing to decline from the Q4 of fiscal 2022. The strengthening of the peso relative to the US dollar increased operating costs in Mexico in dollar terms, although that impact was mostly offset in the quarter by favorable balance sheet revaluation. We have seen an improvement in avocado margins to within our targeted range of $3-$4 per case for most of the Q2. The Prepared segment generated gross profit of $5 million, up from $1.6 million in the prior-year quarter. Gross margin rose to 4.6%, which consisted of a gross margin of just over 1% in the Fresh Cut division and approximately 26% in the guacamole division. The improvement in Fresh Cut from a loss last year was driven by pricing and other operating improvements that were partly offset by higher raw material costs, as well as weather-related impacts of approximately $1 million, mainly from manufacturing facility closures. Gross margin in the guacamole division almost doubled from the prior year on lower fruit costs and yield improvements. SG&A was $16.4 million for the Q1, up from $15.3 million in the prior year. The increase primarily was due to higher costs associated with employee compensation, including stock-based compensation. adjusted EBITDA was $3.6 million for the Q1, down from $4.7 million in the Q1 of 2022. Now, turning to our financial position. During the quarter, we increased our line of credit borrowings to about $16 million to fund working capital needs. Cash and equivalents remained at about $2 million as of January 31. Available liquidity was approximately $26 million at quarter end. Additionally, we invested about $5 million in CapEx in the Q1, which included investments to support volume additions in the second half in Prepared. Based on current market conditions and our outlook for the remainder of the year, we now expect capital expenditures of approximately $13 million. I'll briefly share some thoughts on our outlook for the remainder of 2023. In the Grown segment, per case margins are expected to be at or near the low end of our $3-$4 range as we anticipate ongoing margin volatility as the California and Peru seasons begin. Volume for the balance of the year is expected to increase and be approximately commensurate with changes in supply from our primary sourcing regions. In the Prepared segment, gross margins in the Fresh Cut division will be at or near the low end of the 10%-12% range as we end the fiscal year, primarily due to softer volume in the near term. Although new customer distribution points and volume are scheduled to launch in the back half of the year. Gross margins in the guacamole division are expected to approximate 20%. As Brian mentioned, we recently finalized plans to restructure some of our operations and to exit our salsa business. We expect one-time charges in the Q2 related to these activities to total approximately $3.2 million, including cash and non-cash costs associated with severance, asset impairments, and implementation expenses. The payback on cash costs is expected to be approximately one and a half years or less. Finally, I'll wrap up by saying that we have a strong balance sheet and sufficient liquidity to manage through the current market challenges. We remain committed to investing to grow the business to strengthen our future earnings. That concludes my prepared remarks. I will turn it back over to Brian. Thanks, Shawn. As I said on the call last quarter, we've been undergoing a long-term strategic planning process. We have completed the majority of the work and we'll be presenting to our Board of Directors in May. We look forward to rolling it out to you later this year. We spent the last year addressing foundational opportunities to stabilize our business, including finding the right market savvy talent to lead our organization. Now, our plan is to take Calavo from an improving company to a growing company. Despite the slow start to the year, that's still the plan. We have the right service levels, product portfolio, and capabilities to grow. We have the right people in key roles who know how to execute and overcome the challenges of our dynamic business. We have the focus and determination to be successful, and we will. That concludes our prepared remarks. I'll now turn the call over to the operator to begin the Q&A. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Ben Bienvenu with Stephens. Please proceed. Hey, thanks so much. Appreciate you taking my questions. Sure, Ben, how can we help? I wanna start on the Prepared business. You talked about volume down double digits, as a result of higher pricing year-over-year. Can you talk a little bit about the demand elasticities you're seeing from consumers in the marketplace? Would you expect that as we start to see broader inflation normalize, that these volumes pick back up? Is there something else along the critical path that you see needing to take place for the volume of that business to improve? Yeah, we've been spending a lot of time on that, Ben. I think a couple of things to think about. One, certainly seasonally we expected volume to at least decrease from the Q4. The very normal part of our Prepared business, cyclicality and seasonality. The thing that sort of was greater than we expected was the category performance itself. If you think about it, during the second half of 2022, overall produce was actually down. Value-added produce was down on a volume basis. On a dollar basis, it's up, the category itself on a unit sales basis was actually down. Total produce was down 3% and non-value add or whole commodity was down 4%. Value added fared better, was still down. There are some bright spots in that category performance, and they exist in the deli aisle. What we saw in the deli aisle was snacks, prepared meals, some of the Prepared, or pre-sliced meat and cheeses have unit volume growth. Even though deli was down, we saw some deli categories in which we participate that on a unit basis were up. We do see inflation moderating. I certainly think that will help in long term, we still see growth in our Prepared categories, both guacamole and Fresh Cut. We see growth long term. We hear it from the retail trade, we hear it from IRI. We see it in some of the planning that our customers are doing. Certainly inflation in the last half of the year, in the first part this year, it caught up to the consumer, I'd say. It did so in a matter that was probably more significant than we expected. That makes sense. My second question is related to the restructuring plans. You noted a handful of plans that you have, all of which make sense. Is it your expectation that this is the last of the restructuring decisions that will be made, or is it possible there might be others? Then along those lines, as you noted, you know, you're positioning Calavo for growth again. When we think about kind of what you've done with CapEx for this year, which also makes sense, how should we think about kind of the arc of spending as we move forward down the line? Okay, great question. A couple of things that I would say. As you remember, two years ago, Calavo went through, or a year and a half, went through a significant restructuring where a lot of assets, facility closures, things of that nature. This is certainly in order of magnitude is less, but is needed. What I would say is now we're doing some of the finer, more precise changes to the organization. We've consolidated distribution centers in our avocado business, so that's one of the changes that you make. Shawn mentioned that we're exiting and transitioning out of a non-core salsa business, which will provide us some mix benefits that will help us. I think the other big one is, if you're going to grow, you have to have the talent and the amount of skills and capabilities that are growth-oriented. What you see otherwise is us also reducing and streamlining some operations in the U.S. and Mexico and using those funds to put more skills and capabilities in growth areas. Whether that's international or guac or on our Prepared Fresh Cut or even in channel development, where we see club and national retailers as big opportunities, you see us reinvesting those funds. That's the what I'd call the summary and context between the Project Uno launch and what we're communicating today. Ben, I think it's also appropriate, we will never be finished making changes and trying to make our organization more efficient. I don't see big restructuring charges and things of that nature. We will never be finished because our customers are always changing, the category is changing. We need to make sure that we're driving our organization to be efficient, effective, and place our resources in the areas that have the biggest chance to grow. Okay. Very good. Thanks so much. Best of luck. Our next question is from Mitch Pinheiro with Sturdivant. Please proceed. Hey, good afternoon. Good afternoon, Mitch. I guess my first question is, I guess, with Project Uno and the whole, the plan was that, it would take a couple of years, three years plus to get back to like your performance, your EBITDA generation back in fiscal 2019. Somewhere, you did, I think roughly $80 million in fiscal 2019. We'll be, you're looking maybe around $40 million-$45 million this year. I see, we're lowering the dividend. We're cutting capital spending a little bit, a little disciplined here. Is this not getting back to fiscal 2019 levels anytime soon? You know, I don't see in the cash flow a drastic need to cut the dividend, and CapEx. I mean, I can see being, you know, financially, you know, sort of conservative, it seems like you're messaging that things are a lot worse, at least in the climb out of the bottom and back to the fiscal 2019 level. I'm wondering, what has changed? Well, let me try to take a shot at that, and I'll also let Shawn add in. I know we're not saying it's worse. I think in light of the Q1 performance and our outlook for the balance of the year, I think it's fair to say that our progress towards where we believe we can be in terms of EBITDA and cash flow generation has slowed. It's slowed. We've got to adjust to now instead of a market that was growing, at least in this quarter and probably in the next quarter, is a market that's not growing on a unit volume basis. Maybe on price, but in revenue, but not a unit volume basis. I think it's fair to say that it's slowed our trajectory back to where we wanna be, and therefore we lowered some of our guidance, particularly in our Prepared Fresh Cut on an exit run rate on gross profit. I do think that that's one of the things that we're recognizing, is that this market, we'll face some challenges. We face some challenges with consumer performance. I think we'll be in a period in avocados where we've probably been several weeks now, months where supply has exceeded demand, and we've got some volume coming on from California and Peru in a heavy Mexican season. I think we're trying to be cautious and respectful that there's some volatility in Grown margin as well. It's really the combination of those two. I would also just be totally clear, Mitch, there's not a CapEx project that we're cutting that we think is a high yield, high return, and high growth initiative. In fact, most of the CapEx that we've launched and spent in the Q1 is associated with new customer launches in the second half. We won't cut short investment if it's a really good return. I do think we're tightening things up, and we wanna be disciplined, we wanna be responsible, we wanna make sure that it is a high returning project. On the dividend, as I mentioned, we wanna make sure we're paying a dividend that has yield and payoff metrics that are consistent with the peer group. Frankly, with the cash flow and earnings generation over the last several years, our dividend payout ratios have been twice our peer group. Now is the time to make all of those adjustments. very helpful. Are you seeing anything in the Grown business that is, you know, structurally different? You know, do you see anything structure in the industry that might impede your ability to get back to where you were, you know, four years ago? I think there are things that have changed in the Grown business from four years ago. Let's just look at a sourcing perspective. Mexico, Peru, and Colombia are all bigger in terms of volume available to export to the U.S. than they were four years ago. All of the supply is greater. That being said, the demand has been greater as well. We can't see the demand because it's been constrained for two years with COVID for a year, food service gone down for a year. Last year it was constrained because Mexican export volume was historically low or certainly lower than the prior year. We do believe that demand has been constrained, and we'll see demand that keeps up and keeps pace with supply. If you compare to 10 years ago, I think supply and demand is more balanced today than it was 10 years ago. Demand exceeded supply. I think that's also a strength of a marketer model. We've got an opportunity to buy and sell on a daily basis. We have an opportunity to flex our inventory up and down, and we have an opportunity to take some risk when we want to or think it's opportunistic to take advantage of volume growth. We also have the opportunity to dial back some volume if the profit profile isn't right. I feel really confident that our model allows us to deliver that $3-$4 a case of gross margin over time. Mm-hmm. I don't see big structural changes that will prevent that. When you have a little bit more balanced supply and demand, I think it brings in some volatility that maybe we didn't have 10 years ago or five years ago. That's the case of any evolving commodity market. Yeah. The other thing too, Mitch, I'd say that was, you know, unusual in the quarter is that, you know, retail prices were more stubborn than wholesale prices. Right. We started to see inventory build up that put more pressure on wholesale prices, and that, you know, that in part narrowed those margins. Well, is this just a function of the grocery trade, you know? Yeah. you've had in high margin, or is it they're just, you know, why is it stubbornly, you know, high? Yeah, just retailers holding margin. I think to be fair, retailers were also slower to price up last year when the wholesale prices were going up. I think they moved a little slower on the front end and are moving a little slower on the back end. We see more promotional activity going on and investment in price. We continue looking at it. Consumers are certainly looking at it. There's been some recent data by our IRI that would suggest consumers almost half of consumers are looking for products that are on sale now. Consumers are certainly looking for what they believe is a deal, and we've been working with our retailers and our customers on how to drive promotional activity that makes sense for them and makes sense for the category. We because of the shelf lives, we can do that more in Grown, and we can do that more in guac than we can in our Prepared Fresh Cut business. Right. This last question is on the Prepared side. It's sounds good. You have a couple of new customers coming on in the second half that should help your fixed cost leverage a bit. You know, if in a lot of this, all things being equal, we should see a gradually improving gross margin in Prepared throughout the year. Is that fair? Yes. Yeah, that's completely fair. Okay, that's all I have. I'll get back in the queue. Thank you. Thanks, Mitch. As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Ben Klieve with Lake Street Capital Markets. Please proceed. All right. Thanks for taking my questions. Just a couple from me. First, wanna ask about the decision to rid the business of the salsa line, particularly in the context of the news last quarter about the securing the relationship with Old El Paso. Can you just talk about kind of the decision to get to this point that you thought this needed to get divested, you know, particularly in light of the, you know, the big one that came in late in 2022? Yeah, sure. Yeah, so that, you know, essentially that, the salsa business, you know, it's a, you know, it's a fine product. You know, it has some good potential but, you know, essentially it just didn't have the critical mass in the portfolio. You know, given the, you know, the economics of that business, you know, it just made sense for us to divert those resources to our guac business, and that's what we're doing. You know, it's gonna be, you know, it's, you know, frankly, we're gonna be, you know, better by about $400,000 a year by making that divestiture. Ben, I think the other thing that's important to know is that we've arranged a co-packing relationship. Remember, I think last year we talked about last quarter, we talked about that relationship with General Mills. Think of it as another arrow in our quiver, another tool, not the only tool. We still have that tool available. We've arranged capacity and co-packing capabilities so that as we continue to sell Old El Paso brand product, whether it's guac, which obviously we do ourselves, or salsa, which we'll have with now, what will be a third party, we retain the capabilities to do that. Got it. Okay. Thank you. Then, another question on the CapEx expectations that you have $13 million for this year, $5 million in the Q1. Brian, you noted that a lot of that was attributable to the two, you know, new contracts coming online. You know, $8 million over the next three quarters, that's not an awful lot of CapEx. Can you talk about how much of that CapEx is related to just kind of the basic maintenance CapEx that you have to do versus, you know, versus any investments in growth that are coming here over the next three quarters? Sure. I'd say that most of the deferral of the CapEx versus that original $18 million, Ben, you know, that was, like Brian said, that was kind of the lower performing, kinda growth and profit improvement projects that, you know, we can reactivate at any time. Just felt like it was, you know, prudent given, you know, given the Q1 performance and given the current outlook, you know, just to plan to defer that until we see conditions change. As far as the kinda composition of, of maintenance CapEx, it's gonna be about $4 million-$5 million this year, about in line with what we guided last year. Okay. Ben, I think the other thing that's really important for you and the other listeners on the call to remember is we have a really good balance sheet. We added basically season working capital debt that we funded through our credit facility. We've got plenty of liquidity and access to capital. If we find a compelling growth opportunity, we're certainly not gonna let the guidance that we gave hold back a really smart investment. We don't wanna be penny-wise and pound-foolish here. We're gonna invest when it's right, I think it's also a good signal to our entire organization that we wanna be disciplined, and we wanna be responsible, and we want the returns to be really good for us to make an investment. We've got capital, and if we find something that's accretive and exciting, we won't be held back. Got it. Roger that. Thank you. Thank you for that. Thanks for taking my questions. I'll get back in queue. Our next question is from Eric Larson with Seaport Research. Please proceed. All right. Yeah, thanks for taking my questions. The first one, in your prepared comments about the quarter, you said that there was a lot of fruit coming out of Mexico, and it was of a smaller size. Did that impact pricing? Did, you know, did you have a bad mix of avocado sizes in the quarter too that hurt you? Can you give a little clarity to that? Eric, I think it's a really good question and insightful question. Yes, we did have more volume. Think of it this way, and forgive me, because I'm not an agronomist, okay? Forgive me. When you have more fruit on the tree, each individual piece of fruit gets less nutrients, right? The root systems didn't all of a sudden grow and magically convey more nutrients. The size curve did work against us a little bit. Smaller fruit came out because the mix was a little off. We had more large-sized fruit business than we had available large-sized fruit, and we didn't have enough small-sized fruit business. We certainly saw it impact the margin on the small fruit, where we were really working hard to get rid of some excess small fruit. Overall, that weighed down, gross profit per case. Make sense? Yep. No, it does. You know, I just noticed that you had made a point of it in your comments, and I know that mix can be important, so that's why I asked. This, this one's really for the Prepared side, and maybe I'm missing something here. If you average $28, you know, a carton in your avocado prices in the quarter, I mean, it wasn't that long ago, we were talking $70, $80, right? I think you said in the last quarter, sequentially, it was $43 a carton. In your Prepared business, I mean, you know, a novice looking at your business would say, "Wow, the, your ingredients cost for Prepared should have given you know, quite a bit of margin headway." Talk to me. I What am I missing in this with the fruit prices coming down, why should your margins have been better in Prepared? Yeah, and your observation is spot on. The, you know, the cost of the fruit going into the guacamole business is absolutely improved, you know, certainly versus prior year, but also versus the prior Q4. And you can see that in the gross margin that we achieved in the quarter. It was about 26%. And that 26%, I mean, it's not exclusively, you know, the improvement in the fruit, but, you know, it's also the improvement in the operations. I mean, that plant is running, you know, as well as it's ever run, given some of the investments and the changes in operations that we made last year. 26% gross margin in the Q1 for the guacamole division. Remember, that guacamole division is about a fifth of our total Prepared, right? Yeah. We did see the benefits, but it's on a smaller portion of that total Prepared portfolio. Right. Okay. That, that makes sense. Yeah ... I was thinking that, I'm still not quite used to thinking about you as Grown and Prepared yet. Yeah, right. in your old format and so that last comment made a lot of sense. Going, you know, going forward, you know, you kinda gave us some ideas of what adjusted EBITDA is gonna look like and so forth. But you'll still have those relatively easy comps for ingredients yet for your guac, and you're taking pricing up in other areas that had a lot of elasticity, is what I'm reading. Can you go into a little bit more detail on the elasticity part? Yeah. And Eric, let me make sure that I understand. Your basic question is you'll have some favorability in unit cost on guac, on input cost on guac. Right. Right. Where is the other improvement coming? Right. Okay. I think we've got a couple of things. One, remember, I really believe that the balance of the year volume is gonna be an important part of our story. We've got some deli customers coming on, two national deli customers coming on in the second half. It won't help the Q2. We'll, you know, we'll see Prepared, Fresh Cut challenges in volume throughout the Q2. It won't help the Q2, but it will help the second half. With that, we'll see absorption benefits and we'll see some other things that happen in the second half of the year. I think we will get some positive unit cost benefit in our guacamole business, but we also need volume to help us there. The guac category for the first time in a long time, over the course of the last three months anyway, was down on a unit volume basis as well. Up on a dollar basis, down on a unit volume basis. One of the other things that I think is hard to see is. We made great progress in getting lower input costs and taking advantage of that market. We made really good progress in yield and labor efficiency in our guac plant. Some of that was, let's say, used up by lower fixed cost absorption because of lower volume. Got it. Really, the Prepared story from now on... I mean, the fact of the matter is we had year-over-year labor productivity improvements, but we didn't from the Q4. Q1 202- Q1 2023, we had labor productivity. With reduced volume, Q4 of 2022- Q1 of 2023, we lost a little bit of labor productivity, again, because of the unit volume. I think as you look at Prepared, it is growing the volume with the category, but also with new distribution, continuing to manage our cost profile, labor productivity, all the things that we're talking about so that new volume is leveraged disproportionately. Got it. Okay. I apologize maybe for the ambiguity toward the, you know, toward the end of that question. Historically, this is historically what has been sort of attractive for the fresh avocado business, right? Is that even at high prices, consumers would pay, you know, absurdly high prices for, you know, you know, an avocado. It seemed that demand was more inelastic. What it sounds like today, you said the retail prices were very sticky on the upside, much stickier than wholesale. In, you know, in past years, the price wouldn't have been that big of a deal. If customers aren't buying your avocados, and you had down volumes, what are they switching into? What's your competitive route for avocados that consumers seem to be going to now that they might be more price sensitive? Well, let me try to clarify a couple of things. First of all, the category for produce was down. Avocados were still up in the Q1 year-over-year. I think it was about, on a unit volume basis, I think it was 2.7%. I think we're up, Shawn, 3.3% or 3.4%, something like that. Okay. we know we held our share, and one could say maybe even we grew a point. so I think that's one thing to think about. The other thing that I would think about is it's not just a question of price elasticity or inelasticity. If you remember in the Q3 when prices were extraordinarily high, retail stopped promoting and even started shrinking display sizes. it wasn't just a combination or a pricing story and whether it's inelastic or elastic. but they also reduced display sizes, reduced the amount of, Okay available volume. As we are fighting to get that back, right? The rest of the commodities don't stand still. I'm making this up at this point, but if it's strawberries or potatoes or tomatoes or whatever, they've moved in and took that retail shelf space. Now we're trying to gain back retail shelf space, gain back promotional activity, and it's just taking a little bit of time. I would suggest the category is not only reacting to price and the change in price, but also promotional activity and display sizes, and we're starting to see that come back. In fact, Shawn, so far in the Q2, we might be up- 9%. 9%, we're up in the Q2 on a unit volume basis for avocados. Yeah. Yeah. It's worth, you know, worth emphasizing that, you know, once we rolled into February, we did start to see, you know, a median improvement in conditions in the Grown segment. Not just an improvement in the gross profit, but the volume as well. Just kind of better flow through the volume. You know, you listen to the, you know, the Prepared remarks, you know, the cautionary side of that is we know that, you know, there's a lot of fruit coming in from Mexico. We know that the California season's getting underway, the Peruvian season's right around the corner. You know, there's a potential for some ongoing volatility with that supply coming. Okay. Yeah, no, that, I mean, that makes some sense. It, it's just a little bit different thinking than what we've always had because retailers have always been expanding, you know, their display of avocados. It's been a very hot item. It's very healthy oriented and, you know, to hear that maybe, you know, the retailers even took display away from it is, it's just kind of the first time I've heard that, you know, in the, in sort of the fresh avocado market. That's a dynamic I'm unaware of. I'll get back in the queue, and maybe we can discuss a little bit of this a little bit later. Eric, I would also remember even last year, supply was constrained. Right. You know, consumers are fickle. If supply is contained, you know, constrained, and maybe they just can't get an avocado out that day, and it's not the high usage consumer. The high usage consumer is gonna go look, gonna go buy their avocados every day, every, you know, twice a week, whatever their rhythm is. Yeah. Some of the low usage consumers, to the extent that it's not available. Or potentially, not available because it's not seen as promoted or not seen on the shelf size like it was. I think there's a little bit of what I'd call winning them back, let's say. Okay. Okay. The categories to remember, just to be clear, produce, for the second half of the year, total produce unit sales was down 3%. Avocados was still, that last quarter was up 3%. Okay. Okay, that's the important factor. Okay, thank you. We have reached the end of our question-and-answer session. I would like to turn the conference back over to Brian for closing comments. Look, we really appreciate you dialing in, asking the questions, giving Shawn and I a chance to talk to you about the business and where we're headed. The fact of the matter is, we didn't deliver the earnings we expected in the Q1. The market conditions that our business faced caused us to revalue or reevaluate the landscape for the balance of the year. We need earnings growth, and we need unit volume growth across our platforms. However, I'll tell you why I have hope. We're investing in sales talent where the market has the biggest opportunities for growth. Club Channel, international, guacamole, deli resources are all being funded by repurposing and/or reducing expenses in other areas. We must gain new customers and gain new distribution with our existing customers. Our distributor model for avocados is strong, and it's flexible. Over time, we've been able to consistently deliver our targeted gross profit per box. So that gives me hope and comfort. We mentioned in our Q4 earnings release that we expect growth in our deli product lines. We are on track to launch two national customers with deli items in our Q3. We know the value proposition in deli is promising. Our value proposition in deli is promising. That volume growth will help us in the second half as we look at fixed cost absorption and really maximizing the efficiency that we've been able to drive in production, in yields, in labor hours. We will continue, and we have, to beat, vet, and drive improvement in every cost line of the P&L. We're making this organization more efficient every day. There isn't a day that goes by that we don't worry about yield, input cost, transportation, labor productivity, and FP&A, and we're gonna continue beating them on that every day. Ultimately, we see some short-term challenges, the categories in which we play are performing at the better end of the spectrum of all of produce and deli SKUs. Across produce, value-added products perform better than whole commodities. Avocados are one of the only the few commodities that delivered year-over-year unit volume growth in Q1. Finally, convenient deli snacks and meal kits led the pack in the deli aisle. Those things give me hope. Our business model's right. We're working on the right things. We need to be agile, we didn't deliver the results that we expected in this quarter. We need to get better each and every day. While these challenges have slowed the progress that we expected, we're quickly repurposing resources. We're quickly making this organization leaner. We're focused on gaining sales distribution and continue to deliver sequential cash flow and earnings improvement. That's what I'd like to leave you today. I thank you for your time today, and thank you for your continued support of Calavo. Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.