Vital Farms(VITL) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights Vital Farms reported strong Q2 2024 financial results, including significant revenue and net income growth, leading to an upward revision of its fiscal year 2024 guidance and outlining strategic growth initiatives Q2 2024 Financial Highlights Vital Farms achieved substantial growth in Q2 2024, with net revenue increasing by 38.5% and net income more than doubling compared to the prior year period, driven by volume gains and improved margins Q2 2024 vs Q2 2023 Financial Highlights | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change (%) | | :----- | :----------- | :----------- | :--------- | | Net Revenue | 147.4 | 106.4 | 38.5% | | Gross Margin | 39.1% | 35.5% | +362 bps | | Net Income | 16.3 | 6.7 | 143.3% | | Net Income per Diluted Share | 0.36 | 0.15 | 140.0% | | Adjusted EBITDA | 23.3 | 11.3 | 106.2% | [1] Fiscal Year 2024 Guidance Update Following strong first-half performance, Vital Farms raised its fiscal year 2024 guidance for both net revenue and Adjusted EBITDA, reflecting increased confidence and favorable market conditions Updated Fiscal Year 2024 Guidance | Metric | Previous FY2024 Guidance | Updated FY2024 Guidance | Growth vs FY2023 (Previous) | Growth vs FY2023 (Updated) | | :----- | :----------------------- | :---------------------- | :-------------------------- | :------------------------- | | Net Revenue | At least $575 million | At least $590 million | At least 22% | At least 25% | | Adjusted EBITDA | At least $70 million | At least $75 million | At least 45% | At least 55% | | Capital Expenditures | $35 million to $45 million | $35 million to $45 million | Consistent | Consistent | [8] Strategic Growth Initiatives Overview The company is investing in long-term growth by expanding its network of family farms to over 350 and planning a new egg washing and packing facility in Seymour, Indiana, to support future demand and its $1 billion net revenue target by 2027 - New state-of-the-art egg washing and packing facility planned for Seymour, Indiana, to drive growth[1] - Network of family farms expanded to over 350, well on track to meet future demand[1] - Aiming for $1 billion net revenue target by 2027, supported by supply chain capacity expansion[1] Second Quarter 2024 Detailed Financial Results This section provides a detailed analysis of Vital Farms' Q2 2024 financial performance, highlighting significant growth across key revenue, profit, and earnings metrics Net Revenue Analysis Net revenue surged by 38.5% in Q2 2024, primarily due to a 35.8% increase in volume, expanded product offerings, and broader retail distribution Net Revenue Q2 2024 vs Q2 2023 | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change (%) | | :----- | :----------- | :----------- | :--------- | | Net Revenue | 147.4 | 106.4 | 38.5% | [3] - Net revenue growth driven by volume gains (35.8%), expanded item offerings, and store distribution gains across new and existing retail customers[3] Gross Profit and Margin Analysis Gross profit increased significantly, and gross margin expanded by 362 basis points to 39.1%, benefiting from higher net revenue, economies of scale, operational efficiencies, and lower commodity costs, despite increased promotional rates and crew member investments Gross Profit and Margin Q2 2024 vs Q2 2023 | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Q2 2024 Margin | Q2 2023 Margin | Margin Change (bps) | | :----- | :----------- | :----------- | :------------- | :------------- | :------------------ | | Gross Profit | 57.7 | 37.8 | 39.1% | 35.5% | +362 | [3] - Gross profit growth was driven by higher net revenue, benefits of scale, and operational efficiencies[3] - Margin growth was driven by benefits of scale, operational efficiencies, price/mix benefits, and lower conventional commodity and diesel costs, partially offset by a return to a normal promotional rate and increased investment in crew members[3] Operating Income Analysis Income from operations more than doubled in Q2 2024, primarily due to higher sales and gross profit, partially offset by increased promotional rates and investments in personnel and marketing Income from Operations Q2 2024 vs Q2 2023 | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change (%) | | :----- | :----------- | :----------- | :--------- | | Income from Operations | 17.1 | 8.0 | 113.8% | [4] - The change in income from operations was primarily attributable to higher sales and gross profit, partially offset by higher promotional rates and personnel and marketing investments[4] Net Income and EPS Analysis Net income increased substantially to $16.3 million, and diluted EPS rose to $0.36, driven by strong sales and improved gross profit performance, despite higher marketing and employee-related expenses Net Income and Diluted EPS Q2 2024 vs Q2 2023 | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change (%) | | :----- | :----------- | :----------- | :--------- | | Net Income | 16.3 | 6.7 | 143.3% | | Net Income per Diluted Share | 0.36 | 0.15 | 140.0% | [5] - The increase in net income was primarily due to higher sales and improved gross profit performance, partially offset by increased marketing spend and higher employee-related expenses[5] Adjusted EBITDA Analysis Adjusted EBITDA more than doubled to $23.3 million, with Adjusted EBITDA margin expanding to 15.8%, reflecting higher sales and improved gross profit, partially offset by investments in marketing and employee-related expenses for scaling the organization Adjusted EBITDA and Margin Q2 2024 vs Q2 2023 | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change (%) | Q2 2024 Margin | Q2 2023 Margin | Margin Change (bps) | | :----- | :----------- | :----------- | :--------- | :------------- | :------------- | :------------------ | | Adjusted EBITDA | 23.3 | 11.3 | 106.2% | 15.8% | 10.7% | +510 | [5] - Growth in Adjusted EBITDA driven by higher sales and improved gross profit, partially offset by investments in higher marketing spend and employee-related expenses[5] Balance Sheet and Cash Flow Highlights As of June 30, 2024, Vital Farms maintained a strong liquidity position with no outstanding debt. The company significantly increased cash flow from operating activities and made higher capital expenditures to support growth Key Balance Sheet and Cash Flow Metrics | Metric | As of June 30, 2024 ($M) | As of June 25, 2023 ($M) | | :----- | :----------------------- | :----------------------- | | Cash, cash equivalents and marketable securities | 152.7 | N/A (only cash/cash equiv for 2023) | | Net cash provided by operating activities (26-week) | 40.1 | 18.9 | | Capital expenditures (26-week) | 6.9 | 4.3 | [7] - The company had no outstanding debt as of June 30, 2024[7] Fiscal Year 2024 Outlook Vital Farms raised its fiscal year 2024 guidance for net revenue and Adjusted EBITDA, driven by strong year-to-date performance, a favorable commodity outlook, and robust consumer demand supported by marketing and retail expansion strategies. Capital expenditures guidance remains consistent Updated Fiscal Year 2024 Guidance | Metric | Previous FY2024 Guidance | Updated FY2024 Guidance | Growth vs FY2023 (Previous) | Growth vs FY2023 (Updated) | | :----- | :----------------------- | :---------------------- | :-------------------------- | :------------------------- | | Net Revenue | At least $575 million | At least $590 million | At least 22% | At least 25% | | Adjusted EBITDA | At least $70 million | At least $75 million | At least 45% | At least 55% | | Capital Expenditures | $35 million to $45 million | $35 million to $45 million | Consistent | Consistent | [8] - Increased guidance is based on strong performance year to date, a favorable commodity outlook, and strong consumer demand supported by marketing reinvestment strategy[8] - The core strategy remains a commitment to increasing brand awareness, driving deeper loyalty with consumers, and growing household penetration through focused efforts on brand marketing and continuous retail expansion[8] Strategic Growth Initiatives Vital Farms is expanding its operational capacity with a new egg washing and packing facility in Seymour, Indiana, and growing its farm network to support future revenue targets New Egg Washing and Packing Facility in Seymour, Indiana Vital Farms selected Seymour, Indiana, for its second Egg Central Station (ECS) facility, which will feature advanced automation, environmental stewardship goals, and a flow-through design to enhance safety and efficiency. Groundbreaking is expected mid-2025, with full operation by early 2027 - Seymour, Indiana, was announced as the planned new location for the second world-class Egg Central Station (ECS) facility[9] - The new facility will feature similar environmental stewardship goals, a flow-through design for improved safety and efficiency, and industry-leading automation[9] - ECS Seymour is expected to break ground mid-2025 and be fully operational at the beginning of 2027[9] Network Expansion and Future Revenue Targets The new Seymour facility will support the expansion of Vital Farms' family farm network to approximately 165 additional farms, create at least 150 local jobs, and is expected to generate over $350 million in additional revenue, contributing to the company's $1 billion revenue target by 2027 - The new ECS Seymour facility is expected to create at least 150 jobs for the local community and support approximately 165 additional family farms[10] - ECS Seymour is expected to eventually generate more than $350 million in anticipated additional revenue[10] - Vital Farms is pushing to reach its 2027 target of $1 billion in revenue[10] Company Information This section provides details for the upcoming conference call and webcast, along with an overview of Vital Farms' mission, operations, and market presence Conference Call and Webcast Details Vital Farms will host a conference call on August 8, 2024, at 8:30 a.m. Eastern Time to discuss the results, with access available via dial-in or live webcast on the investor relations website - Vital Farms management will host a conference call on Thursday, August 8, 2024, at 8:30 a.m. Eastern Time[11] - Participants can dial +1-800-715-9871 (North America) or +1-646-307-1963 (International) with Conference ID: 8674985, or access the live webcast at https://investors.vitalfarms.com under "Events"[11] About Vital Farms Vital Farms is a Certified B Corporation founded in 2007, known for ethically produced foods, primarily pasture-raised eggs. It partners with over 350 family farms, distributes products to approximately 24,000 stores nationwide, and operates as a Delaware public benefit corporation prioritizing all stakeholders - Vital Farms (Nasdaq: VITL) is a Certified B Corporation offering a range of ethically produced foods nationwide, founded in Austin, Texas, in 2007[12] - Works with over 350 family farms and is the leading U.S. brand of pasture-raised eggs by retail dollar sales[12] - Products include shell eggs, butter, hard-boiled eggs, and liquid whole eggs, sold in approximately 24,000 stores nationwide and on menus at hundreds of foodservice operators[12] Forward-Looking Statements and Risk Factors This section outlines the nature of forward-looking statements and details the significant risks and uncertainties that could impact Vital Farms' future operational and financial performance Definition and General Disclaimer The press release and earnings call contain forward-looking statements based on current assumptions and expectations, which are subject to substantial risks and uncertainties that could cause actual results to differ materially - Statements regarding market opportunity, growth, new facility, future revenue, farm network, and financial performance are forward-looking[13] - These statements are based on current assumptions and subject to substantial risks and uncertainties[13] Specific Risks and Uncertainties Key risks include the ability to acquire and retain customers and personnel, maintain profitability, procure raw materials, manage product quality, adapt to consumer preferences, and navigate agricultural, economic, and supply chain challenges - Risks include Vital Farms' ability to acquire/retain customers, personnel, farmers, suppliers, distributors, and co-manufacturers, and to sustain or increase profitability[14] - Other risks involve procuring sufficient high-quality raw materials, real or perceived quality/food safety issues, changes in consumer tastes, financial condition of partners, and the impact of agricultural risks (e.g., avian influenza)[14] - Further risks include compliance with laws/regulations, effects of public health pandemics, future investments, ability to innovate, marketing costs, managing growth, competition, adverse economic conditions (interest rates, inflation), and seasonality[14] Financial Statements This section presents the condensed consolidated statements of income, balance sheets, and cash flows, providing a comprehensive overview of Vital Farms' financial position and performance Condensed Consolidated Statements of Income The condensed consolidated statements of income show significant year-over-year growth in net revenue, gross profit, and net income for both the 13-week and 26-week periods ended June 30, 2024, reflecting strong operational performance Condensed Consolidated Statements of Income | Metric (in thousands) | 13-Weeks Ended June 30, 2024 | 13-Weeks Ended June 25, 2023 | 26-Weeks Ended June 30, 2024 | 26-Weeks Ended June 25, 2023 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Revenue | $147,388 | $106,445 | $295,316 | $225,616 | | Cost of Goods Sold | $89,710 | $68,645 | $178,742 | $145,149 | | Gross Profit | $57,678 | $37,800 | $116,574 | $80,467 | | Total Operating Expenses | $40,539 | $29,761 | $75,266 | $61,532 | | Income from Operations | $17,139 | $8,039 | $41,308 | $18,935 | | Net Income before Income Taxes | $18,111 | $7,912 | $42,836 | $17,584 | | Income Tax Provision | $1,772 | $1,229 | $7,474 | $3,751 | | Net Income | $16,339 | $6,683 | $35,362 | $13,833 | | Diluted Net Income per Share | $0.36 | $0.15 | $0.79 | $0.32 | [16] Condensed Consolidated Balance Sheets The condensed consolidated balance sheets indicate an increase in total assets, particularly cash and cash equivalents, and stockholders' equity as of June 30, 2024, compared to December 31, 2023, while total liabilities remained relatively stable Condensed Consolidated Balance Sheets | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $133,173 | $84,149 | | Investment securities, available-for-sale | $19,533 | $32,667 | | Accounts receivable, net | $42,863 | $39,699 | | Inventories | $31,448 | $32,895 | | Total current assets | $234,210 | $195,524 | | Property, plant and equipment, net | $68,327 | $66,839 | | Total assets | $320,489 | $275,178 | | Accounts payable | $33,358 | $33,485 | | Total current liabilities | $66,991 | $65,221 | | Total liabilities | $82,068 | $82,501 | | Total stockholders' equity | $238,421 | $192,677 | | Total liabilities and stockholders' equity | $320,489 | $275,178 | [17] Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows show a substantial increase in net cash provided by operating activities for the 26-week period ended June 30, 2024, alongside increased capital expenditures and positive net cash from financing activities Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | 26-Weeks Ended June 30, 2024 | 26-Weeks Ended June 25, 2023 | | :-------------------- | :--------------------------- | :--------------------------- | | Net income | $35,362 | $13,833 | | Net cash provided by operating activities | $40,082 | $18,911 | | Purchases of property, plant and equipment | $(6,914) | $(4,292) | | Net cash provided by investing activities | $5,753 | $17,012 | | Net cash provided by (used in) financing activities | $3,189 | $(1,164) | | Net increase in cash and cash equivalents | $49,024 | $34,759 | | Cash and cash equivalents at end of period | $133,173 | $47,673 | [18] Non-GAAP Financial Measures This section defines and explains the purpose and limitations of non-GAAP financial measures, specifically Adjusted EBITDA, and provides a detailed reconciliation to its GAAP equivalent Purpose and Definition Vital Farms uses Adjusted EBITDA and Adjusted EBITDA Margin as non-GAAP measures to provide additional insight into operating performance, facilitate internal comparisons, and aid management in assessing business health and planning, by excluding certain non-cash and non-operating items - Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures that provide investors with additional useful information in evaluating performance[19][20] - These measures are used by management for assessing business health, determining incentive compensation, evaluating operating performance, and internal planning and forecasting[20] - Adjusted EBITDA is calculated as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, (benefit) or provision for income taxes, interest expense, and interest income[21] Limitations of Non-GAAP Measures Non-GAAP measures like Adjusted EBITDA have limitations, as they do not reflect future capital commitments, the need for asset replacement, stock-based compensation, other non-operating expenses, or tax payments, and may not be comparable to measures used by other companies - Limitations include not reflecting future capital commitments, the need for asset replacement, the impact of stock-based compensation expense, other non-operating expenses (like interest expense), and tax payments[22] - The use of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly titled measures of other companies, limiting their usefulness as comparative measures[22] Adjusted EBITDA Reconciliation A reconciliation table is provided to bridge Adjusted EBITDA to net income, its most directly comparable GAAP measure, for both the 13-week and 26-week periods ended June 30, 2024, and June 25, 2023 Adjusted EBITDA Reconciliation | Metric (in thousands) | 13-Weeks Ended June 30, 2024 | 13-Weeks Ended June 25, 2023 | 26-Weeks Ended June 30, 2024 | 26-Weeks Ended June 25, 2023 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $16,339 | $6,683 | $35,362 | $13,833 | | Depreciation and amortization | $3,288 | $2,297 | $6,499 | $4,437 | | Stock-based compensation expense | $2,916 | $1,446 | $4,898 | $3,687 | | Income tax provision | $1,772 | $1,229 | $7,474 | $3,751 | | Interest expense | $257 | $136 | $512 | $275 | | Interest income | $(1,316) | $(450) | $(2,404) | $(790) | | Adjusted EBITDA | $23,256 | $11,341 | $52,341 | $25,193 | | Net Revenue | $147,388 | $106,445 | $295,316 | $225,616 | | Net income margin | 11.1% | 6.3% | 12.0% | 6.1% | | Adjusted EBITDA margin | 15.8% | 10.7% | 17.7% | 11.2% | [24]