Vital Farms(VITL) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements show significant year-over-year growth in revenue and net income Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $133,173 | $84,149 | | Total current assets | $234,210 | $195,524 | | Total assets | $320,489 | $275,178 | | Total current liabilities | $66,991 | $65,221 | | Total liabilities | $82,068 | $82,501 | | Total stockholders' equity | $238,421 | $192,677 | Condensed Consolidated Statements of Income Highlights (in thousands) | Metric | 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 | | Gross profit | $57,678 | $37,800 | $116,574 | $80,467 | | Income from operations | $17,139 | $8,039 | $41,308 | $18,935 | | Net income | $16,339 | $6,683 | $35,362 | $13,833 | Condensed Consolidated Statements of Cash Flows Highlights (26-Weeks Ended, in thousands) | Cash Flow Activity | June 30, 2024 | June 25, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $40,082 | $18,911 | | Net cash provided by investing activities | $5,753 | $17,012 | | Net cash provided by (used in) financing activities | $3,189 | $(1,164) | - Eggs and egg-related products continue to be the primary revenue driver, accounting for $142.9 million (97%) of net revenue in Q2 2024, up from $101.8 million in Q2 2023[39] - The company has significant customer concentration, with one customer (Customer A) accounting for 23% of net revenue in Q2 2024 and 24% for the 26-week period[40] - In April 2024, the company entered into a new five-year, $60.0 million revolving credit facility with JPMorgan Chase Bank, replacing its previous PNC Credit Facility[54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth, improved gross margins, and key strategic initiatives including a new facility Overview and Key Business Factors The company's growth strategy centers on expanding its retail presence, foodservice channel, and supply chain capabilities - The company's mission is to bring ethical food to the table, supported by a network of over 350 family farms and a commitment to Conscious Capitalism[87][88][89] - Announced plans for a second egg washing and packing facility in Seymour, Indiana, anticipated to be fully operational in 2027 to expand the supply chain[92] - Key growth strategies include increasing household penetration from its current 8.2%, expanding within the retail channel (currently in ~24,000 stores), growing the foodservice footprint, and launching new products[102][104][105][107] Results of Operations Net revenue increased 38% year-over-year in Q2 2024, driven by volume growth and expanded gross margins Comparison of 13-Week Periods (Q2 2024 vs Q2 2023, in thousands) | Metric | Q2 2024 | Q2 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $147,388 | $106,445 | $40,943 | 38% | | Gross Profit | $57,678 | $37,800 | $19,878 | 53% | | SG&A | $33,336 | $23,908 | $9,428 | 39% | | Income from Operations | $17,139 | $8,039 | $9,100 | 113% | Comparison of 26-Week Periods (YTD 2024 vs YTD 2023, in thousands) | Metric | YTD 2024 | YTD 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $295,316 | $225,616 | $69,700 | 31% | | Gross Profit | $116,574 | $80,467 | $36,107 | 45% | | SG&A | $60,467 | $47,853 | $12,614 | 26% | | Income from Operations | $41,308 | $18,935 | $22,373 | 118% | - The 38% increase in Q2 2024 net revenue was primarily driven by volume-related increases of $38.1 million, reflecting accelerated demand and expanded distribution[116] - Gross margin for Q2 2024 improved to 39% from 36% in Q2 2023, driven by price/mix benefits, scale efficiencies, and more favorable commodity and diesel costs[117] Liquidity and Capital Resources The company maintains a strong liquidity position sufficient to fund operations and significant planned capital expenditures - As of June 30, 2024, the company had $152.7 million in cash, cash equivalents, and marketable securities, with an additional $60.0 million available under its new JPMorgan Credit Facility[98] - Significant capital expenditures are planned for the next 12 months, including approximately $8.0 million to $12.0 million for the new Indiana facility and $20.0 million to $30.0 million for farm development[135] - Net cash from operating activities increased to $40.1 million for the first 26 weeks of 2024, up from $18.9 million in the prior-year period, primarily due to higher net income[139][140] Non-GAAP Financial Measures Adjusted EBITDA more than doubled year-over-year to $23.3 million for Q2 2024 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | 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 | | Adjustments | $6,917 | $4,658 | $16,979 | $11,360 | | Adjusted EBITDA | $23,256 | $11,341 | $52,341 | $25,193 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks from commodities and interest rates have not materially changed - The company's primary market risk exposures are from fluctuations in raw materials, ingredients, inflation, and interest rates[153] - There have been no material changes in the company's market risk exposure during the reported quarter[153] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of June 30, 2024[155] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[156] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no material legal proceedings aside from an update on a class action lawsuit - The company provides an update on the Usler v. Vital Farms, Inc. class action lawsuit, where a magistrate judge issued an order and recommendation on July 9, 2024, that denied the plaintiffs' motion for class certification[82] - The company believes the claims in the lawsuit are without merit and is vigorously defending itself, but is currently unable to estimate a possible loss or range of loss[82] Item 1A. Risk Factors Key business risks include managing growth, facility concentration, commodity prices, and agricultural diseases - The company's rapid growth may not be indicative of future growth, and managing this growth places significant demands on resources[162] - A substantial amount of shell egg processing occurs at the single Egg Central Station facility in Missouri, creating a concentration risk[177] - The business is exposed to risks from agricultural diseases, including Highly Pathogenic Avian Influenza (HPAI), with outbreaks at five of the company's farms to date[209] - The company's status as an "emerging growth company" will expire on December 29, 2024, after which it will become a "large accelerated filer," resulting in increased compliance costs and stricter reporting requirements[152][296][298] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity and details the use of its 2020 IPO proceeds - There were no unregistered sales of equity securities during the quarter[331] - As of June 30, 2024, the company has used $35.2 million of the $99.7 million net proceeds from its 2020 IPO, with uses including debt repayment and the Egg Central Station expansion[332] Item 5. Other Information Two company officers adopted Rule 10b5-1 trading plans during the second quarter of 2024 Director and Officer Rule 10b5-1 Trading Plan Adoptions | Name and Position | Action | Adoption Date | Total Shares to be Sold | | :--- | :--- | :--- | :--- | | Kathryn McKeon, Chief Marketing Officer | Adoption | May 28, 2024 | 47,164 | | Peter Pappas, Chief Sales Officer | Adoption | June 14, 2024 | 99,526 |