Vital Farms, Inc.

Good day, and thank you for standing by, and welcome to Vital Farms' third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Matt Silas. You may begin.

Thank you. Good morning, and welcome to Vital Farms' third quarter 2021 earnings conference call-in webcast. I am pleased to be joined on today's call by Russell Diaz-Coteco, President and Chief Executive Officer, and Bo Meisner, Chief Financial Officer. By now, everyone should have access to the company's third quarter 2021 earnings press release issued this morning. This is available on the investor relations section of Vital Farms' website at investors.vitalfarms.com. Through the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and to the company's quarterly report on Form 10-Q for the fiscal quarter ended September 26, 2021, which was filed with the SEC earlier today and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today's call, management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for their financial information presented in accordance with GAAP. Please refer to our earnings release for reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with GAAP. And now I'd like to turn the call over to Russell Diaz-Conseco, President and Chief Executive Officer of Vinyl Farms.

Thanks, Matt, and good morning, everyone. Thanks for joining us today. We hope you're enjoying the cooler temperatures as much as our girls on grass do around this time of year. We had a strong third quarter and are pleased with the momentum we sustained across our business in 2021. We delivered record net revenue for the third quarter and continue to manage our margins despite the extraordinary inflation we are seeing in so many sectors of the global economy. Net revenue was $64.6 million, a 21.1% increase from the prior year period. We grew our network of small family farms to over 250, and we continue to increase retail distribution. Our products are now available in over 18,000 stores. Finally, household penetration remained steady relative to the last quarter at over 5.5 million households, a 5% increase from the same time last year. We're raising our 2021 fiscal year revenue outlook, which reflects our confidence in continuing the positive momentum we've experienced all year. Beau will elaborate more on our detailed guidance in a few minutes. Turning now to updates on the business. A few weeks ago, we hosted our first Investor Day in Springfield, Missouri. As a relatively new public company, and due to the ongoing COVID-19 pandemic, our Investor Day was the first time we were able to meet some of our stockholders and other members of the investment community in person. It was also their first opportunity to tour Egg Central Station, our world-class egg washing and packing facility, and to meet crew members from functions spanning the entire company. We were especially pleased to introduce analysts and investors to our crew members at Egg Central Station. We saw genuine interest and enthusiasm of those who attended our investor day, particularly around the many instances in which they saw our stakeholder model come to life. including the culture we've cultivated among our crew members, our robust network of small family farms, our environmental conservation efforts across our supply chain, and the thoughtful ways we are building loyal relationships with our consumers. We believe in co-creation with our stakeholders. For our crew members, this means we listen and make decisions that benefit their long-term sustainability. We believe that if we prioritize their professional development and financial well-being, they will prosper as will our business. Two topics of particular interest that came up at Investor Day involved our pricing strategy and the desire for greater detail around our marketing strategy. So I want to spend a few minutes discussing these areas. First, on pricing. As I mentioned earlier, we are at a time of extraordinary inflation that has impacted feed, transportation, and labor costs. To date, we have absorbed these incremental costs as we felt most of them were transitory in nature. We have also helped offset these costs within our own supply chain. However, the severity of inflation in recent months across some of our key inputs and the fact that in certain areas it appears to be more sustaining has led us to take a modest price increase across roughly 40% of our product portfolio. This planned price increase will take effect early next year. Recognizing the close partnership we foster with our stakeholders, we communicated this update to our retail customers with significant lead time. We believe they understand that this was a responsible decision made in the best interest of long-term sustainability for our stakeholders. Now, I want to be clear about a couple of points. First, this decision does not deviate from our consistent stance on pricing. We have always said that if and when we feel inflationary pressure is going to last longer than what we've seen in prior instances, we would take action to offset the effects of sustained increased input costs. Second, we have not seen a material impact from the U.S. labor market shortage. While we are not immune to these labor issues, our supply chain has remained nimble, which we believe is a testament to our continued investments in human capital. Now, moving to our marketing strategy. we're often asked how we connect consumers with the multifaceted stories about our brand. In slides 17 through 20 in the investor presentation that we posted this morning, we provided more detail on how we are building a strong brand in eggs and beyond through premium positioning, a breakthrough personality, and consistent point of view. Our storytelling is bold and honest. And while a focus on ethical food is a thread that is woven throughout all communication, we apply our playful, mindful, and savvy tone through diverse storytelling that connects consumers with every aspect of our brand, including family farmers, the girls on grass, and consumers who love cooking with us. A recent example is Hens Behind the Lens, which launched last week. For this new campaign, we wanted to show a day in the life of our girls in the most honest and transparent way possible. So we created a way for the hens to take photos of their life out on the pasture. The result is a series of unedited, beautiful, and at times hilarious photos of life out on the pasture through the eyes of their most honest residents, the hens. This is our first out-of-home campaign, which will be featured on digital billboards and geo-targeted mobile in major markets across the country. The initial consumer response to Hens Behind the Lens has been incredibly positive, and we were pleased to see the campaign recognized as the ad of the day by Adweek magazine. Consistent with our belief in experimentation, we are excited to meet consumers in new places and learn the effectiveness of channels beyond paid social media. We have a thorough understanding of our core consumers and how to reach them in the diverse places to which they are attuned. This includes online video, podcasts, in retail stores, on e-commerce platforms, and across myriad social feeds, as you'll see on slide 19. We know our strategy is working. We've added 2 million net new households to our consumer base in the last two years. We're leading in dollar share requirements among all premium egg brands, and we have the highest brand I trust score among purchasers. Finally, we're pleased that Vital Farms is often recognized for thinking creatively and disruptively about how our brand shows up in the world. Just a few weeks ago, we were recognized by Fast Company as a 2021 Brand That Matters, which is a list of 95 companies and organizations that have achieved relevance through cultural impact, social engagement, and have authentically communicated their mission and ideals. We were thrilled to be listed along so many purpose-driven brands that we admire, including Patagonia, Nike, Sweetgreen, Yeti, and more. Now I'll spend a few minutes reviewing household penetration, retail distribution, food service, and innovation. Our household penetration on eggs stands at over 5.5 million households, or 4.4%. This measure is steady versus last quarter. and is up about 60 basis points from the same period last year. Given we offer an expanding product portfolio, we thought it would be helpful to provide you with our total brand household penetration metric, which currently stands at 5%. This is also higher relative to the prior year. As we've discussed previously, we are focused on gaining share at retail and are happy to report that we gained another 20 basis points of share in Q3 2021, and now command 5.8% of the total ag market. In terms of retail distribution, our products are now available in over 18,000 retail stores nationwide, which represents growth of 10% over this time last year. Looked at another way, our total placements in stores grew over 19% relative to this time last year. We saw strong distribution gains across the country, including further distribution at Whole Foods on certain SKUs. I'm also excited to announce we recently launched the Vital Farms Farm Shop, our first e-commerce storefront featuring 11 of our SKUs, including butter, ghee, and our convenient breakfast offerings. This will make some of our products available to new households across the country and allow us to learn more about today's direct-to-consumer landscape in the process. Now, turning to food service. Since the end of 2020, we have increased the number of food service distribution centers that carry our Vital Farms products by over 175%. We believe the first key step in scaling our food service business is making our products available for distribution in many regions across the country. This is allowing us to expand our presence with new regionally focused food service concepts, including the Unwine Cafe, which has locations across the country. On innovation, as shared on our last earnings call, we recently introduced new products in the convenient breakfast and butter categories. What we've learned about convenient breakfast today, especially from Egg Bites, is that 70% of the volume was incremental to the category, and the remaining purchases come from other existing brands. We're pleased with the response we've seen both from our consumers and retail customers as distribution for our breakfast bars and pasture-raised spreadable tub butter has ramped nationally. We believe our pasture-raised spreadable tub butter will be especially popular on dinner tables this holiday season. Before I turn the call over to Bo, I want to conclude with some remarks I recently shared at the Conscious Capitalism CEO Summit, an annual event that brings together conscious business leaders. I think there's a misconception that conscious capitalism is a trade-off for successful capitalist competition. We believe that it is a better way to produce outsized returns over time. I believe our market leadership and the consistent revenue and penetration growth we've demonstrated within the specialty egg segment and category more broadly is a testament to how fiercely we compete to win. Simply put, if I did not think this was the right way to do business, I wouldn't do it. I'd now like to turn the call over to Beau.