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spk05: Thanks. I guess a question for Tilo. In the release, it does say commodity costs higher. But, you know, corn and soy are a lot lower than they were a year ago. So are there just other costs that are higher that are offsetting the lower grain costs? And then secondly, you know, given just the comparisons, if you look into like, say, first half of 24, let's just say corn and soy stay where they are today. I know no one knows what they're going to do, but if they did, would you have a continued benefit in the first half of 2012?
spk00: So on the first part of your question, the commodity costs, they flow through for us with a lag, given that we're adjusting prices that we pay to farmers on a lag. So it's not a direct correlation to what you see for the for the quoted commodity costs, plus then we have organic feed, which doesn't really trade publicly. Those swings, they just show up in the feed bolts that our farmers have. So there's that component on why our commodity costs and the commentary that we have on commodity costs doesn't necessarily track what you see on the Chicago board on a day-by-day basis. On the output for next year, let's talk about that when we get there. We haven't provided 24 guidance yet, and so as we're building our plans for the year, once we have them, we'll talk about that. Okay.
spk05: I understand the lag commentary, but I guess there was a lag last year, too. Maybe I'll take this offline, but anyway, I would have thought that the lag, that you still would have had lower year-over-year costs. even with the lag impact, but I can take that offline if you like.
spk00: Yeah, so Rob, just to clarify, there's a lag impact, but then there's also the cost of the inventory that we have. If you look at our balance sheet, you see that we have an inventory position in X, and we're working through X that were laid with a bigger time difference than in previous quarters. And so with that, this lack, it's just, it's very much a moving target.
spk05: Okay. Okay. Thank you.
spk06: Our next question comes from Robert Dickerson with Jefferies. Robert, your line is open.
spk07: uh thank you so much um i said kind of two easy questions um i guess the first one's just on lto just all you know press release you're doing some like lto breakfast burrito with two other players um and you know clearly i've heard you say kind of in the quarter two like decent shipments to food service and um core part of business is not necessarily food service but you know, as we kind of just think forward, you know, should the expectation be, broadly speaking, that, you know, maybe activity can increase, you know, kind of on the LTO side and food service, which would therefore, I guess, extend kind of brand recognition? First question.
spk01: Yeah, thanks very much for the question. This is Pete. We continue to look for ways to add value to our stakeholder partners, and In food service, this is one way that we are able to do that rather uniquely. One of the benefits that we have at Vital Farms is the strength of our brand, and the strength of our brand lends itself to these types of unique partnership opportunities that we can offer to some of our operators as well as some of our retail partners. So we're going to continue to look at different ways to engage consumers, engage our operators in a unique way. And we do think that that expands relevance, expands awareness, expands households, and puts us in a little bit of a different playing field than our competitive set.
spk07: All right, super. And then kind of a technical question, balance sheet cash flow related. So right now on the balance sheet, you have approximately $57 million in cash. which is great, right? Positive free cash flow continues and it's cash balances a very nice uptick relative to where you finished the end of last year. At the same time, you know, the investment security piece, right, available for sale has come down quite a bit. And I'm just not sure kind of how I should read that, you know, like not even sure what the mechanics are of that. Like what, what, Why has that come down? Where is that cash going? And clearly, you're sitting on more cash. So I'm just not sure. There's been kind of a transfer of securities into a cash balance because maybe there is a potential need to allocate more cash going forward. Thanks.
spk00: Yeah, Rob, I think you just answered your own question. We're moving from investment securities into cash equivalents, i.e. we're holding it in money market funds. That's actually working to our advantage right now from a good perspective since money market funds are yielding really well right now. And we are shifting this in anticipation of spending that is coming up with a new facility. We have talked about that before, that we need to build another egg processing facility. we'll pay that out of operating cash and out of existing cash balances. And as we're preparing for that, we're just letting investment securities mature. And once they mature, we don't reinvest them in the money market.
spk07: All right.
spk00: Fair enough.
spk07: Thank you so much. That's all.
spk06: Thanks, Ron. And our next question comes from Matt McGinley with Needham. Matt, your line is open. Go ahead.
spk03: Thank you. Thank you. So based on the cadence of when you took price increases last year, I think the gross pricing benefit would have been a low double-digit overall benefit to sales, but your overall pricing impact that you reported was around 7% on higher plan promotion. I think the gross impact in the fourth quarter is about the same, but the fourth quarter is typically a little bit more promotional. So can you give some color on the promotional impact on sales in the fourth quarter and how we should view that relative to what we saw this quarter?
spk00: Yeah, if I follow your math correctly, I agree with it. The reason why the pricing benefit that you saw in our P&L wasn't as high as you thought was that we started spending on promotions again in the third quarter, plus this higher sales volume than normal to the wholesale channel, that's just a lower revenue break. And so that's a reduction of the overall pricing benefit that we had for the year. Fourth quarter, yes, there are. It's a promotional environment. We participate in promotions to the degree that we want to create new consumers for our brand. We're not participating with the intention of renting market share if you want. It's all about consumer acquisition rather than participating in price moves up and down by commodity producers. We have a strong brand. That's a game that we decide not to participate in.
spk03: Got it. And on the shipping and distribution, you noted that much of the benefit there, as you said, a gain in rate, much of that was driven by a decline in line haul rates. But, I mean, you had really impressive volume gains. So I assume that there was some operating efficiency or volume leverage there that you got from that. So I guess, can you talk about what that volume or operating efficiency leverage was? And do you think there's more benefit to come over the next few quarters from cheaper transport costs, or do you think you're nearing the end of that kind of line haul benefit?
spk00: I'm not going to speculate on how line haul rates are going to move going forward, but what we have had for this quarter, as I said, it was a balance of better haul rates and better capacity utilization. As the business continues to grow, in general, we're able to put more pallets on outbound trucks. And that reduces the cost, the shipping cost per pallet. The line haul rate reduction that we saw in the third quarter was about 15% decline year over year. That obviously plays into that as well.
spk03: Thank you.
spk02: My question's the first one for me.
spk06: And our final question comes from Ryan Myers with Lake Street Capital Markets. Ryan, your line is open. Please go ahead.
spk04: Hey, guys. Thanks for taking my questions. First one for me, how has the risk of trade downs impacted how you guys think about launching new product SKUs or how are you viewing potential new categories?
spk02: I think it's a great question. I appreciate it. You know, we've got Pete here, and so he might add some more detailed context, but it's interesting. You know, our most recent, you know, product expansions and where we're seeing some of the fastest year-on-year growth in percentage terms are in some of our highest price SKUs. So, you know, we're expanding distribution of a specialty egg, which is our blue egg. We're expanding distribution and seeing velocity gains in those higher egg count, 18 count, because of value proposition skews. And so what we're actually seeing is a mixed shift toward higher price point items. In that context, I don't see the risk of trade-down as affecting our ability to introduce innovation that continues to be a strong value for consumers, even at a relatively high price point. Pete, do you have anything to add? Did I get it? Okay, sounds like I got it.
spk04: Okay, got it. No, that's helpful. And then how should we think about marketing spend in 2024, both kind of on a full year basis and then from a seasonality perspective as we progress throughout the year?
spk00: Yeah, I would assume that our marketing spend in dollars, it grows as the business grows. We're not going to provide guidance right now for spending. And that includes any thinking about how it moves quarter by quarter. We adjust those plans as we go throughout the year. Obviously, we go into the year with a plan, and then we adjust as events over the year unfold. But we'll talk about that once we're done with 2023.
spk04: Got it. Thank you for taking my questions.
spk00: Thanks, Matt.
spk06: And that does conclude the question and answer session. I would now like to turn it back to Matt Seiler for closing remarks. Thanks, everybody, for your interest today. Have a good one. This does conclude the program. You may now disconnect.
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