Vital Farms, Inc.

Thank you for standing by. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Vital Farms Incorporated second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. Thank you. And now, I would like to turn the call over to Anthony Bucallo, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Vital Farms' second quarter 2024 earnings conference call and webcast. I am Tony Bucallo, VP of Investor Relations, I am joined on the call today by Russell Diaz-Conseco, President and Chief Executive Officer, and Tilo Vreda, Chief Financial Officer. By now, everyone should have access to the company's second quarter 2024 earnings press release issued this morning. This is available on the investor relations section of Vital Farms website at investors.vitalfarms.com. Throughout this call, management may make forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and beliefs and do 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, the company's quarterly report on Form 10-Q for the fiscal quarter ended June 30th, 2024, filed with the SEC today, as well as our 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 the financial information presented in accordance with GAAP. Please refer to our earnings release for reconciliation of adjusted EBITDA and adjusted EBITDA margin for the most comparable measures prepared in accordance with that. With that, I will turn the call over to Russell Diaz-Conseco, President and Chief Executive Officer of Vital Palms.

Good morning, and thank you for your time today. I'm pleased to announce that our momentum from the first quarter carried into the second. We delivered another great set of top-to-bottom results. Our performance was driven by growing demand for our premium products and excellent execution from the great people working across Vital Farms. I'd like to thank all of our crew members throughout the organization for these really terrific results. Today, I'll start with our key financial headlines and then shift to new developments. I'll then hand it over to Tilo, and he will provide more detail on our second quarter financials and updated guidance for fiscal year 2024. With our strong start to the year, I'm happy to report that we're in a great position to both raise our guidance and accelerate investment in the long-term success of our business. We continue to expand our farm network, and we're adding a new egg washing and processing facility in Seymour, Indiana. Additionally, we will be stepping up brand marketing investment in the back half of the year, driving our message to consumers as we push to reach 30 million households by 2027. Let's get right to the key financial headlines. we had another excellent top line performance with record second quarter net revenue of $147.4 million, up 38.5%. You might remember that we guided for 300 basis points of tailwind for sales in the quarter. This was due to our lapping some negative product ordering dislocations related to Avian Influenza last year. We did enjoy some benefit from this comparison. However, we still performed well above our expectations. In the first half of 2024, our sales grew 31% on top of a first half 2023 comparison of 41%. We delivered another strong gross margin performance this quarter. Boosted by sales growth, productivity gains, selective pricing, efficient supply chain execution, and a more benign commodity cost environment, gross margin improved 362 basis points to 39.1% in the quarter and improved 381 basis points to 39.5% for the first half. In addition to our strong gross margin performance, we delivered $23.3 million of adjusted EBITDA of 105% versus the second quarter of 2023. Year to date, we've delivered $52.3 million in adjusted EBITDA of 108% from the first half of last year. Our adjusted EBITDA margin for the quarter improved to 15.8% of 512 basis points from last year. Our half-year adjusted EBITDA margin improved 656 basis points to 17.7%. Strong consumer demand helped drive our top and bottom line success this quarter. We believe we are in a virtuous cycle of higher consumer demand driving expanded distribution and expanded distribution driving further demand. We continue to build our shelf presence in stores where we're already prominent, accelerating our sales performance. Year on year, our total distribution points have increased by 19% to 453 in the natural channel and by 17% to 215 in the food channel. we still have much more room to grow by adding more items to existing shelves at locations where we already have a strong presence. Yes, I'm pleased by our strong sales, distribution, and gross margin performance this quarter. I'm also thankful for all of our crew members who helped make that happen. We are well positioned to meet future consumer demand, and we continue to invest to make that happen. Our brand is at the core of who we are. and our brand marketing remains a powerful lever of our success. We're always looking for ways to drive brand awareness in meaningful and culturally relevant moments. This summer, with women's sports viewership on the rise, we have a new campaign that celebrates female farmers and athletes alike. We expect this campaign will deliver more than 350 million advertising impressions across sports networks, during games, tournaments, and matches. This includes the women's Wimbledon tournament, just concluded in July, and the National Women's Soccer League and Ladies Professional Golf Association through the fall. We also have a few spots running during the Olympics coverage on the USA Network. Joining the women's sports conversation continues to deliver outsized results, resonating with our highly engaged and growing audience. We expect to generate 650 million earned impressions through press coverage that highlights our unique campaign. Furthermore, we have good news about our supply chain this quarter. First, we're happy to announce that we're now working with more than 350 family farms within our network, up from more than 300 at the beginning of the year. Our family farmers are central to what we do in our business. We believe our ability to attract and support new farmers is a critical strength of our company. We continue to add farms to support our growth as we push toward a billion dollars in revenue. Next, in June, we made the formal announcement of the location for our new egg washing and packaging facility. This 72-acre site will be in Seymour, Indiana, and when finished, will help launch us into our next stage of growth. We plan to break ground in 2025 and expect to begin operations there in 2027. Our world-class egg central station facility in Springfield, Missouri, is still finding ways to improve its already impressive performance. As I remarked last quarter, we're just flat out better at getting our high-quality eggs packed and shipped. With C-more, what's most exciting for us is that the construction and operational plans for the new facility will be built upon our key learnings and successes from Springfield. This includes everything from people development to production. Additionally, we expect to have ample room to expand past our 2027 revenue goals. We expect Seymour will create at least 150 jobs for the local community in its first phase. When finished, over the long term, we expect Seymour to support approximately 165 new family farmers and to help generate more than $350 million in additional revenues. This facility will complement Springfield, which we now estimate has $800 million in revenue capacity. Let me briefly elaborate on this last data point. Since our ECS Springfield expansion in 2022, we've discussed a revenue capacity of $700 million for this facility. However, we want to give you an up-to-date estimate. Since 2022, the price mix of our portfolio has evolved, and we've become significantly more efficient. We estimate that this combination has given us at least $100 million in estimated additional revenue capacity since our last estimate in 2022. Finally, we're in the planning stages of building a handful of farms ourselves. This year, we've purchased $3 million in farmland in Indiana within a short distance of our planned facility in Seymour. This land is where we plan to build these new farms. When up and running, these starter farms will serve two purposes. First, building and running a small number of our farms ourselves will allow us to test new ideas and processes without imposing on our existing family farm systems. We can then share best practices and learnings across our family farm network. Second, over time, we plan to make these farms available for sale to family farmers looking to join our network. We anticipate these farms will be fully operational, creating a turnkey solution for buyers. These farms will provide the potential for immediate cash flow, as well as mitigation of much of the initial startup risk for new farmers and their families. Note that anticipated project costs have been included in our capital expenditure guidance. Before I hand it over to Tilo, I want to share a quick update on butter. As you recall, we relaunched our butter line in April. This was after an extensive global search for a supply source which we believed best represented our Vital Farms philosophy and mission. We chose a supplier in Ireland as our primary source, And we are now working closely with family farms there to deliver a delicious creamy product that's 90% grass fed. Our choice to import from Ireland is consistent with our commitment to animal welfare and family farm support. Here in the US, we reinforce the brand with attractive new packaging, giving the product a premium brand halo that stands out to consumers on the shelf. Although it's still early days, I'm happy to report that we're seeing significant progress since the relaunch. Our overall butter business is down so far this year as we're lapping the discontinuation of our tub butter skew late last year. However, we expect a return to growth in the second half of the year. Our stick butter business is growing, and our velocities have picked up materially where we are present. The future looks good for butter, and I'm happy with what we've accomplished in such a short period. My advice is to go out and find some for your fridge. We keep it in our house, and it's terrific. I'd like to wrap up with just a few comments. We got off to a great start in the first quarter and that momentum carried into the second. Our business is in great shape and I'm excited for what we've accomplished so far this year. It's been exciting to watch our growth while serving our stakeholders and delivering on our financial promises. We have big plans for our future and we know our growth will require investment and long-term thinking. We will continue doing the hard work of recruiting new family farms, and adding new capacity to achieve our ambitious financial goals. This expansion of capacity runs parallel with the investments we're already making in our people, brand, and infrastructure. As a result, we're confident that we are well-positioned to meet our updated guidance for the year and our long-term financial targets beyond that. And with that, we'll now go to our CFO, Kilo Vreda, for further discussion.