Vital Farms, Inc.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vital Farms Quarter 4 2024 earnings 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. We encourage participants to limit yourselves to one question and one follow-up. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Anthony Bacalo, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to Vital Farms' fourth quarter and full year 2024 earnings conference call and webcast. I am Tony Bucallo, VP of Investor Relations, and I am joined on the call today by Russell Diaz-Conseco, President and Chief Executive Officer, Kilo Vreda, Chief Financial Officer, and Catherine McKeon, Chief Marketing Officer and General Manager, Butter. By now, everyone should have access to the company's fourth quarter and full year 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 annual report on Form 10-K for the fiscal year ended December 29, 2024, filed with the FCC today, as well as 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 press release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to the most comparable measure prepared in accordance with GAAP. With that, I will turn the call over to Russell Diaz-Conseco, President and Chief Executive Officer of Vital Farms.

Good morning, and thank you for your time today. Vital Farms finished 2024 on another high note. posting a great set of results in the fourth quarter and surpassing our financial guidance for the year. We achieved this with the help of all of our stakeholders, especially the crew members and family farmers who once again helped us deliver on our purpose of bringing ethical food to the table. I'm grateful for all of their efforts. This is truly an exciting time for Vital Farms. 2024 was a year of important milestones and great accomplishments for our company. First, we exceeded $600 million in net revenue, well ahead of our initial expectations for the year, and keeping us on track to meet our $1 billion sales target by 2027. Second, we added more than 125 new family farms, reaching more than 425 by year end. When completed, these new farms will expand our egg sourcing capacity by more than 40%. We see this growth in farm count as a testament to the strength of our recruitment team and the appeal of the Vital Farms model for our family farmers. Along with passing these milestones, we also successfully built more groundwork for future growth by investing in brand support and in our fast-growing supply chain. On the marketing side, our efforts drove brand awareness to new heights against our closest competitors. This record brand awareness helped our sales team expand retail distribution for eggs while simultaneously building higher sales velocity. And I'm very pleased with how we're rebuilding our butter business with butter back in growth and with plenty more ahead. We announced critical expansions of our supply chain in 2024 and expect to continue making such improvements. Last spring, we announced plans to open a new egg washing and packing facility. We expect this new facility will significantly increase our production capacity, fueling our next leg of growth. Additionally, we announced that we will be adding company-owned accelerator farms to our network ahead of our new facility opening in 2027. Importantly, we established dedicated supply chain leadership with the appointment of Joe Holland as our first chief supply chain officer, bringing his extensive experience to our team. As we look ahead to 2025, this will again be another year of important supply chain investments. In January, we announced that we are adding a new best-in-class egg grading line at Egg Central Station in Springfield, Missouri. We anticipate this new line will expand our capacity there by 30% by the end of 2025. We believe adding this new line is a well-timed step in managing our current demand and building Egg Central Station revenue capacity to more than $1 billion, well past our last capacity estimate of $800 million. We also expect to open our first company-owned accelerator farms later this year, providing us with new sources of best practices that we can share with our existing farm network. In recent quarters, we've spent a great deal of time highlighting how we're strengthening and expanding our supply chain, and there's good reason for that. Our growth is tied directly to how many eggs we can collect, wash, and ship. The timing of our supply chain investments in both 2024 and 2025 will be critical in understanding how our 2025 guidance of $740 million in sales and $100 million in adjusted EBITDA will be weighted across this year. It's not news that the egg industry has a supply issue. as avian influenza losses continue to deplete shelves across the country. The industry lost nearly 40 million egg layers in 2024, and we're sure you've seen the tight supply of eggs at your local supermarket and on the news. Industry supply shortages have created extraordinary demand for our product, but have also created supply constraints. Looking ahead to the first quarter, the supply constraints we experienced at the end of 2024 have continued into the beginning of this year. Additionally, we are cycling two consecutive years of exceptional first quarter performances, with sales up 55% in the first quarter of 2023 and 24% in the first quarter of 2024 from the respective prior year period. In the first quarter of 2024, we sold through the eggs we produced and we sold through a significant amount of inventory, which compounded our sales growth. In the first quarter of 2025, we are shipping more eggs than we did a year ago. However, year on year, we have much less inventory and we're not selling through inventory like we did last year. As a result, we expect a modest step down in our growth rate versus recent periods throughout the first half of 2025, particularly in the first quarter. However, As our egg supply builds throughout the course of the year, we expect our financial and commercial performance to accelerate as the year goes on, especially in the second half of the year when comparisons ease. We've built this into our 2025 guidance, and please keep this in mind as you build your models for the year. Just to be clear, new family farms take roughly nine months on average to start egg production. The farms we signed in the early part of last year are now yielding a good supply of eggs. By the fourth quarter of the year, more and more of the farms we signed throughout last year will begin providing supply, which we expect will accelerate into the second half of the year. We anticipate the approximately 125 farms we signed last year should be fully up and running by the fourth quarter. Additionally, the new washing and packing line in Missouri will also become fully operational in the fourth quarter. Taking these two developments together, we project that we will have needed capacity and should be well positioned to meet our guidance expectations for the year and keep us on the path to a billion dollars by 2027. Protecting animal welfare is at the heart of our company mission, and this recent outbreak of avian influenza is a sad and difficult time for us and our industry. Less than two months into 2025, More than 27 million hens have died from avian influenza, along with nearly 40 million that were lost in 2024. Egg shortages have created another hardship for American families already impacted by the food inflation of recent years. I'm proud to say that our family farm network and our company farm teams have been highly resilient through this recent outbreak. Going all the way back to 2022, We've had just four positive cases across our 425 farms representing less than one-half of 1% of our hens during this last outbreak. We've only had one outbreak in the trailing 12 months. As a reminder, no one farm represents more than one-half of 1% of production capacity. According to even the most favorable estimates, we'll be in this national egg shortage through the end of 2025. I can promise that Vital Farms will be working hard to get more eggs to the shelf with expanded supply. Our farm recruitment team continues to perform at an incredible level, and I tip my cap to them. At the end of 2023, we had 5.4 million laying hens in our system. At the end of 2024, we had 7.7 million with even more to come this year. I'd like to make a few comments about an important and exciting change we've made to our management structure. We announced in January that Pete Pappas, our Chief Sales Officer, expanded his role to Chief Sales Officer and President of Eggs. Catherine McKeon, our Chief Marketing Officer, now serves as Chief Marketing Officer and General Manager of Butter. Vital Farms is expanding quickly, and we're evolving to meet the demands of that growth. Our net revenue has more than doubled in the last three years and nearly tripled over the last four. The demand for our eggs is at record highs, and our revamped butter business is accelerating. To better manage the demands of our growing organization, I'm empowering Pete and Catherine to focus on maximizing opportunities in our two core segments. Additionally, empowering Pete and Catherine frees me from much of my day-to-day focus on eggs and butter, giving me the opportunity to think strategically about what we need to do next. to help drive Vital Farms into new phases of growth. Pete and Catherine are extraordinary and dedicated executives who know this business back to front, and I look forward to seeing them in action. I'd like to wrap up with a few comments before moving on to Catherine and Tilo. In 2024, we grew beyond our expectations while serving our stakeholders and delivering on our financial promises. We invested in our farm network, and strengthen our supply chain. We grew our presence at retail and in the mind of the consumer. And I can't say enough about how well our Egg Central Station crew members performed this year, over delivering on high expectations by a wide mark. Yes, we passed some significant milestones, and these were great accomplishments. But the thing about milestones is that they can go from goals to ancient history very quickly. We're now focused on delivering the next set of milestones and believe our dynamic supply chain, top-notch people, and great brand will take us there. Industry supply, including ours, will be tight to start the year due to the continued impact of avian influenza. However, I'm confident that we're well-positioned to navigate these choppy waters. We have the right mix of ingredients to help drive us to our goal of becoming America's most trusted food company. I'm certainly looking forward to it, and I hope you are too. And with that, we'll go to our Chief Marketing Officer and now Butter General Manager, Catherine McKeon, for further discussion. Catherine?