Vital Farms, Inc.

D.S. Penteco, President and Chief Executive Officer of Vital Farms. Thank you, John. Good morning and thank you for your time today. Before talking about the broader business trends, I want to start with a big thank you to the entire Vital Farms crew. We achieved several important milestones since our last earnings call, and these were made possible by the dedication, engagement, and passion of crew across our organization. These milestones include working with more than 500 family farms, an increase of about 50 farms since the first quarter, breaking ground on our Seymour facility, and placing birds on our first accelerator farm. All of these are supply chain milestones that deserve special recognition and support the future growth potential that we see for Vital Farms. Another highlight worth mentioning up front is the appointment of Billy Sear to Vital Farms Board of Directors. As the current CEO of Fresh Pet and with his extensive consumer products expertise, Billy brings valuable experience in brand building, retail partnerships, and scaling operations in the CPG space that will be instrumental as we continue our growth journey. We're thrilled to have Billy join our board. With that, let me talk more about the details of the second quarter. Our second quarter performance exceeded our initial top and bottom line expectations. Net revenue grew to $184.8 million, up .4% year over year, driven by both volume growth and strategic pricing actions. Adjusted EBITDA of $29.9 million represents a new quarterly record for us. I'm pleased to report that the volume growth constraints we faced in the first quarter have begun to ease as we forecasted. We've been able to start rebuilding our inventory and we are seeing continued strength in consumer demand and brand loyalty, even as we implemented our recent price increases. These factors position us well for accelerated growth in the back half of the year. With this solid foundation in place, we are raising our 2025 financial outlook, and Tila will give more details. As I reflect on our second quarter performance, I want to share two key observations that shape our outlook. First, despite the increasingly dynamic macro environment, Vital Farms continues to demonstrate remarkable resilience and growth, outperforming across key metrics. Second, we believe we remain a structurally advantaged business with significant runway for growth in a category with meaningful long-term tailwinds. Key to our growth are our supply initiatives, where we've made excellent progress expanding our farmer network, which I mentioned earlier, and we now have 9 million hens under contract. With a robust pipeline of prospective family farm partners, we are confident in our ability to continue to grow this network at the necessary pace throughout the remainder of the year and to support our updated guidance. The ongoing farm network expansion reflects the compelling value proposition we offer family farms and the expertise of our world-class farm team in communicating the benefits of our partnership model. This growing network positions us to meet increasing demand while maintaining our high-quality standards. Scaling our farmer network aligns with the strategic infrastructure investments we've been advancing on multiple fronts. At Egg Central Station, or ECS, in Springfield, our third production line remains on track to be operational in the fourth quarter, which we expect will expand our capacity by 30%. We're also enhancing our distribution capabilities in the coming months by transitioning to an above-ground cold storage facility just one mile from ECS, improving operational efficiency. We're continuing to work with the same warehouse partner, but this expands our shipping capabilities and improves our efficiencies as the facility is now closer to ECS and with a purpose-built design to better handle outbound distribution. Next week, we plan to break ground at our new Seymour, Indiana facility. After a thorough assessment by our Chief Supply Chain Officer, Joe Holland, who joined us in the third quarter of last year, we revised our Seymour expansion plans and are now working on installing two lines at the same time instead of the original plan of doing this in two phases. With this updated approach, we expect to have more than $900 million of revenue capacity from the new Seymour facility by early 2027. It's important to point out here that the timing for new facility to be operational does not meaningfully change with this increased scope. The updated approach also means that we now expect capex spending of $90 to $110 million this year. Our full plan now includes a cold storage facility adjacent to the Seymour facility that we plan to build but will be operated by our current warehouse partner. Even with this increased scope, we continue to project $5 of annual revenue capacity for every dollar of capex we're investing in the facility. In other words, our cost per square foot is decreasing compared to the initial plan. It also means that we're anticipating higher capex spend next year than previously indicated. The recent jump in brand awareness we've seen this year for Vital Farms Egg and our continued high growth rate indicate to us there is unmet demand that we will have to satisfy in the coming years. After several years of supply and capacity constraints, we want to get ahead and ensure we are well positioned to meet our future demand expectations. Farm recruiting is one piece of this puzzle and we believe we are currently in a good place there. Production capacity is the other piece and by installing two production lines in more simultaneously, we anticipate having sufficient scale for the foreseeable future. While expanding supply is critical, the true cornerstone of our success lies in the strength of our brand and the deep loyalty of our consumers. Time and again, our consumers have demonstrated remarkable commitment to our products because of our mission and what our brand represents. In particular, we've grown household penetration while simultaneously increasing the loyalty of existing consumers. We continue to see the record high aided brand awareness of 31% that we hit in the first quarter and we believe we know how to turn this increased awareness into purchases over time. This is happening across all income groups but particularly among higher income households who continue to demonstrate strong loyalty to our brand. I think it's important to note that this isn't just brand loyalty. It's a testament to the authentic relationships we've built with consumers who fundamentally understand and value our mission. We believe they understand how we partner with family farmers, maintain rigorous ethical standards, and consistently deliver superior quality eggs. And we believe that our consumers are willing to pay a premium for these practices and for the value our brand represents. We continue to grow brand awareness through meaningful engagement. We recently rolled out a new advertising campaign built around season four of FX's Emmy award-winning TV show, The Bear, which has already generated positive feedback. The campaign's success demonstrates our ability to connect with consumers through culturally relevant content that resonates with our target demographic. Another good example of our broader engagement strategy is a limited time promotional campaign that will launch later this month. It will involve products that will only be available through an online giveaway. They're not for sale and we want to make it very clear that it's not related to any thinking about a new category. It will just be a fun way to connect with some very critical stakeholders and continue to grow brand awareness. We don't want to spoil the surprise yet, so please stay tuned until later this month. In summary, we exceeded our initial second quarter expectations and believe our business model is uniquely positioned to continue delivering strong results. We have a loyal consumer base, a growing network of family farms delivering improving supply chain stability, and the investments we make in retail penetration and brand awareness are delivering measurable results. Our volumes are improving as we enter the back half of this year with improving supply and what we would consider to be pent-up consumer demand. Finally, all of our expansion plans are tracking as expected. This momentum enables us to raise our guidance for full year 2025. Over the long term, we see significant potential runway for growth as we capture greater market from low penetration levels and continue building our loyal, resilient consumer base. I'm very excited about our future and believe we're on our way to becoming America's most trusted food company. I'm certainly looking forward to it and I hope you are too. TILA will now provide additional color on our second quarter results and increased guidance for this fiscal year 2025.

Thank you Russell. Hello everyone and thank you joining us today. I will now review our financial results for the second quarter in the June 29th, 2025 and then provide color on our guidance for fiscal year 2025. Net revenue for the second quarter of 2025 rose to 184.8 million dollars, an increase of 25.4 percent compared to the prior year period. This was primarily driven by price mix benefits of 15.7 million dollars and volume growth of 21.7 million dollars. We've seen that our second quarter price increase has been well received which we attribute to the strength of our brand. Growth profit for the second quarter rose to 71.8 million dollars or 38.9 percent of net revenue from 57.7 million dollars or 39.1 percent of net revenue last year. The increase in growth profit dollars was primarily driven by revenue growth from higher volume and increased pricing across our shell like portfolio and favorable mixed benefits. Growth profit margin declined slightly year over year due to increased investments and crew members to keep pace with expected company growth and less efficient operations due to limited ex-supply after an exceptional operating quarter last year. SG&A expenses for second quarter were 39.0 million dollars or 21.1 percent of net revenue compared with 33.3 million dollars or 22.6 percent of net revenue in the second quarter last year. The increase in SG&A in the second quarter was driven primarily by expenses to support the expansion of our business including marketing expenses, employee related costs, including stock-based compensation and headcount, professional service expenses, technology and software related expenses, and future farm expansion expenses. Shipping and distribution expenses for the second quarter of 2025 were 9.0 million dollars or 4.9 percent of net revenue compared to 7.2 million dollars or 4.9 percent of net revenue in the second quarter of 2024. The increase was driven by higher sales volume. Net income for the second quarter of 2025 increased 1.8 percent to 16.6 million dollars or 36 cents per diluted share compared to 16.3 million dollars or 36 cents per diluted share for the second quarter of 2024. The increase in net income was driven by operating profit growth mostly offset by -over-year increase in tax provisions. Adjusted EBITDA for the second quarter of 2025 was 29.9 million dollars or 16.2 percent of net revenue compared to 23.3 million dollars or 15.8 percent of net revenue for the second quarter of 2024. The increase in adjusted EBITDA was driven by higher revenue and scale benefits, partially offset by higher personnel investment. Turning now to our balance sheet. As of June 29th, 2025, we have total cash, cash equivalents, and marketable securities of 155.0 million dollars with no debt outstanding. Our digital transformation initiative remains on track and we continue to target early fall 2025 for the switchover. Before I discuss our guidance, I want to update you on our progress with remediating the material weakness and internal controls previously highlighted in our annual report on Form 10K for the fiscal year 2024. The finding relates to the revenue recognition process. Specifically, we lacked automated reconciliation between purchase orders and sales reporting. Importantly, this was a design deficiency only. No revenue inconsistencies were found and we do not anticipate any restatements. Our remediation plan is progressing well and we remain on track to correct this by the end of fiscal 2025. Now looking ahead, given our strong performance in the second quarter, including successful implementation of our price increase, we are raising our full year 2025 guidance. We now expect net revenue of at least 770 million dollars, representing growth of at least 27 percent versus 2024, an increase from our previous guidance of 740 million dollars. This increased outlook reflects the strength we are seeing in our core business, particularly the positive consumer response to our recent price increase and accelerating volume growth as our newly added farms ramp up production. We are increasing our adjusted EBITDA guidance to at least 110 million dollars from the previous guidance of at least 100 million dollars for the full year 2025. For the remainder of 2025, we continue to expect different margin dynamics between the first and second half of the year. The first half of the year has benefited from the impact of favorable price mix, our recent price increase, and relatively stable commodity costs. However, in the second half, we anticipate margin pressure from three key sources. First, the impact of US tariffs on imported items. This had been continuously challenging to predict in terms of timing and magnitude of the impact, but we currently expect to mainly affect the fourth quarter. Second, now that our supply constraints have eased, we plan to increase promotional activity in the second half of the year. And third, similar to prior years, we anticipate higher marketing spend as percent of net sales in the second half compared to the first half of the year. We affected these headwinds into our guidance and pricing decisions and remain confident in our ability to deliver on our increased full year revenue guidance. Lastly, we now expect fiscal year 2025 capital expenditures in the range of 90 to 110 million dollars, pulling forward cap expense that was previously planned for later years. This is an increase from our previous guidance of 50 to 60 million dollars and reflects our strategic decision to construct both production lines at our Seymour Indiana facility simultaneously, rather than in phases, together with on-site cold storage. We believe this will provide us with needed capacity for future growth and optimize our capital efficiency on a per square foot basis. Once operational, we expect the two lines to have total annual revenue capacity of more than 900 million dollars. As previously disclosed, we will have elevated capex spending in 2025 and 2026 because of the new production line at ECS Springfield, construction of our planned new facility in Seymour Indiana, the construction of accelerator farms, and our digital transformation project. We expect to fund our current plans for our Seymour facility and all other projects this year with existing cash and operating cash flow. We continue to project that every dollar of capex investment in Seymour will generate more than five dollars of annual revenue capacity, which we consider a very strong return. This decision to accelerate the Seymour build out means we are putting our balance sheet to work and we expect free cash flow to turn negative this year after two very strong positive years. After the last several quarters, we want to ensure that we have enough capacity in place ahead of expected demand growth and that we optimize the use of capital and the return for all our stakeholders. As always, we continue to evaluate and monitor our capital allocation priorities and will provide updates on this as necessary. The raised financial outlook I've just shared demonstrates the strength of our business model and validates our strategic decisions. We continue to see our loyal consumer base growing and we believe expansion of our network of over 500 family farms strengthens our supply chain capabilities. Our investments in retail penetration and brand awareness are delivering strong results as we reach new households and deepen relationships with existing customers. The positive consumer response in our brand that we have seen combined with our operational execution reinforces our confidence that we are creating sustainable value for all stakeholders as we progress toward our long-term objectives. Once again, we thank you for your time and interest in vital farms today and for the confidence that you have placed in us with your investment. With we are now happy to take your question.

At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. We request that you limit yourself to one question in one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Megan Klatt with Morgan Stanley. Your line is open.