Vital Farms, Inc.

Since last quarter, we've made significant progress, and we completed our planned operational staffing changes at Egg Central Station. In mid-July, we further optimized our organizational structure to improve decision-making speed and reduce overhead, aligning our headcount directly with our core operational priorities. The result is that we've reduced our annualized SG&A run rate by approximately $6 to $7 million. Furthermore, we intend to pause construction on Vital Crossroads by the end of 2026, and we believe CapEx is tightly controlled. In short, we expect the second half of 2026 to look fundamentally different than the first half of the year. We believe our strategic actions provide a clear line of sight to improved operating results in the second half and heading into 2027, and Thilo will walk through the specific building blocks behind that view in a moment. The expected progression is straightforward. Our narrowed price gaps should continue to accelerate velocity over the coming months and quarters. And our TDPs are on track this year to expand at the fastest rate since our IPO in 2020. We expect to improve cost of goods sold as we are shifting our supply management strategy to farmer contract amendments and away from breaker sales. And we will benefit from the actions we've taken to lower SG&A. In conclusion, we believe our turnaround plan is working. And given our successful execution in navigating the challenges of the second quarter, we are reaffirming our full year guidance today. With that, I will turn the call over to Thilo to take you through the details of our second quarter results.

Thank you, Russell. Let me go through the financial results for the second quarter. Net revenue in the second quarter declined 10.1% to $166 million due to a volume-driven decline of $19.8 million in retail channel sales, that is, excluding excess breaker and wholesale channel sales, partially offset by a price mix benefit of $1.1 million. Excess sales to breaker and wholesale channels contributed only $0.1 million to net revenue growth, as a large volume increase was almost entirely offset by a price decline. Gross profit was $10.9 million, or 6.6% of net revenue. Gross profit includes a $19.5 million impact from excess breaker sales, $0.8 million from the amortization of farmer contract amendments, and $7.8 million in exit costs associated with our butter wind-down. for a total of $28.1 million of what we see as supply management and other discrete expenses. Excluding these items, the underlying gross margin is meaningfully more favorable. We expect the gross margin profile to improve as we move into the second half of the year, and we continue to anticipate exiting the fourth quarter at a gross margin run rate of approximately 30%. SG&A was $40.4 million. While up slightly year over year, this includes $3.3 million of restructuring and severance costs and $3 million in one-time professional services costs related to our feed cost savings program for a total of $6.3 million in discrete expenses. Going forward, The combination of our May and July efficiency gains will reduce our annualized SG&A run rate by approximately $6-7 million. Shipping and distribution expenses increased to 6.4% of net revenue in the second quarter of 2026, up from 4.9% a year ago, reflecting the inclusion of $1.5 million of expenses for shipping excess eggs to breaker plants. Adjusted EBITDA was a loss of $26.6 million. This includes an add-back of $7.8 million for butter exit costs and $3.3 million for restructuring and severance costs. The loss for the quarter is a result of the peak intensity supply management costs in Q2 totaling $21.8 million for the quarter and it also includes $3 million of professional fees incurred during the quarter related to our feed cost savings program for a total of $24.8 million of discrete expenses that we are not adding back to adjusted EBITDA. Regarding butter exit costs, when we announced the wind down of our butter business last quarter, We expected to convert our remaining bulk butter inventory into a retail product before fully exiting the category. Since then, we have concluded that operational constraints and meaningfully elevated costs make this approach uneconomical, so we will instead sell the remaining inventory to the melter. This is a change in how we are executing the exit, not in the decision itself. Looking ahead, full-year supply management costs are now modeled in the mid-$30 million range versus our initial $32 million estimate, representing a modest increase in breaker sales due to two primary factors. Thank you very much. Relying slightly more on the breaker channel gives us the short-term flexibility to react to potentially higher retail demand as price gap adjustments take hold. Importantly, I want to underscore that the contract amendments that are needed for the year are in place. Turning to capital allocation and our balance sheet, we have taken aggressive, proactive steps to ensure our liquidity profile remains strong as we emerge from this period of oversupply. We ended the quarter with $21.2 million in cash and had drawn $30 million against our previous revolving credit line. To strengthen our cash position, after quarter end we put in place a new $125 million term loan and a new $60 million asset-based lending facility, replacing our previous revolving facility. Both new facilities have a three-year tenor. We have drawn the entire $125 million term loan Repaying the previous revolver. We now have significant financial runway to fund the business for the foreseeable future. More details on these facilities can be found in the current report on Form 8K that we filed this morning. At the very beginning of the second quarter, we executed $50 million of share repurchases at an average price of $13.29 per share. After the end of the quarter, Thank you very much. Thank you very much. Looking ahead to the rest of the year, we are reaffirming our previous guidance, which calls for net revenue of $775 to $800 million and adjusted EBITDA of $0 to $10 million. We expect the distribution gains we are making to contribute to improving revenue performance over the course of the second half of 2026 and into 2027. We would note that Q3 is lapping a strong third quarter in 2025, Q4 is the easier year-over-year comparison from a net revenue perspective. Currently, we expect Q3 of this year to show a sequential improvement in absolute net revenue, while Q4 net revenue growth should reflect the full benefit of the distribution gains we have mentioned during the call today, and it is typically our largest quarter of the year due to the seasonality of the business. Additionally, as the majority of our supply management measures are now driven by the contract amendments, the high impact from breaker sales that we experienced in Q2 will be very significantly reduced in the second half. This will directly support our bottom line, and we believe it will position us to deliver improved adjusted EBITDA in the second half of the year. The improvement in adjusted EBITDA from the first half to the second half is driven by three building blocks. First, in the second quarter we successfully right-sized our supply via the contract amendments, resulting in much lower supply management costs. Second, increased distribution should benefit retail volume as the second half progresses, resulting in scale benefits. and finally, the structural cost reductions from the organizational streamlining that we conducted in May and July have reduced our annualized SG&A run rate by approximately $6 to $7 million. As for the phasing of the recovery, we expect the second half performance to build sequentially. Q3 should mark a sequential improvement in revenue and adjusted EBITDA as breaker volumes abate. and then we anticipate Q4 will reflect the full operational leverage of improved retail volumes running through our streamlined SG&A cost structure. With that, I will turn the call back over to the operator and Russell and I are happy to take your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Scott Marks with Jefferies. Scott, your line is open.