Vital Farms, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 26, 2021 (52 weeks), compared with fiscal 2020 ended December 27, 2020 (also 52 weeks). The filing is an annual report; it does not provide standalone fourth-quarter results.
Business context
Vital Farms sells pasture-raised eggs and related products, butter, and other foods sourced through a network of more than 275 family farms. Products are sold primarily through retail, with a smaller foodservice business. The company reported distribution in more than 20,900 stores and described eggs as its core business. It is a Delaware public benefit corporation and was recertified as a Certified B Corporation in January 2022.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $260.9 million | $214.3 million | +22% |
| Gross profit | $82.9 million | $74.5 million | +11% |
| Gross margin | 32% | 35% | Down 3 percentage points |
| Operating income | $0.1 million | $12.2 million | Down substantially |
| Net income | $2.4 million | $8.9 million | Down substantially |
| Adjusted EBITDA | $8.0 million | $16.8 million | Down substantially |
| Cash provided by operating activities | $16.3 million | $11.7 million | Increased |
| Cash used in investing activities | $17.1 million | $77.8 million | Lower use, primarily reflecting securities activity |
| Cash provided by financing activities | $2.2 million | $94.4 million | FY2020 included IPO proceeds |
Egg and egg-related products generated $240.0 million, approximately 92% of revenue; butter and related products generated $20.9 million. Shell eggs alone represented approximately 89% of revenue, according to the risk-factor discussion. Retail-channel revenue was $256.5 million.
At year-end, cash and cash equivalents were $31.0 million and available-for-sale securities were $68.6 million. Current assets totaled $141.2 million and current liabilities $38.0 million. The company had no outstanding balance under its $20.0 million revolving credit facility, which matures in April 2024, and reported compliance with its covenants. The facility is secured by substantially all company assets, subject to exclusions.
Capital expenditures for property, plant and equipment were $16.7 million. The company reported $44.6 million of net property, plant and equipment, including $21.2 million in construction in progress.
Material changes versus FY2020
- Revenue increased $46.6 million, driven mainly by higher egg-product sales and, to a lesser extent, butter sales, reflecting higher volumes and distribution to new and existing customers.
- Gross margin declined from 35% to 32%, primarily due to higher egg input costs, higher cream prices, elevated transportation costs, and normalization of promotions and slotting activity.
- Shipping and distribution expense rose 68% to $25.0 million, largely because of higher outbound freight rates. SG&A increased 22% to $57.9 million, including higher employee-related and public-company costs, as well as increased marketing spending.
- Operating income fell to approximately break-even. Net income was partly supported by a $2.0 million income-tax benefit, primarily related to stock-option exercises and incentive-stock-option dispositions.
- Operating cash flow increased to $16.3 million, while the company continued investing in its processing-facility expansion. At year-end, approximately $6.3 million of expansion spending remained.
Outlook, commentary, risks, and unusual items
- Outlook: The company stated that it expected adequate egg supply and packing and processing capacity for anticipated FY2022 demand. It expected the Egg Central Station expansion to be completed in mid-2022 and expected available cash, operating cash flow, and credit-facility availability to fund operations for at least the next 12 months. These are management expectations, not formal revenue or earnings guidance.
- Product discontinuation: In January 2022, management decided to discontinue egg bites and breakfast bars, citing financial performance, supply-chain complexity, and shelf-life limitations. The company expected to incur approximately $2.1 million of inventory-obsolescence and contract-termination charges in the quarter ending March 27, 2022, with discontinuation expected before year-end 2022.
- Principal operating risks: Higher feed, egg, cream, packaging, and freight costs; the ability to pass costs through without weakening demand; supply-chain and labor constraints; reliance on a major egg-processing facility, a limited number of co-manufacturers, and a sole-source carton supplier; customer and distributor concentration; food-safety events and avian disease; seasonality; and effects of COVID-19 and broader economic conditions.
- Concentration: Three distributors each represented at least 10% of FY2021 revenue: UNFI 18%, US Foods 14%, and KeHE 10%. Kroger represented 12% of revenue as the largest direct retail customer. The company also reported that Whole Foods accounted for an estimated 29% of retail sales, based on third-party data and internal analysis.
- Contingencies and controls: The company reported no material litigation and no accrued legal reserves. Management concluded disclosure controls and internal control over financial reporting were effective; the independent auditor was not engaged to attest to internal control effectiveness because of the company’s emerging-growth-company exemption.
Important facts for investors to verify
- Whether the Egg Central Station expansion was completed on schedule and within the remaining estimated spend, and whether added capacity supports growth and margin improvement.
- Whether higher input and freight costs, promotions, and price changes continue to pressure gross margin and profitability.
- The actual FY2022 financial impact of discontinuing egg bites and breakfast bars, including the expected $2.1 million charge and any remaining contractual or inventory exposure.
- Whether customer and distributor concentration, sole-source packaging, and co-manufacturer dependencies have changed since year-end.
- How operating cash flow, capital expenditures, liquidity, and the value and maturity profile of available-for-sale securities develop; FY2021 cash from operations was slightly below property-and-equipment purchases.