Vital Farms, Inc. — Q3 2021 Form 10-Q
Reporting period: 13 weeks ended September 26, 2021; year-to-date figures cover 39 weeks. Comparatives are the same periods ended September 27, 2020. Amounts below are in millions unless stated otherwise.
Business context
Vital Farms packages, markets and distributes pasture-raised eggs, butter and related products, primarily in U.S. retail channels. Eggs remain the core business: egg and egg-related products generated $59.0 million, or about 91% of Q3 revenue. The company reported more than 18,000 stores carrying its products and began selling through club retailers during the quarter.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Revenue | $64.6 | $53.4 | $183.5 | $160.3 |
| Gross profit / margin | $19.8 / 31% | $18.4 / 34% | $63.1 / 34% | $56.9 / 36% |
| Operating income (loss) | $(1.8) | $2.4 | $4.3 | $14.4 |
| Net income (loss) | $(1.3) | $1.7 | $6.0 | $9.5 |
| Adjusted EBITDA | $0.2 | $3.7 | $10.1 | $16.9 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $12.3 | $15.0 |
At September 26, 2021, cash and cash equivalents were $27.8 million and investment securities were $69.8 million. Current assets were $140.7 million versus current liabilities of $32.3 million. No borrowings were outstanding under the $20 million revolving credit facility, which matures in April 2024; the company reported covenant compliance. Total liabilities were $33.4 million. Capital expenditures were $14.2 million year to date, and property, plant and equipment under construction included $18.9 million in construction in progress.
Material changes versus prior periods
- Q3 revenue rose 21%, mainly from higher egg-product sales and new or expanded distribution. Year-to-date revenue rose 14%.
- Q3 gross margin fell to 31% from 34%; year-to-date margin declined to 34% from 36%. Management cited higher grain costs and increased promotional activity as key factors.
- Q3 operating expenses increased to $21.6 million from $15.9 million. Shipping and distribution expense rose 68% in Q3, primarily because of higher outbound freight rates; SG&A increased with headcount, public-company costs and marketing.
- Q3 shifted from net income to a net loss. Year-to-date net income declined to $6.0 million from $9.5 million, and Adjusted EBITDA declined to $10.1 million from $16.9 million.
- Year-to-date operating cash flow decreased to $12.3 million. Investing cash outflow increased to $15.5 million, largely reflecting facility investment and purchases of investment securities. Cash declined by $1.7 million from year-end 2020.
Outlook, commentary and risks
- No quantitative revenue or earnings guidance is provided. Management expects cash, operating cash flows and credit-facility availability to fund operating expenses for at least the next 12 months, while noting future capital needs depend on growth and Egg Central Station expansion.
- Management expected adequate egg supply and processing capacity to meet anticipated fiscal 2021 demand. It said milk-supply disruptions and related freight costs could persist, though they had not materially affected butter or ghee order fulfillment at the time of filing.
- Management expects freight markets to remain elevated in the near term and shipping costs to increase as the business scales. It also reported inflationary pressure and warned higher costs may not be fully offset by price increases.
- Egg Central Station expansion and continued investment in capacity are important execution and capital-spending considerations. The company also depends on a concentrated supplier, co-manufacturer and distribution network; shell egg cartons are sourced substantially from one supplier.
- Customer and channel concentration is notable: several distributors each represented around 10% or more of revenue in the periods reported. COVID-19-related pantry loading had eased, and management noted that changing purchasing behavior could make revenue more variable.
- Other key risks include dependence on shell eggs, feed and ingredient-price volatility, seasonal demand, food safety and regulatory compliance, and disruptions to farms, logistics or the Springfield processing facility. The filing reports no material pending legal proceedings.
Important facts for investors to verify
- Whether sales growth can continue while gross margins recover from higher feed costs, promotions and freight expense.
- Progress, cost and operating impact of the Egg Central Station expansion and the amount of remaining capital investment.
- Whether supply-chain and freight pressures, especially for pasture-raised milk, eggs and packaging, affect costs or customer fulfillment.
- Revenue exposure to key distributors and the extent to which channel changes or post-pandemic purchasing patterns persist.
- Liquidity and cash generation relative to planned growth spending; Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.