Vital Farms, Inc. — FY2022 Form 10-K
Business context and reporting period. Vital Farms sells pasture-raised eggs and related products, butter and other foods through retail and foodservice channels, sourcing primarily from more than 300 family farms. This annual report covers the 52-week fiscal year ended December 25, 2022; the comparable fiscal 2021 period also comprised 52 weeks. The filing is not a standalone fourth-quarter report.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | $362.1 million | $260.9 million |
| Gross profit / gross margin | $109.4 million / 30% | $82.9 million / 32% |
| Operating income | $2.1 million | $0.1 million |
| Net income | $1.2 million | $2.4 million |
| Net income attributable to Vital Farms stockholders | $1.3 million; $0.03 diluted EPS | $2.4 million; $0.06 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $16.2 million | $8.0 million |
| Cash flow from operations | $(8.1) million | $17.7 million |
Revenue increased 39%, driven principally by $74.4 million of volume growth and $26.8 million from price increases. Egg and egg-related products contributed $339.2 million, about 94% of revenue; butter and butter-related products contributed $22.8 million. Retail-channel revenue was $348.9 million.
Gross margin declined two percentage points as feed and other farm input, packaging and transportation costs rose. Pricing actions partly offset these pressures. SG&A rose 33% to $77.2 million, mainly from higher employee-related, selling, brokerage and marketing costs. Shipping and distribution expense rose 21% to $30.1 million, though it declined as a share of revenue to 8% from 10%.
Liquidity, cash flow and debt
At year-end, cash and cash equivalents were $12.9 million and available-for-sale investments were $65.8 million. Current assets were $149.6 million against current liabilities of $47.7 million. Operating cash flow turned negative primarily because receivables and inventory increased to support growth. Investing cash use was $10.0 million, including $10.5 million of property and equipment purchases; financing cash provided $0.1 million.
No amounts were drawn under the $20.0 million revolving credit facility, which matures in April 2024; the company reported covenant compliance. Total finance lease liabilities were $8.6 million and operating lease liabilities $2.1 million. Management stated that cash, operating cash flows, investments and facility availability were expected to fund operations for at least 12 months.
Changes, outlook and notable items
- Egg Central Station’s expansion was completed in April 2022, nearly doubling facility space to approximately 153,000 square feet. The company began design and site selection for a potential next egg packing center.
- The company exited its convenient breakfast product line in 2022, recording $2.3 million in exit costs. It also decided to discontinue ghee, with the exit expected to be completed before year-end 2023.
- Management reported avian-influenza outbreaks at two farms, but no material egg-supply disruption to date. It expected adequate egg, butter, packaging and freight supply, and processing capacity, through mid-2023.
- The filing gives no quantified revenue or earnings guidance. Management emphasized growth opportunities in retail and foodservice, while noting inflation, commodity and freight costs, price sensitivity, supply constraints and economic uncertainty. Commodity hedging for conventional and organic feed ingredients was initiated around year-end and further described as entered into in January 2023.
- Consolidated net income fell despite higher operating income, in part because FY2021 included favorable tax benefits from stock-option exercises that did not recur at the same level. FY2022 also included $1.3 million of unrealized investment-security losses in other comprehensive income, primarily attributed to higher interest rates.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor gave an unmodified opinion on the financial statements but did not attest to internal-control effectiveness because of the emerging-growth-company exemption. A CFO transition was announced for March 2023.
Most important facts for investors to verify
- Whether volume growth and pricing can offset input-cost pressure and restore gross margin.
- Whether negative operating cash flow was temporary: track receivables, inventory, working capital and cash conversion.
- Whether the Egg Central Station expansion is utilized effectively and whether a second packing center requires additional capital.
- How avian influenza, feed costs, farmer capacity and concentrated suppliers or distributors affect supply, sales and margins.
- Whether product exits, including ghee discontinuation, affect revenue, inventory or customer relationships beyond the disclosed charges.
- Liquidity and capital commitments, including lease obligations, the secured revolving facility’s covenants and April 2024 maturity, and unrealized losses on investments.
- Growth in non-egg products and foodservice, given shell eggs represented about 94% of FY2022 revenue.