Q4 2020 Vital Farms Inc Earnings Call
[music].
Ladies and gentlemen, and thank you for standing by and welcome to the vital farms fourth quarter 2020 earnings conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
I would now like to hand, the conference over to your Speaker day, Mr. Matt Siler, Vice President of Investor Relations. Please go ahead Sir.
Thank you and good morning, and welcome to Biopharma fourth quarter and fiscal year, 2020 earnings conference call and webcast and.
Great to be speaking with you today for my first earnings call on Board as Vice President of Investor Relations and vital farms on today's call are Russell do you guys can say co president and Chief Executive Officer, and Bill Meissner, Chief Financial Officer, who is also speaking on his first earnings call as CFO. This morning.
By now everyone should have access to the company's fourth quarter and fiscal year 2020 earnings press release filed this morning.
And is available on the Investor Relations section of vital farms website at investors day, and vital farms Dot com.
During the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Please refer to today's press release and the company's annual report on form 10-K for the fiscal year ended December 27, 2020, each filed with the SEC earlier today and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied and any forward looking statements made today.
Please note that on today's call management will refer to adjusted EBITDA, which is a non-GAAP financial measure while the company believes this non-GAAP financial measure provides useful information for investors. The presentation of this information is not intended to be considered and isolation or as a substitute for the financial information presented in accordance with GAAP.
Please refer to our earnings release for a reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with GAAP.
I'd also like to note that we're conducting our call today from our respective remote locations and as such there may be brief delays cross talk or other minor technical issues. During this call. We thank you and advance for your patience and understanding.
And now I'd like to turn the call over to Russell <unk> can say co president and Chief Executive officer of vital farms.
Thanks, Matt Good morning, everyone and thank you for joining today I'd like to welcome bow and Master their first earnings call with vital farms as many of you know Bill joined US last July and officially transitioned to Chief Financial Officer on December 28, 2020 that joined US earlier, this month and will be leading our communications with the invest.
And the community.
On today's call I will briefly review, our fourth quarter and full fiscal year 2020 financial highlights and provide an update on each pillar of our growth strategy.
And then review our 2020 financials in more detail and provide our outlook for 2021. We then look forward to answering your questions.
We reported record performance in 2020, our first year as a public company.
Net revenue for the full fiscal year increased 52% to $214 3 million.
In the fourth quarter net revenue was $54 million, a 30% increase compared to the fourth quarter of fiscal year 2019.
Vital farms is the leading pasture <unk> brand with over 80% dollar share of the U S. Pasture raised AG market. The second largest AG brand based on retail dollar sales and the largest contributor to category growth by retail dollar sales from 2020 contributing almost half of total <unk>.
And category growth.
Our products are sold and over 16000 stores and in 2000 25 million households purchased from our high quality ethically produce day.
Our continued track record of growth prior to and throughout 2020.
Is reflective of the mission and values the distinguished vital farms within our category and help us cultivate and long standing trust and loyalty amongst our consumers.
We operate the business through the lens of conscious capitalism, and maintaining a belief that a business can only be sustainable over time, if it's sustainable for all stakeholders. Since the day. We were founded we have prioritized our stakeholders farmers suppliers and employees, whom we call crew members and customers can.
Tumors communities, the environment and stockholders and treated them as true co creators of the business our model guidance, thus far beyond producing pasture east foods and challenges us to consider how we can improve the lives of people animals and the planet and everything we do.
Our designation as a certified <unk> Corporation and public benefit Corporation are natural extensions of the purpose driven business, we built from the beginning.
And January 2021, we published our first stakeholder summary.
A review of how we serve our stakeholders throughout 2020 I'd like to share a few highlights that felt especially meaningful and reflective of the trusted ethical food brand were building spec.
Specifically as we've expanded our farmer network to over 200 farms, nearly two and a half a million, hence enjoying meaningfully better lives than the confined that they would face in the industrial and feed system.
Over 6000 acres of land are able to rejuvenate naturally without herbicides and pesticides and.
And 2020, we donated 15 million eggs to food banks across the country saved 25000 trees by transitioning our egg cartons to a carbon neutral lid and don't need its a 43 nonprofits that advocate for causes including animal welfare environmental conservation children's health and addressing.
Systemic racism.
Now I will provide an update on each pillar of our growth strategy first increasing household penetration and second expanding retail distribution.
Third growing our foodservice footprint and fourth innovating, new ethical food products with an existing and new categories.
And with household penetration.
We ended 2020 with three 9% household penetration for vital farms eggs, which represents 5 million households that purchased our shell eggs, a 50% increase over the prior year.
New purchasers defined as household to purchase vital farms and 2020 and not in 2019 increased 55% and retained households defined as households that purchase vital farms in 2020, and 2019 increased 38% versus the prior year.
We retained 50% of the households that purchased our eggs in the initial eight week stock up period between March and April 2020.
With 61% of those consumers, making two or more repeat purchases.
We believe our strong household penetration and conversion is driven by the strength of our brand our trusted high quality products and a secular shift toward consumers being more conscious of their food choices and wanting to feel more confident and where their food is from and how it is produced.
We plan to invest and attracting additional new households, as well as continually engaged and loyal consumers through strategic marketing that educate consumers about our brand values and the premium and quality of our <unk> products.
In January we launched our newest brand campaign titled We're honest food is raised.
This new campaign, the first and features all of our products and Starwood crew member from our farmer support team and humorous storytellers to highlight the attributes that define our AG butter and egg bites products humanely treated hens and cash that have the freedom to roam outdoors on pasture year and raised by family farmers.
The campaign includes digital videos that appear across a wide variety of digital social and streaming TV platforms.
From increasing awareness by educating consumers on our values to driving loyalty with multiple products and digital touch points like the monthly vital times newsletter that comes and each carton or our thoughtful and personal interactions with consumers on social media.
Now to expanding our retail footprint.
As of December 2020, our products are sold in more than 16000 stores, a 12% increase from the prior year.
Following a significant increase and store count that we saw on the third quarter or fourth quarter count remained relatively flat as most retailers do not perform shelf resets during this time of year.
We continue to see faster growth and the mainstream versus the natural channel.
For the full year 2020 natural channel retailers represented 46% of retail dollar sales compared to 49% and 2019 net.
Main street and channel retailers represented 54% of retail dollar sales compared to 49% and 2019.
Additionally, we have significantly expanded the number of placements and each channel with 46% two year, CAGR and mainstream and 27% two year CAGR and metrics.
We believe mainstream channel sales, representing a slightly higher percentage of our overall consumption dollars demonstrates the growing consumer demand and preference for high quality ethically produced foods.
We also believe there are several opportunities for growth ahead of us, including incremental growth and distribution across existing channels building on current momentum and expand into new channels.
We're also seeing increased demand for free range, and pasteurized eggs, which we refer to as outdoor access eggs across the entire category and.
And 2020 demand for outdoor access eggs and the mainstream channel increased 33% versus one year ago, representing a 10% share of total <unk> sold.
And the natural channel demand for outdoor access eggs increased 20% representing 59% of total excellent.
Across both channels, our dollar share of the outdoor access segment increased to 27% as of December 2020, and we contributed 55% of the growth and the outdoor access segment versus one year ago from 2019 to 2020, our share of the outdoor access AG segment increased 480 basis.
Please.
The growing demand for outdoor access AG across both channels combined with our strong growth within the outdoor access category speaks to our potential to further penetrate both channels, we see significant opportunity in the mainstream channel the 10% share for outdoor access eggs is relatively small the steadily growing.
And we believe our branded products will enable us to expand distribution with an existing and new mainstream customers.
Additionally, recognizing the accelerated demand and online grocery, we invested and marketing initiatives with existing customers, including target and Kroger as well as third party delivery companies, such as Amazon Fresh and where we are the second ranked AG brand by retail dollar sales.
We expect online grocery to remain an attractive convenient option, even after widespread vaccinations against COVID-19, and we will continue to invest test and expand our e-commerce capabilities to meet consumers, where and how they prefer to shop.
As we expanded our retail distribution throughout the year, our total brand velocities remain strong outpacing our top five competitors in both channels.
Finally, we fulfilled the heightened demand across all channels without any significant disruption to our supply chain and we continue to invest and our future growth. We are on track with our facility expansion, which will nearly double our current square footage and increase our capacity to manage increased distribution. We expect to complete this facility expansion by mid 2022.
On to increase and foodservice distribution.
We maintained this segment of the business with flat performance in 2020, given the unfortunate and understandable headwinds the restaurant sector faced as a result of the pandemic and significantly reduced diner traffic.
We launched two regional concepts and 2020 with Cafe patent you, a breakfast and lunch restaurant with five locations and the Indianapolis area and King David Tacos, a brand that specialize in Austin style breakfast tacos based on Brooklyn, with additional points of distribution across New York City.
We see significant opportunity for medium to long term growth across the foodservice channel in January we launched a new partnership with a cost of foodservice and U S. Foodservice sales and marketing agency that specializes in the consumer packaged goods industry.
Our cost debt as our first national sales and marketing agency for foodservice and we will focus on increasing broad line distribution and expanding into more national and regional restaurant chains.
Our brand has a differentiated value proposition and we believe the same trends that attract consumers to our pasture based products at the grocery shelf will influence diners eating outside of their home as they continue to seek food selections. They can trust.
Now and update on innovation, where we're investing to expand our product offerings and new and existing categories.
The success, we've seen with our core products confirms our belief that a growing number of consumers are interested and more pasture raised and F&B produced foods from Biopharma.
As we look beyond our existing categories. We continue to research and test offerings that adhere to the ethical standards consumers know and trust from us.
This includes convenience stack and products building off the egg bites launch in August 2020, where we have steadily increased distribution to 3500 10 retail stores and as of December 2020 are the leading <unk> brand and the natural channel.
We plan to launch our next product innovation later this year.
Finally, a word on what we're seeing at this point in 2021 and the first couple of months of 2020, one we're seeing consumption patterns consistent with or in some cases outpacing those we observed in the fourth quarter of 2020.
Now before I turn the call over to Bo I want to be very clear on our belief that vital farms is uniquely positioned to address up substantial market opportunity.
I also want to address any questions about our ability to sustain the growth we saw in 2020 in the post <unk>.
<unk> Europe.
First we demonstrated significant growth and net revenue retail distribution and household penetration prior to the pandemic. We believe this growth was largely driven by the growing number of consumers seeking ethically produced foods as well as the trust and honesty and transparency that's inherent in our brand.
And like like many food companies, we did see an acceleration of growth due to stay at home trends in 2020.
But I want to emphasize the number of households, who stayed with us throughout 2020, when presumably they have more options at the shelf once the initial pantry stocking period ended in April.
Prior to the beginning of the pandemic and throughout 2020, we have demonstrated that our high quality products and trusted brand inspire and loyalty.
We attracted households, and a shorter period of time and we expected as a result of the pandemic and we believe that we will retain these households, and continue to attract new consumers to our brand in the months and years to come.
Third we are investing millions and our future across every pillar of our growth strategy. This includes growing our network of farm partners, which is now over 200 farms doubling our capacity and <unk> Central station are world class AG washing and packing facility low.
Switching and National Foodservice partnership with Acosta, and attracting talented and experienced crew members and board members to extend the breadth and depth of our competencies.
Confident that vital farms is well positioned for continued growth and success in 2021 and beyond.
I'll now turn the call over to Bo.
Thank you Russell.
Hi, everyone and thank you for joining us today.
It's an honor to be here on my first earnings call and to follow Jason and this position.
I look forward to help your vital farms carry on its mission to deliver ethically produced food to millions of households across the country.
And as Russell mentioned I will review, our financial results for the fourth quarter and the full year ended December 27, 2020, and provide our outlook for 2021.
First I'd like to touch on fourth quarter financial results.
As Russell mentioned, we achieved net revenues of $54 million.
And increase of 30% compared to the fourth quarter of 2019.
Which was driven by an increase and egg and butter sales due to high turnover rate of sales to our retail customers and new distribution at both new and existing customers.
We believe the impact of COVID-19, pandemic, resulting in fewer a smaller holiday gatherings was offset by the increased consumption due to continued stay at home trends.
Gross profit for the fourth quarter was $17 6 million or 33% of net revenue compared to $9 8 million or 24% of net revenue for the fourth quarter of 2019.
The $7 $8 million increase and gross profit was primarily due to the increase and net revenue with the majority of the 905 basis point expansion attributable to better utilization lower.
Lower material cost for eggs and butter and volume leverage over our direct labor and overhead costs.
Adjusted EBITDA loss for the fourth quarter with zero point $1 million compared to a loss of $4 7 million from the fourth quarter of 2019.
Now turning to our full year results.
For fiscal year 2020, net revenue was $214 3 million up 52% compared to $140 7 million and net revenue and 2019.
Gross and net revenue for 2020 was primarily driven by an increase and egg and butter sales due to a high turnover rate of sales to our retail customers and new distribution of both new and existing customers from them.
Which resulted from stay at home trends associated with COVID-19.
Gross profit was $74 5 million or 35% of net revenue for fiscal year 2020.
Compared to $42 9 million or 30% of net revenue for fiscal year 2019.
The $31 $7 million increase and gross profit was primarily due to the increase and net revenue.
With a portion of the 431 basis point expansion on gross margin attributable to the lower material cost greggs, and butter and volume leverage over our direct labor and overhead costs.
Total operating expenses were $62 3 million or 29% of net revenue compared to $39 5 million or 28% of net revenue last year.
This includes SG&A expenses of $47 4 million on <unk>.
$17 $9 million increase compared to 2019 and.
And shipping and distribution expenses of $14 9 million, which increased $4 9 million year over year.
The increase in SG&A was driven by higher employee related costs due to larger overall head count to support our operations.
And more professional fees and commercial insurance costs due in part to our status and newly public company.
The higher level of spending on shipping and distribution expenses was due to stronger sales volume, which resulted in increased costs related to third party freight associated with distribution of our products.
Total income from operations was $12 $2 million this year compared to $3 3 million a year ago, driven by the aforementioned factors.
Net income was $8 8 million or <unk> 27 per diluted share compared to $3 3 million or <unk> 70 per diluted share in 2019.
Our adjusted EBITDA was $16 8 million for fiscal year 2020, compared to $6 4 million for fiscal year, 2019, which represents a 162% increase.
The improvement and adjusted EBITDA was primarily due to volume increases to our distributors and expanded gross margin as.
And as well as leverage over fixed operating costs.
The increase was partially offset by higher SG&A expenses due to the larger head counts and support our operations and the increase in professional fees and commercial insurance costs.
And in part to our status as a newly public company.
Now shifting to our capital structure.
As of December 27, 2020, we had total balance sheet cash and investable securities of $97 9 million.
We also paid off all of our current and long term debt outstanding within the year.
Looking ahead to 2021, we expect net revenues and the range of 246 million to $253 million.
Presenting a growth of 15% to 18% over 2020.
Which was aided by Covid driven demand, but added roughly 20% from the topline growth.
Last year.
Additionally, we expect the second half of the year will produce stronger net revenue growth rates and the first half as retailers returned to a more normal or pre pandemic cadence and distribution reset this year.
Turning to our forecast for adjusted EBITDA.
We see a range of $6 million to $8 million.
In fiscal year 2021.
We expect the lower year over year level of adjusted EBITDA will be driven by increased commodity costs and higher distribution expenses.
Increased marketing spend as we proactively expand the retail footprint of the business and.
And finally increased SG&A as we enter it a full year as a public company.
Thanks for your time and interest and vital farms before we take your questions I want to reinforce our confidence and the year ahead.
We have a strong brand portfolio.
Of high quality products that millions of households across the country Trust for ethically produced food.
We believe this foundation.
Combined with the acceleration of growth, we have seen prior to and throughout 2020 leave us well positioned for a successful 2021 and beyond and.
And with that I'll turn the call back over to Russell.
Thanks, Paul and thanks to everyone who's on the call today, we really appreciate your interest in the vital farms mission and.
And our products and our growth story.
2020 was a record year and we're really excited about what 2021 has in store.
Okay.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press. The Star then the one key on your Touchtone telephone and again, that's the Star then the one key on your Touchtone telephone.
Our first question comes from Rob Dickerson with Jefferies. Your line is open.
Great. Thank you so much.
Just a couple of quick questions from me.
Just the first question.
And just around the top line.
So you had said.
The expectation would be for more normal rates of growth potentially in the back half of the year, but also sounds like maybe consumptions coming and a little bit better and.
And Q1, and then you may have expected and we can see some debt through the data. So I'm just curious.
Given all the moving parts to just the topline inclusive of new business wins lapping.
Pandemic what have you.
We think through the year.
Could you, maybe just give a little bit more color as to kind of how you would.
Think through that cadence on the topline and broad terms like maybe cable and a little bit better and then theres a lap that comes down and then you kind of normalize out to kind of.
And more normal rate of growth from the back half that would be helpful and I just have a quick follow up.
Okay.
Yes, thanks for being with Us Robyn and I appreciate the question.
So, yes, I think I think the general kind of.
Summary that you offered us fair, which is we attracted a lot of new households in 2020 and have retained.
Big chunk of them, which we described.
And the and the earlier part of the call.
In terms of how the year plays out I mean, we as you know, we arent offering quarterly guidance, but what I will say is that certainly on the on the distribution side.
Seeing <unk>.
Retailers returned to a more normal cadence of kind of.
Reset windows and conversations and.
The ones, we've had so far that that will affect the back half of the year are happening.
With a pretty good success rate similar to what we might have expected and a normal year and so that.
And that has returned to normal we think and that will give us upside opportunity and the back half of the year in terms of marketing as we described we're making.
Substantial investments in attracting new households, and retaining them and that will continue in 2021, and so we feel great about our ability to continue to drive growth and both and both ways both.
And with new distribution, and and with attracting new households.
And Rob the only thing I would add.
I'd add to that Rob is just that.
And the supplemental deck, we sort of put in our best estimate of what we thought the lift was from COVID-19 by quarter and 2020.
And if you back that out and look at the growth, we're anticipating and in 2021 ex the COVID-19 lift and the pantry load periods.
We're anticipating slightly above 30% growth, which is what we've seen for the last couple of years.
But on the first half we are anticipating that that growth will be less and 30% and the back half grade.
Greater than 30%.
Now as we added on supply last year and.
It wasn't really until post.
The low periods and.
Q2 that we really started to add supply because we're coming from a period of oversupply. So the farms that we have coming on board and really coming on and the back half of the year, which is why we're also seeing it looks slightly higher growth along with the retailers going to a regular cadence and new distribution.
Got it that's extremely helpful.
And then just one quick question.
On the cost structure.
We're focused on the commodity side.
<unk>.
I know you share some of the cost.
On the feed side I, just asked because I get a lot of questions around this.
It seems like there is some incremental cost inflation pressure not just for you but for a lot of companies right. Now so maybe if you could just help us understand a little better.
And how some of that.
Feed cost inflation pressure kind of flow through for you specifically because again it doesn't sound like it maybe on that.
I might think that'd be helpful. That's all I have thank you.
Thanks, Rob.
Take the first stab at that and then if low wants to chime in on things I've missed that that'd be great too so.
The way that our contracts are structured with our with our farmers and we made the choice years ago to.
Take the burden of input cost pressure off of the farmer.
And what that means is that each quarter, we adjust the price we pay our farmers for their eggs.
Based on.
The actual the input costs they experienced in that prior quarter. So.
And with some delay we do see.
<unk> in the price we pay the farmer for the eggs that are meant to.
Make their profit potential neutral too to the impact of changes in commodity costs.
I think so.
Reason to believe that we're more insulated than some other protein producers is simply based on our cost structure. So.
If you think about our cost and gross margin structure feed costs are just a smaller portion of our cost of goods. I think then then producers of lower priced or more commodity type.
And other proteins.
Bo do you have anything to add to that.
Yeah, and and Rob I think.
And we'll describe as a percentage of sales certainly that's the case for us.
But one of the metrics that we provided and the S. One and updated and the cadence based on our volume trends is what a 10% change.
And average weighted of our commodity cost would impact our P&L.
And <unk>.
Based on the <unk>.
Volume for 2020, we estimate that a 10% change and commodity costs would result in about a $3 $4 million change and our P&L now a portion of that is for butter.
Costs, but you can think of the lion's share of that being the feed costs that Ryan debt.
And Russell and talked about.
So I think if you just look at the and what the market has done year over year in terms of and increase you can help models you can model that out.
Based on the.
The change factor that I just quoted realizing that there is a one quarter lag between when we true up the farmers and when the commodity prices change.
And what that really getting ready and <unk>.
Q2, we're really going to see I think assuming commodity prices level off the largest increase versus year ago.
Yes, that's great.
And I appreciate the transparency very helpful. Thank you everyone.
Thanks, Rob.
Thank you. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.
Yes, thanks, good morning, everyone.
Hey, Adam.
Hi.
So Russell.
Russell, maybe just continuing on that exact point on the on the commodity just to be clear.
If I take that come on.
Modest sensitivity that you just discussed and I look at kind of where.
Main feed ingredients have have moved I would.
And think about some growth and your volumes kind of consistent with your revenue growth I would I would think about kind.
<unk> eight or so million dollar on 300 to 350 basis point.
Gross margin headwind from from.
Feed ingredients and 'twenty.
'twenty, one on a year on year basis and.
Just want to make sure that does that.
Fair or and or.
Or Conversely, what is actually embedded and the $6 million to $8 million and the EBITDA guidance that you've provided.
But what do you want on a monthly.
Yes.
And thanks for the question Adam.
I think the only thing that and your quick thoughts that you just did that you.
Probably you've included is that there's a portion of that $3 4 million for a 10% shift that as butter.
And if you think of the <unk>.
Butter, it's a higher percentage of the and.
<unk> cost for the butter sales that we have so I think it would be a little bit south of what you quoted just you have to back off from the three four to back out the impact of butter, but youre certainly and the range.
Okay. That's helpful and then maybe just again more.
Continuing on that point on guidance and.
Just help us think about kind of you have had to step up and SG&A in the second half and should we look at <unk> as maybe more reflective of the run rate.
As we as we move into <unk>.
'twenty one.
And they take that right yes.
Yes, yes, yes, I think that debt.
That's a good basis to start with I mean, a couple of things to remember is that and in Q4, we did have our secondary offering and so there's some costs associated with the secondary offering.
That wont be replicated in 2021 and the quarters.
And we're still planning to.
And invest behind the business with additional head count to support the growth that we're seeing so I think to use Q4 as the base and then.
Assume that it's going to grow.
Over time as we.
Increase our head count I think thats a good assumption.
Okay, and then and then just finally.
On innovation and it was something that rest of that you mentioned briefly in your and your prepared remarks and.
You talked about kind of on next innovation later in the year and I guess I'm just trying to think about.
Hey.
Not.
Really a meaningful incremental revenue contributor in 'twenty one.
And that hasn't been introduced yet, but b just trying to think about the trajectory into 'twenty, two and 23 at a high level or are we thinking about more kind of line adjacencies like egg bites are we thinking debt no. This is vital farms and kind of entirely new.
Larger kind of categories that could have a bigger step change contribution to the revenue forecast.
Yes, I appreciate that Adam.
I think we've been pretty consistent and our messaging that you don't have to believe in.
Kind of a big Blue Sky, New category entry to believe and the vital farms growth story at the same time any new products, we introduce will need a bunch of really stringent criteria for us across both consistency with our mission and brand.
All the way to.
Something that we know we can execute really well and so I think in the near to mid term. What you can expect from us on a continued focus in the balance.
And the value added dairy space and continuing to focus on the farmers and supply chain, we know well so.
We have we will continue to.
Incorporate.
I think very realistic expectations for.
For the results from our innovation and our and our forecasts.
I wouldn't categorize it as a.
As a totally new space for us.
Okay, I really appreciate that color I'll pass it on and thank you.
Thanks.
Thank you. Our next question comes from Matthew Smith with Stifel. Your line is open.
Matthew Please check your mute button.
Hi, good morning, sorry about that.
The new customer and warnings and household penetration Prague.
Progress in 2020 was well ahead of our expectations.
And part by the pandemic and the surge of at home consumption, but can you discuss your priorities for investments and 'twenty 'twenty. One as you look to continue the progress on household penetration and retain the new buyers should we expect the increases in both marketing and promotional activity.
Yes, good morning, Matthew and thanks for that so.
I think we mentioned in the earlier part of the call.
And that on a kind of percent of.
Revenue basis relative to 2020.
Youll see expanded investments on both sides, both marketing and trade and those reflect as much of a return to normal as they do a substantial.
Change in or the level of investment that we that we place and those two areas. So.
It looks a little bit more like a return to pre pandemic levels I would say, but yes, we are.
There's a tremendous amount of growth potential ahead of us and it relies on us attracting new consumers through our marketing efforts, including the new AD campaign that we launched this year.
And retaining them with both marketing efforts and and appropriate.
Cadence of trade spend to keep us top of mind when they shop, so you'll see continued investment and both this year.
Great. Thank you and then as a follow up can you discuss your expectations for new customer wins in 2021 versus building out distribution at existing accounts, whether that's more doors or additional products and existing doors.
Yes, I appreciate that I definitely we are in so many of the of the major retailers that can.
Really move the needle in terms of new.
New new change that we might get into however, as we've said on past calls were not necessarily and every door in those chains and we certainly have room to expand our portfolio and many of those stores. So if I were to rank kind of the upside opportunities first and foremost it's continuing.
Continuing to build on our high trust relationships with our retail partners to grow our presence on their shelves and expand our portfolio on their shelves. In addition.
And as our products performed well in the doors that we already have that often leads to our ability to get more doors and finally, it's the conversations with with change that we have no relationship with today, but again, there arent too many of those left.
Great. Thank you Russell and I'll leave it there and pass it on.
Thanks, so much.
Yeah.
Thank you. Our next question comes from Zen and Zaslow with BMO. Your line is open.
Hey, good morning, everyone.
Good morning, good morning.
Just following up on the commodity when do you think about the commodity cost anything about your pricing structure do you think how do you balance the idea of potentially taking pricing versus penetration on.
And is it that you will allow the.
Higher input costs to kind of do you guys do and eventually it will come back down and Youre looking for greater.
Greater penetration can you talk about the balancing between the two of that and this is.
As a follow up to that as you renegotiate your contracts is there any changes to that that would change the sensitivity if commodities and I'll leave it there. Thank you.
Thanks, Ken.
And I appreciate the questions and I'll start and again.
If I Miss anything please chime in.
So first of all in on in the spirit of the <unk>.
Western around potentially impacting price we have not taken.
Kind of a price change and several years and and.
And I think thats very.
Consistent with our focus on on topline growth first and foremost and on the notion that we are building a trusted CPG brand as opposed to being.
Cost plus commodity producer and say, we're very reluctant to think about taking cost although that's not.
Necessarily off the table, but our focus and the near term has actually been on potentially reducing the depth of our promotional.
<unk> and <unk>.
Promotions at retailers.
Essentially to reflect.
The increased commodity prices and the and the impact that we may see in the pricing of other AG on the shelf for example.
Our guidance reflects the view that.
Net debt, we won't take a substantial price change to reflect commodity pricing, but also reflects the potential that <unk>.
More commodity.
Offerings may see price increases and that pricing compression can help accelerate sales because it reduces the gap between our pricing and the pricing of lower and lower cost alternatives.
In terms of.
Our contracts with farmers again, we think it's really important for the long term sustainability of our farmers so that they not.
Bear the brunt of.
Changes in commodity and commodity prices I think we've seen in the industry.
I think the last time, we saw a big jump and commodity prices back in 2012 and put a lot of pressure on farmers that didn't enjoy the kind of relationship that we have with them and we never want to have a farmer who's.
Who's finding this unsustainable financially they don't have the ability to affect pricing and we do so we think it is important that we link.
And the ability to affect pricing and the ability to absorb commodity price changes together and that's that's on us.
Bo anything that you would add to that.
No I think that you you got every piece I would've had muscle.
Thank you guys.
Thanks, a lot.
And.
Thank you. Our next question comes from Jacob <unk> with Credit Suisse. Your line is open.
Hi, there guys. Thank you very much for the question I'm on for Rob Here, just a quick one from me I think on recovered most of my questions here, but.
Capacity expansion plans and Thats still on track for and I think you guys said first half of 'twenty. Two is that is that still on track there.
Hey, Jacob yes, absolutely so.
We continue a pace.
And we love, we love seeing the pictures, we hope someday to have you all out.
To see to see the expansion, we're really excited about it and yes, we're on schedule for an opening and the first half of 'twenty two.
Got it okay. That's it from me thank you very much.
Thanks again.
Thank you.
Thank you I'm showing no further questions at this time I would like to turn it back to Mr. Matt Siler for any closing remarks.
Just wanted to say thanks to everyone for their time today on do you have any questions and I'll be around all day and thank you for your interest and vital farms have a good day.
Thanks, everyone.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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