Q3 2022 Vital Farms Inc Earnings Call
Good day.
Thank you for standing by and welcome to the vital farms incorporated third quarter conference call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Matt Siler. Please go ahead.
Thank you good morning, and welcome to the vital farms third quarter 2022 earnings conference call and webcast I'm joined on today's call by Russell, <unk>, President and Chief Executive Officer.
<unk> Chief Financial Officer, and for the first time I'm happy to introduce Kathryn Mckenzie, our chief marketing Officer.
By now everyone should have access to the company's third quarter 2022 earnings press release issued this morning.
This is available on the Investor Relations section of the Viropharma website at investors got Viropharma 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 to the Companys quarterly report on Form 10-Q for the fiscal quarter ended September 25, 2022, which is 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 in any forward looking statements made today.
Please note that on today's call management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in 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.
And now I'd like to turn the call over to Russell, <unk>, President and Chief Executive Officer of Viropharma.
Thanks, Matt Good morning, and thanks, everyone for your time today.
I'll review, our third quarter financial results and provide updates across the business that are contributing to our success as a disruptive force in the food sector.
Catharine Mackinnon, our chief marketing officer will join us to talk through what makes our brand unique and why it continues to resonate with consumers.
Our World Class marketing team is one of our key points of differentiation and I'm grateful she is joining us today.
Finally, <unk> will conclude our call with additional color on our quarterly financial results before we take your questions.
In the third quarter, we achieved $92 million in net revenue.
This is the highest quarterly result in our history and it reflects a 42, 4% increase from the prior year period, driven by volume gains of 28%.
Gross margin expanded 190 basis points sequentially to 32%, despite higher input costs and our adjusted EBITDA was $5 2 million.
Up over 2200% versus last year.
Our household penetration in the AG category now stands at nearly $8 million up roughly 40% relative to last year.
Looking at the 13 weeks ended September 25, 2022, the AD category has experienced significant retail dollar growth of over 50% due mostly to inflation of lower price tag.
Some believe these higher egg prices will sustain in the coming months given the current operating climate with.
With this backdrop I think it makes more sense to focus on unit volume when judging overall growth.
Our portfolio wide price increase in May we grew our retail volume significantly at 25% during the period.
Well ahead of the shallow category, which saw volumes declined by half a percent over the same timeframe.
Underpinning this growth both current and historic is our unique stakeholder driven business model a robust supply chain are world class organization and our strong brand.
Viropharma continues to challenge the norms of how most of the food in this country is produced we have a unique long term approach to capitalism that has propelled our growth to be the leading pasture raised AG brand and second leading AG brand in the United States by retail dollar sales.
It has enabled us to improve the lives of millions of people millions of animals and the planet.
We see this continued performance is proof that our long term approach for business works.
In fact during each of the past 15 quarters. We've produced positive net revenue growth with an average growth rate of just over 36% and each quarter.
On an annual basis, our net revenue growth CAGR is 37% gaining all the way back to 2014.
Our focus remains on driving sustainable long term consistent results and we've been intentional about the choices. We've made over the past several quarters to navigate the impacts of global forces like the pandemic and more recently inflation.
Another proof point of our strategy is the improvement in our profitability.
To reiterate our gross margin was about 17% back in 2014.
Relative to more recent performance in the low to mid 30% range.
Additionally, our adjusted EBITDA margin moved from flat to low single digit to mid to high single digits over this same timeframe.
While there are short term pressures from time to time as we've experienced recently, we remain focused on profitable growth over the long term.
In the past quarter, we have experienced inflation, which has increased some of our input costs.
We recently implemented another round of pricing that will take effect in January of 2023 across our AG portfolio.
This decision, which was not taken lightly will allow us to continue fueling our profitable and sustainable growth.
Two green plant of the year by food processing.
Which validates the emphasis we put on world class sustainable design.
We believe the completion of this project provides a significant unlocked for our company because it doubles, our capacity and puts us in a position to support over $650 million in annual revenue from eggs today in service of our primary goal to further grow vital farms household penetration across the United States.
We've begun the initial work on design and site selection for our next egg packing center as we look ahead to growing our egg business beyond $650 million as always we will continue to proactively eliminate bottlenecks in support of our long term growth plans.
We've grown our network of small family farms to over 300 and continue to add new family farms every month.
Positive reputation among poultry farmers procedure.
Maintain a significant list of farmers already interested in joining us.
Our ability to add enough new farmers to achieve a quarterly 36% net revenue keg or over the past two plus years is a testament to that fact.
We've built a reputation in the farming community by working directly with our farmers towards mutually beneficial long term success.
Over the past several months, it's clear that inflation is having an outsize impact on our farmers.
We made the recent decision to increase payments to them to provide stability to their operation create more resilient CNR supply chain and protect our growth trajectory.
But we will talk more about this and how it impacts our cost structure.
As well as how it aligns with the price increase I mentioned earlier.
We continue to invest in our culture and and the skill sets that our crew need to drive our growth.
This past September we brought our entire crew together for our first companywide retreat in Springfield, Missouri, which we called revitalized.
Our crew spent three days volunteering at a local food bank touring egg central station visiting small family farms and acquiring new skills to foster success is a company that is thriving in a remote working environment.
On a personal note it was incredible to see how we've grown and the caliber of crew we've been able to attract.
We all left Springfield energize for the work ahead and grateful for the time with one another.
We will remain hyperfocus on what we can control it as an organization, which includes eliminating pinpoints.
Focusing on professional development and promoting a positive culture for our people investments that we believe will deliver resilient to our crew and our business.
Thanks for your time today I look forward to your questions later in the call and with that I will now turn the call over to our Chief marketing Officer Katherine Makiya.
Thank you <unk> and thank you for the opportunity to talk to Jason were quick to grab a bite of France.
And as an extension of vital signs pregnant.
I'm happy to share that with such.
As recently named the France that matters.
Company.
Customers choose us because they believe for backing up are completed.
To improve the lives of people animals.
<unk>.
The conviction with which we operate steadfast adherence right values and <unk>.
Uncompromising commitment to stakeholders gives us the credibility and confidence to drag loyalty for our core products.
Expand into new categories.
Last quarterly spoke about our new marketing campaign, keeping it posted free.
Campaign challenges ears to rethink widespread.
Including misleading labor.
<unk>, Hello, corporate initiatives and poor working conditions.
With a lighthearted tone and tenor expected from nine O five.
It is the latest in a long running effort to support vital for stakeholder community, including our <unk>.
Customers and consumers.
I as in primary stockholders can the environment.
The campaign was rolled out across streaming television online and social password.
<unk> you too take tax and insider is better capitalism vertical in late August .
All four of our new spot can also be viewed it on the <unk> website.
I encourage each of you to check them out and see the campaign for yourself.
Continue to focus on messaging on our corporal tailored, which today, COVID-19 million U S households.
16, 34% year over year growth in household penetration on average over the past 11 quarters and is Russell mentioned earlier, alright, I'm, sorry to hear the eight millions of these homes today.
Speaks to our ability to reach customers with are uniquely compelling message and it's reflected in key matrix like brand awareness.
Tracked.
With that said there are still significant room for Friday or household penetration and increase brand awareness beyond our core consumers a.
The key to achieving our longterm potential <unk> continued marketing effort, which we believe contribute to our sales correct consumers are attracted to our branch and stay with us because we connect with them too many creative touch point.
We did not just mark it to our core consumers read the lasting relationships with them.
Everyone for your time today.
Now turn the call over to that.
Thank you Kathryn.
Hello, everyone and thank you for joining us today.
I will review our financial results for the third quarter and it's September 25th 2022.
I will then provide an update on our annual guidance for this fiscal year.
Is Russell mentioned, we had a record quarter with net revenue of $92 million, an increase of 42.4% compared to the prior year period.
The growth in that revenue in the third quarter due to continued growth and egg related sales driven by strong volume increases that our customers as well as distribution games at both new and existing retail partners.
During the period or volumes are up 28% with.
With the remaining growth driven by pricing.
Gross profit for the third quarter was $29.5 million or 32% of net revenue.
Compared to $19.8 million or 37% of net revenue for the third quarter of 2021.
The change in gross profit was primarily driven by higher sales.
As for the change in gross margin increased pricing across our entire portfolio. All set some headwinds include an increase in input costs in bulk aches and butter.
And higher package and costs.
We thought expense leverage on both SG&A and shipping and distribution during the period.
At G&A expenses for the third quarter or $26 million or 22.3% of net revenues.
The $15.3 million or $23 70 per cent of net revenues in the third quarter last year.
The increase in SG&A, which primarily driven by higher employee related costs as we grew head count to support our continued growth.
And hire marketing expenses.
Shipping distribution expensive, the third quarter were $6 $9 million or 75% of net revenue relative to $6.3 million or 9.8% of net revenue in the third quarter of 2021.
By higher sales volumes and freight rates.
This was partially offset by the decline in Whitehall rate and internal operational efficiency.
Adjusted EBITDA for the third quarter with $5.2 million or 5.7% of net revenues compared to zero point $2 million or 0.3% of net revenues for the third quarter of 2021.
Down update on our capital structure.
As of September 25th 2022, we had a total balance of cash and cash equivalents, an investment securities of $86 $9 million and we have no debt outstanding.
As we look to close out physical twenty-two.
We are reaffirming our guidance of net revenue of more than $340 million for presenting projected growth of over 30 per cent versus 2021.
Turning to our guidance for adjusted EBITDA, we are reaffirming our guidance, but more than $13 million in fiscal year 2022.
I think it would be helpful to provide some additional color on our expected adjusted EBITDA in the fourth quarter.
We continue to feel the impact of higher organic feed and packaging costs.
And we're seeing that impact in our supply chain.
Is Russell mentioned earlier, our farmers are also experiencing inflation across their respective businesses.
We recently made the decision to increase farm repay to help stabilize their operations through disinflationary period, and create more supply chain resiliency.
We estimate this change will negatively impact our gross margins in the fourth quarter by roughly 100 basis points.
With that said the decision we made on pricing, which will go into effect in January 2023 should allow us to maintain our current glide path towards gross gross margins in the low to mid 30 per cent range next year. Despite the impact of these higher payments.
We are well positioned to expand the household penetration of vital farm at the growth trajectory of the brand continued to increase.
Thanks for your time and interest today.
With that we will now take your questions.
Thank you.
At this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
We will now <unk>.
<unk> Q&A roster.
Our first question comes from Adam Samuelson with Goldman Sachs. Adam Your line is open.
Yes. Thank you good morning, everyone.
Good morning, Adam.
So I guess first question is maybe coming back to the announced price increase in January and then.
Comments around kind of increasing the pay rates to your to your growers I was hoping you could maybe try as I mentioned lies kind of both of those and help us think about.
With the growers.
Just how ya if you felt that that was needed because you were seeing a.
Changing your recruiting of of incremental growers or you're trying to just do the right thing by your by your whole.
Shareholders stakeholder network.
Yeah. Thanks, a great question.
Talk to them to call. It the impact Q4 is about 100 basis points on our gross margin and that's relative to Q3.
We did that for exactly the reasons that I talk to I mean, they are seeing additional inflationary pressures.
And some of the areas that we don't.
Changed from a headline point of view, we obviously your account for the soy and corn that we've talked about on a one quarter leg, but they have other input. They're also seeing inflation that and it was the right thing to do for the farmers to make sure that they have a sustainable model.
And to help them through this difficult time and as a result made the change.
Pricing I would say Adam.
Sorry go ahead, though I was just gonna add on when you when you're done Okay. I was just gonna say load the price and they were gonna take in January .
After that and the other inflationary pressures that we've set and we'll be back on our long term trajectory that we communicated in the <unk>.
Mid thirties.
And Adam the color I'd add is.
It's not just altruism. The reality is that we need our farmers to have a sustainable financial model to have our own sustainable supply chain and financial model. So there is certainly a healthy dose of self interest as we think about the right actions to take to ensure the stability of our farming network.
Okay now that that that's all very helpful. And then I wanted to there there wasn't a lot of discussion of this but just.
No you've been kind of evaluating a category expansion and just any additional kind of.
Framing timing you might have as we think about when.
That's ready to be kind of revealed and discusses and we can think about the different financial implications thereof.
Sure appreciate that Adam So as we said on the last call we have narrowed it down to a category and continue to work through our plans to enter that category.
We can't wait to tell you all about it but as with everything else. We do we're very intentional and we don't want to get in front of a.
<unk> with with our announcements so when when we're ready to to share we will and we hope to be able to do that by the end of the year.
Okay, Great. That's all I really helpful. Thanks.
Thank you Adam.
One moment.
<unk> for our next question.
Our next question comes from Pamela Kaufman with Morgan Stanley .
Hi, good morning.
Hey, Pam.
Can you talk about just what you're seeing in terms of consumer demand, obviously, you're volumes are very strong despite.
Significant pricing so how do you think about the factors contributing to <unk> and then I guess.
Coming price increase in January how old are you thinking about demand elasticity.
Thank you.
Thanks, Pam, it's Russell I'll I'll take the first part of that and I might I might ask Kathryn to chime in as well since we have the pledge.
Pleasure for company today on the call.
It is you look at as we look at the components of growth. They are they continue to be pretty.
Pretty robustly driven across both volume and price elasticity that we've seen so far coming in very much consistent with what we expect it to be in fact I've been.
Honestly pleasantly surprised with how accurate the forecasts have been internally given that some of this is pretty unprecedented.
What I would say is that we're seeing a nice increase in velocities, because we're adding items to existing customers and an increase in doors as well and so those are both contributing to those volume gains.
We continue to add household as we mentioned in the.
In the earlier in the call.
And that's clearly unimportant part of our long-term sort of brand first approach to sustainable growth.
You know the the leash as we continue to take prices. So many brands and private label producers are it's certainly.
Not lost on us that we're starting to see prices that in essence felt a little unimaginable, just a year ago and so we're being even more conservative as we.
Project, our growth and twenty-three relative to the pricing that we're taking we still expect to have robust growth, but we're being tip.
As we always are typically conservative when it comes to our expected the expected impact of pricing I'd love to have Katherine talk a little bit more about how she thinks about the impact on our business and consumers of our pricing action.
<unk> good mining Pan I want to talk a little bit more about the brand Russell talked about the fact that restart the premium brand in <unk>.
<unk> remarks on I expand on that a little bit to help explain because it's really key driver to how do we think about demand. So.
We have built that premium brand not on smoke and mirrors.
Not something that we crafted but rather on track on quality and on our values and we've done that from day. One so from that perspective, we have consistently said what we did do what we say say what do we do do we say whether or not they're traceability.
Initiative are simply the way that we talk with consumers each and every day on social media and that consistency of transparency is profoundly check buildings were also delivering a quality product and a very high quality product consumers are willing to pay for that they are especially willing to pay for that and demand floor when it.
Turn the company with values that reflect their not just of brands that representing that accompany with consistent values that has always been there and so those things have helped that squared literally the inflationary time, we are already in and the price that we've taken in as they look to the future. We believe that that will continue.
I needed to be channel.
Thanks.
And then can you talk about where you're seeing <unk> distribution games is it in particular regions and where do you see further opportunities for distribution Carla.
So as we mentioned on our last quarterly call. We have made a particular focus on the northeast region. It's the area of the country, where our historic growth has.
Has not been focused and so we see a big opportunity with points of distribution and ACB in the northeast and those investments really are paying off in terms of new doors and new items in existing doors, we hadn't and a big part of that is a team that we've staffed.
Hired some really terrific sales leaders specifically for that region. So it's a very intentional investment and we're seeing that pay off more broadly as you can imagine we we are already the number one egg brand in the natural channel the growth opportunity over time.
Is a lot in new low and we're seeing that play out as.
As we continue to earn the right to have more spaced on shelf with our high velocities and our strong retailer relationships that model of.
Of of continue.
Continuing to kind of be and raise as it were in terms of our performance with retailers and then getting more space. As a result continues to work for us and we continue to grow points of distribution and existing doors.
Great. Thank you.
Thanks Ma'am.
One moment for our next question.
Okay.
Our next question comes from Cody Ross with UBS.
Good morning, Thank you for taking our questions.
Hey, Cody.
Hey, there wholesale egg prices have declined and retail prices for conventional eggs are likely to fall as well, there's a narrative out there that this will significantly reduce your share as your price gap widens. How comfortable are you with your price caps today and are you concerned about your market share in the event that your price gaps widen further.
Yeah. So it's it's interesting I wish I had a crystal ball about what happens in any commodity market, including with commodity eggs.
Certainly it.
It would be would be doing a different line of work if I, if I had that crystal ball.
There are plenty of arguments for tightening of egg supply and an egg pricing in the marketplace as as we see a return to.
Avian influenza I read an article about a million birds flock in Iowa being affected just in the last week for example, it hasn't been widely reported.
That said commodity prices are typically something that we've seen have an impact on our growth and I would take you back to a time just a few years ago. When there was a pretty big price War I believe in the Midwest, where multiple retailers were pricing commodity exit well below a dollar.
We saw commodity egg prices as low as 47 cents across a big portion of the United States and yet our growth continued at our historic pace and so the.
The truth is.
We are much more focused on the things that Catherine describes building the trust base brand and delivering on our commitments to our stakeholders and that works consumers that buy the most expensive eggs on the shelf aren't typically cross shopping the cheapest eggs on the shelf.
And I don't think that is fundamentally change simply because commodity egg prices have jumped up recently, nor do I think that's a big driver of our growth.
That's helpful. Thank you for that.
Big Pushback rehearing, you Bayreuth, indicating that consumers only purchase your eggs about three or four times a year, yet make purchases a year, suggesting there is not much brand loyalty. How concerned are you about this if the U S economy deteriorate. Thank you.
Yeah, Thanks for that.
It's interesting that.
I definitely see an opportunity to increase our share of whatever you Wanna call, it stomach or wallet or refrigerator. When it comes to egg purchases that number has been pretty consistent for us over the years and there are a lot of if you think about the idea of market segmentation there are <unk>.
<unk> of reasons why different consumers might choose to buy.
By different eggs, we definitely have a segment of consumers with very high Brandon systems, and we see that through some of the digital.
Order.
Data that we're able to get from some of our retail partners. We have my understanding is the highest rate of consumers who want to buy our eggs and we will not accept a substitute. So there's a group of consumers out there that will only buy our eggs and won't buy eggs, if they can't find hours.
There are also consumers who.
We'll buy our eggs, primarily but won't ignore a hot add that someone else runs one of the things we do to ensure that our volume isn't simply driven by our promotions as we tend to promote less deeply than some of our competitors do.
Because we want to generate trial, but we don't necessarily want to drive volume on promotion and that will show up.
In a metric call.
What percent of our volume is sold on promotion.
And so.
The reality is.
We believe that that historic by rate of three to four.
Again hasn't changed significantly as we've seen changes in macro environments and as we've seen changes in what competitors are doing there's still so much growth ahead, adding household at that by right and stay tuned because we're certainly thinking about how we can increase the by right as well.
Great. Thank you for that I'll pass it along.
Thank you thanks Tony.
One moment for our next question.
Our next question comes from Brian Holland was Cowen and company.
Yeah. Thanks, good morning.
Good morning, Brian just wanted to.
Boy Russell.
I just wanted to probe the reiteration of guidance here.
Quickly.
You know as opposed to maybe raising it so I guess I just wanted to make sure I understand you call that the increase payments to farmers.
Marketing was may be higher than three Q. So maybe maybe we're leaning into that again in four to just help us understand I guess below the top line the construct with a guy before Q and what maybe if anything you're trying to signal about incremental pressures and four Q.
Yeah. Thanks for that Brian I mean first off let me just talk to a sort of generally how we're thinking about guidance I mean.
We hope to give you levels of net revenues adjusted EBITDA that we can achieve in north to pass on an annual basis, but.
But remain consistent throughout the year with the performance against the guidance to wanted to move away from ranges and enter your changes as we focus on the long term performance of the business.
First on revenue if you think of where we are in rubber you I think we're comfortable with where consensus is right now on revenue for Q4, even though we haven't taken up guidance.
But if you think of Q for profitability that hundred basis point gross margin impact versus Q3 for the increased farm repayments is something that will flow through in.
Q for and be offset by pricing than in January .
We also continue to.
Invest in marketing more strongly than we did in the prior year. So I think on the operating expense line, you're going to continue to see investment there, which is why we haven't taken our guidance up above the $13 million that we've had but I think we're also comfortable with the current consensus that's around 37.
I appreciate that color boat and then I.
I guess this question has been asked.
A few ways I'll I'll I'll ask it's one other way obviously, you've had really nice distribution games. This year retailer breath. If you will spilling out nicely I'm just curious how much more room. You think you have one stores as a catalyst going forward as you are now over two.
Thousand 2000, I think it is.
And whether it's actually a less of a tailwind for you or an opportunity going forward that this is more about that but I guess I. Appreciate that maybe we will hear more about new product launches going forward, but is that the right way to think about this that we are not going to get as much store growth and that's.
Incremental distribution growth as it where would be a byproduct of.
No more <unk> for sure.
Thanks, Brian .
Yeah, I think we've been pretty consistent over the last several calls that those are both opportunities new doors and items per door, but as as you pointed out as we continue to grow doors and certainly if we've been doing our jobs right, we're focused on the highest quality or or potentially.
Reductive doors, then the opportunity continues to shift toward more items per door, we've got really well worn playbook. If you look at some of our earliest customers, including whole foods, which I believe has 19 retail skews of ours.
That that we tend to by investing in marketing and by being great partners and bye.
By executing reasonably well, we tend to earn the right to add more products over time, we have really productive skews and it's not a hard conversation to show our retail partners. How we can help improve their ability to meet their goals with more of the items that we produce.
So there is a natural path from two and three and four items on a shelf to five and six and seven and that's.
<unk> provides an awful lot of tailwind and runway in front of us.
Thanks, Russell best of luck.
Thank you Thanks man.
One moment for our next question.
<unk> <unk>.
Our next question comes from Robert Dicker said with Jeffries.
Great. Thanks, so much good morning.
Borner up I guess, hey, how are Ya.
This is the first question just around the next round of pricing.
I don't know if you're willing to provide any more color depth saw that pricing is just around let's say.
Similar you'd think kind of baggage <unk> relative to the prior albums.
That'd be how much the portfolio you'd expect the price et cetera.
Yeah. Thanks for that Rob the price increase were taken in January is more similar to the one that we took in may of this year.
And it's just on the the name of your business.
<unk> no further questions.
[laughter].
Okay got it thanks.
And then feel like you always have to ask just available.
And flu or it doesn't seem like it's been much of an impact.
Things seem to be fairly contained on your end. So just kind of update on any kind of risks what you're seeing on your flock and then.
Is there anything around.
That would.
Would also or could also increase kind of near term costs you bring the birds and what have you. That's that's all.
Thanks, Rob So it's interesting.
We have I believe.
One of the most resilient supply chains in eggs today, and that's largely driven by the fact that we have a distributed network of small family farms Ah over 300 of them.
So any of those individual farms is likely well under 1% of our total supply. So even if we were to have a farm affected by avian influenza. It represents a small portion of our overall supply.
That said, we follow and often exceed industry standards and best practices around protecting the birds and protecting our farms in our small family farm partners from the impact of of avian influenza. We've never had an outbreak of avian influenza on any of our farms.
And we work really hard to keep it that way.
From a risk perspective look it's out there and I'm not gonna say never but the reality is our track records really good here and we work really hard to keep it that way on the flip side.
What we saw back in 2016 is that when avian influenza starts to hit those big Mega farms like we saw last week in Iowa, with 1 million Bird farm being affected it starts to affect supply on the shelf and I read a lot recently about continued kind of low service levels are low fill rates on retail shelves.
Being a reason why we continue to see strong strong price increases strong pricing and.
And that if you believe avian influenza is an issue I think the more likely impact as you are going to start to see more holes on the edge shelf.
The biggest risks for us is that it actually cleans us out of eggs right. It can be pretty good for sales if you have eggs and and there aren't as many as consumers would like what we Wanna do is ensure that are loyal consumers can have our eggs and that we simply aren't the default choice because there aren't any others on the shelf as we <unk>.
Time slot back in 2000.
Okay. That's helpful. Maybe just a quick follow up.
Russell you said earlier.
<unk>, maybe revenues were coming in kind of price and volume is fairly close to kind of what your forecasted.
Then later on I guess a bit of a <unk> impact.
Impact that could potentially come right, causing some holes from other players Michelle.
But I mean, obviously I would assume would kind of.
Central station that I've kind of agreements you have with your farmers inclusive of their things.
Incremental costs, you pay those farmers make them happy.
It doesn't seem to be any near term issue with capacity. Despite the strong bond with that for sure.
Yeah I appreciate your comment out Rob we.
We expanded egg central station on time and on budget earlier this year in advance of US meeting the the extra capacity and so we actually are using some of that extra capacity to meet our current order volume, but we were very intentional on the timing to ensure that we would have no production bottlenecks and we do not we.
Have capacity to exceed a 650 million dollar egg business today, and we're already doing the site's like work for the next plan as we look ahead to building a business beyond $650 million. So I sure appreciate that question.
<unk> thanks, guys.
Thank you Robert.
One moment for our next question.
Our next question is from Chris grow with stifle.
Hi, good morning, Thank you.
Hatred.
Hi, I just had a quick follow on on the on the fourth quarter and the gross margin.
I guess I just want to get a sense could that's still be up sequentially and I guess as I think about you have this higher payment coming through you should have a little less inflation certain elapsed some of the increases from the prior year.
On Greens in the quarter and with a strong pricing coming through I, just want to get a sense of how to look at the fourth quarter gross margin around.
Around those dynamics.
Yeah, Thanks for that Chris, Yeah, certainly and to be up year over year, but not sequentially.
There's.
Conventional Greens, where you look at the CME, they're coming down, but we're also seen an impact.
Our farms and feed note the day's going.
Going up in the background offsetting some of the things you've seen in the headlines, but we also have organic feed prices going up and we have packaging going up.
So there is a little bit of lag and how that all flows through as well and so that's why.
You may be looking at Cornell <unk> coming down, but with based us an organic and packaging. We have some all set there so I think our gross margins.
B flat to down sequentially, and we will make up for that the pricing in Q1.
Okay. That's helpful. Thank you.
And then just one other quick question around you're holding a decent amount of cash and I'm. Just curious what those be uses of that cash going forward would you expect and we want to.
Kind of hold back a reserve for capital around a new product for example, any.
Any other capital projects worth, noting and I'm curious if you buy your stock back I mean, your fundamentals have been very strong in.
The stock has been.
Not moving up your commensurate with that increase in front of him and fundamentals.
But I'll, let Bo address the current plans and then I'll talk philosophically about a buyback how 'bout that.
Sure.
Well I think if you look at how we manage that we are looking to use that capital to accelerate our longterm growth and for things to accelerate our growth. So we talked about in the past investing in.
Cost saving opportunities that we can then reinvest that money back into business.
We could use that money if we were to look at new categories to enter in.
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Then there's different ways to get into those categories again to <unk>.
Accelerate our growth so.
I think we're being very very prudent and very thoughtful about how we use that capital I think we have sufficient capital to allow us to do many things too.
To continue on the long term growth trajectory that we believe that that we can deliver.
Russell talk the stock buyback fees.
Yes, it's so interesting it would be tempting right because we agree that I don't think the our stock price reflects the performance and the potential of our company and and it feels cheap so why wouldn't you buy low right.
That said as <unk> alluded to gosh, there's so much growth ahead of us and we certainly.
Appreciate having that that dry powder that flexibility to pursue growth opportunities that makes sense financially for us.
The other thing I would add is.
The stock seems cheap, but it sure seems like cash for high growth companies is at a premium as well and so I I see that as a as a very rare gift that we have that strong balance sheet in a time of such uncertainty that just gives us the confidence of our convictions to <unk>.
Continue to pursue our long term goals. It gives confidence to our crew members that gives confidence to our farmers. It gives confidence to a retailer's that will continue to deliver as we always have and so shame on me if I took the opportunity opportunistically to buy back some shares in and send us bullish signal to the marketplace, but reduced the resilience.
Of our company in the process. So I would be very loath to do something like that in the short term.
Okay. Thank you for that perspective.
Thanks, Chris.
At this time I would like to turn it back to map for further comments.
Thanks, everybody for your time and interest in Viropharma today have a good one.
Thank you for your participation in today's conference.
Does conclude the program you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can <unk> one one.
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