Vital Farms Inc. Q1 2023 Earnings Call
Good day, and thank you for standing by.
To be vital farm first quarter 2023 earnings conference call.
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Oh and now like the hand over the conference to your speaker today that Styler, Vice President of Investor Relations.
Please go ahead.
Thank you good morning, and welcome to the first quarter of 2023 earnings Conference call webcast I'm joined on today's call by Russell can take out President and Chief Executive Officer.
Rita Chief Financial Officer, Catherine Mackinnon, Chief Marketing Officer.
By now everyone should have access to the company's first quarter of 2023 earnings press release issued this morning. This is available on the Investor Relations section a vital part of the website, but investors dot vital farms dot com.
Through the course of this call management may make forward looking statements within the meaning of the federal Securities laws.
Are based on management current expectation beliefs and involve risks and uncertainties that could cause actual results differ materially from those described in these forward looking statements.
Please refer to today's press release and did the company's quarterly report in form. Thank you for the fiscal quarter ended March 26, 2023, which will be filed with the SEC today and other filings with the S. P. C 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 magic 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 that this information is not intended to be considered in isolation or as a substitute for the financial information presented with gas.
Refer to our earnings release for reconciliation of adjusted EBITDA and adjusted EBITDA margin to the respective most comparable measures prepared in accordance with gas.
And now I'd like to turn the call over to Rustled, you guys can take out President and Chief Executive officer of vital farms.
Thanks, Matt Good morning, and thanks, everyone for your time today.
I'm going to start by sharing updates on how we delivered on our commitments to all of our stakeholders during the first quarter Kathy.
Catherine will provide an update on how our brand continues to resonate with consumers.
Finally, I'm happy to introduce our new Chief Financial Officer, Pillow, Rita who will provide more depth on our quarterly results in our annual guidance before we take your questions.
It was a great first quarter.
We achieved $119.2 million of net revenue.
Which represents the highest quarterly results in the history of vital farms.
<unk>, 54.7% increase from the prior year period, and was driven by volume growth of 26%.
Our sales and marketing teams continue their efficient execution, despite the dislocations in the marketplace.
Our gross margin expanded by over 700 basis points to almost 36%, which is a testament to the work of each stakeholder throughout our supply chain.
Finally, we had a record adjusted EBITDA about $14 million up significantly versus last year, and we achieved an adjusted EBITDA margin of 11.6%.
I think it would be helpful to provide some context on the egg industry as we continue to deal with the ramifications of avian influenza in the marketplace.
The industry is still experiencing significant price inflation, which is illustrated in the data.
Looking at the 13 weeks ended March 26th 2023, the category saw retail dollar growth of about 65%.
Mostly to price inflation of conventional X.
Retail volume in the category saw a 6% decline, which accelerated relative to the flat performance the industry experienced over the prior two quarters.
As to an update on avian influenza.
Size of the lane clock in the United States has begun its recovery as we had expected but remain below its average size in recent years during the first quarter.
We continue to operate with the assumption that the egg supply in the United States will continue to expand as the year progresses as the size of the U S. Lang block recovers borrowing another outbreak.
In terms of our performance or retail volume grew at over 12%. During the 13 weeks ended March 26th 2023, which was well ahead of the category decline.
Our volume sure expanded by over 50 basis points compared to the same period last year.
Additionally, the list of cities, we experienced at retail during the first quarter were in line with our expectations.
<unk> for vital farms products remains robust.
We are reiterating our fiscal year 2023 guidance as tela will expand upon shortly which we think is appropriate at this early stage and what will certainly be a dynamic you're in the market place.
Our focus will remain grounded in driving longterm positive outcomes for each of our stakeholders.
We've been intentional about the choices we've made over the past several years to build our business with this is our primary goal.
We believe the many decisions we make each day fully consider each of our stakeholders, which contributes to our enduring success.
We will maintain our balanced longterm stakeholder focus regardless of what is going on in the external environment.
We have demonstrated that we can grow through and following the pandemic.
On an annual basis or net revenue pagar is 37% dating all the way back to my arrival in 2014 without a negative year over year revenue growth rate as a public company in any quarter.
We've got it for at least 25 per cent net revenue growth again this year on top of close to 40% net revenue growth in 2022, and we expect volume growth to play a meaningful part in addition to the impact of price increases.
We have multiple proof point that demonstrate our ability to effectively manage our business through changes in pricing and inflationary volatility.
We have worked with our farmers to help them navigate a more challenging operating environment and are paying them more for the hard work they do daily.
Despite the higher cost of idle farms were planning on better gross margin performance in 2023 compared to 2022.
We have improved our processes around both inbound and outbound free.
Over the past year, we were able to leverage the external operational capabilities of our third party logistics providers to deliver significant value in terms of cost and service.
Effort of our crew members to manage those stakeholder relationships resulted in better truckload utilization and lower contracted shipping rates.
We completed in April 2022, and expansion of egg Central station.
World Class egg washing and packing facility.
Time and on budget and are now in a position to support over $700 million in annual revenue from egg sales.
We have maintained our commitments to stakeholders, even in the context of serious industry disrupters like even influenza.
We have purposely built a network of over 300 family farms that provides resilience against these types of constraints and as a result, avian influenza has had a minimal impact on our business today.
I want to reiterate my confidence in our ability to operate efficiently throughout this ever changing environment or guidance reflects a reasonable set of assumptions about what may unfold across the economy in the second half of the year.
We are in a position of strength with respect to our plans for the remainder of 2023.
I'll now turn the call over to Catherine to provide an update on our brand.
Thank you Sir as I have said in the past I consider it a genuine privilege to tell the vital signs story alongside the incredible group of people on the marketing team.
Our brand is an extension of vital signs purpose and our consumers choose us because they believe are backing up our commitment to improve the lives of people animals and the planet <unk> we.
We have a strategic focus on raising awareness and increasing household penetration that is driving results.
I'm going to focus today on three ways, we're adding new capabilities that enable us to build lasting relationships with our growing consumer base and service of that strategy.
We are joining culturally relevant conversations that are directly relevant to our business our purpose and our consumers.
<unk>, where they are little chest and raise awareness.
Recent campaign, let's try Valentine's day, which created a paper entry point into two topics that red resonated with our consumers and prices and inflation.
We built a fully integrated campaign in less than a week that you have over 70 million impressions.
Continue to develop this quick turn capability and were encouraged by the return on this initial effort.
Second we are beginning a new relationship with a world class breakthrough the advertising creative agency named that they.
They approached advertising with bravery courage transparency and intuition, which we believe will appeal the grass of our brand.
Over the past several years, we have effectively leverage great brain campaigns to drive consumer awareness, including at <unk> campaign in our most recent campaign that training now titled keeping it bullshit free.
<unk> has a reputation for working with both brands like artist breakthrough with consumers. They are particularly effective at driving that kind of quick turn culturally relevant work that we're looking to do more and their first campaign with us with a successful Valentine's day activation.
Finally, we continue looking for new ways to get our message in front of consumers and stay on the leading edge of advertising trends and most recent example is working with H B O Max on a new feature for advertisers, which not only drive exposure with our target growth consumer during programs like succession. It also generated press coverage for that.
The first of its kind collaboration with H B O Max.
Marketing and continues to set ambitious goals pushed very bold creative work and deliver I look forward to continuing this discussion on future earnings call. Thanks, everyone for your time today Uhm now turn it over to <unk>.
Thank you Kathryn Hello, everyone and thank you for joining us today I'm honored to surface <unk>, Chief Financial Officer, and what I'm quite early in my tenure I am impressed with the quality of the team and final farms and excited about the opportunity but life ahead for this company was that in mind I want to thank Bo Meisner for leaving me your house and.
Very good order.
Following a review of our financial results for the first quarter ended March 26th 2023 of.
Well then provide some additional color on our gardens for fiscal year 2023.
Ah saw someone mentioned earlier, we had another record corner with net revenue of $119.2 million, an increase of 54.7 per cent compared to the prior to your period.
And by volume growth of 26 with them based on strong volume increases across most new and existing retail customers.
Gross profit for the first quarter of 2023 was $42.7 million or 35.8% of net revenue compared to $21.7 million or 28.2% of net revenue for the first quarter of 2022.
The transfer gross profit was primarily for from Ohio failed.
760 based upon cross Martin benefited from increased pricing across the whole portfolio.
Me upset by if you have friends, including higher input costs that includes higher commodity prices across our <unk> in front of our businesses and hire packaging costs SG&A expenses for the first quarter of $23.9 million or 21% of net revenue compared to $17.6 million or 22.
Nine per cent of Metro Avenue in the first quarter last year <unk>.
The increase in SG&A was primarily driven by higher employee related costs.
<unk> head count to support our continued growth and higher marketing expenses.
Stripping of distribution expenses in the first quarter was $7.8 million or six months six months of enough revenue relative to $8.2 million or 10.6% of revenue in the first quarter of 2022.
The decrease in shipping and distribution expenses, what's driven by a decline in line, alright, and better harkleroad utilization, which was partially offset by higher volumes.
EBITDA for the first quarter was $13.9 million or 11 context of net revenue compared to zero point $5 million or 0.7% of revenue for the first quarter of 2022.
Next an update on our capital structure March.
March 26th 2023, we had told the cash cash equivalents and marketable securities of $83.1 million and we have no debt outstanding.
So the phone transfer 2023, we're maintaining our gardens of net revenue of more than $450 million and adjusted EBITDA of more than $30 million.
Previously guarded we continue to expect stronger year over year <unk> revenue growth in the first half off a year, primarily due to the carryover of May 2022 pricing inquiries.
Furthermore, we continue to expect gross margin in the first half of the year to be stronger than the second half primarily due to fear promotions on premium X and stronger bright comprises during the first war.
Additionally, we assume egg industry supply and demand from your closer to more balance leveled later in the year.
We're also planning cell volume growth in the back half due to tougher comparisons because of industry shortages in Q4 2022.
Within SG&A, we continue to anticipate higher marketing spending in the second half of the year compared to the first half.
Lastly, we're still planning for fiscal year 2023 capital expenditures of between 25 and $30 million, assuming no I'm anticipating supply chain charges.
Thanks for your time today and interested in button farms with that we will now be happy to take your questions.
Thank you.
Time will conduct a question and answer session.
A reminder to ask the question you'll need to press Star One line on your telephone and wait for your name to be announced to withdraw your question Press Star. One line again, please stand by while we compile the Q&A roster.
Our first question comes from Adam's Danielson at Goldman Sachs.
Yes. Thank you good morning, everyone.
Yeah, Hey, all right.
So I appreciate the the <unk> in the quarter, the the <unk> and market strengthen kind of Tailwinds that you had from price increases installed tie concerning that Christ environment. I know, it's been it's been only a couple of weeks, but it's been a pretty dramatic change in the wholesale market since Easter.
Starting to see some of that on shelf, but it's still early days, but Russell Philo any kind of color you can provide about what how you think about the stickiness of your pricing kind of kind of consumer switching back into into lower price conventional eggs as those prices fall and changes in sales velocity and.
We don't have this high price egg shortage environment that we saw for much of the second half of 23 or 22.
Yeah, I appreciate that I appreciate that and generate club and I'm Gonna <unk> I'm Gonna, let kilo dig into some of the details if he's become.
Very well versed in some of the dynamics here, but the headline as as you will know you know, we're not competing into commodity market and our experiences that our consumers aren't typically cross shopping the most expensive takes an ice shelf with the least expensive eczema, Michelle Uhm that said, we certainly have <unk>.
<unk> and are seeing what you're seeing in terms of a return to a more typical supply balance and the rest of the market and and so that's not a surprise to us and and I don't think it's it changes in any way or sense of how the rest of the year, Ken Ken play out.
<unk> do you want to add some color there.
Yeah, maybe just to reiterate which we provided the gardens at the beginning of the year that resolved first all sorts of your lipitor in the second half of the year the growth rates were stronger for a sofa and a second off.
And that reflects that we expect the environment too long lives a bit rid of very strong first quarter are busy.
And as we go through the year.
Violent will luggage change and that's reflected in our guidance.
But is also set to our consumer attempts to be a bit more immune to price gaps.
Makes the decisions not based on price, but makes the purchase decisions based on what the brand stands for what the what the brand value is.
And and with that we feel comfortable about the environment.
Okay, well, that's all very helpful. So, but maybe if I could ask it a different way as you think about where you sit today versus a year ago, and especially if you think about where the second half looks to be versus second half last year how much.
Giggs frame that the gains and distribution that you have in terms of in terms of the stores. The number of placements the items per per door, just to think about somebody with a built in kind of growth from from distribution expansion that you might've kind of locked in.
Incremental and twenty-three versus 22.
Yeah the in.
In the third quarter, we have.
26% volume growth.
And some new distribution.
It's a smaller part of the volume growth the growth really comes from getting new skews on shelves with existing customers increasing the velocity was assisting consumers that is where are where the majority of our growth came from distribution is obviously part of our growth story and will continue to be part of the.
<unk> story for for this year and for years to come.
I think there's still.
Plenty of wide space for us to go after.
And I think the pricing environment will not change that outlook.
Gaining new doors, not because we are competitively priced we're getting new doors goes to Brian or something.
And it delivers value to consumers and delivered so all you have to retailers.
Okay. That's all very helpful color I'll pass it on thank you.
Please hold for our next question. Thank you Adam.
Our next question comes from Pamela Kaufman at Morgan Stanley .
Hi, good morning, and congrats on the corner.
Okay fine thank you.
Hill.
Strong results in Q1, I was hoping you could explain why you are maintaining our top line and EBITDA outlook for the year.
You are a revenue in Q1.
It is close to half a damn sight growth for the year and EBITDA is also of course cat half of your full year EBITDA guidance. So is your guidance conservative or are there factors, making you more cautious on the balance of the year.
Thanks for the question is I would say that relate to factors to us maintain the guidance first one is.
She said in the prepared remarks, it's going to be a dynamic environment. This year right we're seeing.
The changes in a crisis after the end of the first quarter.
Uncertainty about but the U S economy will do.
And while we remain confident in the strength of our consumer.
Think it is prudent for us to know charge out of the caves and.
Aggressively trying to call a review the rest of the year. So far the euros trying out similar to what we have plans at the beginning of the year.
And we're sticking with that the other part is.
I'm in the seat now for us in several weeks and uhm before I take off guidance for us or propose to the company that we take our guidance as as much as my decision.
I just wanted to become a bit more comfortable with with how the company operates uhm.
I haven't met any investments yet and so I just wanted to give myself a bit more time to to understand.
The the business to understand the dynamics in the business.
And environments off a bit more time before we make a commitment to to increase our gardens and deliver a high number for the year. If we take up guidance, we want to make sure. We can deliver it we're very sure that we can deliver the guidance that we have available.
Yes, Q1 was a fantastic, Florida, we did have some benefits from from a <unk>.
That will probably fall away for the rest of the year, we hope with us.
Cause the AI is not good for the industry overall.
And all.
All that plays into this dynamic environment that we've talked about so we just want to make sure we have a better handle and I personally wanted to make sure I've got a handle four four.
For the full year before we make changes to the guidance.
Okay, Yeah, I understood that makes a lot of texts.
And then Ah.
Question on sales growth this quarter typically your sales growth matches your retail take away pretty closely I think it was at the.
Around 40% in the period. So are there any shipment timing shift or other dynamics to consider that impacted Q1 and will come out of future periods.
Yeah, I think that well we've seen Pamela.
Retailer module stocked up on inventory ahead of Easter. So there there might have been a bit of timing dislocation there.
But the other thing to consider is also that.
The scanner data for us only accounts for for power to what we are doing it and we have wherever foodservice business, which actually grew rapidly during the quarter. That's that's volume that you don't see in the scanner data.
And we are the mixture described consumers.
Buying more agent count cartons call that 12 count curtains.
Volume growth.
It doesn't necessarily show up in unit data that you see on this kind of data.
Okay. Thank you.
X number please.
Please stand by for our next question.
Mmm.
Mmm.
Our next question comes from Cody Ross R E B S.
Good morning, Thank you for taking our questions.
I Wanna piggyback on exams questions <unk>.
They're good morning, I Wanna put you back on Pam's question is a little bit come at it from a little bit of a different angle normally your <unk> sales dollars are the low point of the year and they build sequentially. So you delivered $119 million in the first quarter. If you run right that it would suggest at least 480 million in sales, but I know that.
Okay. Let me just thought was a cadence throughout the year just.
Houses that we have this boost from avian influenza in the first quarter.
The benefit that we think we have some avian influenza first quarter was probably.
High single digit low double digit volume benefits.
There was there was higher than what we would normally expected.
That's how I would think about it.
Margin now for the rest of the year and how that impacts your thoughts on EBITDA. Thank you.
Gross margin similar to to the overall.
Revenue growth dot guidance.
Gross margin, we have expected shrunk since the beginning of the year to be higher first off the second half of the year.
<unk> going to be I stepped down as we go through the years and I would not expect that the results that we had first part of it they will repeat.
S. The.
S. The retail environment and to supply environment, I think it gets back to a more normal lifestyle.
There might be some additional cost, but we will incur and what's that our gross margin.
Probably not stay at the current level.
Thank you I'll pass it on.
Thanksgiving by our next question.
Our next question comes from that Mcginley from <unk>.
Thank you and good morning. My first question is on the shipping and distribution cost you noted the improvements in in bound freight shipping and destroy overall at about four point improvement and wait how much of that was driven by network and efficiency improvements relative to.
I should say compared to declining fuel cost in the quarter, because I think the one would clearly be sticky any other obviously it would float with the with the commodity costs.
Yeah, I would say, it's it's a bit of both raped certainly helped us out, but as our volume growth, we're able to ship more efficiently.
They just allow us to negotiate better rates and and.
Great and the distribution gave me this is more of a theoretical one to three years, you've made gains in retail distribution in a number of items that are carried at retail and compared to the commodity egg shell egg producers you took less price over the last year than they would have which on the margin might've provided less of an incentive for emerge.
And to take new distribution to carry more items.
Commodity prices begin to drop at retail are you seeing more opportunity for distribution games as merchants tried to maintain his category dollars, which I think frankly that they will find difficult.
Opportunity for distribution gains in both a breadth and depth this year.
Yeah. Thanks for that is Russell at all for a couple of thoughts there you know we certainly when when eggs are short everybody wants sex and so there were certainly plenty of opportunities for what you might describe as more transactional new distribution opportunities that may or may not have been transitory we don't.
Sort of value added relationships consultative relationships with our retail partners. So well what you described.
Mmm.
Is there any potential multiyear growth strategy with our retail partners that isn't really affected by short term disruptions or variations in supply or pricing dynamics for the rest of the market. Our goal is to be the right partner to them and good times and in bad the right partner them, an inflationary times are not the right <unk>.
The right partner for them in times of plenty of times a shortage in so we don't expect that to to change this year.
Great. Thank you very much.
Please and I our next question.
Our next question comes from Robert Dickerson at Jefferies.
Great. Thanks, so much.
Russell.
Maybe it's hey, how are Ya.
Might be for you. So you know clearly you know why the question here is kinda why is the guidance that being raised.
And I'm sure you know kind of maybe a thought processes.
So we kind of feeling peak because you've got all this kind of maybe one time demand it's come through via AVN I Kinda want to give you that period, maybe talk about you know as you think you know over the next 12 months, let's say given the bump that you got <unk>, which is clearly there.
Apply but then there's also a flow through on the demand side.
How do you kind of tweak the strategy in any way to you know potentially be able to know cats share more of that trial and repeat right cause you know as you said before like you know part of the strategy is to increase distribution I mean, the big strategy to get Trolleyed repeat give me a card to build the brand I know you've had some temporary to lift and try.
[noise] experience to be able to continue the repeat off of the bump in trial put it that way.
Alright, thanks, so much robbed and your you know as well and so there's a lot of great and that question Uhm.
You're right. If you look at it over the last few years, we presented we've been presented with a few time period, it's where we've had sort of outsized growth transitory growth that has.
Brought us a bunch of trial and maybe we hadn't planned to honor that we didn't drive directly with our great marketing and promotional efforts.
We've been pretty darn good at retaining those people who tries for the first time I'm moving them <unk> you know through the continue on from trial to repeat and eventually to loyalty and so you.
It would certainly be consistent with our pattern that we'd hold on to some of those new household that we picked up even if the the initial trial was generated by shortage in the market. We saw the exact same thing happened in the stock it period.
<unk> 20th when we saw a lot more eggs than we might have otherwise expect it too and we retained a bunch of new households, So I think that's a very fair assertion wouldn't surprise me to see that happen again this time around.
Our approach to marketing spend our approach to promotional spend again, it's very much driven in that longterm strategy of building healthy.
Healthy growth healthy partnerships with retailers, so why wouldn't necessarily think about a short term tweak to that strategy based on whether we had a great quarter to take you know have having G O.
<unk> a change in our stamps or marketing of promotions you better believe that continuing to focus on attracting and retaining the right households, attracting and retaining the right points of distribution and that strategy seems to be working pretty well for us in good times and bad.
Yeah and and.
Maybe just a quick follow up on that question I mean.
Mmm egg prices come down.
Great price point.
We are getting distribution, because we have a brand that sense or something for something.
Kind of for the balance of the year that <unk> is that changing it all amid where we are in the cycle.
So I've.
Mmm.