Q3 2024 Vital Farms Inc Earnings Call
After the speaker's presentation, there will be a question and answer session to 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 to withdraw your question. Please press star one one again.
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Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your first speaker today, Anthony Brook Hollow VP of Investor Relations. Please go ahead.
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Good day, and thank you for standing by welcome to the vital farms third quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Tony Decarlo: Good morning, and welcome to vital farms third quarter 2024 earnings conference call and webcast I am 20, Decarlo VP of Investor Relations and I'm joined on the call today by Russell <unk>, President and Chief Executive Officer, Peter <unk>, Chief Financial Officer, and Pete Pappas.
Speaker Change: <unk> sales office.
Speaker Change: By now everyone should have access to the company's third quarter 2024 earnings press release issued this morning. This is available on the Investor Relations section of vital farms website at investors dot vital farms dot com.
Speaker Change: Throughout this call management may make forward looking statements within the meaning of federal Securities laws. These statements are based on management's current expectations and beliefs and do involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Speaker Change: Please refer to today's press release, the Companys quarterly report on Form 10-Q for the fiscal quarter ended September 29, 2024 filed with the SEC today as well as our 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 look.
Speaker Change: Statements made today.
Speaker Change: Please note that on today's call management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures while.
Speaker Change: 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.
Speaker Change: Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their most comparable measures prepared in accordance with GAAP.
Speaker Change: With that I will turn the call over to Russell, <unk>, President and Chief Executive Officer provider Fox.
Russell: Good morning, and thank you for your time today.
Speaker Change: We're excited to be here in New York to ring, the NASDAQ Bell Tomorrow afternoon.
Speaker Change: We've had great momentum in our business throughout the year and I am pleased to announce that we delivered another strong performance in the third quarter of 2024.
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.
Speaker Change: Our results were driven by the growing demand for vital forms ethically produced products and the terrific contributions from our crew members and stakeholders across the organization.
Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their most comparable measures prepared in accordance with GAAP.
Speaker Change: These are exciting times at our company and I'd like to thank everyone at vital farms for a job well done.
Speaker Change: Today I'll kick off our key financial headlines and then provide some color on our progress in the quarter.
With that I will turn the call over to Russell, <unk>, President and Chief Executive officer of vital stocks.
Speaker Change: Then hand, it off to Chief sales officer, Pete Pappas for an update on industry dynamics as well as vital farmers selling efforts so far this year.
Russell: Good morning, and thank you for your time today.
Russell: We're excited to be here in New York to ringing the NASDAQ Bell Tomorrow afternoon.
Speaker Change: To closeout Taylor will provide more detail on our third quarter financials and updated guidance for fiscal year 2024.
We've had great momentum in our business throughout the year and I am pleased to announce that we delivered another strong performance in the third quarter of 2024.
Taylor: With our strong third quarter performance, we are raising our guidance for the balance of the year.
Our results were driven by the growing demand for vital farms ethically produced products and the terrific contributions from our crew members and stakeholders across the organization.
Speaker Change: Kilo, we will tackle this in detail.
Taylor: With that let's get right to the key financial headlines.
Speaker Change: These are exciting times at our company and I'd like to thank everyone at Viropharma for a job well done.
Taylor: We had another great top line performance with our third quarter net revenue up 31, 3% to $145 million.
Speaker Change: Today, our kickoff our key financial headlines and then provide some color on our progress in the quarter.
Taylor: In the first nine months of the year, our sales grew 31%.
Speaker Change: Ill, then hand, it off to Chief sales officer, Pete Pappas for an update on industry dynamics as well as biopharma selling efforts so far this year.
Taylor: Year to date, our volume has increased 25% a very healthy acceleration from the 15% growth during the same period last year.
Speaker Change: To close out Taylor will provide more detail on our third quarter financials and updated guidance for fiscal year 2024.
Taylor: Gross margins expanded again this quarter compared to last year gross margin improved 368 basis points to 36, 9% in the quarter and improved 376 basis points to 38, 6% for the first nine months of the year.
Taylor: With our strong third quarter performance, we are raising our guidance for the balance of the year.
Taylor: Hello will tackle this in detail.
Hello: With that let's get right to the key financial headlines.
Taylor: Our expanding gross margin performance helped to drive another strong adjusted EBITDA results.
Hello: We had another great top line performance with our third quarter net revenue up 31, 3% to $145 million.
Speaker Change: We delivered $15 2 million of adjusted EBITDA in the third quarter up 64, 5% versus last year.
Hello: In the first nine months of the year, our sales grew 31% year.
Taylor: Year to date, our volume has increased 25% a very healthy acceleration from the 15% growth during the same period last year.
Speaker Change: Year to date, we have delivered $67 $6 million and adjusted EBITDA nearly doubling last year's results.
Taylor: Gross margins expanded again this quarter compared to last year gross margin improved 368 basis points to 36, 9% in the quarter and improved 376 basis points to 38, 6% for the first nine months of the year.
Speaker Change: Third quarter, adjusted EBITDA margin improved to 10, 5% up 212 basis points from last year.
Speaker Change: Additionally, our year to date adjusted EBITA margin improved 509 basis points to 15, 3%.
Speaker Change: The virtuous cycle of growing consumer demand driving expanded distribution driving further demand continued in the third quarter.
Taylor: Our expanding gross margin performance helped to drive another strong adjusted EBITDA results.
Taylor: We delivered $15 $2 million of adjusted EBITDA in the third quarter up 64, 5% versus last year.
Speaker Change: We again expanded our shelf presence and existing stores.
Speaker Change: Year on year or total distribution points have increased by 17, 3% to 461 in the natural channel and by 22% to 226 in the food channel.
Taylor: Year to date, we have delivered $67 $6 million and adjusted EBITDA nearly doubling last year's results.
Taylor: Third quarter, adjusted EBITA margin improved to 10, 5% up 212 basis points from last year. Additionally, our year to date adjusted EBITA margin improved 509 basis points to 15, 3%.
Speaker Change: Even with this rapid growth, we see ample opportunity to add many more items to existing shelves at locations, where we already have a strong presence and further increased sales velocity of our items.
Taylor: The virtuous cycle of growing consumer demand driving expanded distribution driving further demand continued in the third quarter.
Speaker Change: Our total distribution point growth in the natural channel is nearly as strong as in the food channel despite carrying almost a 70% higher average number of items.
Taylor: We again expanded our shelf presence and existing stores.
Speaker Change: We believe this demonstrates the runway we still have on expanding distribution.
Taylor: Year on year or total distribution points have increased by 17, 3% to 461 in the natural channel and by 22% to 226 in the food channel.
Speaker Change: We believe adding new items at the retailers, where we're already strong will be a major driver of our long term growth.
Speaker Change: On the supply side, we continued to expand our farm network with more scheduled to be added in the fourth quarter. We now have more than 375 family farms in our network.
Taylor: Even with this rapid growth, we see ample opportunity to add many more items to existing shelves at locations, where we already have a strong presence and further increased sales velocity of our items.
Speaker Change: We remain on target to add the farms necessary to deliver our plans in the short and long term.
Taylor: Our total distribution point growth in the natural channel is nearly as strong as in the food channel despite carrying almost 70% higher average number of items. We believe this demonstrates the runway we still have unexpected distribution.
Speaker Change: Furthermore, our prep work to break ground at our new facility in Indiana is taking shape and we are on schedule for a late 2026 opening.
Speaker Change: 2024 has been a great year through the end of the third quarter for vital farms and our performance has exceeded our original expectations.
Taylor: We believe adding new items at the retailers, where we're already strong will be a major driver of our long term growth.
Speaker Change: Pleased with how we performed on our financial goals.
Speaker Change: We continue to build a great brand with more demand than even our own ambitious projections.
Taylor: On the supply side, we continued to expand our farm network with more scheduled to be added in the fourth quarter. We now have more than 375 family farms in our network.
Speaker Change: To meet growing demand this year, our production outstretched, our original forecasts.
Speaker Change: To keep us on our growth track into next year and beyond we will continue building capacity across our system at ECS, especially.
Taylor: We remain on target to add the farms necessary to deliver our plans in the short and long term.
Speaker Change: Keith and I spoke in detail last quarter about our supply chain investments in company owned accelerator farms and our forthcoming facility in Seymour, Indiana.
Taylor: Furthermore, our prep work to break ground at our new facility in Indiana is taking shape and we are on schedule for a late 2026 opening.
Speaker Change: These are important projects, which will help us in our drive to reach our net revenue target of $1 billion by 2027.
Taylor: 2024, it's been a great year through the end of the third quarter for vital farms and our performance has exceeded our original expectations I.
Speaker Change: However, ECS remains D crucial piece at the center of our entire supply chain.
Taylor: I am pleased with how we performed on our financial goals.
Taylor: We continue to build a great brand with more demand than even our own ambitious projections.
Speaker Change: And we will need to reach its $800 million capacity potential for us to achieve our longer term goals.
Taylor: To meet growing demand this year, our production outstretched, our original forecasts.
Speaker Change: In the third quarter, we conducted much needed maintenance work at ECS to keep pace with demand.
Taylor: To keep us on our growth track into next year and beyond we will continue building capacity across our system at ECS, especially.
Speaker Change: This effort immediately improved our efficiency, but we also saw slowed production during those maintenance periods.
Taylor: Sheila I spoke in detail last quarter about our supply chain investments in company owned accelerator farms and our forthcoming facility in Seymour, Indiana. These.
Speaker Change: In the fourth quarter, we will be doing some additional operational improvements to enable continued capacity growth.
Speaker Change: We believe these investments will pay off and reduced downtime going forward and keep us on track to scale ECS to the $800 million capacity, we have previously shared.
Taylor: These are important projects, which will help us in our drive to reach our net revenue target of $1 billion by 2027.
Taylor: However, ECS remains D crucial piece at the center of our entire supply chain.
Speaker Change: As a result, we expect there will be times in the fourth quarter, where our ability to grow production slows from its typical rate.
Taylor: And we will need to reach its $800 million capacity potential for us to achieve our longer term goals.
Speaker Change: We've incorporated the impact of fourth quarter maintenance into both our sales and adjusted EBITDA guidance for the remainder of the year.
Taylor: In the third quarter, we conducted much needed maintenance work at ECS to keep pace with demand.
Speaker Change: Delivering the full year far ahead of our original expectations from the beginning of the year.
Taylor: This effort immediately improved our efficiency, but we also saw slowed production during those maintenance periods.
Speaker Change: As we highlighted last quarter, we are now in the beginning stages of building a small number of what we call accelerator farms in Indiana.
Taylor: In the fourth quarter, we will be doing some additional operational improvements to enable continued capacity growth.
Taylor: We believe these investments will pay off and reduce downtime going forward and keep us on track to scale ECS to the $800 million capacity, we have previously shared.
Speaker Change: As a reminder, our accelerator farms are a crucial step to gain practical knowledge of our farm operations without the need to vertically integrate.
Speaker Change: We see this plan is similar to that of a franchise company running a handful of company owned businesses to gain deeper insight into their own operations.
Taylor: As a result, we expect there will be times in the fourth quarter, where our ability to grow production slows from its typical rate.
Speaker Change: We intend that accelerator farms will provide immediately immediate supply for the coming seem more facility in Indiana.
Taylor: We've incorporated the impact of fourth quarter maintenance into both our sales and adjusted EBITDA guidance for the remainder of the year.
Speaker Change: We expect to test and learn new ideas and these learnings can be applied across our existing farm network.
Taylor: Delivering the full year far ahead of our original expectations from the beginning of the year.
Speaker Change: These farms may also serve as powerful recruiting tools for new farmers, who can who can see best practices in action.
Taylor: As we highlighted last quarter, we are now in the beginning stages of building a small number of what we call accelerator farms in Indiana.
Speaker Change: Over time, we plan to make fully operational farms available for sale as turnkey solutions for buyers, who want to fast forward through the construction process.
Taylor: As a reminder, our accelerator farms are a crucial step to gain practical knowledge of our farm operations without the need to vertically integrate.
Speaker Change: We do not expect that accelerator farms will at any point represent more than a mid single digit percent of our overall farms.
Taylor: We see this plant is similar to that of a franchise company running a handful of company owned businesses to gain deeper insight into their own operations.
Speaker Change: Furthermore, planned capex for these farms is entirely built into our Capex guidance, we're committed to our partnership with our family farmers.
Taylor: We intend that accelerator farms will provide immediately immediate supply for the coming Seymour facility in Indiana.
Speaker Change: Before I hand, it over to Pete I have another update on our exciting progress with butter.
Taylor: We expect a test and learn new ideas and these learnings can be applied across our existing farm network.
Speaker Change: We relaunched our butter line. This April after an extensive search for a supply source that we believed with consistent with vital farms philosophy and mission.
Taylor: These farms may also serve as powerful recruiting tools for new farmers, who can who can see best practices in action.
Speaker Change: We chose a pasture raised sourced from Ireland and I'm happy to report that we are seeing significant progress since the relaunch.
Speaker Change: Our butter business was down in the first half of the year weighed down by supply constraints and the discontinuation of our tub butter Skus late last year.
Speaker Change: However, we're back to growth with butter net revenue up 5% in the third quarter and velocity is trending well again this quarter.
Speaker Change: The rebirth of our butter brand is a terrific accomplishment and I am happy with what we've done with this great product in such a short period.
Speaker Change: As Youll hear from Pete we are still in the early innings with this exciting product.
Speaker Change: Now I'd like to wrap up with a few comments.
Speaker Change: We're very proud of our performance so far this year and our business is in great shape as we look forward to 2025, we've grown rapidly while serving our stakeholders and delivering on our financial promises.
Speaker Change: Demand remains extraordinarily high and we have the necessary supply.
Speaker Change: To further strengthen our competitive advantage I'm really excited about the two latest additions to our world class leadership team.
Speaker Change: As I've said many times before the quality of our people is one of our biggest drivers of long term value and growth.
Speaker Change: To further build out this point of strength for us I'm thrilled to have <unk> join us as chief people officer coming from Denno in North America.
Speaker Change: Rina is a highly accomplished HR leader with nearly 20 years of experience aligning people strategies with business results, especially with purpose driven brands like ours.
Speaker Change: Furthermore to ensure that our supply chain capabilities are expanding in lockstep with the amazing work that our commercial organization is doing I'm ecstatic that Joe Holland has joined us as chief supply chain officer.
Speaker Change: Joe has a lot of work to do with ECS Springfield, and the new facility in Seymour and he's up to the task Joe has a proven track record of driving operational excellence and will help us further raise the standards across the food industry.
Speaker Change: Thank you both were excited to have you onboard and with that we'll go to our Chief sales officer, Pete Pappas for further discussion Pete.
Pete Pappas: Thank you Russell.
Pete Pappas: I'd like to start today by saying, Thank you to the sales team and the crew it central station who've done an outstanding job navigating a volatile category, while winning in the market.
Pete Pappas: Our retailers know the value vital farms adds by driving growth and bringing good news to the AG category each and everyday.
Pete Pappas: Our trusted strategic partnerships are expanding and continuously growing stronger.
Pete Pappas: The work, we've done them carried into the third quarter, resulting in strong demand and positive mix.
Pete Pappas: We've had record demand in 2024 as our revenues grew 31% in the first nine months of the year.
Pete Pappas: Last may and our Q1 earnings call I.
Pete Pappas: I gave details on how we expanded distribution increase the number of skus at existing stores and improved our mix with higher price points Skus.
Pete Pappas: This combination of factors helped us grow sales and unit volume well above the category in the first half of the year.
Pete Pappas: The dynamics of the third quarter changed somewhat from the first half of the year against the backdrop of tightening supply for the category.
Pete Pappas: The latest avian flu cycle is now being felt at retail by the consumer.
Pete Pappas: However, our business continues to experience strong volume demand and sequentially improving price and mix.
Pete Pappas: The UGG category grew strongly in dollar terms plus 56% in the latest 12 weeks ending October six.
Pete Pappas: But this was due largely to private label pricing up nearly 75% during that period and the lapping of low prices in the prior year.
Speaker Change: As a result of holding our price in this turbulent landscape, we did not outpaced category revenues in the third quarter, but did have outstanding unit and velocity growth.
Pete Pappas: Final farms units were up 33% during that period, while category units were up only 2% versus last year.
Pete Pappas: Our workhorse Skus remain our 12 and 18 count conventional packages.
Pete Pappas: And two of our fastest growing skus are 12, 18 count organic packages.
Pete Pappas: Our core 12 count remains the number one branded SKU in the AG category based on dollar sales and our <unk> count conventional is right on its heels.
Pete Pappas: 18, count organic is now our fastest growing new item and we believe we will see strong growth ahead.
Pete Pappas: One quick comment on butter I'm excited to say that after a relaunch earlier in the year butter is back on a growth trajectory. After several quarters of supply challenges in the last 12 weeks as of October six the brand has grown 15, 7% in scanner data. We are very excited for a strong fall.
Pete Pappas: This quarter as we enter peak baking season with a robust promotional calendar. The Brent is on stable footing as we look forward to a very strong 2025.
Pete Pappas: Our foodservice business had another solid quarter.
Pete Pappas: We believe the strength of the Viropharma brand gives us a strategic advantage in the foodservice sector, allowing us to forge unique partnerships with restaurants and other operators that are uniquely aligned with our values and high quality farm to table ingredients we continue.
Pete Pappas: To expand distribution with the right operators in critical strategic parts of the country.
Pete Pappas: I continue to be extremely excited about our growth opportunities as we have plenty of runway to expand the vital farms brand to more shelves and tables across the country for.
Pete Pappas: For example in July we launched our core 18, count large item into stop and shop and a Kroger, we added 16 ounce salted butter as new items.
Pete Pappas: And in August we launched our core 18 count mediums at food Lion.
Pete Pappas: We expanded distribution of our organic 12 count mediums in Walmart and we're excited that we continue to expand our full portfolio and HEB in Texas.
Pete Pappas: We appreciate the continued confidence our retailers, placing us as we grow together.
Pete Pappas: I want to finish by once again thanking the team at <unk> Central station, who are working around the clock to package vital farms eggs and the tireless efforts of our farmers without whom we wouldn't have these beautiful delicious eggs to provide to our customers and consumers.
Speaker Change: With that I'll pass it over to Tivo.
Tivo: Thank you Pete Hello, everyone and thank you for joining us today.
Speaker Change: I will now review our financial results for the third quarter ended September 29 2024.
Speaker Change: I'll provide detail on our updated guidance for fiscal year 2024.
Speaker Change: We followed up our record first half of the year with another strong financial performance in the third quarter.
Speaker Change: Our net revenue rose to $145 million up 31, 3% versus last year.
Speaker Change: Posted a 21, 8% volume growth and our positive price mix performance was boosted by the growth of our organic portfolio and other positive mix effect.
Speaker Change: Well, it's a water main break in Springfield in July which cost us two days of production, but we were able to recapture some of that.
Speaker Change: Later in the summer.
Speaker Change: Gross profit for the third quarter of 2024 rose to $53 5 million or 36, 9% of net revenue.
Speaker Change: <unk> of $36 7 million or 33, 2% of net revenue last year.
Speaker Change: Gross profit was boosted by strong volume and revenue growth and the benefits of scale and operational efficiency.
Speaker Change: Positive price mix benefits and lower conventional and commodity in vivo costs contributed to higher margins. This was partially offset by an increase in promotions labor maintenance related expenses and overhead costs to keep pace with growth.
Speaker Change: SG&A expenses for the third quarter of 2024 were $36 1 million or 24, 9% of net revenue.
Speaker Change: $25 $1 million or 22, 7% of net revenue last year.
Speaker Change: The increase in SG&A. This quarter was driven primarily by marketing related and broker related expenses stock based compensation higher employee headcount professional service expenses and technology and software without those expenses.
Speaker Change: These costs are all reflected the expansion of the business and were in line with our expectations based on the previously discussed reimbursement plans for the second half of the year.
Speaker Change: Shipping and distribution costs, both in absolute terms, but it were stable as a percentage of sales shipping and distribution expenses in the third quarter, both to $8 1 million or five 6% of net revenue compared to $6 4 million or five 8% of net revenue last year.
Speaker Change: The increase in shipping and distribution expense was driven by higher sales volumes, partially offset by favorable line haul and fuel rates.
Speaker Change: Net income for the third quarter 'twenty to 'twenty, four was $7 4 million or <unk> 16 per diluted share compared to $4 $5 million or <unk> 10 per diluted share last year.
Speaker Change: Adjusted EBITDA for the third quarter of 2024 rose, 65% to $15 2 million or 10, 5% of net revenue compared to $9 3 million or eight 4% of net revenue last year.
Speaker Change: I have a quick update on our capital structure, that's all our.
Speaker Change: Our cash cash equivalents and investment Securities on September 29, 2024.
Speaker Change: So that $163 million, an increase of $46 $2 million from the end of 'twenty to 'twenty three we have no debt outstanding.
Speaker Change: Now looking ahead for the full fiscal year 2024, we're updating our guidance to net revenue of at least $600 million or at least 27% growth compared to our previous expectation of at least $590 million or at least 25% growth.
Speaker Change: And adjusted EBITDA of at least $80 million or at least 65% growth compared to our previous expectation of at least $75 million or.
Speaker Change: Or at least 55% growth.
Speaker Change: We are reducing our capex guidance to $30 million to $40 million from previously $35 million to $45 million due to updated timing of certain investments.
Speaker Change: Our long term guidance remains unchanged, we're targeting $1 billion in net revenue by 27 with a gross margin of at least 35% and an EBITDA margin of 12% to 14%.
Speaker Change: For this guidance. Please keep in mind that in the fourth quarter. We are facing approximately eight point growth headwind from lapping last year's 50, <unk> week, but does not repeating this year.
Speaker Change: Our updated 2024 guidance reflect our strong revenue and EBITDA performance for the first nine months of the year and our visibility of anticipated demand and commodity costs.
Speaker Change: Additionally, our annual adjusted EBITDA guidance accounts for incremental spending on marketing and maintenance in the fourth quarter.
Speaker Change: The updated Capex guidance continues to include our new facility in Seymour, Indiana.
Speaker Change: To accelerate our farm project Russell discussed and our ongoing digital transformation efforts.
Speaker Change: With a female facility.
Speaker Change: The elevated capex spending over the next few years with a bulk of that is in front of the 25, and especially 2020 six.
Speaker Change: We continue with our planning to fund Seymour and all other projects with existing cash and operating cash flow.
Speaker Change: Projection remains at every Capex dollar dedicated to Seymour will generate more than $5 of annual revenue capacity, which we consider a strong return.
Speaker Change: As always we will continue to evaluate and monitor our capital allocation priorities and we will provide updates as necessary.
Speaker Change: This is an exciting time in Biopharma, we have committed consumers continue to choose that.
Speaker Change: Adding family farms ahead of our CMO groundbreaking plant next year, we remain focused on driving greater retail penetration and raising brand awareness to deliver our axon body to more and more households, with each passing year.
Speaker Change: Once again, we thank you for your time and interest in Biopharma today and for the confidence you've placed in us with your investment with that we're now happy to take your questions.
Speaker Change: 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 with.
Speaker Change: Withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Ben Clive of Lake Street Capital markets. Your line is now open.
Speaker Change: Alright, Thanks for taking my questions and congratulations on a really nice quarter here first I have a question on a high level about kind of conditions throughout the quarter Nielsen data seems to indicate there is a sequential increase in demand from second to third quarter, but you guys. Also noted that you had.
Speaker Change: 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 to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Speaker Change: That a water main break in some kind of intentional maintenance occurred in the period I'm wondering if you can comment on a high level about your ability for supply to match demand.
Speaker Change: Period, and then kind of quantify the overall.
Speaker Change: The impact of the facility.
Speaker Change: Dynamic share within the within the third quarter.
Speaker Change: Our first question comes from the line of Ben Clive of Lake Street Capital markets. Your line is now open.
Speaker Change: Yes, thanks, Ben Thanks for being with US this morning.
Speaker Change: It's a great problem to have really which is that for the entire year to date.
Ben Clive: Alright, Thanks for taking my questions and congratulations on a really nice quarter here first I have a question on a high level about kind of conditions throughout the quarter Nielsen data seem to indicate there is a sequential increase in demand from second to third quarter, but you guys. Also noted that you had.
Speaker Change: <unk> the guidance, we gave and and frankly in many periods exceeded our own internal.
Speaker Change: Our aggressive expectations and.
Speaker Change: And the reality is when you run hard sometimes you got to make sure Youre also doing the maintenance to make sure you can continue to run hard. So I don't know that we left an awful lot on the table in any given week or month relative to our operating plans and relative to.
Speaker Change: That a water main break in some kind of intentional maintenance occurred in the period I'm wondering if you can comment on a high level about your ability for supply to match demand.
Speaker Change: And then kind of quantify the overall.
Speaker Change: The impact of the facility.
Speaker Change: The plans, we built with our customers in the year prior.
Speaker Change: Next year with them.
Speaker Change: But the reality is that.
Taylor: Within the third quarter.
Speaker Change: Demand is strong and I think demand is strong.
Speaker Change: Yes, thanks, Ben Thanks for being with US this morning.
Speaker Change: For our brand.
Speaker Change: And based on the strong shelf placements that Pete and his team has driven over the last several years and the great marketing campaigns, we've done and so our challenge right now is always that I can't get the chickens to lay more eggs in the short run.
Taylor: It's a great problem to have really which is that for the entire year to date, we've exceeded the guidance, we gave and and frankly in many periods exceeded our own internal more aggressive expectations and.
Taylor: And the reality is when you run hard sometimes you got to make sure you're also doing the maintenance to make sure you can continue to run hard. So I don't know that we left an awful lot on the table in any given week or month relative to our operating plans and relative to the.
Speaker Change: And as we continue to ramp up the utilization and are really well constructed and well designed central station in Springfield, Missouri, where we continue to push to do that as fast as we possibly can so I don't see this as a.
Taylor: The plans, we've built with our customers in the year prior.
Speaker Change: As a limiting factor on our ability to deliver on our increased guidance for the year and I'm excited to look ahead to next year, but in the moment as has always been true there are limits to how much upside there is in the short run.
Taylor: But the reality is that.
Taylor: Demand is strong and I think demand is strong.
Taylor: For our brand.
Taylor: Based on the strong shelf placements that Pete and his team have driven over the last several years and the great marketing campaigns, we've done so.
Speaker Change: No that makes plenty of sense. Thanks, Russell and then one more for me on this dynamic and then ill get back in queue around these.
Taylor: Our challenge right now is always that I can't get the chickens to lay more eggs in the short run and and as we continue to ramp up the utilization and are really well constructed and well designed central station in Springfield, Missouri, We continued to push to do that as fast as we possibly can.
Speaker Change: These planned maintenance.
Speaker Change: Can you talk about expectations in the current quarter.
Speaker Change: Sure for overall levels of maintenance kind of an order of magnitude relative to the third quarter or is that going to be picking up sequentially relatively flat or did you do more maintenance in the third then do you expect in the fourth.
Speaker Change: I think.
Taylor: So I don't see this as a <unk>.
Speaker Change: I think it's going to be a pretty consistent approach, we have some flexibility here and so it's all about managing production to our plans against the maintenance that we need to continue to build into our schedule. So I don't know that.
Taylor: As a limiting factor on our ability to deliver on our increased guidance for the year and I'm excited to look ahead to next year, but in the moment as has always been true there are limits to how much upside there is in the short run.
Speaker Change: No that makes plenty of sense. Thanks, Russell and then one more for me on this dynamic and then I'll get back in queue around.
Speaker Change: We will have a.
Speaker Change: A material increase or decrease I think it continues to be a very plan full.
Speaker Change: And purposeful approach to making sure that we're setting ourselves up to continue to run well in the future.
Speaker Change: These planned maintenance is can.
Speaker Change: Can you talk about expectations in the current quarter.
Taylor: For our overall levels of maintenance kind of an order of magnitude relative to the third quarter or is that going to be picking up sequentially relatively flat or did you do more maintenance in the third.
Speaker Change: Very good alright, well I appreciate you guys, taking the questions. Congratulations again on another nice quarter I'll get back in queue.
Speaker Change: Thanks Pat.
Speaker Change: Thank you.
Speaker Change: Back in the fourth.
Speaker Change: Yes, I think.
Speaker Change: Our next question comes from the line of Brian Holland of D. A Davidson your line is now open.
Speaker Change: I think it's going to be a pretty consistent approach, we have some flexibility here and so it's all about managing production to our plans.
Speaker Change: Yeah. Thanks, Good morning, I wanted to sort of.
Speaker Change: Go back to Pete's.
Speaker Change: A comment about sort of the category dynamics through the quarter.
Speaker Change: The maintenance that we need to continue to build into our schedule. So I don't know that.
Speaker Change: So maybe just a high level question, we saw obviously the spike in retail egg prices.
Speaker Change: Excuse me we will have.
Speaker Change: A material increase or decrease I think it continues to be a very plan full.
Speaker Change: And and purposeful approach to making sure that we are.
Speaker Change: But we also saw an increase in promotion against those prices in September I think the spot price came down maybe retailers were sort of using this as a loss using the category. The commoditized section of the category as a loss leader.
Speaker Change: Setting ourselves up to continue to run well in the future.
Speaker Change: Very good alright, well I appreciate you guys, taking my questions. Congratulations again on another nice quarter I'll get back in queue. Thanks.
Speaker Change: Thanks Pat.
Speaker Change: Thank you.
Speaker Change: And.
Speaker Change: Our next question comes from the line of Brian Holland of D. A Davidson your line is now open.
Speaker Change: You guys sort of decelerated concurrent with that through September we saw that start to stabilize I guess can you just asking about category dynamics going forward mindful, you said and I think we see industry data points suggest supply is tight prices are going up.
Speaker Change: Yeah. Thanks, Good morning, I wanted to sort of.
Speaker Change: Go back to peaks.
Speaker Change: Comments about sort of category dynamics through the quarter.
Speaker Change: So maybe just a high level question.
Speaker Change: Promotion has been elevated I guess of late at the commoditize level, how do you see that evolving.
Speaker Change: We saw obviously the spike in retail egg prices.
Speaker Change: But we also saw an increase in promotion against those prices in September I think the spot price came down maybe retailers were sort of using this as a lot of it using the category. The Commoditized section of the category as a loss leader.
Speaker Change: Going forward, just mindful of the impact on your consumption when these price gaps narrow.
Speaker Change: Fortunately for us.
Speaker Change: Thanks for the question, Brian for US I think our demand remains high as you said our promotional activity.
Taylor: And.
Speaker Change: As.
Speaker Change: You guys sort of decelerated concurrent with that through.
Speaker Change: As our capacity.
Speaker Change: As Russell said as we've as we've.
Speaker Change: We saw that start to stabilize I guess can you just asking about category dynamics going forward mindful, you said and I think we see industry data points suggest supply is tight prices are going up.
Speaker Change: Gates in this.
Speaker Change: Maintenance, our preventive maintenance.
Speaker Change: And Springfield, we've been very judicious about the promotional activity that we've engaged in.
Taylor: But promotion has been elevated I guess of late at the commoditize level, how do you see that evolving.
Speaker Change: In the quarter. So we've been very careful about the level of promotion and our demand is for me.
Taylor: Kind of going forward, just mindful of the impact on your consumption when these price gaps narrow.
Speaker Change: Extremely high as a result of that our prices have been very very stable in light.
Speaker Change: The elevated promotional activity, so you've probably seen gaps widen.
Taylor: Fortunately for us.
Speaker Change: Thanks for the question, Brian for US I think our demand remains high as you said our promotional activity.
Speaker Change: Not affected our demand.
Speaker Change: We continue to anticipate that we'll continue to see that through Q4.
Taylor: As.
Speaker Change: We don't anticipate we've worked very closely with our retailers that our role.
Taylor: As our capacity.
Taylor: As Russell said as we've as we've.
Speaker Change: And the category will be to be a margin offset to the promotional activity on the lower end of the category.
Taylor: Gates in this.
Taylor: Maintenance, our preventive maintenance.
Taylor: And Springfield, we've been very judicious about the promotional activity that we've engaged in.
Speaker Change: Our retailer partners are.
Speaker Change: What's the role that we play.
Taylor: In the quarter. So we've been very careful about the level of promotion and our demand is for me.
Speaker Change: So I would anticipate more of that type of behavior through the balance of the year and possibly even into the beginning of Q1.
Taylor: Extremely extremely high as a result of that our prices have been very very stable in light.
Speaker Change: Brian This is Tyler let me just add one thing to that.
Taylor: The elevated promotional activity, so you've probably seen gaps widen.
Speaker Change: Yes, I would say what we've said in the past continues to be the third.
Taylor: It has not affected our demand and I would continue to anticipate that we'll continue to see that through Q4.
Speaker Change: The case.
Speaker Change: Hence the price gaps have very limited impact on our demand.
Taylor: Don't anticipate we've worked very closely with our retailers that our role.
Speaker Change: And our growth opportunity right consumer.
Taylor: In.
Speaker Change: By us.
Taylor: And the category will be to be a margin offset to the promotional activity on the lower end of the category.
Speaker Change: Usually cross shop, let's say commoditized part of the category.
Taylor: Retailer partners are appreciative of the role that we play.
Speaker Change: And so all in the past we have benefitted when there were shortages opex on the shelf and we were available.
Taylor: So I would anticipate more of that type of behavior through the balance of the year and possibly even into the beginning of Q1.
Speaker Change: They're part of the category might not have been.
Speaker Change: Our price gaps per se.
Speaker Change: Very limited impact on our ability to grow.
Taylor: Brian This is Tyler let me just add one thing to that.
Speaker Change: Got it.
Speaker Change: Yes, I would say what we've said in the past continues to be the third.
Speaker Change: Appreciate the color.
Speaker Change: And.
Speaker Change: Second question just.
Taylor: Case.
Speaker Change: Mindful that fiscal 'twenty, four is playing out to be a well above algorithm year.
Taylor: Hence the price gaps have very limited impact on our demand.
Speaker Change: Anything that you can share at this point with respect and I. Appreciate it's early but just looking out to fiscal 'twenty five.
Taylor: Our growth opportunity alright consumers.
Taylor: <unk> by Us.
Taylor: <unk>.
Taylor: Cross shop, let's say commoditized part of the category.
Speaker Change: Again relative to the algorithm that you've sort of laid out back in September 23.
Taylor: And.
Taylor: And so in the past we have benefitted when there were shortages opex on the shelf and we were available to other other parts of the category might not have been.
Speaker Change: Anything worth calling out to help us think about the shape of 25, just again, given the well above expectation performance that we've seen year to date in 'twenty four.
Taylor: Price gaps per se.
Taylor: We have very limited impact on our ability to grow.
Speaker Change: Yes, Brian I appreciate the nudge.
Speaker Change: Got it.
Speaker Change: Appreciate the color.
Speaker Change: What I would certainly say is that.
Taylor: Then.
Taylor: Second question just.
Speaker Change: As I imagine you would observe our strong performance this year builds even more confidence in our ability to achieve the long term guidance. We gave in 2023, which is a $1 billion.
Taylor: Mindful that fiscal 'twenty, four is playing out to be a well above algorithm year.
Speaker Change: Anything that you can share at this point with respect and I. Appreciate it's early but just looking out to fiscal 'twenty five.
Speaker Change: And net revenue from existing businesses in 2027.
Speaker Change: I think we'd be.
Taylor: Again relative to the algorithm that you've sort of laid out back in September 23.
Speaker Change: Lowe's to update that guidance at this point.
Speaker Change: But we're certainly doing our best to maximize the potential of this brand and to unleash the potential of our terrific crew and network of farmers.
Taylor: Anything worth calling out to help us think about the shape of 25, just again, given the well above expectation performance that we've seen year to date in 'twenty four.
Speaker Change: I'll just I'll leave it there.
Speaker Change: Yeah.
Speaker Change: Yes, Brian I appreciate the nudge.
Speaker Change: Yeah.
Speaker Change: What I would certainly say is that.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line.
Speaker Change: As I imagine you would observe our strong performance this year builds even more confidence in our ability to achieve the long term guidance. We gave in 2023, which is a $1 billion in net revenue from existing businesses in 2027.
Speaker Change: <unk>.
Speaker Change: Robert Moscow of TD Cowen Your line is now open.
Robert Moscow: Hi, Thanks for the question I guess I have two.
Speaker Change: One is.
Speaker Change: <unk>.
Speaker Change: Just.
Speaker Change: I think we'd be.
Speaker Change: In general like how much flex is there in your capacity in a given year because you started the year.
Speaker Change: Lowe's to update that guidance at this point.
Speaker Change: But we're certainly doing our best to maximize the potential of this brand and to unleash the potential of our terrific crew and a network of farmers.
Speaker Change: If I have this right thinking that you'd have 17% organic growth.
Speaker Change: Probably going to finish the year.
Speaker Change: I understood I'll leave it there.
Speaker Change: Mostly to 30 and almost all of its volume.
Taylor: Okay.
Speaker Change: No.
Taylor: Yeah.
Speaker Change: That's my first question is that like as we head into 2025 and you give this guidance.
Taylor: Thank you.
Taylor: Our next question comes from the line.
Speaker Change: If demand is better than you thought is is that how much the system can flex in a given year. It seems it seems atypical.
Taylor: <unk>.
Speaker Change: <unk> Moscow of TD Cowen Your line is now open.
Speaker Change: Hi, Thanks for the question I guess I have two.
Speaker Change: Yes, Hey, Rob Good morning, It's Russell very fair question. We've spent a lot of time as we've grown over the years building as much flexibility into our operating model as we can despite the fact that unlike many other producers of eggs in particular, we don't.
Speaker Change: One is.
Taylor: <unk>.
Taylor: Just.
Taylor: In general like how much flex is there in your capacity in a given year because you started the year.
Speaker Change: If I have this right thinking that you'd have 17% organic growth.
Speaker Change: Go to the wholesale market to fill a production gap.
Taylor: Probably going to finish the year.
Speaker Change: Unlike I think it's the way the traditional industry operating it's because our standards are so high even within the commodity that we produce pasteurized eggs.
Taylor: Or to 30 and almost all of its volume.
Taylor: No.
Speaker Change: That's my first question is that like as we head into 2025, and you gave us guidance.
Speaker Change: And we can't just substitute anyone's pasteurized eggs for hours. So we certainly.
Speaker Change: If demand is better than you thought is is that how much the system can flex in a given year. It seems it seems atypical.
Speaker Change: Do our best to have an aggressive.
Speaker Change: Yes, Hey, Rob Good morning, It's Russell very fair question. We've spent a lot of time as we've grown over the years building as much flexibility into our operating model as we can despite the fact that unlike many other producers of eggs in particular, we don't.
Speaker Change: Ply chain expansion pace, which allows some upside.
Speaker Change: You've seen the benefits of that over the course of this year to date.
Speaker Change: But even there even limits to our ability to do that so yes.
Speaker Change: To have upside.
Speaker Change: But there are limits to how much upside there can be.
Speaker Change: Go to the wholesale market to fill a production gap.
Speaker Change: Okay.
Rob: Rob. Please go ahead.
Speaker Change: Unlike I think it's the way the traditional industry operating it's because our standards are so high even within the commodity that we produce pasteurized eggs.
Speaker Change: Hi, Brian.
Speaker Change: When you look back to first quarter last year, and just saw one quarter, where we could push capacity really hard for a very limited amount of time.
Speaker Change: And we can't just substitute anyone's pasteurized eggs for hours and so we certainly.
Speaker Change: But then it's really hard to sustain for us because at some point, we have to slow down we have to.
Speaker Change: Do our best to have.
Speaker Change: A couple of machines and so on.
Speaker Change: And aggressive.
Speaker Change: And we have to make sure we have the supply.
Speaker Change: Supply chain expansion pace, which allows some upside certainly you've seen the benefits of that over the course of this year to date.
Speaker Change: So this year, we have been running ahead of our own plan all year.
Speaker Change: Fourth quarter, I think we're catching up global inventory market is catching up to us a little bit.
Speaker Change: But even there even limits to our ability to do that so yes.
Speaker Change: And so.
Speaker Change: Okay.
Speaker Change: We want to grow capacity.
Speaker Change: Want to have upside.
Speaker Change: I am very intentionally overtime.
Speaker Change: But there are limits to how much upside there can be.
Speaker Change: That still holds very much true.
Taylor: Okay.
Rob: Rob. Please go ahead.
Speaker Change: Okay.
Taylor: Hey, Brian.
Brian Holland: When you look back to first quarter last year, just saw one quarter, where we could have approached capacity really hard for a very limited amount of time.
Speaker Change: And then anecdotally I had heard about stock outs at retailers.
Speaker Change: We don't carry enough of your Skus and I think that's probably the main issue.
Taylor: But then it's really hard to sustain for us because at some point, we have to slow down we have to.
Speaker Change: So any thoughts on whether that had a quantitative impact on your sales in the quarter.
Taylor: A couple of machines and so on.
Taylor: And we have to make sure we have the supply.
Speaker Change: And that would give you good ammunition into 2025 to say.
Taylor: So this year, we have been running ahead of our own plan all year.
Speaker Change: Give us more give us more facings and you won't have this issue.
Taylor: Fourth quarter, I think we're catching up to that level of inventory it is catching up to us a little bit.
Speaker Change: Yes, thanks, Rob.
Speaker Change: This is <unk>.
Taylor: No.
Speaker Change: This is sort of the perpetual question, which is how do we help ensure that our product is available to anybody that would like to try it for the first time or or come back and revise it as a lawyer.
Thomas: Sure Thomas.
Taylor: We want to grow capacity.
Taylor: I am very intentionally overtime.
Taylor: First of all it's very much true.
Taylor: Okay.
Taylor: And then anecdotally I had heard about stock outs at retailers.
Speaker Change: Loyal consumer I think that there are certainly times, even today when an empty shelf earlier in the day would indicate maybe that store didn't order enough or maybe they haven't had a chance to restock yet.
Taylor: We don't carry enough of your Skus and I think that's probably the main issue.
Speaker Change: So any thoughts on whether that had a quantitative impact on your sales in the quarter.
Speaker Change: I think given the fact that we are seeing substantial demand for our brand.
Taylor: And does that give you good ammunition into 2025 to say.
Speaker Change: And our short term ability to fill it in full suggests that we are now contributing to that to that situation. It's not so much that it's hurting our sales. It is that we are kind of running as hard as we can and growing strongly as a result, but there's even more demand than we than we project again I think it's a good.
Taylor: Give us more give us more facings and you won't have this issue.
Speaker Change: Yes, thanks, Rob.
Taylor: This is.
Taylor: This is sort of the perpetual question, which is how do we help ensure that our product is available to anybody that would like to try it for the first time or or come back and revise it as a lawyer.
Speaker Change: Problem, the half Theres, no sense of missing numbers or Underachieving plan, where we continue to raise our guidance and overachieve our guidance. It's simply that there are limits to even our ability to grow incidentally in the short run. So again good problem to have and I'm excited to see what's possible next year.
Taylor: Oil consumer.
Taylor: I think that there are certainly times.
Taylor: Even today when an empty shelf earlier in the day would indicate maybe that store didn't order enough or maybe they haven't had a chance to restock yet.
Taylor: I think given the fact that we are seeing substantial demand for our brand beyond our short term ability to fill it in full suggests that we are now contributing to that to that situation. It's not so much that it's hurting our sales.
Speaker Change: How many consumers are demonstrating their real interest in buying our products.
Speaker Change: Okay. Thank you very much.
Rob: Thanks, Rob.
Speaker Change: Thank you.
Taylor: We're kind of running as hard as we can and growing strongly as a result, but there is even more demand than we than we projected again I think it's a good problem to have theres no sense of missing numbers or Underachieving plan, where we continue to raise our guidance and overachieve our guidance.
Speaker Change: Our next question comes from the line of Jon Andersen of William Blair. Your line is now open.
Jon Andersen: Hey, good morning, Thanks for the questions and congrats on the strong quarter.
Speaker Change: Let me just wondering if you could talk a little bit about the.
Speaker Change: Dynamic that you you laid out in your.
Speaker Change: Long term plan and what im referring to is kind of some of the household penetration goals versus spending.
Taylor: It's simply that there are limits to even our ability to grow infinitely in the short run. So again good problem to have and I'm excited to see what's possible next year, given how many consumers are demonstrating their real interest in buying our products.
Speaker Change: Spending per household or buy rate objectives give.
Speaker Change: The outsized demand. This year, how are you seeing household penetration versus buy rate trending is it in line with your expectation or you're kind of getting the trial.
Speaker Change: Okay. Thank you very much.
Rob: Thanks, Rob.
Taylor: Thank you.
Speaker Change: To bring those new households into the franchise that you are expecting and what kind of plans do you have in terms of upgrade updating those measures on a on a go forward basis. Thanks.
Speaker Change: Our next question comes from the line of Jon Andersen of William Blair. Your line is now open.
Speaker Change: Hey, good morning, Thanks for the questions and congrats on the strong quarter.
Speaker Change: Hi, John Good morning, Thanks for the question.
Speaker Change: Let me just wondering if you could talk a little bit about the.
Speaker Change: Household penetration, we are pretty much on track, where we want to be for this year.
Taylor: Dynamic that you you've laid out in your long.
Speaker Change: What we've seen in Q3 is that we've added additional households, we're managing the natural churn that any Brian season and households.
Taylor: A long term plan.
Taylor: Referring to as kind of some of the household penetration goals versus.
Taylor: Spending per household or buy rate objectives.
Speaker Change: Given the outsized demand. This year, how are you seeing household penetration versus buy rate trending is it in line with your expectation or you're kind of getting the trial.
Speaker Change: And so Brian and leave again, so all of that is on track I think for the longer term.
Speaker Change: Growth algorithm.
Speaker Change: We definitely still see the potential loss of 30 million households.
Speaker Change: Bringing those new households into the franchise that you are expecting and what kind of plans do you have in terms of upgrade updating those measures on a on a go forward basis. Thanks.
Speaker Change: We've talked about last year at our Investor day.
Speaker Change: I think lately the growth has come a bit more from <unk> than what we initially had planned for and so that is something that we are definitely tapping into right now but that is not to say that we are.
Speaker Change: Thanks, Ron and good morning, Thanks for the question.
Speaker Change: So household penetration we are pretty much on track, where we want to be for this year.
Speaker Change: What we've seen in Q3 is that we've added additional households, we're managing the natural churn that any Brian sees and households.
Speaker Change: We're not going after these 30 million households.
Mike: It's Mike.
Mike: I will get to the $30 million by 2027, maybe.
Mike: Later, we will make up for it with with by rate improvements.
Brian Holland: Brian I believe again, so all of that is on track for the longer term.
Speaker Change: Where we have really seen.
Speaker Change: Growth algorithm.
Mike: Alright.
Mike: Meaning full.
Speaker Change: We definitely still see the potential loss of 30 million households.
Mike: Advances just consumer loyalty.
Speaker Change: And the number of times consumers buyers in the year, where they are already in the brand.
Speaker Change: That we've talked about last year at our Investor day.
Speaker Change: I think lately the growth has come a bit more from by rate increases than what we initially planned for.
Speaker Change: That speaks to the quality of the brand quality of the product and really the connection that we have with the consumer once we get them into the brand.
Speaker Change: So that was something that we are definitely tapping into right now, but that is not to say that we are.
Speaker Change: That's helpful.
Speaker Change: I don't know if you have this perspective or data.
Speaker Change: We're not going after these 30 million households.
Speaker Change: For household.
Speaker Change: Buying or a user of vital farms eggs or are they often are typically.
Speaker Change: We might not get to the $30 million by 2027, maybe thats a year later, but we will make forward with with by rate improvements.
Speaker Change: Using other brands as well as their brands switching.
Speaker Change: We have really seen.
Speaker Change: Okay.
Speaker Change: Going on or is this kind of increasing.
Speaker Change: Quite meaningful.
Speaker Change: My right.
Speaker Change: <unk> is just consumer loyalty and the number of times consumers by us in the year, where they are already in the brand and I think that speaks to the quality of the brand quality of the product.
Speaker Change: More indicative of just more use cases, maybe around more day parts for <unk>.
Speaker Change: Sure.
Speaker Change: The brand in general.
Speaker Change: Yes, very fair question and certainly one that we talk about a lot internally.
Speaker Change: The connection that we have with the consumer once we get them into the brand.
Speaker Change: One of the things to keep in mind. When we talk about household penetration is that it's got a lot of new consumers that may have just joined the brand and a lot of very mature consumers, who have been with us for years, we definitely see a trend of the mix of a given cohort of new consumers shifting toward a.
Speaker Change: That's helpful.
Speaker Change: I don't know if you have this perspective.
Speaker Change: Respective or data.
Speaker Change: But for household.
Speaker Change: A higher buy rate over time and that dynamic continues unabated newer consumers as you can imagine one by simply the sheer law of numbers. If you just bought US last week you just bought us at one time and so there's always a mix of that those two kinds of consumers I would say that.
Speaker Change: That it's not so much that we're seeing different usage occasions necessarily but we're seeing.
Speaker Change: Continued strength in our brand.
Speaker Change: And continued.
Speaker Change: Growth of our pool of heavy users as it were the reality is that many consumers buy multiple brands and even private label at different points throughout the year and it's true that in some cases, it's different purposes.
Speaker Change: Looking at special breakfast and I want a premium AG, but maybe for my baking I want something different or even vice versa. Some people have told us that our eggs make the best two plays for example in the baked goods.
Speaker Change: On the flip side, there are times, when one or more brands might be on a terrific sale, it's hard to ignore or maybe as was mentioned earlier in the call you confront a shelf where their first choice vital farms isn't available, but you really need X.
Speaker Change: Is often a great chance for us to highlight what they will miss about us when they have to try someone else's eggs.
Speaker Change: Sure.
Speaker Change: I think again everything points to continued healthy growth maturing and expanding demand by existing households, and we're continuing to add new ones to the full.
Speaker Change: That's helpful. If I could squeeze one more in advertising and promotion.
Speaker Change: Youre right relative to sales last year was somewhere in the mid single digits about 5%.
Speaker Change: How do you expect that to kind of evolve through 2024 and beyond.
Speaker Change: <unk> talked about.
Speaker Change: Incremental marketing and promotion spending.
Speaker Change: But obviously they have also been very strong sales is that a level from a rate perspective that you feel is is.
Speaker Change: Adequate.
Speaker Change: To maintain or do you lever that up or down over time. Thanks.
Speaker Change: Yeah. Thanks, Thanks, John Taylor will give you more of the specifics, but at a higher level philosophically what I'd say is we.
Speaker Change: <unk>.
Speaker Change: We continue to make strong investments in our brand not to drive short term consumption. We havent found that direct correlation and in fact, that's not really our purpose here. The purpose and brand building is to build an enduring trust based brand for the long haul and so our increases have been long planned and long.
Speaker Change: Sort of signaled.
Speaker Change: And and.
Speaker Change: And <unk> can talk about where that growth ends if it ends in and what we think the right number might look like.
Jonathan: Yes, Jonathan.
Speaker Change: Put a few numbers out there in Q3, our spending on marketing as a percent of net sales was the highest level that we've had since the IPO.
Speaker Change: Part of that was the plan.
Speaker Change: All along since the beginning of the year a part of it was these reinvestments that we have from the first half of the year that we've talked about.
Speaker Change: Fourth quarter, I would still expect us to be above.
Speaker Change: Run rate for the year above historic levels.
Speaker Change: Simply because we're continuing these reinvestments, we're seeing the benefits and brand awareness.
Speaker Change: Driving trial overtime.
Speaker Change: And so.
Speaker Change: Marketing spending increased marketing spending that's something that we still have on the agenda for this year and probably for future years.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Robert Dickerson of Jefferies. Your line is now open.
Speaker Change: Great. Thanks, so much.
Speaker Change: Apologies, if I typed themselves when discussing just hopping on a little late.
Speaker Change: Russell I just wanted to ask you about kind of the step up in the marketing spend and they clearly you talked about that last quarter.
Speaker Change: You have been acted I think.
Speaker Change: Decent amount a bit.
Speaker Change: Just curious as to kind of how you view those returns on that investment so far and then the learning that youre getting out of that investment relative to kind of where your national distribution and the velocities.
Speaker Change:
Speaker Change: Is there is there anything that comes out about as you think forward such that well maybe.
Speaker Change: Seasonal basis, we don't need to do it as much maybe in Q1 versus Q2 next year.
Speaker Change: We actually have the exactly the right amount of investment.
Speaker Change: Given where we are in the business cycle. That's the first question.
Speaker Change: Thanks, Rob I am going to let <unk> talk about <unk>.
Speaker Change: Turns on those investments, which is the perpetual question and I don't think I'm qualified to answer it but what I would say is that yes.
Speaker Change: Yes, we are.
Speaker Change: We're.
Speaker Change: <unk> building this brand for the long haul and part of that is as you suggest it investing in insights and we've built a really terrific team of.
Speaker Change: Consumer insights folks who are helping us better understand.
Speaker Change: What you might want to know about how people interact with our brand what leads them to buy us what leads them to buy a second time, when they might use us and when they might not use us et cetera.
Speaker Change: Because ultimately the brand is only as strong as our ability to fill an unmet need in the marketplace, an unmet consumer need which we believe we've been really successful in doing over the years and want to make sure we continue to do.
Speaker Change: In terms of the learnings I think I'd be.
Speaker Change: Low to maybe share some of those which frankly are some of the secret sauce or.
Speaker Change: A little bit of the moat that we built in our brand building, which is all rooted in our deep understanding and relationship with the consumer.
Speaker Change: Let Keith talk a little bit now about how we think about returns on those investments.
Speaker Change: Yes.
Speaker Change: Postal service is not the expert to talk about Retrans I don't know if I'm either.
Speaker Change: I don't have.
Speaker Change: <unk> number that I can share with you that every dollar of marketing spend drives X dollars of.
Speaker Change: Retail sales what I can tell you is we do quarterly.
Speaker Change: Alright.
Speaker Change: <unk> worked with consumers.
Speaker Change: Tests brand awareness, Brian for other brands.
Speaker Change: We see that as we continue to increase our marketing budget over time brand awareness is increasing.
Speaker Change: And we see a time this quarter is a good example.
Speaker Change: We had I think a meaningful increase in our marketing spend versus Q2 versus last year and our brand awareness behave differently from other brands.
Speaker Change: And the market performs better.
Speaker Change: So if that's an indication for what we're getting for our marketing spend but I think that's a good starting point, but we've always said that we use marketing spend to drive brand awareness.
Speaker Change: Not necessarily to drive retail sales in that quarter, but it is something that we are building over time and eventually the brand awareness.
Speaker Change: Turning to.
Speaker Change: Trial purchase.
Speaker Change: Believe that over time that will lead to repeat purchases.
Speaker Change: So thats, how we are tracking return on our spending right now.
Speaker Change: Okay fair enough.
Speaker Change: And then I guess.
Speaker Change: Maybe another question for you.
Speaker Change: Just on the gross margin.
Speaker Change: I mean, clearly you know gross margins continue to impress.
Speaker Change: Overall.
Speaker Change: We're thinking let's say about Q4 or.
Speaker Change: I don't want to say 25 settlement scurry away.
Speaker Change: But kind of.
Speaker Change: In general it seems like the momentum is there to kind of.
Speaker Change: At least the still kind of hitting that mid 30 range, where in Q4 or just kind of thinking about going forward.
Speaker Change: If let's say if feed costs kind of stay where they are right I mean, I'm just trying to.
Speaker Change: I get a lot of questions about how the gross margin is sustainable no I don't think they really want you to think that we're at the same time, you're continuing to do really well on the gross margin and I'm also trying to think about what are the offsets outside of feed cost.
Speaker Change: With lower the gross margin from here.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: We've certainly been above our long term targets year to date.
Speaker Change: We expect to be above our long term target for the full year.
Speaker Change: I'm not going to talk about 25, yet but for now we're sticking with the 35.
Speaker Change: 35% target for 2027.
Speaker Change: Allows us a bit of flexibility to maybe try a few things with the brands too.
Speaker Change: To keep investing in ECS.
Speaker Change: We're expanding our from network and we're building up from closer to the new C more facility.
Speaker Change: While the facility is not open yet we have to transport all of these I expect to Springfield. So we have increased transportation distance for a four hour.
Speaker Change: Pharmacy for our excess to come up with.
Speaker Change: So that will impact margins a bit.
Speaker Change: And the maintenance of we've mentioned a few times.
Speaker Change: Wei.
Speaker Change: Fourth quarter as well. So there are a few puts and takes I think right now we're comfortable with where the gross margin is.
Speaker Change: I wouldn't again I'm not going to talk about 2025, yet but.
Speaker Change: That 35% number that we've put out for 2027, I think we feel comfortable that we can be at or above that range.
Speaker Change: In 2027.
Speaker Change: Alright, great.
Speaker Change: Great job guys. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt Smith of Stifel. Your line is now open.
Speaker Change: Hey, good morning, Chemo a question for you on the price mix.
Speaker Change: Performance in the quarter in the AG business that Reaccelerate. It in the third quarter can you talk about the drivers of that Reacceleration as we think about price mix contribution into the fourth quarter.
Speaker Change: Yes, good morning, Matt.
Speaker Change: I think it was really.
Speaker Change: The driver here was mix not price, we took pricing on the organic portfolio at the beginning of the year, but we've talked about it multiple times over the course of the year.
Speaker Change: And.
Speaker Change: <unk>.
Speaker Change: I think this quarter in particular, we have had mixed benefits from.
Speaker Change: Having more organic sales through all of the conventional sales.
Speaker Change: Retail sales grew faster than foodservice sales pizza talked about foodservice doing gulfport compared to the first half of the year foodservice it quite.
Speaker Change: Quite a bit better than first half of the year part of that was both lapping from last year.
Speaker Change: But third quarter retail sales grew faster than conventional sales, we didn't have a whole lot of wholesale.
Speaker Change: Sales in the quarter.
Speaker Change: And.
Speaker Change: And so with that.
Speaker Change: The mix benefit that was really the driver for this quarter revenue growth being a bit more price mix driven versus volume driven.
Speaker Change: The intention for the longer term is still that we are driving the growth with volume growth.
Speaker Change: There is a reason why we add it.
Speaker Change: Another.
Speaker Change: A few dozen firms to our network, we need to keep the X supply growing we need to if you've worked on the ECS.
Speaker Change: Expand our capacity there.
Speaker Change: So the long term algorithm is still very much volume driven.
Speaker Change: By quarter.
Speaker Change: <unk> see some.
Pete Pappas: Variations there depending on organic versus Nonorganic sale turns on maybe Pete can add.
Matt Smith: Yes, Matt.
Matt Smith: The one thing that I would add is our average our average number of items on shelf continues to grow so we're starting to see.
Speaker Change: That those incremental items typically be our 18 count organic are higher priced items. So we're seeing the benefit of that we're also seeing the benefit of.
Speaker Change: You talked about mix.
Speaker Change: Our base based units are up incrementally relative to our promoted items. So we're seeing the benefit of.
Speaker Change: Base philosophies, much much stronger than that around and promoted items. So.
Speaker Change: I would anticipate that to continue.
Speaker Change: Considering what the demand curve looks like.
Speaker Change: So we're bullish on this being a sustainable proposition forward.
Speaker Change: Thank you and as a follow up Russell can you talk about the the health in the backlog for new family farms, especially as you make progress towards building a recognition with the community around the new plant in Indiana. When when would you ideally want to be kind of building that backlog and starting to see far.
Speaker Change: <unk> sign on and start their farm build process around that new facility.
Russell: Yes, it's a great question as you know.
Speaker Change: Our farmers really are at the heart of certainly our AG business and.
Speaker Change: Attracting the right ones and retaining the right one just so important to how we operate how we think about the world.
Speaker Change: You are right we started last year.
Speaker Change: Kind of getting the story of vital farms out in some new areas, including Indiana, where we aren't as well known as we are in some of the states, where we have many farms today, but the reality is I don't necessarily want a lot of farms in Indiana until we're a lot closer to opening that new facility. So the fact that we're working on it now is just.
Speaker Change: A great example of the long term focus and the intentionality with which we do everything around here by the time, we're ready to add farms in Indiana I want that line to be there of really great farmers. If we meet someone today Opportunistically, who we just don't want to take advantage of a different opportunity.
Speaker Change: We might jump in ahead of schedule the scoop them up make sure. They are encamped vital but the reality is that.
Speaker Change: For now we continue to add farms more close to Springfield, Missouri, because we still are adding farms to maximize the capacity there.
Speaker Change: Thank you Russell and personal.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: I am showing no further questions at this time, so I would like to turn it back to Anthony for closing remarks.
Anthony: Thank you again, everyone for your support of vital farms have a great day.
Anthony: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.