Q4 2024 Vital Farms Inc Earnings Call
Thank you for standing by my name is Kate and I will be your conference operator today.
This time I would like to welcome everyone to the vital farms quarter for 'twenty 'twenty four earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Speaker Change: We encourage participants to limit yourself to one question and one follow up if you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Anthony Wood Kahlo, Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to the vital farms fourth quarter and full year 2024 earnings conference call and webcast.
Speaker Change: Carlo VP of Investor Relations and I'm joined on the call today by Russell <unk>, President and Chief Executive Officer, <unk>, <unk>, Chief Financial Officer, Kathryn Mckeon, Chief Marketing Officer and General manager.
Speaker Change: By now everyone should have access to the company's fourth quarter and full year 2024 earnings press release issued this morning. This is available on the Investor Relations section of final 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 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 annual report on Form 10-K for the fiscal year ended December 29, 2024 filed with the SEC today as well as other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking stay.
Speaker Change: With me today.
Speaker Change: Please note that on today's call management will refer to adjusted EBITA and adjusted EBITDA margin, which are non-GAAP financial measures.
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 press release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to the most comparable measures prepared in accordance with GAAP.
Russell: But that I will turn the call over to Russell, <unk>, President and Chief Executive officer of vital farms.
Speaker Change: Good morning, and thank you for your time today.
Speaker Change: Vital farms finished 2024 on another high note posting a great set of results in the fourth quarter and surpassing our financial guidance for the year.
Speaker Change: We achieved this with the help of all of our stakeholders, especially the crew members and family farmers, who once again helped us deliver on our purpose of bringing ethical food to the table.
Speaker Change: I am grateful for all of their efforts. This is truly an exciting time for vital farms.
Speaker Change: 2024 was a year of important milestones and great accomplishments for our company.
Speaker Change: First we exceeded $600 million and net revenue well ahead of our initial expectations for the year and keeping us on track to meet our $1 billion sales target by 2027.
Speaker Change: Second we added more than 125, new family farms, reaching more than 425 by year end.
Speaker Change: When completed these new farms will expand our AG sourcing capacity by more than 40%.
Speaker Change: We see this growth in foreign count as a testament to the strength of our recruitment team.
Speaker Change: And the appeal of the vital farms model for our family farmers.
Speaker Change: Along with passing these milestones.
Speaker Change: We also successfully built more groundwork for future growth by investing in brand support and and our fast growing supply chain.
Speaker Change: On the marketing side, our efforts drove brand awareness to new heights against our closest competitors.
This record brand awareness helped our sales team expand retail distribution for eggs, while simultaneously building higher sales velocity.
Speaker Change: And I'm very pleased with how we're rebuilding our butter business with butter back in growth and with plenty more ahead.
Speaker Change: We announced critical expansions of our supply chain in 2024 and expect to continue making such improvements.
Speaker Change: Last spring, we announced plans to open a new AG, Washington packing facility. We expect this new facility will significantly increase our production capacity.
Speaker Change: <unk>, our next leg of growth.
Speaker Change: Additionally, we announced that we will be adding company owned accelerator farm store network ahead of our new facility opening in 2027.
Speaker Change: Importantly, we established dedicated supply chain leadership with the appointment of Joe Holland, as our first chief supply chain officer, bringing his extensive experience to our team.
As we look ahead to 2025 this will again be another year of important supply chain investments.
Speaker Change: In January we announced that we are adding a new best in class a grading line at Central station in Springfield, Missouri.
Speaker Change: We anticipate this new line will expand our capacity there by 30% by the end of 2025.
Speaker Change: We believe adding this new line is a well timed steps in managing our current demand and building a central station revenue capacity to more than $1 billion, well past, our last capacity estimate of $800 million.
Speaker Change: We also expect to open our first company owned accelerator farms later this year, providing us with new sources of best practices that we can share with our existing farm network.
Speaker Change: In recent quarters, we spent a great deal of time, highlighting how we are strengthening and expanding our supply chain and there's good reason for that our growth is tied directly to how many eggs, we can collect wash and ship.
Speaker Change: The timing of our supply chain investments in both 2024, and 2025 will be critical in understanding how our 2025 guidance of $740 million in sales and $100 million and adjusted EBITDA will be weighted across this year.
Speaker Change: It's not news that the egg industry has a supply issue as avian influenza losses continue to deplete shelves across the country.
Speaker Change: The industry loss, nearly 40 million egg layers in 2024, and we're sure you've seen the tight supply of eggs at your local supermarket and on the news.
Speaker Change: Industry supply shortages have created extraordinary demand for our products, but have also created supply constraints.
Speaker Change: Looking ahead to the first quarter the supply constraints, we experienced at the end of 2024 have continued into the beginning of this year.
Additionally, we are cycling two consecutive years of exceptional first quarter performances with sales up 55% in the first quarter of 2023 and 24% in the first quarter of 2024 from the respective prior year period.
Speaker Change: In the first quarter of 2024, we sold through the eggs, we produced and we sold through a significant amount of inventory, which compounded our sales growth.
Speaker Change: In the first quarter of 2025, we are shipping more eggs than we did a year ago. However year on year, we have much less inventory and we're not selling through inventory like we did last year.
Speaker Change: As a result, we expect a modest step down in our growth rate versus recent periods throughout the first half of 2025, particularly in the first quarter.
Speaker Change: However, as our egg supply builds throughout the course of the year, we expect our financial and commercial performance to accelerate as the year goes on especially in the second half of the year when comparisons ease.
Speaker Change: We built this into our 2025 guidance and please keep this in mind as you build your models for the year.
Just to be clear new family farms take roughly nine months on average to start egg production.
Speaker Change: The farms, we signed in the early part of last year are now yielding a good supply of eggs.
Speaker Change: By the fourth quarter of the year more and more of the farms. We signed throughout last year, we will begin providing supply, which we expect will accelerate into the second half of the year.
Speaker Change: We anticipate the approximately 125 farms, we signed last year should be fully up and running by the fourth quarter. Additionally, the new Washington packing line in Missouri will also become fully operational in the fourth quarter.
Speaker Change: Taking these two developments together, we project that we will have needed capacity and should be well positioned to meet our guidance expectations for the year and keep us on the path to $1 billion by 2027.
Speaker Change: Protecting animal welfare is at the heart of our company mission and this recent outbreak of avian influenza as SaaS and difficult time for us and our industry.
Speaker Change: Less than two months into 2025 more than $27 million. Hence have died from avian influenza along with nearly $40 million that were lost in 2024.
Speaker Change: Shortages have created another hardship for American families already impacted by the food inflation of recent years.
Speaker Change: I am proud to say that our family Farm network and our company farm teams have been highly resilient through this recent outbreak.
Speaker Change: Going all the way back to 2022, we've had just four positive cases across our 425 farms, representing less than one half of 1% of our hands. During this last outbreak.
Speaker Change: We've only had one outbreak in the trailing 12 months.
Speaker Change: As a reminder, no one farm represents more than one half of 1% of production capacity.
Speaker Change: According to even the most favorable estimates will be in this national egg shortage through the end of 2025.
Speaker Change: I can promise that vital farms will be working hard to get more exited the shelf with expanded supply.
Speaker Change: Our farm recruitment team continues to perform at an incredible level and I tip my hat to them.
Speaker Change: At the end of 2023, we had five 4 million laying hens at our system.
Speaker Change: At the end of 2024, we had $7 7 million with even more to come this year.
Speaker Change: I'd like to make a few comments about an important and exciting change we've made to our management structure.
Speaker Change: We announced in January that Pete Pappas, our chief sales officer.
Speaker Change: <unk> his role to Chief sales officer, and President of ex Cat.
Speaker Change: Catharine Mackinnon, our Chief Marketing Officer, now serves as Chief marketing Officer, and general manager of butter.
Speaker Change: Vital farms is expanding quickly and we're evolving to meet the demands of that growth.
Speaker Change: Our net revenue has more than doubled in the last three years and nearly tripled over the last four.
Speaker Change: The demand for our edge is at record highs and our revamped butter business is accelerating.
Speaker Change: To better manage the demands of our growing organization, and then powering Pete and Katherine to focus on maximizing opportunities in our two core segments.
Speaker Change: Additionally, empowering Pete and Katherine frees me for much of my day to day focus on eggs and butter, giving me the opportunity to think strategically about what we need to do next to help drive viral farms into new phases of growth.
Speaker Change: Pete and Catherine are extraordinary and dedicated executives, who know this business back to front and I look forward to seeing them in action.
Speaker Change: I'd like to wrap up with a few comments before moving on to Catherine and kilo.
Speaker Change: In 2024, we grew beyond our expectations, while serving our stakeholders and delivering on our financial promises.
Speaker Change: We invested in our farm network and strengthen our supply chain.
Speaker Change: We grew our presence at retail and in the mind of the consumer and I can't say enough about how well our AG Central station crew members performed this year over delivering on high expectations by a wide margin.
Speaker Change: Yes, we passed some significant milestones and these were great accomplishments, but the thing about milestones is that they can go from goals to ancient history very quickly.
Speaker Change: We're now focused on delivering the next set of milestones and believe our dynamic supply chain top notch people and great brand will take us there.
Speaker Change: Industry supply, including ours will be tight to start the year due to the continued impact of avian influenza. However.
Speaker Change: However, I'm confident that we're well positioned to navigate these choppy waters, we have the right mix of ingredients to help drive us to our goal of becoming America's most trusted food company.
Speaker Change: I'm certainly looking forward to it and I hope you are too.
Speaker Change: And with that we'll go to our Chief marketing Officer, and now butter General manager Catharine Mackinnon for further discussion.
Speaker Change: Catherine.
Catherine: Thank you Russell.
Speaker Change: So I'd like to start today by saying a giant thank you to all of the Viropharma crew members, who have done such an outstanding job tilting our business, especially in the hardware ECS keeps getting us eggs and butter every single day during a period of extraordinary demand.
Speaker Change: Believe we have the right products the right brand and most importantly, the right people to win in the market.
Speaker Change: I'm also excited and honored to take on the additional four better general manager, but I had a great performance in 2024 with sales up 11% for the year with the brand nearly doubling its quarterly sales in Q4 as it picked up steam in the second half of the year.
Speaker Change: As we build up the better team, we couldnt be more fired up about the future. We have seen extraordinary demand about just over the past few months and we believe that demand is sustainable we expect better it can be an important piece of our growth strategy to meet our long term financial goals.
Speaker Change: There will also be a crucial cornerstone in our portfolio of ethically produced as we strive to become America's most trusted company.
Speaker Change: As Russell said in his comments, we had another excellent year connecting with our consumers in both our categories and further building the vital farms brand our brand awareness.
Speaker Change: Our household penetration grew strongly and our binary it was up double digits.
Speaker Change: <unk> leadership in premium X with unmatched attention and loyalty rates during a period of supply disruption and increasing competition in our segment.
Speaker Change: Our marketing efforts continue to resonate with consumers and vital final gain more consumer mind space last year, and 2024 aided brand awareness increased 26% up from 23% at the end of 2023.
Speaker Change: Nine percentage points higher than our aided awareness from 2012.
Speaker Change: What is most exciting for us.
Speaker Change: Is that our brand awareness is playing away from our closest competitors in 2020, we were clustered with pardon me most relevant competitors in the mid teens. While these same competitors remain in the mid <unk>, we have grown well into the mid twenty's, a significantly and recognition in the minds of our consumers.
Speaker Change: We're converting that awareness into more households, you buy back.
Speaker Change: In 2024 through our household penetration to just over 14 million homes, we added $2 3 million households to our consumer base, a 20% increase year over year. This brings household penetration to 10, 7%.
Speaker Change: One nine percentage point increase from 2023.
Speaker Change: We're seeing an acceleration in the consumer brand preference for kind of items. This is showing up in key metrics for measuring consumer buying behavior, our buy rate the purchase frequency multiplied by the spend per trip.
Speaker Change: $36.06, a 12% increase year over year, our purchase frequency and the average number of trips per household reached $3 seven up 6% versus 2023.
Speaker Change: Our spend per trip.
Speaker Change: $1 85.
Speaker Change: <unk>, 5% from 2023.
Speaker Change: Finally, our percentage of heavy buyers consumer into bias at least eight times, a year reached 13% up two percentage points versus a year ago. We.
Speaker Change: We see significant runway ahead, as we focus marketing investments to expand our reach.
Speaker Change: Finally, I'd like to finish today with a quick word on our newly launched brand campaign titled Good eggs, no shortcuts or new campaign celebrates the vital firm's commitment to raising the standards.
Speaker Change: He's choosing the right way with easy way.
Speaker Change: <unk> documentary style interviews with four realized Phyto farms Stanley farmers.
Speaker Change: The interviews capture their humorous and authentic responses always highlighting our commitment to animal welfare.
Speaker Change: I think that good ex no shortcuts is another illustration of <unk> commitment to being both Jeffrey and getting right by our stakeholders, even if that means taking a longer harder road, we live those values every day.
Speaker Change: We have rolled out good Ed no shortcuts across linear and streaming TV and online and social platforms, including Netflix Hulu Disney plus read it matter Snapchat Spotify and Youtube.
Kilo: We're incredibly proud of this campaign and I strongly encourage you to check it out with that I'll pass it over to kilo.
Speaker Change: Thank you Katherine and Hello, everyone and thank you for joining US today I will now review our financial results for the year ended December 29, 2024, and then provide details on our new guidance for fiscal year 2025.
Speaker Change: 2024, it was another great year for Baidu firms are net revenue rose 28, 5% to 600 613 million.
Speaker Change: Fourth quarter revenue Rose 22, 2% on a reported germs and rose, 30% when accounting for the extra week in the fourth quarter of 2023.
Speaker Change: And full year 2024 grew volume 21, 8% with additional price mix benefits driven mostly by our fast growing organic portfolio.
Speaker Change: Gross profit for the year, it rose to $229 9 million or 37, 9% of net revenue compared to $162 3 million or 34, 4% of net revenue last year.
Speaker Change: Our 2024, adjusted EBITDA grew 79, 2% to $86 7 million or 14, 3% of net revenue.
Speaker Change: Our adjusted EBITDA margin rose 405 basis points versus last year.
Speaker Change: Our gross profit growth was driven by volume and revenue expansion boosted by the positive impact of scale and operational efficiencies.
Speaker Change: Lower conventional commodity cost contributed to higher margins in the fourth quarter and the full year.
Speaker Change: This was partially offset by an increase in promotions labor maintenance related expenses and overhead costs, all intended to keep pace with our growth.
Speaker Change: SG&A expenses for 2024 were $133 $9 million or 22, 1% of net revenue compared to $101 7 million or 21, 6% of net revenue in 2023.
Speaker Change: The increase in SG&A as a percentage of net sales was primarily due to marketing related expenses stock based compensation employee.
Speaker Change: Employee head count legal and professional service expenses and technology and software and related expenses.
Speaker Change: Marketing expenses as a percentage of sales were five 3% for 2024. This compares to five zero percent for 2023 and three 7% for 2022.
Speaker Change: These costs were in line with our expectations and are consistent with our communication to invest in the business in the second half of the year.
Speaker Change: In 2020 for shipping and distribution costs rose in absolute terms, but were less as a percentage of net sales shipping.
Speaker Change: Shipping and distribution expenses rose to $32 4 million in the year or five 3% of net revenue compared to $27 3 million or five 8% of net revenue in 2023.
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 2024 was $53 4 million or $1 18 per diluted share compared to $25 6 million or <unk> 59 per diluted share last year.
Finally, we have a strong balance sheet performance, whether you our cash cash equivalents and investment Securities on December 29, 2024 stood at $163 million, an increase of $43 $5 million from the end of 2023.
Debt outstanding.
Speaker Change: While a great deal of the market's focus has been on our production capacity.
Speaker Change: Want to quickly highlight how effective our sales and marketing efforts in building our brand with consumers.
Speaker Change: We believe our ability to consistently build shattuck distributions, while increasing velocity speaks to the power of our brand and our connection with our consumers. We believe it is important for the market to be able to judge our performance on these key metrics.
Speaker Change: We understand that syndicated scanner data is highly valuable in helping analyze our business from the outside looking in.
Speaker Change: We are also aware that some data that's on the market at a weighted in Nevada.
Speaker Change: <unk> does not fully capture the trends of our business.
Speaker Change: Additionally, we see instances when retailers scanner data capture retailer price increases do not benefit us, creating a mismatch between retail.
Speaker Change: And our shipment results.
Speaker Change: Going forward, we will be providing additional data in our earnings presentation about our commercial performance.
Speaker Change: Create a consistent data set for ourselves and for the markets, we will be using <unk> data, both internally and when we speak externally about certain metrics within our business, especially retail distribution and consumer buying patterns.
Speaker Change: We believe Mullah plus gives us actionable insights deep data set a comprehensive view of private label trends and along data history to draw upon.
Speaker Change: In sarcoma multi outlet data, which includes food drug and mass channels. Our total distribution points in 2024 decreased 3% to 189 from 195.
Speaker Change: However, this decline in Tvp's, what's driven by our discontinuation of tough butter, which was phased out during our supply changeover to Irish sourcing later in 2023.
Speaker Change: Our shelf Tdp's increased 7% from 119 to 127. Additionally.
Speaker Change: Additionally, other distributions quickly rebounded from the tough other discontinuation.
Speaker Change: After a rebating in the first quarter of 2020 for better Tvp's increased 22% to 54% from 44.
Speaker Change: While <unk> grew strongly and bought a rebound it throughout the year you saw great improvements in our sales philosophy, meaning our sales per store per week.
2024.
Speaker Change: Our velocity nearly 40% from 124 and 2023 to $171 at the end of 2024.
Speaker Change: This is an historic high for the business.
Speaker Change: Somewhat driven by retailer initiated price increases.
Speaker Change: Now looking ahead to fiscal year 2025, we are expecting net revenue of at least $740 million or at least 22% growth.
Speaker Change: 2024.
Speaker Change: Adjusted EBITDA of at least $100 million or at least 15% growth.
Speaker Change: And capex of $50 million to $60 million.
Speaker Change: I want to provide a few additional points on the guidance.
Speaker Change: For the 2025 sales cadence, we expect Q1 to be our slowest growth quarter of the year for volume.
Speaker Change: Revenue growth due to supply constraints.
Speaker Change: Q1, we expect volumes to accelerate supply improves.
Speaker Change: <unk> come online our capacity will increase and we expect volume growth trends to accelerate with each passing quarter.
Speaker Change: Our 2025% adjusted EBITDA guidance implies a decline in margin for the year.
Speaker Change: As you model the year. Please remember that in the first half of 2024, we had high margins driven by exceptional operations at ECS.
Speaker Change: As we highlighted at the time, we do not expect this performance to repeat resulting in a challenging comparison for the first half of 2025.
Speaker Change: Compared to the run rate in the second half of 2024, we anticipate the adjusted EBITDA margin to improve in 2025.
Speaker Change: Our capex guidance is materially higher than our 2020 for capex of $28 4 million.
Speaker Change: This new level of spending reflects investments in our new production line at ECS Springfield, the groundbreaking and start up construction of our new facility construction of accelerated farms and our internal digital transformation project with a new facility, we expect elevated capex spending over the next few years with a bulk of it.
Speaker Change: In 2025, and especially 2026.
Speaker Change: In 2025, we plan to fund new facility construction and all other projects with existing cash and operating cash flow. Our projection is that each capex dollar dedicated to our new facility 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: Our long term guidance remains unchanged, we are targeting $1 billion of net revenue by 2027 with a gross margin of at least 35% and an EBITDA margin of 12% to 14%.
Speaker Change: This is an exciting time at Phi reforms, we have committed consumers who continue to choose us.
Speaker Change: Continue to add family farms, and we remain focused on driving greater retail trying to Jayson and raising brand awareness deliver our eggs and butter to more and more households, with each passing year.
Speaker Change: Once again, we thank you for your time and interest in bottoms prompts today and for the confidence you've placed in US with your investment was that we're now happy to take your questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: Please limit yourselves to one question and one follow up we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Rob Dickerson with Jefferies. Please go ahead.
Speaker Change: Yeah.
Rob Dickerson: Great. Thanks, so much.
Speaker Change:
Speaker Change: Good quarter guys.
Speaker Change: So I guess just a couple of questions about the cadence for the year because clearly that's topical.
Speaker Change: I think you said.
Speaker Change: In the prepared remarks that some of the farms that you had added in 'twenty four I assume kind of back in kind of Q2 24.
Speaker Change: Or are now producing some eggs for sale for you.
Speaker Change: While at the same time by.
Speaker Change: Peering and realize that.
Speaker Change: You have capacity constraints.
Speaker Change: The Q1 volumes will be a little bit lighter I think you said modest step down in growth relative to kind of what's your baidu. So kind of two parts of your question. One is just.
Speaker Change: Like how many new farms, let's just say are now up and running already right out of the ones you added last year selling eggs and then when you speak to that kind of a modest step down in growth in Q1.
Speaker Change: I guess relative to like the 22% for the year or is that like really modest.
Is that just a little bit modest because policies. It seems like there is some price mix coming through a lot in there but wanted to be comprehensive. Thank you.
Speaker Change: Yes.
Speaker Change: Great question.
Speaker Change: Krishna I think also.
Speaker Change: Most of the firms that we use.
Speaker Change: Signed up in the first half of last year.
Speaker Change: Roughly 50 firms so.
Speaker Change: Hmm.
Speaker Change: More than half of them are operating at this point.
Speaker Change: So we do have.
Speaker Change: Volume growth year over year, but keep in mind that last year beginning of the year, we were still sitting on very high.
Speaker Change: Inventory right. So the volume that we had last year.
Speaker Change: We're getting the farm plus we were drawing down inventory so the year over year farm number comparison.
Speaker Change: The particularly strong indicator of what our growth potential is in the short term in the quarter.
Speaker Change: So I think your question about the.
Speaker Change: There is a moderate relative to our own performance moderate relative to the year.
Speaker Change: It has moderate growth keep in mind, we have over the last two years back first quarter 'twenty. Three we grew 55% revenue first quarter 'twenty four we grew revenue 24%.
Speaker Change: It will be.
Speaker Change: Because we have this strong mapping.
Speaker Change: First quarter of this year will be meaningfully below last years first quarter number.
Speaker Change: And.
Speaker Change: And that's why I'm, saying don't look at the year over year from growth.
Speaker Change: It really is about how much that we pulled out of inventory last year versus what we can pull out of inventory right now which is really nothing.
Speaker Change: Okay, Great and then Thats extremely helpful and then.
Speaker Change: It does sound like the actual volume number in Q1 year over year would still be positives that can piece wasn't sounds like there could still be some.
Speaker Change: Price mix benefits that come through.
Speaker Change: No.
Speaker Change: Yes, we are still expecting to grow volume this quarter.
Speaker Change: And similar to prior quarters, we do get some price mix benefits, we continue to have that mixed shift towards organic.
Speaker Change: Plus then compared to first quarter last year.
Speaker Change: Given that we don't have enough.
Speaker Change: Now we will probably be.
Speaker Change: Less promotional than first quarter last year that will also give a net revenue per unit improvement.
Speaker Change: Your next question comes from the line of Robert Moskow with TD Cowen. Please go ahead.
Speaker Change: Hi.
Speaker Change: <unk> and Russell Thanks.
Speaker Change: Your price mix is up like 14% and fourth quarter.
That a good proxy for how you think the year might play out for 2025.
Speaker Change: And.
Speaker Change: The consumer is really getting hammered by these high egg prices and.
Speaker Change: I'm sure that that creates some some some difficult decision making for you all.
Speaker Change: Have you made any decisions internally on what to do with your pricing.
Speaker Change: And.
Speaker Change: Just from a lift standpoint.
Speaker Change: And then a quick follow up.
Rob Dickerson: Rob just to clarify.
Rob Dickerson: In our own reported data.
Speaker Change: Price mix year over year, it's actually up only half of the number you just quoted the 14%.
Speaker Change: We do have a discrepancy to scanner data right now simply because some retailers seem to be taking price on our products that doesn't flow through to us, but our price mix this year, sorry fourth quarter.
Speaker Change: Well, it's only about 7% or so.
Speaker Change: And.
Speaker Change: Joe promotional reduction played into that mix have played into that.
Speaker Change: First quarter will be somewhere in the similar ballpark based on what we're seeing right now.
Speaker Change: <unk> talked about longer term pricing ideas.
Speaker Change: Yes, Rob as Youll recall when.
Speaker Change: When we first started seeing commodity prices go up.
Speaker Change: 2021 2022.
Speaker Change: Act on a cost plus pricing based on just the way that I think a lot of the industry does pricing to us is very much part of that marketing mix and we're constantly evaluating the tradeoffs between.
Speaker Change: The appropriate kind of margin structure that we're looking for at any given time and the growth rate that we continue to want to see.
Speaker Change: So I can't commit to a certain cadence of price changes, if any but I can say that we're not <unk>.
Speaker Change: Currently planning on price being a meaningful contributor to our overall growth this year.
Speaker Change: Okay. That's.
Speaker Change: That's helpful and I'll follow up on the math later I think we must be treating the 50 <unk> week differently.
Speaker Change: And that's how we got our number for price mix.
Speaker Change: My follow up is.
Speaker Change: Eggs are in the headlines.
Speaker Change: News like every day you go to the shelves you can't find anything you can't even find vital farms.
Speaker Change: And you're like connections with consumers that you get like how is that impacting the vital farms brand at all positively or negatively.
Speaker Change: Yes, Bob Thank you for asking about that.
Speaker Change: Certainly on the minds of consumers and they're thinking about can I get my AG.
Speaker Change: We are seeing is continue brand loyalty.
Speaker Change: That availability is on People's minds, when they can find us they're buying us.
Speaker Change: And they are looking at multiple stories for us, we're still seeing our brand and loyalty stay really strong.
Speaker Change: And in fact, if they can't find us theyre searching right now to other breakfast products even over other brands in many cases so.
Speaker Change: We wanted to be on south we want to be available to everyone. I believe that the brand trust that we go into a situation like this which will also help us get out very quickly and well anyway.
Speaker Change: Your next question comes from the line of Ben <unk> with Lake Street Capital markets. Please go ahead.
Ben: Alright, Thanks for taking my questions and congratulations on a good end of the year here.
Speaker Change: A couple of questions on the 25 outlook first of all regarding the.
Speaker Change: The introduction of the AG grading.
Speaker Change: Machinery that you talked about it in ECS do you expect that that will be a pretty seamless construction and integration or do you think theres going to be any time, where capacity comes offline for a matter of days or weeks as you are.
Speaker Change: Introducing that.
Ben: Hey, Ben.
Ben: That's a terrific question I actually was up at ECS. This week actually viewing the work already underway to enable that expansion and I'm. So impressed with the leadership team there many of whom have joined us in the last year and the way that they are proactively addressing the lay out of that facility the flow of goods.
Ben: In that facility and the way that we will handle outbound freight from that expanded capacity I anticipate well nothing is.
Ben: Nothing is totally predictable I would say that we're doing everything I could imagine doing to make sure that there's a smooth transition to this added capacity and that we don't skip a beat.
Ben: Okay, that's great.
Ben: And then.
Ben: The.
Ben: Current.
Ben: The outbreak of avian influenza here this winter and Russell you noted in your prepared remarks that on a TTM basis, you've only had one outbreak on your several hundred farm network.
Speaker Change: It doesn't look like any of the recent outbreak in the last few months could have possibly been from one of your farms did that outbreak happened in the prior.
Ben: Prior to the.
Ben: The startup of this one or is that a.
Ben: The events from the last several months.
Ben: Yes, Ben Great question, we've had zero outbreaks in 2025 against the backdrop of nearly 30 million birds as far as I know being depopulated just since the beginning of the year. It's it's absolutely devastating and certainly a big driver of the costs, we're seeing in the marketplace, but none of it is happening on our watch or those.
Ben: Our wonderful a network of small family farmers.
Speaker Change: Your next question comes from the line of Jon Andersen with William Blair. Please go ahead.
Jon Andersen: Hey, good morning, everybody.
Speaker Change: Thanks for the questions and congrats on a strong year.
Speaker Change: One for Russell and one for Tullow Russell just sticking with the AI.
Speaker Change: Line of questioning.
Speaker Change: Understand that.
Speaker Change: Work with this.
Speaker Change: Close network, many family farms that mitigates risks in your supply chain in and of itself, but it seems like the.
Speaker Change: The metric suggests that you're just you're farmers firms are doing a better job of kind of staying at staying away from this is there anything that.
Speaker Change: You can use to help kind of explained that it's a question I get a lot like why isn't vital farms, perhaps as affected.
Speaker Change: At least.
Speaker Change: Even on a like for like basis.
Speaker Change: Relative to what we're seeing in other.
Speaker Change: Other operations. Thanks.
Speaker Change: Yes, I appreciate the question.
Speaker Change: And it is true on a like for like basis over the last since this latest outbreak began in 2022 I think we've had a total of four maybe five incidents which represents less than half its for Taylor just confirm for me less than one half of 1% of all of our production against the backdrop of.
Speaker Change: Well over 12, maybe approaching 15% 20% of all the birds in America, so something different is happening on our farms.
Speaker Change: Honestly don't go to anybody else's farms. So I can't tell you what's happening there, but I did find it very interesting to read our nu.
Speaker Change: The Secretary of Agriculture is op Ed in the Wall Street Journal, where she outlined the Trump administration's approach to fighting avian influenza and I'm. So thankful that this is a focus because obviously, we're all about animal welfare and to see so many frankly hundreds of millions of birds being killed because of this outbreak is is.
Speaker Change: It's hard for us to take and I know, it's hard on all of those farmers, whose birds are being depopulated one thing I found very interesting in that op. Ed was that the industry is allocating $500 million.
Speaker Change: To fund repairs and.
Speaker Change: And improvements in bio security on those farms, including fixing the actual physical structure of the farm to prevent pests from entering them.
Speaker Change: And I can tell you we spend an awful lot of time on our own farms.
Speaker Change: And I've never seen a farm in our network.
Speaker Change: <unk> with holes in the walls, allowing pests to enter.
Speaker Change: And so it does make me wonder if we may be a little more vigilant in making sure that the physical infrastructure on our small family farms is intact and is doing its part in maintaining biosecurity. It's a shame I think that the government has to intercede to fix.
Speaker Change: Bars, but if that's what it takes to protect this nation's birds.
Speaker Change: And that's what it takes I would like to think that American.
Speaker Change: American farmers are better than that.
Speaker Change: That's helpful. Thank you and for <unk> just to follow up on 2025 outlook.
Speaker Change: You step in stepping up marketing both in dollars and the rate relative to sales.
Speaker Change: If this kind of mid high level.
Speaker Change: Do you see that as a good sustainable level or opportunity to continue to take that up.
Speaker Change: Overtime, and then second part to that I know you incurred some maintenance costs throughout 2024 in order to continue to push the capacity bounds on ECS.
Speaker Change: <unk>, a similar level of maintenance costs in 2025, lower higher just kind of a general trend around that thanks.
Speaker Change: Yes. Good question, so I think on marketing.
Speaker Change: In that 5% to 6% of net sales range I think thats, where we feel comfortable right now.
Speaker Change: I am sure if.
Speaker Change: Kathryn twice the amount of money as you would find very very smart things to do with it.
Speaker Change: But we are also.
Speaker Change: We want to build brand awareness in a very measured way because we need to take a very measured way to build our supply right.
Speaker Change: But as I have repeatedly we don't want to get ahead of our skis.
Speaker Change: And so therefore planning our marketing spend and building the brand awareness.
Speaker Change: Deliberate fashion that is part of not getting ahead of our skis.
Speaker Change: So the level of where we are right now I think thats the level of where we are very comfortable.
Speaker Change: And.
Speaker Change: Catherine in her prepared remarks talked about.
Speaker Change: The gains in brand awareness.
Speaker Change: The government.
I think the spending that we're doing is showing the results that we expected to do.
Speaker Change: On the maintenance I think we learned an important lesson last year that we need to do maintenance on a very continuous basis that we need to focus on preventative maintenance rather than reactive maintenance.
Speaker Change: And <unk>.
Speaker Change: Given the the supply constraints that we have right now all of that gave us a bit of time to do a bit more maintenance than.
Speaker Change: Then we.
Speaker Change: Or do a bit more in depth maintenance then than we would.
Speaker Change: I would have done otherwise and so from a maintenance perspective, I think we're in really good shape right now Russell have just mentioned the new leadership that we have in our operations.
Speaker Change: And I think they are bringing very.
Speaker Change: Disciplined view to doing maintenance on time on schedule on budget. So that we don't run into the situation that we ran into last year, where for the first half of the year, where you ran full throttle 24, 7% for six months and then we paid the price for it in the third quarter. So it is something that will be able avoid this year.
Speaker Change: And with that maintenance I think overall over the course of the year will be we will be at the same level that we had last year.
Speaker Change: But just spread out across the entire year, so that we don't have peaks and valleys.
Sheila: Thanks, Sheila Thanks Russell.
Speaker Change: Your next question comes from the line of Sara Zoro with Telsey Advisory Group. Please go ahead.
Sheila: Great. Thank you guys and congrats on a great quarter and guidance.
Sara Zoro: Two questions.
Sheila: Just on the guidance.
Sheila: Can you help us on the factors that impact like your gross margin profile for <unk> hundred 25, any callouts that you had last year.
Sheila: It seems like a commodity.
Sheila: As things relatively stable.
Sheila: Pricing may be favorable with nice promotions. So just any puts and takes on the on the gross margin outlook for 25 would be helpful. Thank you.
Speaker Change: Yes, Ryan first of all welcome to the Nevada farms call. Good to have you here.
Sheila: On gross margin.
Sheila: Cadence I think first half last year and I just mentioned Ed Ryan, we really Havent conception, all operations at ECS that was combined with falling commodity prices and with <unk>.
Sheila: Pricing that we took on the organic portfolio at the beginning of the year.
Sheila: And that led to a really healthy gross margins first half of the year well above our long term targets are.
Sheila: That won't repeat this year, we're not anticipating that.
Sheila: <unk> will run as exceptionally as it did last year for example, we've already have.
Sheila: A few days off of interruptions.
Sheila: Because of weather.
Sheila: Misery goods.
Sheila: Several inches of snow and so trucks, just couldnt productive ECS, our crew couldnt come to ECS safely.
Sheila: And so that impacted operations.
Sheila: It's also when youre running supply constrained scheduling.
Sheila: Scheduling production just becomes less efficient and so that is impacting gross margin as well at the moment and then lastly commodity cost.
Sheila: Sequentially corn prices have actually picked up quite a bit since the lower in November or December.
Sheila: Thanks.
Sheila: 18% from from the bottom in Q4 that will start impacting what we have to pay farmers. In Q2, we are adjusting of our pay to farmers one quarter in arrears and so that will also impact gross margin in the second quarter.
Sheila: So I think those are some of the most relevant puts and takes US we think about the year, it's really a.
Sheila: On a comparison basis.
Sheila: Year over year. The first half this year, we're probably look a bit different from what we had last year. The second half much more in line with what we had last year.
Sheila: That's great.
Speaker Change: Very helpful. Thank you so much and I have a question on accelerator farms. It seems like the first farm is going to be up and running this year.
Speaker Change: Can you help us a little bit on what is the expectation there how big is the farm anything different you are doing with the farm than your typical farm any.
Speaker Change: Lab testing facility any color you can give on the upcoming opening of the Florida Farm and then.
Speaker Change: You almost have a 1000 acres of farmland over there. So just curious on the thought process on.
Speaker Change: The build out happens.
Speaker Change: Over the next couple of quarters, so that would be helpful. Thank you.
Speaker Change: Thanks, so much for the question about our accelerator farms.
Speaker Change: This is a real point of pride for us I'm. So excited about our ability to invest in the future of our farming and invest in the success of our small family farmers.
Speaker Change: This really is in a sense, our first R&D lab.
Speaker Change: And the R&D that we want to do is trying out new equipment, that's available from the best mines around animal welfare around.
Speaker Change: The productivity of hands.
Speaker Change: In service of helping our farmers be more successful and helping.
Speaker Change: Helping improve the lives of our birds and frankly, the quality of of our eggs for for our consumers.
Speaker Change: So youre absolutely right. This is a big deal for us it will not be a substantial amount of new eggs to the system because we're building.
Speaker Change: 10 to 15 new farms.
We've said no more than low single digit percent of total production. So it's not about adding substantial volume, it's about giving us a place where we can try new ways to improve the productivity of our farms without asking our existing farmers to make capital investments or take risks on <unk>.
Speaker Change: <unk> that may or may not immediately provides them with better outcomes.
Speaker Change: I'm so thrilled in fact.
Speaker Change: Mall team of us will be heading to Europe next month to visit with equipment manufacturers and innovators.
Speaker Change: We were really focused on the very best of outdoor access farming models and equipment. So that we can bring back the very best of their thinking to our farms and farmers and stay tuned it's going to be terrific.
Speaker Change: Thank you and good luck.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Matt Smith with Stifel. Please go ahead.
Matt Smith: Hi, good morning, Thanks for taking my question.
Speaker Change: Russell just a question a follow up question around the pricing environment, you talked about some retailers taking pricing across the category, including on your products.
Speaker Change: That's occurring are you seeing retailers take prices higher kind of across the category.
Speaker Change: For brands, including vital that that have been less sensitive to.
Speaker Change: More regular price increases and how do you think that plays out from here. It would seem like on one hand, you could argue vitals, leaving some pricing on the table for retailers, capturing but on the other hand, it may be more near term related to the supply demand imbalance and retailers trying to balance how much how much eggs are being sold through.
Speaker Change: Yes, I appreciate the question and I've got to say I'm not sure.
Speaker Change: Certainly not trying to get to.
Speaker Change: Try to explain the macro environment for AG prices with the comments all we're saying is that in the scan data. We are seeing a disconnect between the contribution pricing is making to our sales growth and what we're seeing in our own <unk>.
Speaker Change: <unk> data to our retail partners I have no insight or commentary on their pricing approach, that's totally part of their strategy or in terms of whether they're doing it across lots of products or just an hour. So we're just trying to bring clarity to the data youre using to understand our growth not commenting on why.
Speaker Change: We think egg prices are where they are.
Speaker Change: Understood.
Speaker Change: A second question a follow up to the.
Speaker Change: We've talked a lot about avian influenza on supply demand, but I wanted to ask if youre seeing an avian influenza impact on the timeline or cost for farms coming online if theres been any disruption to pulp placements or anything along those lines. It seems like that's not the case given youre still seeing a kind of a nine month timeline for those new farms coming on board.
Speaker Change: Yeah, it's interesting and again I can't point, you to exactly where the differences occur but.
Speaker Change: We're not seeing an impact to the hatcheries that produced the chicks for our farms were not seeing an impact to the pullet farms that are farmers used to source their birds.
Speaker Change: I'm sure a lot of it is luck.
Speaker Change: I've been very lucky knock on wood.
Speaker Change: But no we're not seeing any material change to our ability to bring lots of new farms online to support our growing demand.
Russell Tullow: Thanks Russell.
Speaker Change: Yeah.
Speaker Change: Again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Eric Lawyers with Craig Hallum Capital Group. Please go ahead.
Eric Lawyers: Great. Thank you for taking my question and congrats on the strong results.
Eric Lawyers: My question relates to the new production line coming online in Q4.
Eric Lawyers: Should we expect that to.
Speaker Change: Deliver kind of a step function impact to revenues or will that be more gradual as you sort of methodically ramp production.
Speaker Change: Of course that that coincides with many of these family farms coming online. So I understood Q4, we will see growth acceleration either way just kind of wondering about plans for utilization on day, one so to speak.
Speaker Change: Yes, Eric.
Speaker Change: So you are all welcome to the one phone call.
Speaker Change: Thank you.
Speaker Change: Your question that there is like a two part answer to that Ryan It will bring a step function in our capacity, but it will not necessarily bring a step function in our revenue and reason for that is we need the X to put on the machine.
Speaker Change: Our egg supply.
Speaker Change: <unk>.
Speaker Change: Is it steady.
Speaker Change: Relatively predictable growth rate and so as the X are coming off the farm.
Speaker Change: That is really determining how much of a step function. We will have I think if you as you look at our historic data you wont see many step functions, maybe the first few months of cohort one of the rare exceptions, but there was for extraordinary circumstances really the objective that we have is to grow the business.
<unk> at a very healthy.
Speaker Change: High growth rate, but very steady without many step functions in it.
Speaker Change: That makes sense and very helpful.
Speaker Change: My follow up is.
Speaker Change: On the pace of family farm additions for 2025, and nice growth with 125 family farms last year.
Should we think about that pace for 2025, and then just in terms of the accelerator farms.
Speaker Change: Understanding that will remain a very small percentage of overall production, but how might that impact gross margins or opex. This year.
Speaker Change: Yes.
Speaker Change: Farm recruiting will have to continue at a very healthy clip.
Speaker Change: Im not going to sit here and say, it's going to be X number of farms. This year on Exxonmobil arms that youre after but if you do the math for us to get from from the guidance that we have in the numbers that we have from 'twenty forward to going into the long term guidance of $1 billion by 2027, and we need to keep adding farms and once the new facility.
Speaker Change: It comes online.
At the beginning of 2027, we need to have more farms in that geographic area as well simply because it makes for more efficient shipping alright, so from recruiting both continuum.
Speaker Change: Dave will continue.
Speaker Change: Relatively similar clip to what we've had so far.
Speaker Change: But I'm not going to talk.
Speaker Change: <unk> talked about how many numbers of how many farms will have this year accelerate our firms what we have.
Speaker Change: <unk> said in the past is that we're looking at.
Speaker Change: I think we've called it a handful of accelerated <unk> call. It 15 to 20 firms that are so.
Speaker Change: Does that number is not really supposed to increase if we want to have I think Russell just called it our our R&D lab for farm operations, we want to have a meaningful number of farms to try a few things in parallel maybe do some AB testing, but not to really supplement our our volume coming off our own.
Speaker Change: Firms right. So when you think about even at the high end 20 firms, our 4% to 25 family owned farms right now, it's a very small number and as we keep growing the family farm network as a percentage of our total supply there will continue to decline and with that even if we are trying a few things there that might cost us.
Speaker Change: A few dollars extra the impact on gross margin from that is really negligible and if anything in the long term it might actually lead to margin improvement because what we're trying to do is for example get more production out of the hands that we have and that ultimately will lead to lower costs in the long term.
Speaker Change: Very helpful. Thank you for taking my questions.
Eric Lawyers: Go ahead Eric.
Speaker Change: Okay.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I will turn the call back to Anthony for Colo for closing remarks.
Speaker Change: Okay.
Anthony Colo: Thank you everyone for your support of vital farms have a good day.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank illustrate joining you may now disconnect.
Speaker Change: [music].