Q2 2026 Vital Farms Inc Earnings Call

August 6, 2026

Operator 2: Good day. Thank you for standing by. Welcome to Vital Farms' Q2 2026 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I would now like to hand your call over to Brian Shipman, Vice President of Investor Relations. Keep in mind today's conference is being recorded. Brian, please go ahead.

Operator: Good day. Thank you for standing by. Welcome to Vital Farms' Q2 2026 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I would now like to hand your call over to Brian Shipman, Vice President of Investor Relations. Keep in mind today's conference is being recorded. Brian, please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand.

Speaker #1: To withdraw your question, press *1 again. I would now like to hand your call over to Brian Shipman, Vice President of Investor Relations. Keep in mind, today's conference is being recorded.

Speaker #1: Brian, please go ahead.

Brian Shipman: Good morning. Welcome to Vital Farms' Q2 2026 Earnings Conference Call and Webcast. Joining me today are Russell Diez-Canseco, Vital Farms' Executive Chairperson, President, and Chief Executive Officer, and Thilo Wrede, the company's Chief Financial Officer. By now, everyone should have access to the company's Q2 2026 earnings press release issued this morning. During today's 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. Such risks and uncertainties are described in today's press release and our SEC filings, including the Form 10-Q for the Q2 ended 28 June 2026, that we filed earlier today. During today's call, management will also reference certain non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin.

Brian Shipman: Good morning. Welcome to Vital Farms' Q2 2026 Earnings Conference Call and Webcast. Joining me today are Russell Diez-Canseco, Vital Farms' Executive Chairperson, President, and Chief Executive Officer, and Thilo Wrede, the company's Chief Financial Officer. By now, everyone should have access to the company's Q2 2026 earnings press release issued this morning. During today's 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. Such risks and uncertainties are described in today's press release and our SEC filings, including the Form 10-Q for the Q2 ended June 28, 2026, that we filed earlier today. During today's call, management will also reference certain non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin.

Speaker #2: Good morning, and welcome to Vital Farms Q2 2026 earnings conference call and webcast. Joining me today are Russell Diez Canseco, Vital Farms Executive Chairperson, President, and Chief Executive Officer; and Thilo Wrede, the company's Chief Financial Officer.

Speaker #2: By now, everyone should have access to the company's Q2 2026 earnings press release issued this morning. During today's call, management may make forward-looking statements within the meaning of federal securities laws.

Speaker #2: 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 #2: Such risks and uncertainties are described in today's press release and are SEC filings. Including the Form 10-Q for the quarter ended June 28, 2026, that we filed earlier today.

Speaker #2: During today's call, management will also reference certain non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin. Please refer to today's press release and presentation, each available on the Investor Relations section of our website for a reconciliation to the most directly comparable GAAP measures.

Brian Shipman: Please refer to today's press release and presentation, each available on the investor relations section of our website, for a reconciliation to the most directly comparable GAAP measures. The presentation of these non-GAAP measures is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. After our prepared remarks, we'll open the line up for questions. As a reminder, please limit yourself to one question plus one follow-up so that we can hear from as many participants as possible. Now, I'll turn the call over to Russell.

Speaker #2: The presentation of these non-GAAP measures is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Speaker #2: After our prepared remarks, we'll open the line up for questions. As a reminder, please limit yourself to one question plus one follow-up so that we can hear from as many participants as possible.

Speaker #2: Now, I'll turn the call over to Russell.

Speaker #1: Thank you, Brian, and good morning, everyone. I'd like to start as I always do by thanking our crew and farmers. I believe they're the best in the business, and it's my privilege to work alongside them in our effort to improve the lives of people, animals, and the planet through food.

Russell Diez-Canseco: Thank you, Brian, and good morning, everyone. I'd like to start, as I always do, by thanking our crew and farmers. I believe they're the best in the business, and it's my privilege to work alongside them in our effort to improve the lives of people, animals, and the planet through food. I want to emphasize three key messages on today's call. First, while 2026 presented supply dynamics we did not fully anticipate entering the year, we executed decisively to address them, and the early results give us confidence our operational calibration plan is taking hold. Last quarter, we outlined an aggressive plan to fix our price gaps, right-size our supply, and reduce structural costs. I'll walk through each of these workstreams in more detail shortly, the key point is each of them is progressing in the direction we intended.

Speaker #1: I want to emphasize three key messages on today's call. First, while 2026 presented supply dynamics we did not fully anticipate entering the year, we executed decisively to address them, and the early results give us confidence our operational calibration plan is taking hold.

Speaker #1: Last quarter, we outlined an aggressive plan to fix our price gaps, right-size our supply, and reduce structural costs. I'll walk through each of these workstreams in more detail shortly, but the key point is each of them is progressing in the direction we intended.

Speaker #1: As a result, we delivered a more than 200 basis-point year-over-year gain in retail dollar share of the shell egg category during the second quarter.

Russell Diez-Canseco: As a result, we delivered a more than 200 basis point year-over-year gain in retail dollar share of the shell egg category during Q2. Second, as we noted last quarter, we believe Q2 was our financial trough. Our net sales declined 10.1%, the revenue decline and margin compression we're reporting this quarter are consistent with what we told you to expect on our Q1 call when we said the greatest impact of the industry's oversupply and our own price gap challenges would be concentrated in Q2. That impact was primarily driven by non-structural issues within the broader industry, the price gaps to branded competitors we discussed on last quarter's call, and the identified Q2 supply management and other discrete costs of managing our excess egg supply.

Speaker #1: Second, as we noted last quarter, we believe the second quarter was our financial trough. Our net sales declined 10.1%, but the revenue decline and margin compression we were reporting this quarter are consistent with what we told you to expect on our first quarter call, when we said the greatest impact of the industry's oversupply and our own price gap challenges would be concentrated in the second quarter.

Speaker #1: That impact was primarily driven by non-structural issues within the broader industry, the price gaps to branded competitors we discussed on last quarter's call, and the identified Q2 supply management and other discrete costs of managing our excess egg supply.

Speaker #1: Despite the decline in net revenue during the second quarter, the quarter's performance highlights the strengths and resilience of our premium brand relative to the severe volatility impacting the broader commodity egg market.

Russell Diez-Canseco: Despite the decline in net revenue during Q2, the quarter's performance highlights the strength and resilience of our premium brand relative to the severe volatility impacting the broader commodity egg market. Third, we believe we have clear operational momentum as we enter H2 of 2026. Our farmer contract amendments are now live, our corporate overhead is structurally lower following difficult but necessary cost realignment actions we took during the quarter. We took additional actions in mid-July to streamline our processes and strongly believe we're on a path to improved operating results in H2 of 2026. Distribution is expanding, we believe our momentum should continue, while velocity's also starting to show improvement sequentially as we're reducing price gaps to our branded competitors.

Speaker #1: Third, we believe we have clear operational momentum as we enter the second half of 2026. Our farmer contract amendments are now live, and our corporate overhead is structurally lower following difficult but necessary cost realignment actions we took during the quarter.

Speaker #1: We took additional actions in mid-July to streamline our processes and strongly believe we're on a path to improved operating results in the second half of 2026.

Speaker #1: Distribution is expanding, and we believe our momentum should continue while velocities also starting to show improvements sequentially as we're reducing price gaps to our branded competitors.

Speaker #1: To understand why we have such high conviction that the turnaround is working, despite the expected challenging Q2, I'd like to share some of the direct operational evidence of our execution.

Russell Diez-Canseco: To understand why we have such high conviction that the turnaround is working despite the expected challenging Q2, I'd like to share some of the direct operational evidence of our execution. First, we said we needed to narrow price gaps to branded competitors, we've made strong progress. Since the last earnings calls, our price gaps have come down from an average of approximately $2.51 to branded competitors in Q1 to an average of $2.36 in Q2. As we mentioned last quarter, we believe the most effective gap range tends to be in the $1 to $2 dollar gap to branded competitors. In the markets where these gaps narrowed, retail volume responded with improved velocity. Additionally, in those same markets where we successfully adjusted our price gaps, household acquisition ticked up as well.

Speaker #1: First, we said we needed to narrow price gaps to branded competitors, and we've made strong progress. Since the last earning calls, our price gaps have come down from an average of approximately $2.51 to branded competitors in the first quarter to an average of $2.36 in the second.

Speaker #1: As we mentioned last quarter, we believe the most effective gap range tends to be in the $1 to $2 gap to branded competitors. In the markets where these gaps narrowed, retail volume responded with improved velocity.

Speaker #1: Additionally, in those same markets where we successfully adjusted our price gaps, household acquisition ticked up as well. For example, we studied our price gap impact at one of our top 10 retailers, and where we got our price gaps down to an appropriate level, we saw both velocity and incremental new households improve 27% since mid-April.

Russell Diez-Canseco: For example, we studied our price gap impact at one of our top 10 retailers, and where we got our price gaps down to an appropriate level, we saw both velocity and incremental new households improve 27% since mid-April. Efforts such as these led to a more than 200 basis point year-over-year gain in Vital Farms retail dollar share of the shell egg category in Mulo+ during Q2, according to Circana, even as category pricing fell sharply amid industry-wide oversupply. Additionally, and more broadly, by mid-July, shell egg units per store per week per item were up 12.5% since our Q1 call and, as of mid-July, reached their highest level since February 2026, which we believe indicates that our strategy is working. We will continue to broaden these efforts to lower price gaps, which we expect will continue to drive improved results going forward.

Speaker #1: Efforts such as these led to a more than 200 basis-point year-over-year gain in Vital Farms retail dollar share of the Shell egg category in MULA Plus during the second quarter, according to Surkana.

Speaker #1: Even as category pricing fell sharply amid industry-wide oversupply. Additionally, and more broadly, by mid-July, Shell egg units per store per week per item were up 12.5% since our first quarter call, and as of mid-July, reached their highest level since February of 2026, which we believe indicates that our strategy is working.

Speaker #1: We will continue to broaden these efforts to lower price gaps, which we expect will continue to drive improved results going forward. Second, as we told you last quarter, we have secured several significant distribution gains that should bolster our volume growth throughout the second half of the year and into 2027.

Russell Diez-Canseco: Second, as we told you last quarter, we have secured several significant distribution gains that should bolster our volume growth throughout H2 and into 2027. As we highlighted on the Q1 earnings call, we anticipate average total distribution points, or TDPs, between 150 to 160 in 2026, up from 130 in 2025, which would represent our largest yearly gain since our IPO in 2020. We anticipate the majority of these gains will become visible in scanner data throughout Q3. In Circana data for Mulo+, we were already at 148.7 TDPs year to date through the end of Q2, and we continue to believe we are on track to deliver an average of between 170 to 175 TDPs in Q4 2026, given the visibility we already have to commitments for new placements.

Speaker #1: As we highlighted on the first quarter earnings call, we anticipate average total distribution points, or TDPs, between $150 to $160 in 2026, up from $130 in 2025, which would represent our largest yearly gain since our IPO in 2020.

Speaker #1: We anticipate the majority of these gains will become visible in scanner data throughout the third quarter. In Surkana data for MULA Plus, we were already at $148.7 TDPs year to date through the end of the second quarter, and we continue to believe we are on track to deliver an average of between $170 to $175 TDPs in the fourth quarter of 2026.

Speaker #1: Given the visibility we already have, to commitments for new placements. Third, we found ourselves in an oversupply situation earlier this year. We said we needed to amend our farmer contracts to give us flexibility to manage our supply.

Russell Diez-Canseco: Third, we found ourselves in an oversupply situation earlier this year. We said we needed to amend our farmer contracts to give us flexibility to manage our supply. These contract amendments are now in place, and as we previewed last quarter, we believe the oversupply peaked in Q2. That means we're now managing the temporary supply-demand imbalance by reducing egg production instead of sending expensive eggs to the low-revenue breaker channel. To be clear, we may still see some excess breaker sales in the coming quarters, but at a much reduced level than what we experienced in Q2. A low level of excess breaker sales reflects our intentionally balanced strategy, executing the right number of farmer contract amendments to manage the current supply reduction while maintaining flexibility to meet future expected demand increases. Thilo will provide more details in a few minutes.

Speaker #1: These contract amendments are now in place, and as we previewed last quarter, we believe the oversupply peaked in the second quarter. That means we're now managing the temporary supply-demand imbalance by reducing egg production, instead of sending expensive eggs to the low-revenue breaker channel.

Speaker #1: To be clear, we may still see some excess breaker sales in the coming quarters, but at a much reduced level than what we experienced in the second quarter.

Speaker #1: A low level of excess breaker sales reflects our intentionally balanced strategy, executing the right number of farmer contract amendments to manage the current supply reduction, while maintaining flexibility to meet future expected demand increases.

Speaker #1: Thilo will provide more details in a few minutes. Fourth, we told you in May we would reduce our cost structure to support our price actions.

Russell Diez-Canseco: Fourth, we told you in May we would reduce our cost structure to support our price actions. Since last quarter, we've made significant progress, and we completed our planned operational staffing changes at Egg Central Station. In mid-July, we further optimized our organizational structure to improve decision-making speed and reduce overhead, aligning our headcount directly with our core operational priorities. The result is that we've reduced our annualized SG&A run rate by approximately $6 to 7 million. Furthermore, we intend to pause construction on Vital Crossroads by the end of 2026, and we believe CapEx is tightly controlled. In short, we expect H2 2026 to look fundamentally different than H1 of the year.

Speaker #1: Since last quarter, we've made significant progress, and we completed our planned operational staffing changes at Egg Central Station. In mid-July, we further optimized our organizational structure to improve decision-making speed and reduce overhead, aligning our headcount directly with our core operational priorities.

Speaker #1: The result is that we've reduced our annualized SG&A run rate by approximately 6 to 7 million dollars. Furthermore, we intend to pause construction on Vital Crossroads by the end of 2026, and we believe CapEx is tightly controlled.

Speaker #1: In short, we expect the second half of 2026 to look fundamentally different than the first half of the year. We believe our strategic actions, provide a clear line of sight to improved operating results in the second half and heading into 2027, and Thilo will walk through the specific building blocks behind that view in a moment.

Russell Diez-Canseco: We believe our strategic actions provide a clear line of sight to improved operating results in H2 and heading into 2027, and Thilo will walk through the specific building blocks behind that view in a moment. The expected progression is straightforward. Our narrowed price gaps should continue to accelerate velocity over the coming months and quarters. Our TDPs are on track this year to expand at the fastest rate since our IPO in 2020. We expect to improve cost of goods sold as we are shifting our supply management strategy to farmer contract amendments and away from breaker sales, and we will benefit from the actions we've taken to lower SG&A. In conclusion, we believe our turnaround plan is working, and given our successful execution in navigating the challenges of Q2, we are reaffirming our full-year guidance today.

Speaker #1: The expected progression is straightforward. Our narrowed price gaps should continue to accelerate velocity over the coming months and quarters. And our TDPs are on track this year to expand at the fastest rate since our IPO in 2020.

Speaker #1: We expect to improve cost of goods sold as we are shifting our supply management strategy to farmer contract amendments and away from breaker sales, and we will benefit from the actions we've taken to lower SG&A.

Speaker #1: In conclusion, we believe our turnaround plan is working, and given our successful execution in navigating the challenges of the second quarter, we are reaffirming our full-year guidance today.

Speaker #1: With that, I will turn the call over to Thilo to take you through the details of our second quarter results.

Thilo Wrede: Thank you, Russell. Let me go through the financial results for Q2.

Speaker #3: Thank you, Russell. Let me go through the financial results for the second quarter. Net revenue in the second quarter declined 10.1% to $166 million due to a volume-driven decline of 19.8 million dollars in retail channel sales, that is, excluding excess breaker and wholesale channel sales, partially offset by price-mix benefit of 1.1 million dollars.

Thilo Wrede: Thank you, Russell. Let me go through the financial results for Q2. Net revenue in Q2 declined to 10.1% to $166 million due to a volume-driven decline of $19.8 million in retail channel sales. That is excluding excess breaker and wholesale channel sales, partially offset by price mix benefit of $1.1 million. Excess sales to breaker and wholesale channels contributed only $0.1 million to net revenue growth as a large volume increase was almost entirely offset by a price decline. Gross profit was $10.9 million, or 6.6% of net revenue. Gross profit includes a $19.5 million impact from excess breaker sales, $0.8 million from the amortization of farmer contract amendments, and $7.8 million in exit costs associated with our butter wind down, for a total of $28.1 million of what we see as supply management and other discrete expenses.

Speaker #3: Excess sales to breaker and wholesale channels contributed only 0.1 million dollars to net revenue growth, as a large volume increase was almost entirely offset by price decline.

Speaker #3: Gross profit was 10.9 million dollars or 6.6% of net revenue. Gross profit includes a 19.5 million dollar impact from excess breaker sales, 0.8 million dollars from the amortization of farmer contract amendments, and 7.8 million dollars in exit costs associated with our butter wine down, for a total of 28.1 million dollars of what we see as supply management and other discrete expenses.

Speaker #3: Excluding these items, the underlying gross margin is meaningfully more favorable. We expect the gross margin profile to improve as we move into the second half of the year, and we continue to anticipate exiting the fourth quarter at a gross margin run rate of approximately 30%.

Thilo Wrede: Excluding these items, the underlying gross margin is meaningfully more favorable. We expect the gross margin profile to improve as we move into H2, and we continue to anticipate exiting Q4 at a gross margin run rate of approximately 30%. SG&A was $40.4 million. While up slightly year over year, this includes $3.3 million of restructuring and severance costs and $3 million in one-time professional services costs related to our feed cost savings program, for a total of $6.3 million in discrete expenses. Going forward, the combination of our May and July efficiency gains will reduce our annualized SG&A run rate by approximately six to $7 million.

Speaker #3: SG&A was 40.4 million dollars. While up slightly year over year, this includes 3.3 million dollars of restructuring and severance costs and 3 million dollars in one-time professional services costs related to our feed cost savings program, for a total of 6.3 million dollars in discrete expenses.

Speaker #3: Going forward, the combination of our May and July efficiency gains will reduce our annualized SG&A run rate by approximately 6 to 7 million dollars.

Speaker #3: Shipping and distribution expenses increased to 6.4% of net revenue in the second quarter of 2026, up from 4.9% a year ago. Reflecting the inclusion of 1.5 million dollars of expenses for shipping, excess eggs to breaker plants.

Thilo Wrede: Shipping and distribution expenses increased to 6.4% of net revenue in Q2 2026, up from 4.9% a year ago, reflecting the inclusion of $1.5 million of expenses for shipping excess eggs to breaker plants. adjusted EBITDA was a loss of $26.6 million. This includes an add back of $7.8 million for butter exit costs and $3.3 million for restructuring and severance costs. The loss for the quarter is a result of the peak intensity supply management costs in Q2, totaling $21.8 million for the quarter. It also includes $3 million of professional fees incurred during the quarter related to our feed cost savings program, for a total of $24.8 million of discrete expenses that we are not adding back to adjusted EBITDA.

Speaker #3: Adjusted EBITDA was a loss of 26.6 million dollars, this includes an add-back of 7.8 million dollars for butter exit costs and 3.3 million dollars for restructuring and severance costs.

Speaker #3: The loss for the quarter is a result of the peak intensity supply management costs in Q2, totaling 21.8 million dollars for the quarter and had also includes 3 million dollars of professional fees incurred during the quarter related to our feed cost savings program, for a total of 24.8 million dollars of discrete expenses that we are not adding back to adjusted EBITDA.

Speaker #3: Regarding butter exit costs, when we announced the wine down of our butter business last quarter, we expected to convert our remaining bulk butter inventory into retail product before fully exiting the category.

Thilo Wrede: Regarding butter exit costs, when we announced the wind down of our butter business last quarter, we expected to convert our remaining bulk butter inventory into a retail product before fully exiting the category. Since then, we have concluded that operational constraints and meaningfully elevated costs make this approach uneconomical. We will instead sell the remaining inventory to the melter. This is a change in how we're executing the exit, not in the decision itself. Looking ahead, full-year supply management costs are now modeled in the mid $30 million range versus our initial $32 million estimate, representing a modest increase in breaker sales due to two primary factors. First, slightly lighter Q2 sales meant that we had more surplus volume that we routed to the breaker and wholesale channels.

Speaker #3: Since then, we have concluded that operational constraints and meaningfully elevated costs make this approach uneconomical, so we will instead sell the remaining inventory to the melter, this is the change in how we're executing the exit not in the decision itself.

Speaker #3: Looking ahead, full-year supply management costs are now modeled in the mid-$30 million range, versus our initial $32 million estimate, representing a modest increase in breaker sales due to two primary factors.

Speaker #3: First, slightly lighter second quarter sales meant that we had more surplus volume that we routed to the breaker and wholesale channels, and second, we took a methodical approach to the farmer contract amendments to ensure we preserve upside potential if demand turns more quickly than anticipated.

Thilo Wrede: Second, we took a methodical approach to the farmer contract amendments to ensure we preserve upside potential if demand turns more quickly than anticipated. Relying slightly more on the breaker channel gives us the short-term flexibility to react to potentially higher retail demand as price gap adjustments take hold. Importantly, I want to underscore that the contract amendments that are needed for the year are in place. Turning to capital allocation and our balance sheet. We have taken aggressive, proactive steps to ensure our liquidity profile remains strong as we emerge from this period of oversupply. We ended the quarter with $21.2 million in cash and had drawn $30 million against our previous revolving credit line. To strengthen our cash position, after quarter end, we put in place a new $125 million term loan and a new $60 million asset-based lending facility, replacing our previous revolving facility.

Speaker #3: Relying slightly more on the breaker channel, gives us the short-term flexibility to react to potentially higher retail demand as price gap adjustments take hold.

Speaker #3: Importantly, I want to underscore that the contract amendments that are needed for the year are in place. Turning to capital allocation and our balance sheet, we have taken aggressive proactive steps to ensure our liquidity profile remains strong as we emerge from this period of oversupply.

Speaker #3: We ended the quarter with 21.2 million dollars in cash and had drawn 30 million dollars against our previous revolving credit line. To strengthen our cash position, after quarter end, we put in place a new 125 million dollar term loan and a new 60 million dollar asset-based lending facility replacing our previous revolving facility.

Speaker #3: Both new facilities have a three-year tenure. We have drawn the entire 125 million dollar term loan, repaying the previous revolver. We now have significant financial runway to fund the business for the foreseeable future.

Thilo Wrede: Both new facilities have a three-year tenor. We have drawn the entire $125 million term loan, repaying the previous revolver. We now have significant financial runway to fund the business for the foreseeable future. More details on these facilities can be found in the current report on Form 8-K that we filed this morning. At the very beginning of Q2, we executed $50 million of share repurchases at an average price of $13.29 per share. After the end of the quarter, our board of directors terminated the 2026 stock repurchase plan, consistent with the terms of the new lending facilities. As we told you last quarter, we are halting construction of Vital Crossroads as we prioritize liquidity.

Speaker #3: More details on these facilities can be found in the current report on form 8K that we filed this morning. At the very beginning of the second quarter, we executed 50 million dollars of share repurchases at an average price of $13.29 per share.

Speaker #3: After the end of the quarter, our board of directors terminated the 2026 stock repurchase plan, consistent with the terms of the new lending facilities.

Speaker #3: And as we told you last quarter, we are halting construction of Vital Crossroads as we prioritize liquidity. We are focused on enclosing the building, which we expect to be completed by the end of fiscal 2026, so that the facility is fully protected against the Indiana winter weather while the indoor build-out is halted.

Thilo Wrede: We are focused on enclosing the building, which we expect to be completed by the end of fiscal 2026, so that the facility is fully protected against the Indiana winter weather while the indoor build-out is halted. This approach is reflected in our reaffirmed full-year CapEx guidance of $70 to $75 million. Looking ahead to the rest of the year, we are reaffirming our previous guidance, which calls for net revenue of $775 to $800 million and adjusted EBITDA of zero to $10 million. We expect the distribution gains we are making to contribute to improving revenue performance over the course of H2 of 2026 and into 2027. We would note that Q3 is lapping a strong Q3 in 2025, while Q4 is the easier year-over-year comparison from a net revenue perspective.

Speaker #3: This approach is reflected in our reaffirmed full-year capex guidance of 70 to 75 million dollars. Looking ahead to the rest of the year, we are reaffirming our previous guidance which calls for net revenue of 775 to 800 million dollars and adjusted EBITDA of 0 to 10 million dollars.

Speaker #3: We expect the distribution gains we are making to contribute to improving revenue performance over the course of the second half of 2026 and into 2027.

Speaker #3: We would note that Q3 is lapping a strong third quarter in 2025, while Q4 is the easier year over year comparison from a net revenue perspective.

Speaker #3: Currently, we expect Q3 of this year to show a sequential improvement in absolute net revenue, while Q4 net revenue growth should reflect the full benefit of the distribution gains we have mentioned during the call today, and it is typically our largest quarter of the year due to the seasonality of the business.

Thilo Wrede: Currently, we expect Q3 of this year to show a sequential improvement in absolute net revenue, while Q4 net revenue growth should reflect the full benefit of the distribution gains we have mentioned during the call today. It is typically our largest quarter of the year due to the seasonality of the business. Additionally, as the majority of our supply management measures are now driven by the contract amendments, the high impact from breaker sales that we experienced in Q2 will be very significantly reduced in H2. This will directly support our bottom line, and we believe it will position us to deliver improved adjusted EBITDA in H2 of the year. The improvement in adjusted EBITDA from H1 to the H2 is driven by three building blocks.

Speaker #3: Additionally, as the majority of our supply management measures are now driven by the contract amendments, the high impact from breaker sales that we experienced in Q2 will be very significantly reduced in the second half.

Speaker #3: This will directly support our bottom line and we believe it will position us to deliver improved adjusted EBITDA in the second half of the year.

Speaker #3: The improvement in adjusted EBITDA from the first half to the second half is driven by three building blocks. First, in the second quarter, we successfully rightsized our supply via the contract amendments resulting in much lower supply management costs.

Thilo Wrede: First, in Q2, we successfully right-sized our supply via the contract amendments, resulting in much lower supply management costs. Second, increased distribution should benefit retail volume as H2 progresses, resulting in scale benefits. Finally, the structural cost reductions from the organizational streamlining that we conducted in May and July have reduced our annualized SG&A run rate by approximately $6 to $7 million. As for the phasing of the recovery, we expect the H2 performance to build sequentially. Q3 should mark a sequential improvement in revenue and adjusted EBITDA as breaker volumes abate. We anticipate Q4 will reflect the full operational leverage of improved retail volumes running through our streamlined SG&A cost structure. With that, I will turn the call back over to the operator, and Russell and I are happy to take your questions.

Speaker #3: Second, increased distribution should benefit retail volume as the second half progresses. Resulting in scale benefits. And finally, the structural cost reductions from the organizational streamlining that we conducted in May and July have reduced our annualized SG&A run rate by approximately 6 to 7 million dollars.

Speaker #3: As for the phasing of the recovery, we expect the second half performance to build sequentially. Q3 should mark a sequential improvement in revenue and adjusted EBITDA as breaker volume is abate.

Speaker #3: And then we anticipate Q4 will reflect the full operational leverage of improved retail volumes running through our streamlined SG&A cost structure. With that, I will turn the call back over to the operator, and Russell and I are happy to take your questions.

Speaker #1: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Operator 2: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Scott Marks with Jefferies. Scott, your line is open.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Scott Marks with Jefferies. Scott, your line is open.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Your first question comes from the line of Scott Marks with Jefferies. Scott, your line is open.

Speaker #2: Hey, good morning, Russell. Tilo, thanks very much for taking your questions. First thing I wanted to ask about is this price gap journey you're on, let's say.

Scott Marks: Good morning, Russell, Thilo. Thanks very much for taking our questions. First thing I wanted to ask about is this price gap journey you're on, let's say. Just curious if you can give us a sense of where you are in that journey. How far do you think you have to go? How deep do you think you have to go?

Speaker #2: Just curious if you can give us a sense of where you are in that journey? How far do you think you have to go?

Speaker #2: And how deep do you think you have to go?

Speaker #4: Yeah, good morning. Thanks for that. So I think as we discussed, in our Q1 call, this is changing prices at retail is sometimes a little bit complicated, sometimes can take a little bit of time.

Russell Diez-Canseco: Yeah. Good morning. Thanks for that. I think as we discussed in our Q1 call, changing prices at retail is sometimes a little bit complicated, sometimes can take a little bit of time, and very much has to work for the retailer, as you can imagine, as well as for us. The other thing is that we want to be really judicious with how we deploy

Speaker #4: And very much has to work for the retailers, you can imagine, as well as for us. And so the other thing is that we want to be really judicious with how we deploy our capital.

Russell Diez-Canseco: Our capital. Where we are right now is very much on track, we believe, to deliver our full-year guidance based on the efforts we've got with specific retailers during specific time periods. We continue to drive the gap between us and branded competitors on an average basis, closer and closer to that range we said we wanted to achieve. I don't know that on an overall basis for the entire market, we'll get exactly where we want to be this year, but it reflects the right balance of speed, cost, and seeing a return to positive volume growth as we head into the back half of the year. I think we're in a good position again to return to growth with the right cost structure, especially investments in pricing, and we'll continue to look at what that right balance looks like as we head into 2027.

Speaker #4: And so where we are right now is very much on track, we believe, to deliver our full-year guidance based on the efforts we've got with specific retailers during specific time periods.

Speaker #4: And we continue to drive the gap between us and branded competitors on an average basis closer and closer to that range we said we wanted to achieve.

Speaker #4: I don't know that, on an overall basis for the entire market, we'll get exactly where we want to be this year. But it reflects the right balance of speed, cost, and seeing a return to positive volume growth as we head into the back half of the year.

Speaker #4: So I think we're in a good position, again, to return to growth. With the right cost structure, especially investments in pricing, and we'll continue to look at what that right balance looks like as we head into 2027.

Speaker #2: Appreciate the thoughts there. And then just as a follow-up, wondering if you can give us a little more insight into some of these distribution wins that you've been speaking to.

Scott Marks: Appreciate the thoughts there. Just as a follow-up, wondering if you can give us a little more insight into some of these distribution wins that you've been speaking to. Where is it being realized? Is it in new doors? Is it more items on shelf? Is it kind of the core 4 SKUs that you're expanding? Just any other color you can provide would be great. Thanks.

Speaker #2: Where is it being realized? Is it in new doors? Is it more items on shelf? Is it kind of the core four SKUs that you're expanding?

Speaker #2: Just any other color you can provide would be great. Thanks.

Speaker #4: Yeah, we have talked I think for a few years now about the very clear opportunity to expand our core four items into largely existing doors.

Russell Diez-Canseco: Yeah. We have talked, I think for a few years now, about the very clear opportunity to expand our core four items into largely existing doors. While we've certainly had gains in other items, for example, we launched a new SKU, which is a 24-count at Whole Foods, and then a few other retailers to come. A 24-count is actually proving to be really welcomed by the marketplace. We've seen some really neat social media response to the 24-count. People are thrilled with that option. We're also seeing early evidence of velocities that exceed our initial expectations. There are some new products hitting the shelves, that one in particular I would call out. In general, it's the core four in existing doors and really running that same playbook, which to us demonstrates that we have lots of opportunity with our existing portfolio.

Speaker #4: And while we've certainly had gains in other items—for example, we launched a new SKU, which is a 24-count, at Whole Foods and in a few other retailers to come.

Speaker #4: And a 24-count is actually proving to be really welcomed by the marketplace. We've seen some really neat social media response to the 24-count. People are thrilled with that option, but we're also seeing early evidence of velocities that exceed our initial expectations.

Speaker #4: And so there are some new products hitting the shelves. That one in particular, I would call out. But in general, it's the core four in existing doors and really running that same playbook which to us demonstrates that we have lots of opportunity with our existing portfolio.

Speaker #4: It doesn't require new innovation. It simply requires as we set out to do this year, having plenty of supply and the conviction to bring that to our retail partners.

Russell Diez-Canseco: It doesn't require new innovation. It simply requires, as we set out to do this year, having plenty of supply and the conviction to bring that to our retail partners.

Speaker #2: Appreciate it. I'll pass it on.

Scott Marks: Appreciate it. I'll pass it on.

Speaker #1: Our next question comes from the line of Matt Smith with Stiefel. Matt, your line is open.

Operator 2: Our next question comes from the line of Matt Smith with Stifel. Matt, your line is open.

Operator: Our next question comes from the line of Matt Smith with Stifel. Matt, your line is open.

Speaker #5: Hi, good morning, Russell and Tilo. Just following up on the price gap, evolution. As you think ahead and the exit rate of this year, could you give a little more color on what your expectation is in terms of volume growth versus the pricing headwind associated with those the price gap management taking hold?

Matt Smith: Hi, good morning, Russell and Thilo. Just following up on the price gap evolution. As you think ahead and the exit rate of this year, could you give a little more color on what your expectation is in terms of volume growth versus the pricing headwind associated with the price gap management taking hold?

Speaker #4: Yeah, so we have a healthy amount of volume growth in the back half of the year. Tilo may want to add some detail around the composition of our sales growth and sales expectations for the rest of the year.

Russell Diez-Canseco: Yeah. We have a healthy amount of volume growth in H2. Thilo may want to add some detail around the composition of our sales growth and sales expectations for the rest of the year. It's really volume driven from my perspective. As we end the year, I believe we'll be in a much healthier place in terms of volume-driven growth. We'll continue to both test and learn and experiment with where we want to lean in more in the portfolio with pricing versus less, where we're getting the best paybacks and where we're seeing the best benefits for our retail partners.

Speaker #4: But it's really volume driven from my perspective. And so as we end the year, I believe we'll be in a much healthier place in terms of volume driven growth.

Speaker #4: And we'll continue to both test and learn and experiment with where we want to lean in more in the portfolio with pricing versus less, where we're getting the best paybacks and where we're seeing the best benefits for our retail partners.

Thilo Wrede: Matthew, as well as that then, as we get into the back end of the year, especially into Q4 and feed costs come down into the partnership that we have, together with pricing, which we just talked about, volume growth should really pick up. The headwinds that we're seeing year to date in terms of volume, but also in terms of retail sales pricing, those headwinds will become much easier to manage. In Q4, we're dealing with much easier mapping than what we've experienced in Q3.

Speaker #4: ...come down into the target range that we have. Together with people's solution—and we just talked about volume growth—should we pick up, the headwinds that we've seen year to date, in terms of volume but also in terms of retail sales pricing, those headwinds will become much easier to manage.

Speaker #4: And then in the fourth quarter, we're dealing with much easier lapping than what's been what we've experienced in the third quarter.

Speaker #5: Thank you for that. And the question for you on the feed cost program that you had some professional fees for in the quarter. Can you give a little more detail regarding if you're looking at changing the way feed costs work through the supply chain and the evolution of potential more professional costs as we move through the second half of the year?

Matt Smith: Thank you for that. A question for you on the feed cost program that you had some professional fees for in the quarter. Can you give a little more detail regarding if you're looking at changing the way feed costs work through the supply chain and the evolution of potential more professional costs as we move through H2?

Speaker #4: Yeah, so the primary mechanism will actually be around consolidating our the buying of feed across our network of family farms across a smaller number of feed mills that have agreed to specific price frameworks for all of them.

Russell Diez-Canseco: Yeah. The primary mechanism will actually be around consolidating the buying of feed across our network of family farms, across a smaller number of feed mills that have agreed to specific price frameworks for all of them. The savings opportunities don't lie in a change to how we actually procure feed. It'll continue to be the farmers themselves that buy the feed. It doesn't rely on a change in the formula, the ingredients that provide the right nutrition for the birds. It simply takes advantage of the scale we've achieved to get some better economics from the overall buy and to make sure that the feed formulas don't have anything in them that we haven't approved that aren't required by the birds.

Speaker #4: The savings opportunities don't lie in a change to how we actually procure feed. It'll continue to be the farmers themselves that buy the feed.

Speaker #4: It doesn't change. It doesn't rely on a change in the formula, or the ingredients that provide the right nutrition for the birds. It simply takes advantage of the scale we've achieved to get some better economics from the overall buy.

Speaker #4: And to make sure that the feed formulas don't have anything in them that we haven't approved that aren't required by the birds. And it's just I think it's a pretty straightforward exercise in just being better at procurement.

Russell Diez-Canseco: I think it's a pretty straightforward exercise in just being better at procurement.

Matt Smith: Appreciate that. I'll pass it on.

Speaker #5: Appreciate that. I'll pass it on.

Speaker #1: Our next question comes from the line of Ben Cleave with Benchmark. Ben, your line is open.

Operator 2: Our next question comes from the line of Ben Klieve with Benchmark. Ben, your line is open.

Operator: Our next question comes from the line of Ben Klieve with Benchmark. Ben, your line is open.

Speaker #5: All right, thanks for taking my questions. And really quick, Tilo, on your last question, you're coming in pretty soft there. As an FYI, my question for you guys is around the breaker channel dynamic.

Ben Klieve: All right. Thanks for taking my questions. Really quick, Thilo, on your last question, you're coming in pretty soft there, as an FYI. My question for you guys is around the breaker channel dynamic. In your Form 10-K, you noted breaker channels represented about 5% of your 2024 and 2025 revenues. I'm wondering if you can talk about the breaker channel last year on a dollar basis, though. Excuse me, it was 5% on a volume basis. Can you talk about the breaker channel revenues in 2025, and then your revenue expectations for breakers in 2026?

Speaker #5: In your 10-K, you noted breaker channels represented about 5% of your 24 and 25 revenues. I'm wondering, if you can talk about the breaker channel last year on a dollar basis, though, excuse me, it was 5% on a volume basis.

Speaker #5: Can you talk about the breaker channel revenues in 2025 and then your revenue expectations for breakers in 2026?

Speaker #6: Yeah, that's good because in the comparison our

Thilo Wrede: Yeah, I think that answers tomorrow.

Speaker #5: Sorry, Tilo, if you're answering there, I couldn't quite hear you.

Ben Klieve: Sorry, Thilo, if you were answering there, I couldn't quite hear you.

Speaker #6: Brandon, is this better?

Thilo Wrede: Ben, is this better?

Speaker #5: Faintly.

Ben Klieve: Faintly.

Speaker #1: We are experiencing a technical difficulty. Please stand by as we resolve the issue. We will pause the broadcast temporarily.

Operator 2: We are experiencing a technical difficulty. Please stand by as we resolve the issue. We will pause the broadcast temporarily.

Operator: We are experiencing a technical difficulty. Please stand by as we resolve the issue. We will pause the broadcast temporarily.

Speaker #3: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Operator 1: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Operator: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Speaker #1: Ben, can you hear me? Thank you for standing by. We have resumed the call. Speaker, please go ahead.

Thilo Wrede: Ben, can you hear me?

Operator 2: Thank you for standing by. We have resumed the call. Speaker, please go ahead.

Operator: Thank you for standing by. We have resumed the call. Speaker, please go ahead.

Speaker #5: Hey, Ben, can you hear me now?

Thilo Wrede: Hey, Ben, can you hear me now? Trevor, can you hear us?

Speaker #6: Driver, can you hear us?

Speaker #1: Yes, I can hear you. We will temporarily move on to the next question. Hoping that will resolve the issue. Ben, please feel free to rejoin the line.

Operator 2: Yes, I can hear you. We will temporarily move on to the next question, hoping that will resolve the issue. Ben Klieve, please feel free to rejoin the line. The next question comes from the line of Ben Mayhew with BMO Capital Markets. Ben, your line is open.

Operator: Yes, I can hear you. We will temporarily move on to the next question, hoping that will resolve the issue. Ben Klieve, please feel free to rejoin the line. The next question comes from the line of Ben Mayhew with BMO Capital Markets. Ben, your line is open.

Speaker #1: The next question comes from the line of Ben Mayhew with BMO Capital Markets. Ben, your line is open.

Speaker #7: Hi, good morning, guys. Can you hear me okay?

Ben Mayhew: Hi. Good morning, guys. Can you hear me okay?

Speaker #5: Yes, we can.

Thilo Wrede: Yes, we can.

Speaker #7: Okay, great. So I just wanted to ask a question around the new credit facilities, and just kind of the space and the buffer that that provides you, especially over the next year as you work to right-size your supply levels and re-accelerate profit.

Ben Mayhew: Okay, great. I just wanted to ask a question around the new credit facilities and just the space and the buffer that that provides you, especially over the next year as you work to right-size your supply levels and re-accelerate profit. If you could just add a little more context about what that does for your model over the next year.

Speaker #7: If you could just add a little more context about what that does for your model over the next year.

Speaker #5: Yeah, what the new credit facilities allow us to do is to make the right decisions for the business in the long term. Managing through the current oversupply across the industry and not constantly having to watch our cash balance.

Thilo Wrede: Yeah. What the new credit facilities allow us to do is to make the right decisions for the business in the long term, managing through the current oversupply across the industry and not constantly having to watch our cash balance. That's not to say that we're not watching costs right now or not watching cash right now. We very much are. With $185 million in debt capacity compared to the $60 million that we had before, and being relatively free of financial covenants, it allows us to operate with the flexibility that we need right now to manage through this oversupply across the industry. We think the $185 million is more than what we need. It gives us an insurance policy to make sure that we can operate and make the right decisions for the health of the brand and for managing long-term growth opportunities with short-term headwinds.

Speaker #5: That's not to say that we're not watching costs right now or not watching cash right now. We very much are. But with 185 million dollars in debt capacity, compared to the 60 million that we had before, and being relatively free of financial covenants, it allows us to operate with the flexibility that we need right now to manage through this oversupply across the industry.

Speaker #5: We think the 185 million dollars is more than what we need. And it gives us an insurance policy to make sure that we can operate and make the right decisions for the health of the brand and for managing long-term growth opportunities with short-term headwinds.

Speaker #7: Thank you for that. And my follow-up question has to do with the voluntary farmer contract amendments. I was just wondering if you could add a little context and describe kind of the downstream impacts of how these are going to work.

Ben Mayhew: Thank you for that. My follow-up question has to do with the voluntary farmer contract amendments. I was just wondering if you could add a little context and describe the downstream impacts of how these are going to work and what's the pace at which you expect these actions to right-size your internal supplies. I believe you mentioned that the eggs to the breaker market are going to decelerate quite materially starting in Q3. If you could just expand upon that and just let us know how this is going to play out. Thanks.

Speaker #7: And what's the pace at which you expect these actions to right-size your internal supplies? I believe you mentioned that the eggs to the breaker market are going to decelerate quite materially starting in third quarter.

Speaker #7: So if you could just expand upon that and just let us know how this is going to play out. Thanks.

Speaker #5: Yeah, as we put in the press release and then the earnings deck, total profit impact from the breaker market in the second quarter was over 20 million dollars, right?

Thilo Wrede: Yeah. As we put in the press release and in the earnings deck, total profit impact from the breaker market in Q2 was over $20 million. We had a hit to gross profit. We had an additional hit from actually paying for the distribution to the breaker plants. As we said in the prepared remarks, we're going to manage the oversupply going forward, not by sending expensive eggs to the breaker where we get literally pennies on the dollar, but by reducing the supply of eggs coming to the cold storage facility in the first place. We still anticipate having some breaker expenses in Q3, potentially in Q4. That is to ensure that we maintain a bit of flexibility should demand pick up faster than what we're currently modeling.

Speaker #5: We had a hit to gross profit; we had a hit and additional hit from actually paying for the distribution to the breaker plants. And as we said in the prepared remarks, we're going to manage the oversupply going forward, not by sending expensive eggs to the breaker, where we get literally pennies on the dollar, but by reducing the supply of eggs coming to the cold storage facility in the first place.

Speaker #5: So we still anticipate having some breaker expenses in Q3, potentially in Q4. That is to ensure that we maintain a bit of flexibility should demand pick up faster than what we're currently modeling.

Thilo Wrede: We certainly want to avoid a situation like we had at the beginning of 2025 when we had sold out our nest-run egg inventory and couldn't react to accelerations in the market. There will still be breaker expenses in Q3, potentially Q4, but we're talking a much lower range than what we had in Q2, potentially a lower range than what we had in Q1.

Speaker #5: We certainly want to avoid a situation like we had at the beginning of '25 when we had sold out our Nest Run egg inventory.

Speaker #5: And couldn't react to accelerations in the market. So there will still be breaker expenses in Q3, potentially Q4, but we're talking a much lower range than what we had in Q2, potentially a lower range than what we had in Q1.

Speaker #7: Great, thank you.

Ben Mayhew: Great. Thank you.

Speaker #1: Our next question comes from the line of Eric DeLaurier with Craig Hallam Capital. Eric, your line is open.

Operator 2: Our next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital. Eric, your line is open.

Operator: Our next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital. Eric, your line is open.

Speaker #3: Great, thank you for taking my questions. Nice job on the stabilization work thus far. One more question for me on the price gap dynamics.

Eric Des Lauriers: Great. Thank you for taking my questions. Nice job on all the stabilization work thus far. One more question from me on price gap dynamics. Just wondering if you can sort of give us some color on what you're seeing from potential retail pricing stabilization from your competitors in the category broadly. Overall, looks like a bounce in commodity egg prices on the wholesale level in recent weeks. Are you seeing any of that kind of extend to the pasture-raised category as well?

Speaker #3: Just wondering if you can sort of give us some color on what you're seeing from potential sort of retail pricing stabilization from your competitors in the category broadly.

Speaker #3: And then overall, it looks like a bounce in commodity egg prices on the wholesale level. In recent weeks, are you seeing any of that kind of extend to the pasteurized category as well?

Speaker #6: Yeah, thanks for that, Craig. So as we have mentioned on prior quarter calls, we look at specialty eggs in relation to our brand as those eggs with outdoor access for the birds.

Russell Diez-Canseco: Thanks for that, Craig. As we have mentioned on prior quarter calls, we look at specialty eggs in relation to our brand as those eggs with outdoor access for the birds. That would be both pasture-raised and free-range, for example. There we've seen overall a fair bit of stabilization for pricing for our competitors, especially the branded competitors over the last 4 to 13 weeks. You see occasional blips where prices may come up or down on average as certain brands come off of a really hot promotion or maybe implement one. Some of those are planned well in advance. Some of those may be reactions to more temporary supply-demand imbalances.

Speaker #6: So that would be both pasteurized and free-range, for example. And there we've seen overall a fair bit of stabilization for pricing for our competitors especially the branded competitors over the last four to 13 weeks.

Speaker #6: You see occasional blips where prices may come up or down on average as certain brands come off of a really hot promotion or maybe implement one.

Speaker #6: Some of those are planned well in advance. Some of those may be reactions to more temporary supply-demand imbalances. The contrast I would draw to how we're managing through the oversupply we've seen this year is we shifted from sending most of those excess eggs to the breaker to now working with farmers to reduce our supply.

Russell Diez-Canseco: The contrast I would draw to how we're managing through the oversupply we've seen this year is we shifted from sending most of those excess eggs to the breaker to now working with farmers to reduce our supply. I'm not sure how other producers are handling their oversupply situations, but one hypothesis is that when you see really variable promotional activity, pricing on average coming up and then sometimes coming back down for a certain brand, it may indicate supply-demand imbalances that are occurring that are being managed on the shelf instead of through the breaker channel. I'm not seeing any particular brand showing a real change in trend other than stable at this point. We are seeing signs of stabilization for commodity eggs as well.

Speaker #6: I'm not sure how other producers or handling their oversupply situations. But one hypothesis is that when you see really variable promotional activity, pricing on average coming up, and then sometimes coming back down for certain brand, it may indicate supply-demand imbalances that are occurring that are being managed on the shelf instead of through the breaker channel.

Speaker #6: So I'm not seeing any particular brand showing a real change in trend other than stable at this point. And we are seeing signs of stabilization for commodity eggs as well.

Speaker #3: No, that's really great color. I appreciate that. And then just follow-up question. Retail or order patterns are one of the things that were disrupted.

Eric Des Lauriers: That's really great color. I appreciate that. Just a follow-up question. Retailer order patterns were one of the things that were disrupted as this oversupply became evident. Could you just give a comment on what you're seeing from retail order patterns? Have those kind of stabilized or volatility come down along with the more stabilized pricing?

Speaker #3: As this oversupply became evident, could you just give a comment on sort of what you're seeing from retail order patterns? Have those kind of stabilized or volatility come down along with the more stabilized pricing?

Speaker #6: Yeah, that's actually been an area of extreme focus for us. Over the last few years, during an extended period of tight supply in the market, we haven't invested as much time as we might have in a more normalized environment of working closely with retailers on a week-by-week basis to examine their order quantities, and to help ensure that they're not over or under-ordering relative to the plans we've got with them to grow.

Russell Diez-Canseco: That's actually been an area of extreme focus for us. Over the last few years during an extended period of tight supply in the market, we haven't invested as much time as we might have in a more normalized environment of working closely with retailers on a week-by-week basis to examine their order quantities and to help ensure that they're not over or under ordering relative to the plans we've got with them to grow. What we did see earlier this year when in some retailers you saw velocities below maybe where we expected them to be or perhaps where the retailer or distributor expected them to be, sometimes there is a gap between when the sell-through at retail started to come down and the orders supporting those sales came down, and you started to see some inventory expansion and then contraction.

Speaker #6: And what we did see earlier this year when in some retailers, you saw velocities below maybe where we expected them to be or perhaps where the retailer or distributor expected them to be, sometimes there was a gap between when the sell-through at retail started to come down and the orders supporting that, those sales came down and you started to see some inventory expansion and then contraction.

Speaker #6: Those bullwhip effect in the supply chain is I think they called it in business school. And we're working much more closely and really focused on making sure that we don't see a resumption of those sort of disruptive patterns.

Russell Diez-Canseco: Those bullwhip effect in the supply chain, as I think they called it in business school. We're working much more closely and really focused on making sure that we don't see a resumption of those sort of disruptive patterns. We're feeling much better about the right levels of inventories at our top customers and our ability to work with them to make sure that we don't see any big swings one way or the other.

Speaker #6: And we're feeling much better about the right levels of inventories that our top customers and our ability to work with them to make sure that we don't see any big swings one way or the other.

Speaker #3: All right, that's very helpful color. Thank you for taking my questions.

Eric Des Lauriers: All right. That's very helpful color. Thank you for taking my questions.

Speaker #1: Our next question comes from the line of Glenn West with William Blair. Glenn, your line is open.

Operator 2: Our next question comes from the line of Glenn West with William Blair. Glenn, your line is open.

Operator: Our next question comes from the line of Glenn West with William Blair. Glenn, your line is open.

Speaker #7: Hi, guys. This is Glenn West, stepping in for John Anderson. Just one question. So last quarter, I think about Q2, EBITDA like negative mid to high teams, and it came in a little higher at this quarter.

Glenn West: Hi, guys. This is Glenn West stepping in for Jon Andersen. Just one question. Last quarter, I think we're thinking or talking about Q2 EBITDA like -mid to high teens, and it came in a little higher this quarter. I know you laid out kind of the three building blocks to get to the guide that you obviously reaffirmed. Maybe just some more color on what gives you confidence that that swing is going to work and how much of that is kind of already locked in versus dependent on things playing out. Thank you.

Speaker #7: And then I know you laid out kind of the three building blocks to get to the guide that you obviously reaffirmed. But maybe just some more color on what gives you confidence that that swing is going to work and how much of that is kind of already locked in versus dependent on things playing out.

Speaker #7: Thank you.

Speaker #5: Yeah, I think as it comes to relative to what expectations were, volume to retailers in Q2 was maybe a smidge lighter than what we expected.

Thilo Wrede: I think as it comes to relative to what expectations were, volume to retailers in Q2 was maybe a smidge lighter than what we expected. There was one retailer in particular where we're switching from shipping through a distributor to selling directly to the retailer. That transition took a bit longer than we thought, and because of that, promotions got pushed back by a few weeks. That certainly had an impact on the quarter. Given the oversupply situation that we are in, that is really a double whammy for us then, right? On one hand, we are not getting the revenue from that promotion during the quarter that we expected, and therefore, not the gross profit that we expected. The eggs that we didn't sell to the retailer, we now have to send to the breaker and incur additional costs for that.

Speaker #5: There was one retailer in particular where we're switching from shipping through distributor to going to selling directly to the retailer. That transition took a bit longer than we thought.

Speaker #5: And because of that, promotions got pushed back by a few weeks. That certainly had an impact on the quarter. And given the oversupply situation that we're re in, that is really a double whammy for us then, right?

Speaker #5: On one hand, we are not getting the revenue from the promotion during the quarter that we expected. And therefore not the gross profit that we expected.

Speaker #5: And then the eggs that we didn't sell to the retailer, we now have to send to the breaker. And incur additional costs for that.

Speaker #5: So that's a bit of the variation there. I think the other piece that probably wasn't in most models for second quarter was the one-time expense that we had for the professional service for the feed project.

Thilo Wrede: That's a bit of the variation there. I think the other piece that probably wasn't in most models for Q2 was the one-time expense that we had for the professional service for the FEED project. That's a $3 million expense that we all experienced in Q2. That's not a repeating expense going forward. When I now think about what are the building blocks that we need to deliver the guidance, it really comes down to the things that we talked about in the prepared remarks, right? We keep bringing price gaps down. That will accelerate velocity. We are getting the distribution gains that they are sold in. We have the visibility to them. The TDPs of 170 to 175 points by Q4. That is something that we have clear line of sight to because the sell-in has already happened. We're taking costs out of the system.

Speaker #5: That's a $3 million expense that we all experienced in Q2. But that's not a repeating expense going forward. When I now think about what are the building blocks that we need to deliver the guidance, it really comes down to the things that we talked about in the prepared remarks, right?

Speaker #5: We keep bringing price gaps down. That will accelerate velocity. We are getting the distribution gains that they're sold in. We have the visibility to them.

Speaker #5: The TDPs of 170 to 175 points by Q4. That is something that we have clear line of sight to because the selling has already happened.

Speaker #5: And then we're taking costs out of the system. We talked about the six to seven million dollars of SG&A reduction. That's 10% of our people-related costs in SG&A.

Thilo Wrede: We talked about the $6 to $7 million of SG&A reduction. That's 10% of our people-related costs in SG&A. That's 5.5% of last year's SG&A. That's not an insignificant reduction for us. Those are then the drivers to get to the guidance. It really comes down to can we accelerate volume enough to make sure that we get the leverage and the P&L? That is where we have confidence that with the price gap measures that we're taking and the distribution gains that we know are coming, that we will get that leverage to get margins back up again.

Speaker #5: That's five and a half percent of last year's SG&A. That's not an insignificant reduction for us. And those are then the drivers to get to the guidance.

Speaker #5: It really comes down to can we accelerate volume enough to make sure that we get the leverage in the P&L? And that is where we have confidence that with the price gap measures that we're taking, and the distribution gains that we know are coming, that we will get that leverage to get margins back up again.

Speaker #7: Super helpful color. I'll pass it on. Thank you, guys.

Glenn West: Super helpful color. I'll pass it on. Thank you, guys.

Speaker #1: Our next question comes from the line of Sarong Vora with Tag. Sarong, your line is open.

Operator 2: Our next question comes from the line of Sarang Vora with Tag. Sarang, your line is open.

Operator: Our next question comes from the line of Sarang Vora with Tag. Sarang, your line is open.

Speaker #2: Great. Thank you. And good to see stabilization in the back half of the year. My question is around price gaps. As you narrow this price gap, do you want to do dollars in general?

Sarang Vora: Great. Thank you. Good to see stabilization in the back half of the year. My question is around price gaps. As you narrow this price gap to $1 to $2 in general, and kind of keep it over there given how the competition has changed in this space, do you think this has an impact on the structural gross margin level of the company? I know it's coming back to like 30% exit towards Q4, but in the past, we have been talking like mid-30s. I'm curious to know if the lowering of the prices or competitive landscape has an impact on the structural gross margin, or are there any offsets like feed cost and stuff that can help it go even higher from north of 30? Curious to hear your thought on that.

Speaker #2: And kind of keep it over there given how the competition has changed in the space. Do you think this has an impact on the structural gross margin level of the company?

Speaker #2: I know it's coming back to like 30% exit towards the fourth quarter, but in the past, we have been talking like mid-30s. So I'm curious to know if the lowering of the prices hasn't or competitive landscape has an impact on the structural gross margin or are there any offsets like feed cost and stuff that can help it go even higher from north of 30.

Speaker #2: So curious to hear your thought on that.

Speaker #5: Yeah, Sarong, thanks for the question. Let me be very clear. I don't think we expect anything north of 30 if you're implying that we should be planning for a four handle on our gross margin.

Thilo Wrede: Yeah, Sarang, thanks for the question. Let me be very clear. I don't think we expect anything north of 30% if you're implying that we should be planning for a four handle on our gross margin. What we said in the prepared remarks was that we think we'll have an exit rate in Q4, meaning at the end of Q4, of gross margin that starts with a three again. Volume leverage across ECS and cost of goods sold certainly plays into that. That is assuming that we are bringing the price gaps down. What will then help us next year is the savings from the FEED project that we've talked about. If you recall, on the Q1 call, we said that last year feed costs were about $125 million.

Speaker #5: But we said in the prepared remarks was that we think we'll have an exit rate in Q4, meaning at the end of Q4, of gross margin that starts with a three again.

Speaker #5: Volume leverage across ECS and cost of goods sold certainly plays into that. And that is assuming that we're bringing the price gaps down. But we'll then help us next year is the savings from the feed project that we have talked about.

Speaker #5: If you recall, on the first quarter call, we said that last year feed costs were about 125 million dollars. And we expect to save a decent enough amount of that, more than a million or two, in order to make it worth our while.

Thilo Wrede: We expect to save a decent enough amount of that, more than $1 million or $2 million, in order to make it worth our while. Now, with increasing fertilizer costs, we expect that feed costs will increase for us as we go into the end of the year and then next year. The feed cost savings that we're getting from this project are at a minimum offsetting these higher input costs because of fertilizer. We think there is a structural cost reduction that we can accomplish with this project that ultimately will help us pay for the price gap reductions.

Speaker #5: Now, with increasing fertilizer cost, we expect that feed cost will increase for us as we go into the end of the year and then next year.

Speaker #5: So the feed cost savings that we're getting from this project are at a minimum offsetting these higher input costs because of fertilizer. But we think there is a structural cost reduction that we can accomplish with this project that ultimately will help us pay for the price gap reductions.

Speaker #2: That's helpful. And I had a quick follow-up on the TDP growth. Can you help us understand that the TDP growth by channels like where do you see it's a significant growth?

Sarang Vora: That's helpful. I had a quick follow-up on the TDP growth. Can you help us understand the TDP growth by channels? Like where do you see. It's a significant growth. I'm just curious if you can share there is an opportunity or volume expansion happening in like grocery, mass, natural. Just curious if you can share any more color where you are seeing the TDP growth by channels.

Speaker #2: So I'm just curious if you can share there is an opportunity or volume expansion happening in the grocery mass, natural, just curious if you can share any more color.

Speaker #2: Where you are seeing the TDP growth.

Speaker #6: By channels.

Speaker #5: Yeah. So the distribution gains that we've been talking about that are coming, they're really across the board. I think we have the biggest opportunity in the mass channel.

Thilo Wrede: Yeah. The distribution gains that we've been talking about that are coming, they're really across the board. I think we have the biggest opportunity in the mass channel. There are certainly doors that we are not in today, and our average items carried in the mass channel is lower than in the food channel or natural. Even in natural, where we already have very healthy distribution with the 24-count that Russell had mentioned earlier, there's another opportunity for us to get another SKU on the shelf. We expect to get TDP gains across all channels that we're in today, maybe with a bit more focus on mass, because that's where we still have the lowest distribution today.

Speaker #5: There's certainly doors that we are not in today. And our average items carried in the mass channel is lower than in the food channel or natural.

Speaker #5: But even in natural, where we already have very healthy distribution with a 24 count that Russell had mentioned earlier, there's another opportunity for us to get another skew on the shelf.

Speaker #5: And so we expect to get TDP gains across all channels that we're in today. Maybe with a bit more focus on mass because that's where we still have the lowest distribution today.

Speaker #2: Helpful. Thank you and good luck ahead.

Sarang Vora: Helpful. Thank you and good luck ahead.

Speaker #5: Thanks, Sarong.

Thilo Wrede: Thanks, Ron.

Speaker #1: Our next question comes from the line of Jack Sito with Needham and Company. Jack, your line, is open.

Operator 2: Our next question comes from the line of Jack Seito with Needham & Company. Jack, your line is open.

Operator: Our next question comes from the line of Jack Siedow with Needham & Company. Jack, your line is open.

Speaker #4: Hi guys. This is Jack on for Gerald. I guess, how are you thinking about long-term capex post-26? Not looking for guidance or anything, but just trying to understand how flexible you are with growth spend versus maintenance once the foundation of VXR is completed and insulated.

[Analyst] (Needham and Company): Hi, guys. This is Jack on for Gerald. I guess how are you thinking about long-term CapEx post 2026? Not looking for guidance or anything. Just trying to understand how flexible you are with growth spend versus maintenance once the foundation of VXR is completed and insulated. Thanks.

Jack Siedow: Hi, guys. This is Jack on for Gerald. I guess how are you thinking about long-term CapEx post 2026? Not looking for guidance or anything. Just trying to understand how flexible you are with growth spend versus maintenance once the foundation of VXR is completed and insulated. Thanks.

Speaker #4: Thanks.

Speaker #5: Yeah. So VXR, as we said, first quarter call, then repeated again today, VXR, the plan is to halt construction once the outside of the building is basically completed.

Thilo Wrede: Yeah. VXR, as we said Q1 call and repeated again today, VXR, the plan is to halt construction once the outside of the building is basically completed. We will need about 9 to 12 months lead time between deciding that we need the capacity from VXR and actually getting eggs out of the new facility. We're modeling potential demand for the coming years very frequently to make sure that we find the right time to restart construction of VXR. Based on how we've talked about CapEx guidance before and how we talked about it today, you can do the math that there's about $80 million or $90 million more that we need to spend on VXR once we restart construction. We will only do that once we have a very clear signal that we will actually need the capacity.

Speaker #5: We will then need about 9 to 12 months’ lead time between deciding that we need the capacity from VXR and actually getting eggs out of the new facility.

Speaker #5: And so we're modeling potential demand for the coming years very, very frequently to make sure that we find the right time to restart construction of VXR.

Speaker #5: Based on how we've talked about capex guidance before, how we talk about it today, you can do the math that there's about 80 or 90 more million dollars that we need to spend on VXR once we restart construction.

Speaker #5: But we will only do that once we have a very clear signal that we will actually need the capacity. Once VXR construction is done, then we'll go back to a time of just maintenance capex.

Thilo Wrede: Once VXR construction is done, we'll go back to a time of just maintenance CapEx. In the past, we've spent, let's call it $10 million, $15 million a year on CapEx. That was a combination of maintenance and some smaller projects that we have been doing at ECS. Once we are through this intense CapEx phase with VXR, expect that CapEx spending will fall back down to somewhere of that range what we have seen prior to starting spending on VXR.

Speaker #5: In the past, we've spent let's call it 10, 15 million dollars a year on capex. That was a combination of maintenance and some smaller projects that we have been doing at ECS.

Speaker #5: So once we are through this intense capex phase with VXR, expect that capex spending will fall back down to somewhere of that range what we have seen prior to starting spending on VXR.

Speaker #4: Okay, that's helpful. And then, as a result of the new deal, can you talk about any updated capital allocation priorities? You obviously announced the termination of the repurchase program, but any more color there would be great.

[Analyst] (Needham and Company): Okay, that's helpful. As a result of the new deal, can you talk about any updated capital allocation priorities? You obviously announced the termination of the repurchase program, any more color there would be great. Thanks.

Jack Siedow: Okay, that's helpful. As a result of the new deal, can you talk about any updated capital allocation priorities? You obviously announced the termination of the repurchase program, any more color there would be great. Thanks.

Speaker #4: Thanks.

Speaker #5: Yeah. The capital allocation priorities we haven't changed from how we've talked about in the past, right? First one is keeping lights on. Second one is making sure the brand can grow and we have the capacity that one is that we gain efficiencies.

Thilo Wrede: Yeah, the capital allocation priorities really haven't changed from how we've talked about it in the past, right? First one is keeping lights on. Second one is making sure the brand can grow, and we have the capacity. Third one is that we gain efficiencies. The fourth one would be to return monies to shareholders. Right now, given the new loans that we have, the ability to return money to shareholders is constrained. That's simply part of the loan agreements that we signed. That doesn't take it away for us into perpetuity. For the time being, that is simply not something that we can focus on. That then makes us focus on the first three priorities for capital allocation and ensuring that the brand can continue to grow, that we have the capacity in place, that we have the support for the brand in place.

Speaker #5: And then the fourth one would be to return money to shareholders. Right now, given the new loans that we have, the ability to return money to shareholders is constrained.

Speaker #5: That's simply part of the loan agreements that we signed. That doesn't take it away for us into perpetuity. But for the time being, that is not simply not something that we can focus on.

Speaker #5: And so that then makes us focus on the first three priorities for capital allocation. And ensuring that the brand can continue to grow, that we have the capacity in place, that we have the support for the brand in place.

Speaker #5: That's probably the biggest priority that we have right now.

Thilo Wrede: That's probably the biggest priority that we have right now.

Speaker #4: Okay. Thank you.

[Analyst] (Needham and Company): Okay. Thank you.

Jack Siedow: Okay. Thank you.

Speaker #1: Our next question comes from the line of Robert Moscow with TD Cohen. Robert, your line, is open.

Operator 2: Our next question comes from the line of Robert Moskow with TD Cowen. Robert, your line is open.

Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Robert, your line is open.

Speaker #3: Hey, thanks. You said that it's taking some time to get the price gaps back to where you think they should be. With retailers, and I was wondering, what's more difficult?

Robert Moskow: Hey, thanks. You said that it's taking some time to get the price gaps back to where you think they should be with retailers. I was wondering, what's more difficult? Is it getting them to adjust unit pricing, or is it keeping track of what the competition is doing?

Speaker #3: Is it getting them to adjust unit pricing? Or is it getting keeping track of what the competition is doing?

Speaker #6: Hey, Rob. Thanks for the question. Competition shows up just as we do in the scan data every week. So it's relatively straightforward to keep an eye on that and make some fact-based decisions based on that kind of information.

Russell Diez-Canseco: Hey, Rob. Thanks for the question. Competition shows up just as we do in the scan data every week. It's relatively straightforward to keep an eye on that and make some fact-based decisions based on that kind of information. Again, we feel confident that the work we're doing and have already done, both on narrowing price gaps and expanding distribution this year, should deliver the guidance that we've outlined and reaffirmed today. The pace at which we continue to invest in price and how far we go has a lot to do with balancing, making sure that we are at a relevant price gap for consumers, especially those who might be trying us for the first time, and also continuing to invest in and protect a really premium brand we've built.

Speaker #6: I think we've got, again, we feel confident that the work we're doing and have already done, both on narrowing price gaps and expanding distribution this year, should deliver the guidance that we've outlined and reaffirmed today.

Speaker #6: The pace at which we continue to invest in price and how far we go has a lot to do with balancing making sure that we are at a relevant price gap for consumers, especially those who might be trying us for the first time, and also continuing to invest in and protect a really premium brand we've built.

Speaker #6: That's why, for example, we have favored the breaker channel in the short run to manage through oversupply as opposed to kind of race to the bottom hot promotions as one example.

Russell Diez-Canseco: That's why, for example, we have favored the breaker channel in the short run to manage through oversupply as opposed to kind of race to the bottom hot promotions, as one example. We have a brand that we need to invest in for the long haul as well. It's really a balancing act across a period of time in working with retailers, but also making sure that we're sending the right signals to consumers about the fundamentally different value proposition we offer, and making sure we get credit for that.

Speaker #6: We have a brand that we need to invest in for the long haul as well. So it's really a balancing act across a period of time in working with retailers but also making sure that we're sending the right signals to consumers about the fundamentally different value proposition we offer and making sure we get credit for that.

Speaker #3: Okay. Thank you.

Robert Moskow: Great. Thank you.

Speaker #6: Thanks, Rob.

Russell Diez-Canseco: Thanks, Rob.

Speaker #1: We have reached the end of the Q&A session. I will now turn the call back to Brian Shipman for closing remarks.

Operator 2: We have reached the end of the Q&A session. I will now turn the call back to Brian Shipman for closing remarks.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Brian Shipman for closing remarks.

Speaker #7: Thank you, everyone, for joining us today. Feel free to reach out directly if you have follow-up questions. And we'll talk to you next quarter.

Brian Shipman: Thank you everyone for joining us today. Feel free to reach out directly if you have follow-up questions, and we'll talk to you next quarter. Have a great day.

Speaker #7: Have a great day.

Speaker #1: This concludes today's call. Thank you for joining. You may now disconnect.

Operator 2: This concludes today's call. Thank you for joining. You may now disconnect.

Operator: This concludes today's call. Thank you for joining. You may now disconnect.

Operator 1: This event has now concluded. Thank you for joining Vital Farms Q2 2026.

Operator: This event has now concluded. Thank you for joining Vital Farms Q2 2026.

Q2 2026 Vital Farms Inc Earnings Call

Request DemoDemo

Vital Farms

Earnings