vitl-10q_20200628.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-39411

Vital Farms, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-0496985
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3601 South Congress Avenue Suite C100 Austin, Texas	78704
(Address of principal executive offices)	(Zip Code)

(877) 455-3063

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

VITL

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 4, 2020, the registrant had 39,432,161 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Statements of Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest and Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40
PART II.	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
	Signatures

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

•

the effects of the current COVID-19 pandemic, or of other global outbreaks of pandemics or contagious diseases or fear of such outbreaks, including on our supply chain, the demand for our products, and on overall economic conditions and consumer confidence and spending levels;

•

our expectations regarding our revenue, expenses and other operating results;

•

our ability to acquire new customers and successfully retain existing customers;

•

our ability to attract and retain our suppliers, distributors and co-manufacturers;

•

our ability to sustain or increase our profitability;

•

our ability to procure sufficient high quality eggs, butter and other raw materials;

•

real or perceived quality with our products or other issues that adversely affect our brand and reputation;

•

changes in the tastes and preferences of our consumers;

•

the financial condition of, and our relationships with, our suppliers, co-manufacturers, distributors, retailers and foodservice customers, as well as the health of the foodservice industry generally;

•

real or perceived quality or health issues with our products or other issues that adversely affect our brand and reputation;

•

the ability of our suppliers and co-manufacturers to comply with food safety, environmental or other laws or regulations;

•

future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;

•

the costs and success of our marketing efforts, and our ability to promote our brand;

•

our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;

•

our ability to effectively manage our growth;

•

our focus on a specific public benefit purpose and producing a positive effect for society may negatively influence our financial performance;

•

our ability to compete effectively with existing competitors and new market entrants;

•

the impact of adverse economic conditions;

•

the sufficiency of our cash to meet our liquidity needs and service our indebtedness;

•

seasonality; and

•

the growth rates of the markets in which we compete.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Unless the context otherwise requires, the terms “Vital Farms,” “the Company,” “we,” “our,” “us” or similar references in this Quarterly Report on Form 10-Q refer to Vital Farms, Inc. and its subsidiaries.

PART I – FINANCIAL INFORMATION

VITAL FARMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

	June 28, 2020			December 29, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	17,094		$	1,274
Accounts receivable, net		16,016			16,108
Inventories		9,922			12,947
Income taxes receivable		—			1,615
Prepaid expenses and other current assets		3,199			2,706
Total current assets		46,231			34,650
Property, plant and equipment, net		26,823			22,458
Notes receivable from related party		844			831
Goodwill		3,858			3,858
Deposits and other assets		181			151
Total assets	$	77,937		$	61,948
Liabilities, Redeemable Noncontrolling Interest, Redeemable Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,107		$	13,510
Accrued liabilities		7,820			8,608
Current portion of long-term debt		1,460			2,160
Lease obligation, current		460			449
Contingent consideration, current		159			270
Income taxes payable		355			—
Total current liabilities		25,361			24,997
Long-term debt, net of current portion		8,315			2,896
Lease obligation, net of current portion		565			797
Contingent consideration, non-current		54			382
Deferred tax liabilities, net		2,306			755
Other liability, non-current		421			272
Total liabilities		37,022			30,099
Commitments and contingencies (Note 15)
Redeemable noncontrolling interest		175			175
Redeemable convertible preferred stock (Series B, Series C and Series D), $0.0001 par value per share; 8,192,876 shares authorized, issued, and outstanding as of June 28, 2020 (unaudited) and December 29, 2019; aggregate liquidation preference of $40,436 as of June 28, 2020 (unaudited) and December 29, 2019		23,036			23,036
Stockholders’ equity:
Common stock, $0.0001 par value per share, 40,348,565 shares authorized as of June 28, 2020 (unaudited) and December 29, 2019; 31,683,486 and 31,429,898 shares issued as of June 28, 2020 (unaudited) and December 29, 2019, respectively; 26,188,568 and 25,934,980 shares outstanding as of June 28, 2020 (unaudited) and December 29, 2019, respectively		3			3
Treasury stock, at cost, 5,494,918 common shares as of June 28, 2020 (unaudited) and December 29, 2019		(16,276	)		(16,276	)
Additional paid-in capital		20,789			19,593
Retained earnings		13,148			5,239
Total stockholders’ equity attributable to Vital Farms, Inc. stockholders		17,664			8,559
Noncontrolling interests		40			79
Total stockholders’ equity	$	17,704		$	8,638
Total liabilities, redeemable noncontrolling interest, redeemable convertible preferred stock and stockholders’ equity	$	77,937		$	61,948

See accompanying notes to the unaudited condensed consolidated financial statements.

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(Unaudited)

	13-Weeks Ended						26-Weeks Ended
	June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Net revenue	$	59,341		$	32,285		$	106,920		$	65,230
Cost of goods sold		36,643			21,285			68,367			42,724
Gross profit		22,698			11,000			38,553			22,506
Operating expenses:
Selling, general and administrative		9,970			4,758			19,648			9,922
Shipping and distribution		3,666			2,333			6,940			4,412
Total operating expenses		13,636			7,091			26,588			14,334
Income from operations		9,062			3,909			11,965			8,172
Other (expense) income, net:
Interest expense		(97	)		(79	)		(255	)		(165	)
Other (expense) income, net		(181	)		53			(161	)		1,322
Total other (expense) income, net		(278	)		(26	)		(416	)		1,157
Net income before income taxes		8,784			3,883			11,549			9,329
Provision for income taxes		2,848			1,095			3,679			2,516
Net income		5,936			2,788			7,870			6,813
Less: Net (loss) income attributable to noncontrolling interests		(28	)		(11	)		(39	)		956
Net income attributable to Vital Farms, Inc. common stockholders	$	5,964		$	2,799		$	7,909		$	5,857
Net income per share attributable to Vital Farms, Inc. stockholders:
Basic:	$	0.23		$	0.11		$	0.30		$	0.23
Diluted:	$	0.16		$	0.08		$	0.21		$	0.17
Weighted average common shares outstanding:
Basic:		26,007,459			26,440,796			25,974,873			25,426,563
Diluted:		37,896,742			36,241,488			37,755,675			35,067,996

See accompanying notes to the unaudited condensed consolidated financial statements

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK , REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)

	Redeemable Convertible Preferred Stock				Redeemable Noncontrolling Interest		Common Stock				Treasury Stock										Total Stockholders’ Equity Attributable
	Shares		Amount		Amount		Shares		Amount		Shares			Amount			Additional Paid-In Capital		Retained Earnings		to Vital Farms, Inc. Stockholders’		Noncontrolling Interests			Total Stockholders’ Equity
Balances at December 29. 2019		8,192,876	$	23,036	$	175		31,429,898	$	3		(5,494,918	)	$	(16,276	)	$	19,593	$	5,239	$	8,559	$	79		$	8,638
Exercise of stock options		—		—		—		7,588		—		—			—			10		—		10		—			10
Stock-based compensation expense		—		—		—		—		—		—			—			448		—		448		—			448
Net loss attributable to non- controlling interests - stockholders		—		—		—		—		—		—			—			—		—		—		(11	)		(11	)
Net income attributable to Vital Farms, Inc.		—		—		—		—		—		—			—			—		1,945		1,945		—			1,945
Balances at March 29, 2020		8,192,876	$	23,036	$	175		31,437,486	$	3		(5,494,918	)	$	(16,276	)	$	20,051	$	7,184	$	10,962	$	68		$	11,030
Exercise of stock options		—		—		—		49,200		—		—			—			160		—		160		—			160
Exercise of warrant		—		—		—		196,800		—		—			—			282		—		282		—			282
Stock-based compensation expense		—		—		—		—		—		—			—			296		—		296		—			296
Net loss attributable to non- controlling interests - stockholders		—		—		—		—		—		—			—			—		—		—		(28	)		(28	)
Net income attributable to Vital Farms, Inc.		—		—		—		—		—		—			—			—		5,964		5,964		—			5,964
Balances at June 28, 2020		8,192,876	$	23,036	$	175		31,683,486	$	3		(5,494,918	)	$	(16,276	)	$	20,789	$	13,148	$	17,664	$	40		$	17,704

See accompanying notes to the unaudited condensed consolidated financial statements.

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)

	Redeemable Convertible Preferred Stock				Redeemable Noncontrolling Interest		Common Stock				Treasury Stock										Total Stockholders’ Equity Attributable
	Shares		Amount		Amount		Shares		Amount		Shares			Amount			Additional Paid-In Capital		Retained Earnings		to Vital Farms, Inc. Stockholders’			Noncontrolling Interests			Total Stockholders’ Equity
Balances at December 30, 2018		8,192,876	$	23,036	$	175		28,461,978	$	3		(2,642,148	)	$	(1,987	)	$	4,245	$	2,854	$	5,115		$	(848	)	$	4,267
Issuance of common stock, net of issuance costs of $497		—		—		—		1,407,506		—		—			—			7,003		—		7,003			—			7,003
Stock-based compensation expense		—		—		—		—		—		—			—			143		—		143			—			143
Net income attributable to non- controlling interests - stockholders		—		—		—		—		—		—			—			—		—		—			967			967
Net income attributable to Vital Farms, Inc.		—		—		—		—		—		—			—			—		3,058		3,058			—			3,058
Balances at March 31, 2019		8,192,876	$	23,036	$	175		29,869,484	$	3		(2,642,148	)	$	(1,987	)	$	11,391	$	5,912	$	15,319		$	119		$	15,438
Issuance of common stock, net of issuance costs of $406		—		—		—		1,407,506		—		—			—			7,094		—		7,094			—			7,094
Exercise of stock options		—		—		—		147,840		—		—			—			218		—		218			—			218
Repurchase of common stock		—		—		—		—		—		(2,852,770	)		(14,289	)		—		—		(14,289	)		—			(14,289	)
Stock-based compensation expense		—		—		—		—		—		—			—			143		—		143			—			143
Net loss attributable to non- controlling interests - stockholders		—		—		—		—		—		—			—			—		—		—			(11	)		(11	)
Net income attributable to Vital Farms, Inc.		—		—		—		—		—		—			—			—		2,799		2,799			—			2,799
Balances at June 30, 2019		8,192,876	$	23,036	$	175		31,424,830	$	3		(5,494,918	)	$	(16,276	)	$	18,846	$	8,711	$	11,284		$	108		$	11,392

See accompanying notes to the unaudited condensed consolidated financial statements.

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	26-Weeks Ended
	June 28, 2020			June 30, 2019
Cash flows provided by operating activities:
Net income	$	7,870		$	6,813
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		954			726
Non-cash interest expense		11			4
Bad debt recovery		(150	)		—
Inventory provisions		165			(67	)
Change in fair value of contingent consideration		(350	)		38
Stock-based compensation expense		744			286
Loss on write-off of construction in progress		209			—
Deferred taxes		1,551			—
Non-cash interest income		(13	)		(66	)
Changes in operating assets and liabilities:
Accounts receivable		241			(225	)
Inventories		2,860			(5,737	)
Income taxes payable		1,970			1,100
Prepaid expenses and other current assets		848			222
Deposits and other assets		(28	)		85
Accounts payable		2,290			316
Accrued liabilities and other liabilities		(1,444	)		(1,449	)
Net cash provided by operating activities	$	17,728		$	2,046
Cash flows used in investing activities: