vitl-10q_20210926.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 September 26, 2021

☐	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 November 3, 2021, the registrant had 40,305,246 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Page

Special Note Regarding Forward-Looking Statements		ii
Summary of Selected Risks Associated with Our Business		iv

PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive (Loss) Income	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
	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:

•

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, cream 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;

•

the effects of the ongoing 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;

•

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;

•

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. A summary of selected risks associated with our business are set forth below. 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.

iii

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those discussed at length in the section titled “Risk Factors.” These risks include, among others, the following:

•

Our recent, rapid growth may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to effectively manage our growth or evaluate our future prospects. If we fail to effectively manage our future growth or evaluate our future prospects, our business could be adversely affected.

•

We have incurred net losses both in the current 13-week period ended September 26, 2021 and in prior fiscal years and we may not be able to maintain or increase our profitability in the future.

•

We have only recently expanded our product offerings beyond pasture-raised eggs, which makes it difficult to forecast our future results of operations.

•

Sales of pasture-raised shell eggs contribute to the vast majority of our revenue, and a reduction in these sales would have an adverse effect on our financial condition.

•

Failure to introduce new products may adversely affect our ability to continue to grow.

•

We are dependent on the market for shell eggs.

•

Fluctuations in commodity prices and in the availability of feed grains could negatively impact our results of operations and financial condition.

•

If we fail to effectively expand our processing, manufacturing and production capacity as we continue to grow and scale our business, our business and operating results and our brand reputation could be harmed.

•

A substantial majority of our pasture-raised shell eggs are processed at Egg Central Station in Springfield, Missouri. Any damage or disruption at this facility may harm our business.

•

We are currently expanding Egg Central Station, and we may not successfully complete construction of or commence operations in this expansion, or the expanded facility may not operate in accordance with our expectations.

•

If we fail to effectively maintain or expand our network of small family farms, our business, operating results and brand reputation could be harmed.

•

Our future business, results of operations and financial condition may be adversely affected by reduced or limited availability of pasture-raised eggs and milk and other raw materials that meet our standards.

•

We currently have a limited number of co-manufacturers. Loss of one or more of our co-manufacturers or our failure to timely identify and establish relationships with new co-manufacturers could harm our business and impede our growth.

•

We could be adversely affected by a change in consumer preferences, perception and spending habits in the natural food industry and on animal-based products, in particular, and failure to develop or enrich our product offering or gain market acceptance of our new products could have a negative effect on our business.

•

A limited number of distributors represent the substantial majority of our sales, and the loss of one or more distributor relationships that cannot be replaced in a timely manner may adversely affect our results of operations.

•

We are dependent on hatcheries and pullet farms to supply our network of family farms with laying hens. Any disruption in that supply chain could materially and adversely affect our business, financial condition or results of operations.

•

We source substantially all of our shell egg cartons from a sole source supplier and any disruptions may impact our ability to sell our eggs.

•

Because we rely on a limited number of third-party vendors to manufacture and store our products, we may not be able to maintain manufacturing and storage capacity at the times and with the capacities necessary to produce and store our products or meet the demand for our products.

•

Our brand and reputation may be diminished due to real or perceived quality or food safety issues with our products, which could have an adverse effect on our business, reputation, operating results and financial condition.

•

Demand for shell eggs is subject to seasonal fluctuations and can adversely impact our results of operations in certain quarters.

•

The continuing COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition.

•

Food safety and food-borne illness incidents or advertising or product mislabeling may materially and adversely affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings.

•

Our operations are subject to FDA and USDA federal regulation, and there is no assurance that we will be in compliance with all regulations.

•

As a public benefit corporation, our duty to balance a variety of interests may result in actions that do not maximize stockholder value

PART I – FINANCIAL INFORMATION

VITAL FARMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

	September 26, 2021			December 27, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	27,844		$	29,544
Investment securities		69,805			68,357
Accounts receivable, net		22,302			20,934
Inventories		14,578			12,902
Income taxes receivable		1,339			1,554
Prepaid expenses and other current assets		4,784			3,965
Total current assets		140,652			137,256
Property, plant and equipment, net		42,169			30,118
Goodwill		3,858			3,858
Deposits		256			142
Total assets	$	186,935		$	171,374
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
Current liabilities:
Accounts payable	$	17,368		$	15,489
Accrued liabilities		14,465			9,845
Lease obligation, current		447			471
Contingent consideration, current		35			109
Total current liabilities		32,315			25,914
Lease obligation, net of current portion		—			327
Contingent consideration, non-current		—			18
Deferred tax liabilities, net		849			2,537
Other liability, non-current		191			192
Total liabilities		33,355			28,988
Commitments and contingencies (Note 15)
Redeemable noncontrolling interest		175			175
Stockholders’ equity:
Common stock, $0.0001 par value per share, 310,000,000 shares authorized as of September 26, 2021 (unaudited) and December 27, 2020; 40,302,470 and 39,444,040 shares issued and outstanding as of September 26, 2021 (unaudited) and December 27, 2020, respectively		5			5
Treasury stock, at cost, zero and 5,494,918 common shares as of September 26, 2021 (unaudited) and December 27, 2020, respectively (Note 11)		—			(16,276	)
Additional paid-in capital		146,983			144,311
Retained earnings		6,395			14,039
Accumulated other comprehensive loss		(100	)		(31	)
Total stockholders’ equity attributable to Vital Farms, Inc. stockholders		153,283			142,048
Noncontrolling interests		122			163
Total stockholders’ equity	$	153,405		$	142,211
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity	$	186,935		$	171,374

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						39-Weeks Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Net revenue	$	64,627		$	53,367		$	183,496		$	160,287
Cost of goods sold		44,788			35,017			120,394			103,384
Gross profit		19,839			18,350			63,102			56,903
Operating expenses:
Selling, general and administrative		15,326			12,185			42,053			31,832
Shipping and distribution		6,318			3,752			16,755			10,693
Total operating expenses		21,644			15,937			58,808			42,525
(Loss) income from operations		(1,805	)		2,413			4,294			14,378
Other (expense) income, net:
Interest expense		(11	)		(110	)		(42	)		(365	)
Other income (expense), net		3			(21	)		300			(182	)
Total other (expense) income, net		(8	)		(131	)		258			(547	)
Net (loss) income before income taxes		(1,813	)		2,282			4,552			13,831
(Benefit) provision for income taxes		(486	)		620			(1,485	)		4,300
Net (loss) income		(1,327	)		1,662			6,037			9,531
Less: Net loss attributable to noncontrolling interests		(6	)		(15	)		(41	)		(54	)
Net (loss) income attributable to Vital Farms, Inc. common stockholders	$	(1,321	)	$	1,677		$	6,078		$	9,585
Net (loss) income per share attributable to Vital Farms, Inc. stockholders:
Basic:	$	(0.03	)	$	0.05		$	0.15		$	0.33
Diluted:	$	(0.03	)	$	0.04		$	0.14		$	0.29
Weighted average common shares outstanding:
Basic:		40,196,410			34,044,994			39,910,063			28,664,914
Diluted:		40,196,410			39,111,018			43,380,711			33,275,902

See accompanying notes to the unaudited condensed consolidated financial statements

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Amounts in thousands)

(Unaudited)

	13-Weeks Ended					39-Weeks Ended
	September 26, 2021			September 27, 2020		September 26, 2021			September 27, 2020
Net (loss) income	$	(1,327	)	$	1,662	$	6,037		$	9,531
Other comprehensive loss
Unrealized holding loss on available-for-sale securities, net of tax		(21	)		—		(69	)		—
Total comprehensive (loss) income	$	(1,348	)	$	1,662	$	5,968		$	9,531

See accompanying notes to the unaudited condensed consolidated financial statements

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)

	Common Stock					Treasury Stock															Total Stockholders’ Equity Attributable
	Shares			Amount		Shares			Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			to Vital Farms, Inc. Stockholders’			Noncontrolling Interests			Total Stockholders’ Equity
Balances as of December 27, 2020		44,938,958		$	5		(5,494,918	)	$	(16,276	)	$	144,311		$	14,039		$	(31	)	$	142,048		$	163		$	142,211
Exercise of stock options		300,266			—		—			—			525			—			—			525			—			525
Stock-based compensation expense		—			—		—			—			853			—			—			853			—			853
Net loss attributable to non- controlling interests - stockholders		—			—		—			—			—			—			—			—			(11	)		(11	)
Other comprehensive loss, net		—			—		—			—			—			—			(22	)		(22	)		—			(22	)
Net income attributable to Vital Farms, Inc.		—			—		—			—			—			3,491			—			3,491			—			3,491
Balances as of March 28, 2021		45,239,224			5		(5,494,918	)		(16,276	)		145,689			17,530			(53	)		146,895			152			147,047
Exercise of stock options		393,922			—		—			—			978			—			—			978			—			978
Vesting of restricted stock units		15,000			—		—			—			—			—			—			—			—			-
Stock-based compensation expense		—			—		—			—			1,141			—			—			1,141			—			1,141
Net loss attributable to non- controlling interests - stockholders		—			—		—			—			—			—			—			—			(24	)		(24	)
Other comprehensive loss, net		—			—		—			—			—			—			(26	)		(26	)		—			(26	)
Net income attributable to Vital Farms, Inc.		—			—		—			—			—			3,907			—			3,907			—			3,907
Balances as of June 27, 2021		45,648,146			5		(5,494,918	)		(16,276	)		147,808			21,437			(79	)		152,895			128			153,023
Exercise of stock options		149,242			—		—			—			532			—			—			532			—			532
Stock-based compensation expense		—			—		—			—			1,198			—			—			1,198			—			1,198
Net loss attributable to non- controlling interests - stockholders		—			—		—			—			—			—			—			—			(6	)		(6	)
Retirement of treasury stock		(5,494,918	)		—		5,494,918			16,276			(2,555	)		(13,721	)		—			—			—			—
Other comprehensive loss, net		—			—		—			—			—			—			(21	)		(21	)		—			(21	)
Net loss attributable to Vital Farms, Inc.		—			—		—			—			—			(1,321	)		—			(1,321	)		—			(1,321	)
Balances as of September 26, 2021		40,302,470		$	5		—		$	—		$	146,983		$	6,395		$	(100	)	$	153,283		$	122		$	153,405

See accompanying notes to the unaudited condensed consolidated financial statements.

VITAL FARMS, INC.

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

(Amounts in thousands, except share amounts)

(Unaudited)