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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

OR

 

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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

i


 

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.

ii


 

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.

iv


 

 

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

 

 

v


 

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.

1


 

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

 

 

 

 

 

 

2


 

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

 

 

 

 

 

3


 

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