GlobeNewswire Inc | Nov 10, 2020 06:30AM EST

November 10, 2020

Net Revenue Increased to $53.4 Million, up 57% Year-Over-YearGross Profit of $18.4 Million, Gross Margin up over 300 Basis Points Year-Over-YearNet Income of $1.7 Million, Compared to $0.8 Million Last YearAdjusted EBITDA of $3.7 Million, Compared to $1.9 Million Last Year

AUSTIN, Texas, Nov. 10, 2020 (GLOBE NEWSWIRE) -- Vital Farms (Nasdaq: VITL), a Certified B Corporation that offers a range of ethically produced pasture-raised foods nationwide, today reported financial results for its third quarter ended September 27, 2020.

We are pleased to report strong third quarter results including continued growth in the number of households choosing our products and consumers making repeat purchases, both of which were driven in part by sustained at-home consumption trends as a result of COVID-19, said Russell Diez-Canseco, President and Chief Executive Officer, Vital Farms. Looking ahead, we remain focused on building a trusted ethical food brand and executing our growth strategy to further increase our household penetration and presence in retail as well as ongoing product innovation. Our strategy is underpinned by an unwavering commitment to prioritizing our stakeholders who have worked tirelessly throughout the pandemic including our small family farm partners, dedicated crew members, and the communities in which we operate. Vital Farms serves a robust market, and we believe our premium brand is strategic and valuable for retailers as more consumers are seeking ethically produced foods.

For the Three Months Ended September 27, 2020

Net revenue increased 57% to $53.4 million in the third quarter of 2020 compared to $34.1 million in the third quarter of 2019. Growth in net revenue in the third quarter of 2020 was driven primarily by volume increases to our distributors, including as a result of the stay-at-home trends associated with COVID-19, whereby consumers increased their purchases of eggs and butter, a higher turnover rate of sales to our retail customers, and new distribution at new and existing customers. The increase was partially offset by sales incentives offered to customers in connection with egg and butter sales.

Gross profit was $18.4 million, or 34.4% of net revenue, in the third quarter of 2020, compared to $10.6 million, or 31.1% of net revenue, in the prior year period. The increases were primarily due to higher net sales, with a portion of the increase in gross margin also attributable to lower material costs for eggs and butter and volume leverage over direct labor and overhead costs.

Income from operations in the third quarter of 2020 was $2.4 million compared to $1.2 million in the third quarter of the prior year.

Net income was $1.7 million in the third quarter of 2020 compared to $0.8 million in the prior year period.Net income per diluted share increased 100.0% to $0.04 compared to $0.02 per diluted share in the prior year quarter.

Adjusted EBITDA, was $3.7 million in the third quarter of 2020 compared to $1.9 million in the third quarter of 2019, primarily driven by volume increases to our distributors, expanded gross margin as well as leverage over fixed operating costs. The increase was partially offset by an increase in SG&A due to increased overall headcount to support our operations and an increase in professional fees and commercial insurance costs due in part to being a newly public company. Adjusted EBITDA is a non-GAAP financial measure defined under Non-GAAP Financial Measures, and is reconciled to net income, its closest comparable GAAP measure, at the end of this release

Jason Dale, Chief Financial Officer and Chief Operating Officer commented, We are pleased with our strong results this quarter. As we look ahead at the robust market for ethically produced food, including food produced from humanely-raised animals, we believe we have a unique opportunity at Vital Farms to achieve strong growth today and for many years to come.

Balance Sheet and Cash Flow Highlights

The Companys cash and cash equivalents were $112.6 million as of September 27, 2020 and total outstanding debt was $7.6 million. Net cash provided by operating activities was $15.0 million in the 39-weeks ended September 27, 2020, compared to $0.1 million during the prior year period.

Capital expenditures totaled $6.7 million for the 39-weeks ended September 27, 2020 compared to $3.0 million in the prior year period.

Update on COVID-19 and Fiscal 2020 Outlook

The Companys guidance continues to assume that there are no additional, significant disruptions to the supply chain, its customers or consumers, including any issues from adverse macroeconomic factors. In addition, the Companys guidance reflects the expectation that in the back half of the year, the Company will continue to see elevated demand due to the stay-at-home trends associated with COVID-19, and will continue to allocate demand against the available shell egg supply. Given the uncertainty regarding the ultimate duration, magnitude and effects of the COVID-19 pandemic, we do not have certainty that these trends will continue.

-- For the full year 2020, management expects net revenue between $210 to $214 million, an increase of greater than 49% compared to 2019. -- Adjusted EBITDA is anticipated to be in the range of $16 to $18 million.

The Company cannot provide a reconciliation between its forecasted Adjusted EBITDA and net revenue metrics without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Companys control and may vary greatly between periods and could significantly impact future financial results.

Conference Call and Webcast DetailsThe Company will host a conference call and webcast at 8:30 a.m. ET today to discuss the results. The live conference call webcast can be accessed on the Vital Farms Investor Relations website at https://investors.vitalfarms.com under Events. The webcast will be also be archived.

About Vital FarmsVital Farms, a Certified B Corporation, offers a range of ethically produced pasture-raised foods nationwide. Started on a single farm in Austin, Texas, in 2007, Vital Farms is the leading U.S. brand of pasture-raised eggs and butter by retail dollar sales. Vital Farms' ethics are exemplified by its focus on the humane treatment of farm animals and sustainable farming practices. In addition, as a Delaware Public Benefit Corporation, Vital Farms also prioritizes the long-term benefits of each of its stakeholders, including farmers and suppliers, customers and consumers, communities and the environment, and crew members and stockholders. Vital Farms' pasture-raised products, including shell eggs, butter, hard-boiled eggs, ghee, Egg Bites and liquid whole eggs, are sold in approximately 16,000 stores nationwide.

Forward-Looking StatementsThis press release and the earnings call referencing this press release contain forward-looking statements, as that term is defined under the federal securities laws, including but not limited to statements regarding Vital Farms future financial performance, including our outlook for fiscal year 2020. These forward-looking statements are based on Vital Farms current assumptions, expectations and beliefs and are subject to substantial risks, uncertainties, assumptions and changes in circumstances that may cause Vital Farms actual results, performance or achievements to differ materially from those expressed or implied in any forward-looking statement.

The risks and uncertainties referred to above include, but are not limited to: (1) 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; (2) our expectations regarding our revenue, expenses and other operating results; (3) our ability to acquire new customers and successfully retain existing customers; (4) our ability to attract and retain our suppliers, distributors and co-manufacturers; (5) our ability to sustain or increase our profitability; (6) our ability to procure sufficient high quality eggs, butter and other raw materials; (7) real or perceived quality with our products or other issues that adversely affect our brand and reputation; (8) changes in the tastes and preferences of our consumers; (9) 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; (10) real or perceived quality or health issues with our products or other issues that adversely affect our brand and reputation; (11) the ability of our suppliers and co-manufacturers to comply with food safety, environmental or other laws or regulations; (12) future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements; (13) the costs and success of our marketing efforts, and our ability to promote our brand; (14) our reliance on key personnel and our ability to identify, recruit and retain skilled personnel; (15) our ability to effectively manage our growth; (16) our focus on a specific public benefit purpose and producing a positive effect for society may negatively influence our financial performance; (17) our ability to compete effectively with existing competitors and new market entrants; (18) the impact of adverse economic conditions; (19) the sufficiency of our cash to meet our liquidity needs and service our indebtedness; (20) seasonality; and (21) the growth rates of the markets in which we compete.

These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled Risk Factors in our quarterly report on Form 10-Q for the fiscal quarter ended September 27, 2020 and other filings and reports that we may file from time to time with the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur. Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements except as required by law.

Contacts:Media:Nisha DevarajanNisha.Devarajan@vitalfarms.com

Investors:Ashley DeSimoneAshley.DeSimone@icrinc.com

VITAL FARMS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in thousands, except share amounts)(Unaudited) 13-Weeks Ended 39-Weeks Ended September27, September 29, September27, September 29, 2020 2019 2020 2019Net revenue $ 53,367 $ 34,082 $ 160,287 $ 99,312 Cost of goods 35,017 23,484 103,384 66,208 soldGross profit 18,350 10,598 56,903 33,104 Operating expenses:Selling,general and 12,185 7,069 31,832 16,991 administrativeShipping and 3,752 2,345 10,693 6,757 distributionTotaloperating 15,937 9,414 42,525 23,748 expensesIncome from 2,413 1,184 14,378 9,356 operationsOther(expense) income, net:Interest (110 ) (85 ) (365 ) (250 )expenseOther(expense) (21 ) 47 (182 ) 1,369 income, netTotal other(expense) (131 ) (38 ) (547 ) 1,119 income, netNet incomebefore income 2,282 1,146 13,831 10,475 taxesProvision for 620 323 4,300 2,839 income taxesNet income 1,662 823 9,531 7,636 Less: Net(loss) incomeattributable (15 ) (6 ) (54 ) 950 tononcontrollinginterestsNet incomeattributableto Vital $ 1,677 $ 829 $ 9,585 $ 6,686 Farms, Inc.commonstockholdersNet income pershareattributable to VitalFarms, Inc.stockholders:Basic: $ 0.05 $ 0.03 $ 0.33 $ 0.26 Diluted: $ 0.04 $ 0.02 $ 0.29 $ 0.18 Weightedaverage common sharesoutstanding:Basic: 34,044,994 25,929,923 28,664,914 26,197,567 Diluted: 39,111,018 37,472,406 33,275,902 36,959,507

VITAL FARMS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Amounts in thousands, except share amounts) September27, December 2020 29, 2019 (Unaudited) Assets Current assets: Cash and cash equivalents $ 112,619 $ 1,274 Accounts receivable, net 17,551 16,108 Inventories 11,728 12,947 Income taxes receivable 322 1,615 Prepaid expenses and other current assets 3,681 2,706 Total current assets 145,901 34,650 Property, plant and equipment, net 27,692 22,458 Notes receivable from related party ? 831 Goodwill 3,858 3,858 Deposits and other assets 142 151 Total assets $ 177,593 $ 61,948 Liabilities, Redeemable Noncontrolling Interest,Redeemable Convertible Preferred Stock and Stockholders? EquityCurrent liabilities: Accounts payable $ 16,052 $ 13,510 Accrued liabilities 7,933 8,608 Current portion of long-term debt 1,104 2,160 Lease obligation, current 465 449 Contingent consideration, current 138 270 Income taxes payable 364 ? Total current liabilities 26,056 24,997 Long-term debt, net of current portion 6,480 2,896 Lease obligation, net of current portion 447 797 Contingent consideration, non-current 32 382 Deferred tax liabilities, net 2,137 755 Other liability, non-current 422 272 Total liabilities 35,574 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 pershare; 0 and 8,192,876 shares authorized, issued,and outstanding as of September 27, 2020 ? 23,036 (unaudited) and December 29, 2019; aggregateliquidation preference of $0 and $40,436 as ofSeptember 27, 2020 (unaudited) and December 29,2019Stockholders? equity: Common stock, $0.0001 par value per share,310,000,000 and 40,348,565 shares authorized asof September 27, 2020 (unaudited) and December29, 2019; 39,432,161 and 31,429,898 shares issued 5 3 as of September 27, 2020 (unaudited) and December29, 2019, respectively; 39,432,161 and 25,934,980shares outstanding as of September 27, 2020(unaudited) and December 29, 2019, respectivelyTreasury stock, at cost, 5,494,918 common sharesas of September 27, 2020 (unaudited) and December (16,276 ) (16,276 )29, 2019Additional paid-in capital 143,265 19,593 Retained earnings 14,825 5,239 Total stockholders? equity attributable to Vital 141,819 8,559 Farms, Inc. stockholdersNoncontrolling interests 25 79 Total stockholders? equity $ 141,844 $ 8,638 Total liabilities, redeemable noncontrollinginterest, redeemable convertible preferred stock $ 177,593 $ 61,948 and stockholders? equity

VITAL FARMS, INC.CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(Amounts in thousands)(Unaudited) 39-Weeks Ended September27, September 2020 29, 2019Cash flows provided by operating activities: Net income $ 9,531 $ 7,636 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 1,568 1,119 Non-cash interest expense 5 16 Bad debt recovery (63 ) ? Inventory provisions 155 (137 )Change in fair value of contingent consideration (342 ) 53 Stock-based compensation expense 1,481 576 Loss on write-off of construction in progress 259 ? Deferred taxes 1,382 ? Non-cash interest income (14 ) (106 )Changes in operating assets and liabilities: Accounts receivable (1,380 ) (3,320 )Inventories 1,063 (9,481 )Income taxes receivable 1,293 ? Income taxes payable 364 660 Prepaid expenses and other current assets (1,970 ) 42 Deposits and other assets 11 77 Accounts payable 2,207 1,928 Accrued liabilities and other liabilities (507 ) 1,039 Net cash provided by operating activities $ 15,043 $ 102 Cash flows used in investing activities: Purchases of property, plant and equipment (6,728 ) (3,089 )Notes receivable provided to related parties ? (4,000 )Repayment of notes receivable provided to related 846 ? partiesNet cash used in investing activities $ (5,882 ) $ (7,089 )Cash flows provided by (used in) financing activities:Proceeds from issuance of common stock pursuantto the initial public offering, net of issuance 99,671 ? costsProceeds from borrowings under term loan 5,000 ? Proceeds from borrowings under equipment loan 1,461 ? Proceeds from Paycheck Protection Program loan 2,593 ? Proceeds from issuance of common stock, net of ? 14,097 issuance costsRepayment of revolving line of credit (1,325 ) ? Repayment of equipment loan (2,015 ) ? Repayment of term loan (618 ) (503 )Repayment of Paycheck Protection Program loan (2,593 ) ? Repurchase of common stock ? (14,289 )Payment of contingent consideration (140 ) (322 )Principal payments under finance lease obligation (335 ) (319 )Proceeds from exercise of stock options 203 218 Proceeds from exercise of warrant 282 ? Net cash provided by (used in) financing $ 102,184 $ (1,118 )activitiesNet increase in cash and cash equivalents $ 111,345 $ (8,105 )Cash and cash equivalents at beginning of the 1,274 11,815 periodCash and cash equivalents at end of the period $ 112,619 $ 3,710 Supplemental disclosure of cash flow information: Cash paid for interest $ 358 $ 265 Cash paid for income taxes $ 1,150 $ 2,056 Supplemental disclosure of non-cash investing and financing activities:Purchases of property, plant and equipmentincluded in accounts payable and accrued $ 331 $ 122 liabilities

Non-GAAP Financial MeasuresWe report our financial results in accordance with GAAP. However, management believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our performance.

We calculate Adjusted EBITDA as net income, adjusted to exclude: (1) depreciation and amortization; (2) provision for income taxes; (3) stock-based compensation expense; (4) interest expense; (5) interest income; (6) change in fair value of contingent consideration; and (7) net litigation settlement gain.

Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with GAAP. We believe that Adjusted EBITDA, when taken together with our financial results presented in accordance with GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes.

Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Some of the limitations of Adjusted EBITDA include that (1) it does not properly reflect capital commitments to be paid in the future, (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures, (3) it does not consider the impact of stock-based compensation expense, (4) it does not reflect other non-operating expenses, including interest expense, (5) it does not consider the impact of any contingent consideration liability valuation adjustments and (6) it does not reflect tax payments that may represent a reduction in cash available to us. In addition, our use of Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial measures, including our net income and other results stated in accordance with GAAP.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with GAAP, for the quarters presented:

13-Weeks Ended 39-Weeks Ended September27, September 29, September27, September 29, 2020 2019 2020 2019 (in thousands)Net income $ $ $ $ 1,662 823 9,531 7,636Depreciationand 614 370 1,568 1,119amortizationProvision for 620 323 4,300 2,839income taxStock-basedcompensation 737 290 1,481 576expenseInterest 110 85 365 250expenseChange infair value ofcontingent 8 15 (342) 53consideration^(1)Interest (10) (45) (24) (140)incomeNetlitigation ? ? (20) (1,200)settlementgain ^(2)Adjusted $ $ $ $ EBITDA 3,741 1,861 16,859 11,133

Amount reflects the change in fair value of a contingent consideration(1) liability in connection with our 2014 acquisition of certain assets of Heartland Eggs(2) For the 39-week period ended September 29, 2019, amount reflects a gain in connection with the settlement of the Ovabrite lawsuit.