Thank you. Good morning and welcome to Vital Farms second quarter 2022 earnings conference call and webcast. I am pleased to be joined on today’s call by Russell Diez-Canseco, President and Chief Executive Officer and Bo Meissner, Chief Financial Officer. By now, everyone should have access to the company’s second quarter 2022 earnings press release issued this morning. This is available on the Investor Relations section of the Vital Farms website. Through the course of this call, management may make forward-looking statements within the meaning of the 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. Please refer to today’s press release and to the company’s quarterly report on Form 10-Q for the fiscal quarter ended June 26, 2022, which was filed with the SEC earlier today and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today’s call, management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with GAAP. And now I’d like to turn the call over to Russell Diez-Canseco, President and Chief Executive Officer of Vital Farms.

Thanks, Matt. Good morning and thanks everyone for your time today. I’ll review our second quarter financial results and provide some updates across the business that are contributing to our success as a disruptive force in the food sector. I am pleased to announce that in the second quarter, we achieved $82.9 million in net revenue, the highest quarterly result in our history, which reflects a 37.4% increase from the prior year period. Our gross margin expanded 190 basis points sequentially to over 30% and our adjusted EBITDA was $3.7 million. Our household penetration in the egg category now stands at well over $7 million, up over 30% relative to last year. Looking at the 13 weeks ending June 26, 2022, the egg category has experienced significant dollar growth of over 40% due mostly to inflation of lower-priced eggs. With that said, I believe the more important metric to focus on given the environment is volume, which, despite our recent price increase, grew significantly at over 25% during the period compared to the shell egg category, which saw volumes decline 2% over this same timeframe. Underpinning our growth, both current and historic, are four factors that I want to talk about. One is our unique stakeholder-driven business model. Two, is our robust supply chain. Three, is the strong brand we have built and continue to build and fourth is the world-class organization we’ve built and continue to build. First, the stakeholder model. Vital Farms has always been a brand that challenges the norms of how most food in our country is produced. We have a unique stakeholder-driven approach to capitalism that has propelled our growth to be the leading pasture-raised egg brand and the second leading egg brand of any type in the U.S. by retail dollar sale and has enabled us to improve the lives of millions of people, millions of animals and the planet. We believe the historic performance of our business is proof that our multi-stakeholder approach to business works. In fact, during each of the last 14 quarters, we have produced positive net revenue growth with an average growth rate of approximately 36% in each quarter. On an annual basis, our net revenue growth CAGR is 37%, dating all the way back to 2014. Our focus remains on driving sustainable, long-term, consistent results regardless of what is going on in the world outside of our company. Another proof point of our strategy is improvement in our profitability. Our gross margin was about 17% back in 2014 relative to more recent performance in the low to mid-30% range. Additionally, our adjusted EBITDA margin moved from flat to low-single digits to mid to high-single digits over that same timeframe. While there are some short-term pressures from time to time as we’re experiencing now, we remain focused on improvement over the long term. Next, our robust supply chain. Our supply chain continues to expand across our network of family farmers and at Egg Central Station, our world-class egg washing and packing facility to meet the strong demand we’re seeing for our products. We have grown our network of small family farms to over 300 and continue to add new family farms monthly. Our positive reputation among poultry farmers precedes us and we invest very little in attracting new farmers because we have a significant list of people already interested in joining us. Our ability to add new farmers, while achieving a quarterly 36% net revenue CAGR over the past 2 years is a testament to this fact. The expansion of Egg Central Station, our world-class egg washing and packing facility is now fully operational. We believe the completion of this project provides a significant unlock for our company because it doubles our capacity and puts us in a position to support over $650 million in annual revenue on eggs today, in service of our goal to further grow Vital Farms household penetration across the United States. As this facility expansion is now complete, we have begun the initial work of design and site selection for our next egg packing center as we look ahead to growing our business beyond $650 million. As always, we will continue to proactively eliminate bottlenecks in support of our long-term growth plans. Turning to our brand. We have built a brand that appeals to consumers who share our purpose of improving the lives of people, animals and the planet through food, and to appreciate our multi-stakeholder approach to conducting business. While the products we sell may seem like others at retail, our superior growth and premium prices suggest that consumers are buying more than just the physical goods we market to them. It’s the conviction with which we operate, the steadfast adherence to our values and uncompromising commitment to our stakeholders, who include our farmers and suppliers, crew members, customers and consumers, communities and the environment and stockholders. These are values that drive loyalty for our core products and give us confidence in our plans to grow through new categories. We believe we have developed a detailed understanding of our core consumer, a demographic that includes 19 million households in the U.S. according to our consumer insights. These households are generally college educated and earn at least $60,000 annually. We have seen 33% year-over-year growth in household penetration on average over the past 10 quarters. And as I mentioned earlier, our eggs are in well over 7 million households today, which speaks to our ability to reach our consumers with a uniquely compelling message. With that said there is still significant room for further household penetration and increased brand awareness and key to achieving our potential is our continued marketing investment. Consumers are attracted to our brand and stay with us because we connect with them through many creative touchpoints. We do not just market to our core consumers. We build lasting relationships with them. Consistent innovation is one way to continue to attract new households to our brand. We’re still focused on this within our egg portfolio despite our standing as the number two egg brand in the United States. Products like True Blues and our forthcoming restorative products illustrate our focus on meeting the needs of both our consumers and our retail partners as we look to grow our brand. Additionally, we are excited about our new breakthrough marketing campaign, which builds on the award-winning work we’ve done previously. We have proven that our brand story is compelling and our investment in building awareness leads to sales growth. This new campaign shares some of the heart of the Vital Farms difference by showing how we are maintaining a commitment to excellence in all that we do. The way we treat people, animals, and the planet remain central to our mission, and we will continue to amplify that story with conviction. This new campaign will be supported by a robust media plan across several platforms, including social media, online video and connected streaming devices. As we look to expand our portfolio of products, we are continuing our thoughtful investigation into our next large-scale opportunity for disruption with the trust and honesty for which our brand is known will resonate. In fact, we recently chose our next category, but for competitive reasons, I will not disclose it today. We plan to apply what we learned over the long-term in our egg business to provide the path to sustained success in this next category, and I should be able to share more details by the end of the year. Now a few words on our people, with whom I believe we have cultivated the strongest relationships in the industry. This includes our network of family farmers and our crew members. We take a human-first approach to our people, investing in our future with us through competitive pay that reflects their value to us and the food system at large as well as ongoing guidance and support that is specific to their needs. We have a long-held belief that the best approach to ensuring the long-term success of our business is investing in the skills, resilience and creative problem solving of our people. This could not be more important today as we operate against the backdrop of uncertainty in the world around us, including the near-term and long-term implications of inflation as well as other general economic concerns. We will remain hyper-focused on what we can control as an organization, which includes eliminating pain points, focusing on professional development and promoting a positive culture for our people, investments that we believe will deliver resilience to our crew and our business. Thanks again everyone for your time today. I will now turn the call over to Bo.

Thank you, Russell. Hello, everyone and thank you for joining us today. I will review our financial results for the second quarter ended June 26, 2022. I will then provide an update to our annual guidance for fiscal year 2022. As Russell mentioned, we had a record quarter with net revenue of $82.9 million, an increase of 37.4% compared to the prior year period. The growth in net revenue in the second quarter was due to continued growth in egg-related sales driven by strong volume increases at our customers as well as distribution gains at both new and existing retail partners. We also saw a 21% growth in butter related sales. During the period, our volumes were up just over 25% with the remaining growth driven by pricing. Gross profit for the second quarter was $24.9 million or 30.1% of net revenue compared to $21.9 million or 36.4% of net revenue for the second quarter of 2021. The change in gross profit was primarily driven by higher sales. As to the changes in gross margin, we experienced an increase in input costs in both eggs and butter and transportation costs. Increased pricing across our entire portfolio took effect in late May, which only impacted 1 month for the quarter and partially offset some of the input cost headwinds within this period. SG&A for the second quarter was $17 million or 20.5% of net revenues compared to $13.5 million or 22.5% of net revenues in the second quarter last year. The increase in SG&A was primarily driven by higher employee-related costs as we grew headcount to support our continued growth. This was offset by some favorability in marketing spending and some spend that was originally expected in Q2 will now shift into Q3 as we launch our fresh marketing campaign. Shipping and distribution increased 34.2% to $7.2 million or 8.7% of net revenue relative to $5.4 million or 8.9% of net revenue in the second quarter of 2021, driven by higher sales volumes and freight rates. We are beginning to see freight rates stabilize due to a combination of steady in-line haul rates and internal operational efficiency. Adjusted EBITDA for the second quarter was $3.7 million compared to $5.1 million for the second quarter of 2021. Now an update on our capital structure. As of June 26, 2022, we had a total balance of cash and cash equivalents and investment securities of $90.3 million, and we have no long-term debt outstanding. Looking at the remainder of 2022, we are maintaining our guidance of net revenue of more than $340 million, representing projected growth of over 30% versus 2021. Turning to our guidance for adjusted EBITDA. We are still planning for adjusted EBITDA of more than $13 million in fiscal year 2022. Thanks for your time and interest in Vital Farms. Before we move to taking questions, I want to reiterate our confidence. Demand for our products remains strong, and we are excited about the future growth trajectory of the brand. With that, Russell and I will now take your questions.

Thank you. Our first question comes from Pamela Kaufman with Morgan Stanley.

Hi, good morning.

Good morning, Pam.

I was wondering if you can talk about your observations around consumer behavior within eggs. Are you seeing any evidence of trade down within the category? And within your own portfolio, have you seen any shifting between regular and organic eggs or carton sizes?

Thanks, Pam. Great questions. It’s really interesting. What we are seeing is what I would describe as bifurcation. So what we are seeing is strength at the bottom of the price ladder in eggs and strength at the top end of the price ladder in eggs and we are at the top, with more challenging growth prospects in the middle. So you are definitely seeing trading down to private label from kind of the middle of the pack, but you’re also seeing perhaps some trading down from other proteins to the top of the pack, which is us. And we’re certainly continuing to grow unit share in this inflationary environment, which I think is evidence of that. In terms of trading, it’s interesting. You may recall, we put through price increases on a portion of our portfolio in January and then an additional round of price increases covering all of our portfolio that went into effect in May. Organic eggs came first in January and conventional eggs followed in May. So in that period between January and May, we did see some trading down because the price gap between those two items within our portfolio have widened. And at least what I’m seeing so far, and it’s still early days, is that that has abated now that we have narrowed the price gap with the conventional eggs seeing price increases along with organic eggs.

Thanks. That’s helpful. And then I wanted to touch on your expectations for gross margin given the moderation in grain prices that we’ve seen recently, how are you thinking about gross margins into the back half of the year and how quickly can they recover to your targets for low to mid-30% gross margin?

Yes. Thanks for that, Pam. I mean I think, yes, you are right. I think we have seen commodity costs start to moderate a little bit. But the other benefit we will see in the back half of the year is the full impact of the pricing that we just implemented in May. As you recall, that was implemented in mid to late May. So, when we had a few weeks of that within the quarter, and we will have the full impact of that in Q3 and Q4, which will help gross margins and help offset some of the commodity costs that we have seen over the past 18 months.

Great. Thank you.

Thanks Pam.

Thank you. And our next question comes from the line of Adam Samuelson with Goldman Sachs.

Yes. Thanks. Good morning everyone.

Good morning Adam.

Good morning Adam.

Great. So, I guess first question is, and I know you didn’t want to give specific details for competitive reasons. But as you think about that new category that you are going after and you have identified without – any way to renationalize kind of the timing of when you think that would actually become a commercial product and be on shelf and especially over the course of the next 12 months to 18 months, kind of any rough sense at this juncture capital costs, incremental operating costs needed to get that business off the ground.

Thanks Adam. Yes, so we are working towards having a product on shelf next year. The details of which and the timing of which will be determined in part by the form of the partnership we developed as we head into this next category. So, stay tuned more to come. I think it’s early days to describe kind of what launch costs might look like. I can’t say that it certainly isn’t my near-term plan to build a big new processing plant for sort of that launch. If you think back to the way that we evolved our shell egg business over the years, we started by working with co-packers, contract farmers, both to mitigate risk and to minimize initial capital outlays. And over time, as we scale, we captured some of the benefit of that scale by doing some things in-house and having our own egg packing plant, which we see as a real competitive strength. So, you could imagine a similar evolution over time, but I wouldn’t expect to break ground on a new plant just yet.

Okay. Alright. That’s helpful. And then going back to the core egg business, I think in the prepared remarks, you alluded to kind of pretty steady gains in the kind of low-30% gains in household penetration over the last 2 years, 3 years. And I guess I am trying to think about gains in household penetration versus purchase frequency amongst your core consumers and what you think – where you think purchase frequency is relative to their overall consumption and purchase frequency of eggs? And do you think there is still a lot of headroom to get your consumers once they have purchased the brand to make that their go-to option for eggs, and if that hasn’t necessarily been happening, what you’re kind of doing to change that behavior or work on that behavior?

Terrific question, Adam. So, what’s interesting to me, my read on household penetration and buy rate is that we continue to add households with pretty similar buy rates to historic households. So, you might have expected if we had plumbed the depths of our true core consumer that the next incremental consumer might have a lower buy rate or somehow be a lower less profitable consumer, not seeing evidence of that drop off yet, which I think is really encouraging. I definitely see opportunities to increase buy rate. And over time, we will start to migrate the conversation toward one about households and buy rate across a portfolio of products. But yes, I think like in many categories, consumers of eggs have a range of behaviors. Many of them buy multiple brands or SKUs over the course of the year based on a variety of factors including what’s available on the shelf, what’s on sale and the occasion. One example would be we have got some consumers that love baking special holiday treats with our eggs. But for them, it would be too much of an indulgence to have them as their everyday egg. And we have got some consumers that won’t buy anything but. So, we are certainly continually looking at ways to convince our loyal consumers to be even more so.

And if I could just maybe add a quick follow-up on there. Given the rise in conventional egg prices that you have seen over the last four months, five months, are you seeing any changes in purchase frequency or velocity or consumer behavior, that would say that it’s making it easier for consumers to trade up into Vital versus kind of conventional or normal cage-free eggs, or how is that price gap kind of impacting consumption in your mind?

It’s interesting. We have had pretty consistent growth regardless of where conventional egg prices are in the marketplace. As you know, there is a lot more movement up and down with commodity and market forces on – at the low end of the egg market than there is at the branded premium end, which is us. So, we don’t have a habit of moving prices on a regular cadence simply based on a cost-plus basis. The net result of which is that sometimes you see commodity eggs under $1 a dozen. And today, you see them of multiple dollars per dozen. Our consumer and the consumer of sort of the specialty eggs more generally, doesn’t interact as much with that kind of bottom of the market, which is where all that inflation is really having the biggest impact. What we typically see is that I am not looking to trade up someone from the cheapest to the most expensive, but often looking to trade up people who are somewhere in the middle. And that’s where we are seeing this bifurcation. We are capturing some of those people in the middle and the cheapest eggs are capturing some of the people in the middle. And the share of those mid-tier brands or private label products is, in my estimation, declining, at least on a unit basis.

Okay. That’s all I have. Really helpful color. I will pass it on. Thanks.

Thank you.

Thank you. And our next question comes from the line of Brian Holland with Cowen.

Yes. Thanks. Good morning.

Good morning Brian.

So, my question about the relative price action with conventional eggs, I appreciated your color there, Russell. Bo, quick housekeeping and forgive me if you said this in your prepared remarks and I missed it. How much marketing shifted out of Q2 to Q3? Did you quantify that and if not, could you?

We didn’t quantify it, but I mean, it’s less than $1 million, Brian, in that range.

Okay. Very helpful. So, then as we think about flowing through to the second half, shipping and distribution costs were obviously up year-on-year, but down sequentially, and I think you made reference to rates improving there. How do you think about that over the second half of the year kind of on a sequential basis? Can you give us a little bit of framework there for what that looks like?

Yes, sure. No, great question. I mean I think as we talk to the decline that we have seen in distribution rates as a printed set of sales is really driven by two things. The market has had to stabilize and freight rates have started to stabilize. But we are also doing a lot of internal initiatives with our 3PL provider to maximize truck efficiencies to get multiple bids on routes. And I think we have seen the fruits of that in the quarter. I mean our distribution rates will continue to grow at the rate of our volume. I think as a percent of sales, where we are today, we have achieved a lot of the savings that we would anticipate.

It’s helpful Bo. Thank you. That’s it for me for now. I will hop back in the queue. Thanks and best of luck.

Thanks Brian.

Thanks Brian.

Thank you. And our next question comes from the line of Chris Growe with Stifel.

Hi. Good morning.

Good morning Chris.

Hi. I just had a quick question. We have seen input costs back off a little bit. Is that something we should see start to flow through in the third quarter? And I guess I am just trying to get a sense around the – maybe the faster ability for you to overcome input cost inflation. If we see a little bit of a reprieve from the really high levels we saw take hold in the second quarter. Is that more something we have more so in 4Q?

Yes. Thanks for the question, Chris. I mean one of the things to remember is that the way that we compensate farmers for feed cost is one quarter in arrears. So, I think we started to see some of the feed costs start to stabilize. You are going to see that on a one quarter delay. So, I would expect the majority of that to show up in late 2022 or early 2023, assuming that they really are.

But I think it’s important to call out, Chris, that there are lots of puts and takes here across a wide product portfolio. And so while what we pay farmers for eggs is a pretty big component of our total cost structure, there are lots of other moving parts in the economy moving in different directions.

And it looks like you saw some, for example, a little better shipping rates and some efficiencies there that obviously can help with your overall cost structure in the quarter. And I had a second question in relation to new distribution. And I guess, just to get a sense of how that’s phasing, if you will and then how that’s helping you fill up ECS 2.0? I guess, I would be curious what sort of utilization you have of 2.0 right now, just to give us a sense of the full build of that facility? And then you mentioned bringing on new farmers as you move ahead, is that in line with your expectation for incremental distribution that you won or you are getting as well that makes sense?

Yes, absolutely. So, first on the question about ECS 2 or the expansion. The physical expansion is at full capacity. It’s been built, and it supports the combined facility now supports at current prices about a $650 million egg business. The only thing that has to scale as we use more of that capacity is labor. So, from that perspective, the facility is there, the capacity is there. And our growth and the volumes that we are processing at Egg Central Station are very much in line with our forecasts. You may recall that we have to plan our egg supply about a year to 18 months in advance. And so, you could imagine that we are living with the forecast we built back then. And I think things look very balanced with good service levels and good in-stock levels. So, we are feeling pretty good about the balance right now, for sure.

And just to be clear on that, Russell, you would expect continued incremental distribution for your product to the degree you are bringing on new farmers and you have this capacity, it sounds like you have got a nice steady stream of new distribution coming on. Is that correct?

Yes. There are three components to that volume growth. One is absolutely new doors. Two is new items in existing doors. If you look at the comparison between the number of items you have at some of our natural and organic channel customers or even just thinking about it in terms of our longest term customers, we have got, let’s call it, low-double digit SKUs in some of those chains, whereas we have low to mid-single digit SKUs in some of our newer accounts. There is a natural progression in items per door. And then finally, there is simply the increased consumer awareness and the household penetration, which is helping to drive velocities in those boards. So, all three are moving in the right direction, they continue to move in the right direction and are contributing to our continued growth.

Okay. Thank you.

Thanks a lot.

Thank you. And our next question comes from the line of Robert Dickerson with Jefferies.

Great. Thanks so much.

Good morning Rob.

Two quick questions. I guess in the second half, I am just trying to think through this that implied revenues are obviously supposed to be higher relative to the first half, and then gross margin supposed to be a little bit higher growth in the first half, kind of get close to the low end of your guide, let’s say. I mean if you do EBITDA almost in a similar rate relative to Q2, you are kind of there. So, I am just curious, is there anything that might be inflating or accelerating on the SG&A side, maybe away from shipping and distribution that we need to know about, just given your comments on puts and takes, or do you feel like you are just pretty well positioned to hit the guide higher than $13 million, just to be succinct?

Yes. Thanks Rob. I think yes, we feel comfortable that we can hit the guide. One of the things that Russell talked to is our new marketing campaign. So, our marketing is back-end loaded a little bit this year because of this new campaign we are launching. So, you are going to see, as we talked to earlier, an increase in gross margin a little bit because of the price increase that we have the full effect of in Q3 and Q4. And we are making a higher investment in opening in the back half than we did in the front, which gets us back to the guidance that we provided.

Okay, perfect. Thank you. And then maybe just a broader question kind of around cash usage, Russell, totally respect that you are not speaking to this next category at this time. But whatever that category is, whether you would purchase grassroots buildup process will require some cash. While at the same time, you are already speaking to kind of the next Egg Central Station. So, how do we kind of think about those two in tandem? Is this a – at some point, yes, we will have additional CapEx being allocated to another Egg Central Station that support additional capacity of demand for eggs. And then as we kind of work our way into this other category, obviously, you have already told about these cash needs. So, just kind of whatever color you can provide to that question? Thanks.

Sure. So, the line of sight to CapEx to support the shell egg business is certainly clearer to us because we have got some more experience and history there. And the way I would describe it is this. As we have said, the current plant, the expanded Egg Central Station can support about a $650 million shell egg business at today’s prices. So, if you – and of course, we would like to get way out in front on the planning for capacity so that it’s never a bottleneck to us. So, we are right now in the design and site selection phase for the next plant. That’s a relatively minor investment, and it doesn’t – and it can be shell and then pick back up whenever we decide we see household growth, and we continue to monitor our sales plans. If we see that the 2-year to 3-year forecast shows us hitting that next sort of tier of growth, then we can start building out the next plant.

Perfect. Thank you.

Thanks Rob.

Thanks Rob.

Thank you. Our next question comes from Robert Moskow with Credit Suisse.

Hi. Thanks. I want to know – good morning. I want to know you are going to get some gross margin you mentioned in the back half of the year. And you mentioned your commitment to the long-term gross margin target. Is it fair to say that if conditions stay the way they are today, that your gross margins in the back half could most likely flow – be similar in the first half of next year, or are there any like incremental costs into 2023 that we should think about? Thanks.

Yes. Thanks Rob. Yes, I mean I think we know that the pricing will be in pull up and get some down to the outlook for commodities. I would anticipate that based on what we see right now, that the gross margins in the first half of next year may be in line with what we see in the back half, but commodities are still moving around.

Okay. Great. That’s my question. Thank you.

Thank you. Now, I am showing no further questions at this time. So, with that, I will hand the call back over to Vice President, Matt Siler, for any closing remarks.

I just want to thank everyone for their time today and their interest in Vital Farms. Have a good day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. And you may now disconnect.