Good day and thank you for standing by. Welcome to the Vital Farms Incorporated Third Quarter Conference Call. At this time all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Siler. Please go ahead. Thank you. Good morning. And welcome to Vital Farms third quarter 2022 earnings conference call and webcast. I am joined on today’s call by Russell Diez-Canseco, President and Chief Executive Officer; Bo Meissner, Chief Financial Officer; and for the first time, I am happy to introduce Kathryn McKeon, our Chief Marketing Officer. By now everyone should have accessed the company’s third quarter 2022 earnings press release issued this morning. This is available on the Investor Relations section of the Vital Farms website at investors.vitalfarms.com. During 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 September 25, 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 will review our third quarter financial results and provide updates across the business that are contributing to our success as a disruptive force in the food sector. Kathryn McKeon, our Chief Marketing Officer, will join us to talk through what makes our brand unique and why it continues to resonate with consumers. Our world-class marketing team is one of our key points of differentiation and I am grateful she’s joining us today. Finally, Bo will conclude our call with additional color on our quarterly financial results before we take your questions. In the third quarter, we achieved $92 million in net revenue. This is the highest quarterly result in our history and it reflects a 42.4% increase from the prior year period, driven by volume gains of 28%. Our gross margin expanded 190 basis points sequentially to 32% despite higher input costs and our adjusted EBITDA was $5.2 million, up over 2,200% versus last year. Our household penetration in the egg category now stands at nearly 8 million, up roughly 40% relative to last year. Looking at the 13 weeks ended September 25, 2022, the egg category has experienced significant retail dollar growth of over 50%, due mostly to inflation in lower-priced eggs. Some believe these higher egg prices will sustain in the coming months given the current operating climate. With this backdrop, I think it makes more sense to focus on unit volume when judging overall growth. Despite our portfolio-wide price increase in May, we grew our retail volume significantly at 25% during the period, well ahead of the shell egg category, which saw volumes decline by 0.5% over the same time frame. Underpinning this growth, both current and historic, is our unique stakeholder-driven business model, our robust supply chain, our world-class organization and our strong brand. Vital Farms continues to challenge the norms of how most of the food in this country is produced. We have a unique long-term approach to capitalism that has propelled our growth to be the leading pasture-raised egg brand and second-leading egg brand in the United States by retail dollar sales. It has enabled us to improve the lives of millions of people, millions of animals and the planet. We see this continued performance as proof that our long-term approach for business works. In fact, during each of the past 15 quarters, we have produced positive net revenue growth with an average growth rate of just over 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 and we have been intentional about the choices we have made over the past several quarters to navigate the impacts of global forces like the pandemic and more recently, inflation. Another proof point of our strategy is the improvement in our profitability. To reiterate, 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 the same timeframe. While there are short-term pressures from time to time, as we have experienced recently, we remain focused on profitable growth over the long term. In the past quarter, we have experienced inflation, which has increased some of our input costs. We recently implemented another round of pricing that will take effect in January 2023 across our egg portfolio. This decision, which was not taken lightly, will allow us to continue fueling our profitable and sustainable growth. It contributes to the resilience of our supply chain by improving outcomes to key stakeholders, including farmers and suppliers. One of the reasons we have the confidence to execute another price increase is the position we have built as a premium brand, which Kathryn will talk more about in a minute. We have seen a growing number of households vote to pay this premium, because they want high-quality products that reflect their values from companies they can trust. This trend continues despite inflation in food and energy prices and other noise surrounding the U.S. economic backdrop. We continue to strengthen our supply chain, which is a critical component for meeting our growth objectives. The expansion of Egg Central Station, our world-class egg washing and packing facility, is fully operational and provides us the capacity to meet the strong demand we have for our products. The facility was recently named the 2022 Green Plant of the Year by Food Processing, which validates the emphasis we put on world-class sustainable design. 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 from eggs today in service of our primary goal to further grow Vital Farms' household penetration across the United States. We have begun the initial work on design and site selection for our next egg packing center as we look ahead to growing our egg business beyond $650 million. As always, we will continue to proactively eliminate bottlenecks in support of our long-term growth plans. We have grown our network of small family farms to over 300 and continue to add new family farms every month. Our positive reputation among poultry farmers precedes us. We maintain a significant list of farmers already interested in joining us. Our ability to add enough new farmers to achieve a quarterly 36% net revenue CAGR over the past two-plus years is a testament to that fact. We have built our reputation in the farming community by working directly with our farmers toward mutually beneficial long-term success. Over the past several months, it’s clear that inflation is having an outsized impact on our farmers. We made the recent decision to increase payments to them to provide stability to their operations, create more resiliency in our supply chain and protect our growth trajectory. Bo will talk more about this and how it impacts our cost structure, as well as how it aligns with the price increase I mentioned earlier. We continue to invest in our culture and in the skill sets that our crew need to drive our growth. This past September, we brought our entire crew together for our first company-wide retreat in Springfield, Missouri, which we called ReVITALize. Our crew spent three days volunteering at a local food bank, touring Egg Central Station, visiting small family farms, and acquiring new skills to foster success as a company that is thriving in a remote working environment. On a personal note, it was incredible to see how we have grown and the caliber of crew we have been able to attract. We all left Springfield energized for the work ahead and grateful for the time with one another. 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 for your time today. I look forward to your questions later in the call. And with that, I will now turn the call over to our Chief Marketing Officer, Kathryn McKeon.

Thank you, Russell. And thank you for the opportunity to talk through the work we are doing to grow the Vital Farms brand. Our brand is an extension of Vital Farms' purpose. In fact, I am happy to share that Vital Farms was recently named to the Brands That Matter list at Fast Company. Consumers choose us because they believe we are backing up our commitment to improve the lives of people, animals, and the planet through food. The conviction with which we operate, the steadfast adherence to our values, and our uncompromising commitment to stakeholders gives us the credibility and confidence to drive loyalty for our core products and expand into new categories. Last quarter, we spoke about our new marketing campaign, Keeping It Bullsh*t-Free. This year’s campaign challenges viewers to rethink widespread practices, including misleading labels like cage-free, hollow corporate initiatives, and poor worker conditions, all with the lighthearted tone and tenderness expected from Vital Farms. It is the latest in a long-running effort to support Vital Farms' full stakeholder community, including our crews, customers and consumers, suppliers, and farmers, stockholders, and the environment. The campaign was rolled out across streaming television, online, and social platforms, including Hulu, YouTube, TikTok, and Insider’s Better Capitalism vertical in late August. All four of our new spots can also be viewed on the Vital Farms website. I encourage each of you to check them out and see the campaign for yourself. We continue to focus our messaging on our core consumers, which today includes 19 million U.S. households. We have seen 34% year-over-year growth in household penetration on average over the past 11 quarters. And as Russell mentioned earlier, our eggs are in nearly 8 million of these homes today. This speaks to our ability to reach consumers with our uniquely compelling message and it’s reflected in key metrics like brand awareness and brand trust. With that said, there is still significant room for further household penetration and increased brand awareness beyond our core consumers. The key to achieving our long-term potential involves our continued marketing efforts, which we believe contribute to our sales growth. Consumers are attracted to our brands 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. Thanks everyone for your time today. I will now turn the call over to Bo.

Thank you, Kathryn. Hello, everyone, and thank you for joining us today. I will review our financial results for the third quarter ended September 25, 2022. I will then provide an update on our annual guidance for this fiscal year. As Russell mentioned, we had a record quarter with net revenue of $92 million, an increase of 42.4% compared to the prior year period. The growth in net revenue in the third 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. During the period, our volumes were up 28%, with the remaining growth driven by pricing. Gross profit for the third quarter was $29.5 million or 32% of net revenue, compared to $19.8 million or 30.7% of net revenue for the third quarter of 2021. The change in gross profit was primarily driven by higher sales. As to the change in gross margin, increased pricing across our entire portfolio offset some headwinds, including an increase in input costs in both eggs and butter and higher packaging costs. We saw expense leverage on both SG&A and shipping and distribution during the period. SG&A expenses for the third quarter were $20.6 million or 22.3% of net revenues, compared to $15.3 million or 23.7% of net revenues in the third 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 and higher marketing expenses. Shipping and distribution expenses in the third quarter were $6.9 million or 7.5% of net revenue relative to $6.3 million or 9.8% of net revenue in the third quarter of 2021, driven by higher sales volumes and freight rates. This was partially offset by a decline in line haul rates and internal operational efficiency. Adjusted EBITDA for the third quarter was $5.2 million or 5.7% of net revenues, compared to $0.2 million or 0.3% of net revenues for the third quarter of 2021. Now an update on our capital structure. As of September 25, 2022, we had a total balance of cash and cash equivalents and investment securities of $86.9 million and we have no debt outstanding. As we look to close out fiscal 2022, we are reaffirming 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 reaffirming our guidance of more than $13 million in fiscal year 2022. I think it would be helpful to provide some additional color on our expected adjusted EBITDA in the fourth quarter. We continue to feel the impact of higher organic feed and packaging costs and we are seeing that impact in our supply chain. As Russell mentioned earlier, our farmers are also experiencing inflation across their respective businesses and we recently made the decision to increase farmer pay to help stabilize their operations through this inflationary period and create more supply chain resiliency. We estimate this change will negatively impact our gross margins in the fourth quarter by roughly 100 basis points. With that said, the decision we made on pricing, which will go into effect in January 2023, should allow us to maintain our current glide path towards gross margins in the low-to-mid 30% range next year despite the impact of these higher payments. We are well positioned to expand household penetration of Vital Farms as the growth trajectory of the brand continues to increase. Thanks for your time and interest today. And with that, we will now take your questions.

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

Good morning, Adam.

The first question is about the announced price increase in January and your comments regarding raising pay rates for growers. Could you elaborate on both of these aspects? Specifically, do you feel the increase was necessary due to changes in recruiting additional growers, or are you simply aiming to do right by all your stakeholders?

Yeah. Thanks, Adam. Great question. As we talked on the call, the impact in Q4 is about 100 basis points on our gross margin and that’s relative to Q3. We did that for exactly the reasons that I talked to. I mean they are seeing additional inflationary pressures in some of the areas that we don’t change from a headline point of view. We obviously account for the soy and corn that we have talked about on a one-quarter lag, but they have other inputs they are also seeing inflation in. And it was the right thing to do for the farmers to make sure that they have a sustainable profit model and help them through this difficult time. As a result, we made the change. The pricing that we are going to take in January will offset that and the other inflationary pressures that we have said and we will be back on our long-term trajectory that we communicated in the mid-30s.

Adam. Sorry, go ahead, Bo. I was just going to add on when you are done.

Okay. I was just going to say, look, the pricing that we are going to take in January will offset that and the other inflationary pressures that we have said and we will be back on our long-term trajectory that we communicated in the mid-30s.

And Adam, the color I’d add is, it’s not just altruism. The reality is that we need our farmers to have a sustainable financial model to have our own sustainable supply chain and financial model. So there’s certainly a healthy dose of self-interest as we think about the right actions to take to ensure the stability of our farming network.

That’s all very helpful. I wanted to ask about the category expansion you’ve been evaluating. Do you have any additional thoughts on the timing for when that might be revealed and discussed, especially regarding its financial implications?

Sure, I appreciate that, Adam. As we mentioned on the last call, we have focused on a specific category and are actively developing our plans to enter that market. We are eager to share more details with you. However, we want to be thorough and ensure we have all the necessary information before making any announcements. We hope to provide an update by the end of the year.

Okay. Great. That’s all really helpful. I will pass it on. Thanks.

Thank you, Adam.

Thanks, Adam.

Hi. Good morning.

Good morning, Pam.

Can you talk about just what you are seeing in terms of consumer demand? Obviously, your volumes are very strong despite significant pricing. So how do you think about the factors contributing to that growth? And then, I guess, with the upcoming price increase in January, how are you thinking about demand elasticity? Thank you.

Thank you, Pam. It's Russell. I'll address the first part of your question and may ask Kathryn to add her insights as well, as she is with us on the call today. When we examine the components of our growth, they are strongly influenced by both volume and price, and the elasticities we've observed align closely with our expectations. I must say, I've been pleasantly surprised by the accuracy of our internal forecasts, especially considering some of the unprecedented factors at play. We're witnessing a positive trend in velocities, driven by the addition of new items for existing customers and more retail locations, both of which are contributing to our volume increases. We're also expanding our household reach, as we mentioned earlier, which is a crucial element of our long-term brand-focused strategy for sustainable growth. As we increase prices, we recognize that many brands and private label producers are adjusting similarly, and some pricing levels that seemed unimaginable a year ago are becoming reality. Therefore, we are adopting a more careful approach in projecting our growth for 2023 in relation to the pricing changes we're implementing. While we still anticipate strong growth, we are generally cautious regarding our expectations for the impact of pricing. I'd like Kathryn to discuss her perspective on how our pricing actions affect our business and our consumers.

Thanks, Russell. Good morning, Pam. I want to talk a little bit more about the brand. Russell talked about the fact that we have built a premium brand in the prepared remarks. I want to expand on that a little bit to help explain, because it’s really a key driver to how we think about demand. So we have built that premium brand not on smoke and mirrors, not something that we crafted, but rather on trust, on quality and on our values, and we have done that from day one. So from a trust perspective, we have consistently said what we do, do what we say, say what we do, do what we say, whether that’s our traceability initiative or simply the way that we talk with consumers each and every day on social media and that consistency of transparency is profoundly trust-building. We are also delivering a quality product and a very high-quality product. Consumers are willing to pay for that. They are especially willing to pay for that and demand more when it comes from a company with values that reflect theirs. Not just a brand that represents anything, but a company with consistent values that has always been there. And so those things have helped us grow through the inflationary time we are already in and the price that we have taken, and as we look to the future, we believe that that will continue to be true.

Thanks. And then can you talk about where you are seeing recent distribution gains? Is it in a particular region and where do you see further opportunity for distribution growth?

As we mentioned in our last quarterly call, we have concentrated our efforts on the Northeast region, which has historically not been a focus for our growth. We view this region as a significant opportunity for expanding our distribution and annual contract volume, and our investments are yielding positive results in terms of increasing new doors and introducing new items in existing ones. A large part of this success is due to our newly hired sales leaders who are specifically focused on this region. This is a deliberate investment that is proving to be effective. Broadly speaking, we are the leading egg brand in the natural channel, and we see substantial growth potential in multi-outlet and convenience channels. This is evident as we continue to secure more shelf space through our high sales velocities and robust relationships with retailers. Our strategy of consistently improving our performance with retailers is allowing us to gain more shelf space, and we are also expanding our distribution within existing locations.

Great. Thank you.

Thanks, Pam.

Good morning. Thanks for taking our questions.

Hey, Cody.

Wholesale egg prices have decreased, and retail prices for conventional eggs are expected to decrease as well. There is a belief that this will greatly impact your market share as your price gap increases. How do you feel about your current price gaps, and are you worried about your market share if these price gaps widen further?

It's an interesting situation. If I could predict the outcomes in any commodity market, including eggs, I would probably be doing something else. There are many reasons to believe that the supply and pricing of eggs may tighten as we see a resurgence of Avian influenza. I recently read about a million-bird flock in Iowa being affected just last week, although this hasn't been widely reported. However, commodity egg prices have not usually impacted our growth. A few years ago, there was a significant price war in the Midwest where various retailers offered commodity eggs for under $1, and I remember prices dropping as low as $0.47 in many parts of the U.S., yet our growth continued at our usual rate. We focus more on building a trusted brand and fulfilling our commitments to our stakeholders, which has proven effective. Consumers who purchase the highest-priced eggs generally don't cross-shop for the lowest-priced options. I don't believe this has changed fundamentally due to recent increases in commodity egg prices, nor do I see it being a major factor in driving our growth.

That’s helpful. Thank you for that. A big pushback we hear is that your buy rate indicates that consumers only purchase your eggs about 3 to 4 times a year, yet make 18 purchases a year, suggesting there’s not much brand loyalty. How concerned are you about this if the U.S. economy deteriorates? Thank you.

Thank you for that. I see a clear opportunity to increase our share of egg purchases. That number has remained steady for us over the years. Different consumers have various reasons for choosing different eggs, and we certainly have a segment that shows strong brand loyalty. Our digital order data from retail partners reflects this. We have a significant number of consumers who are set on buying our eggs and will not accept substitutes. There are also consumers who prefer our eggs but may be enticed by competitor advertisements. To ensure that our sales aren’t solely driven by promotions, we generally promote less aggressively than some competitors do. We aim to encourage trial without relying heavily on promotion, which is reflected in the percentage of our sales made on promotion. Historically, the buy rate of three to four times a year has not changed significantly despite shifts in the macro environment or competitor actions. There is still considerable growth potential as we add households at that buy rate, and we are actively thinking about ways to increase the buy rate as well.

Great. Thanks for that. I will pass it along.

Thank you.

Thanks, Cody.

Yeah. Thanks. Good morning. I just want to…

Good morning, Brian.

Good morning, Russell. I just want to the reiteration of guidance here quickly as opposed to maybe raising it. So I guess I just want to make sure I understand. You called out the increased payments to farmers. I know marketing was maybe higher in 3Q. So maybe we are leaning into that again in 4Q. Just help us understand, I guess, below the top line, the construct of the guidance 4Q, and what maybe, if anything, you are trying to signal about incremental pressures in 4Q?

Yeah. Thanks for that, Brian. I mean, first off, let me just talk to sort of generally how we are thinking about guidance. I mean we hope that give you levels of net revenue, adjusted EBITDA that we can achieve in order to pass on an annual basis, but remain consistent throughout the year with the performance against the guidance. So we want to move away from ranges and intra-year changes as we focus on the long-term performance of the business. First, on revenue, if you think of where we are in revenue, I think we are comfortable with where consensus is right now on revenue for Q4, even though we haven’t taken up guidance. But if you think that Q4 profitability, that 100-basis-point gross margin impact versus Q3 for the increased farm repayments is something that will flow through in Q4 and be offset by pricing than in January. We also continue to invest in marketing more strongly than we did in the prior year. So I think on the operating expense line, you are going to continue to see investment there, which is why we haven’t taken our guidance up above the $13 million that we have had. But I think we are also comfortable with the current consensus that’s around $13.7 million.

I appreciate your insights, Bo. This question has been posed in various forms, so I'll ask it differently. Clearly, you've achieved significant distribution growth this year, and your retailer presence is expanding well. I'm curious about how much further potential you see for store growth as a catalyst moving forward, especially now that you're over 22,000 stores. Is this becoming less of a benefit for you, or do you view it as an opportunity? I understand we might hear more about new product launches in the future, but should we consider that we may not see as much store growth, and that any additional distribution growth will primarily come from increasing the number of SKUs per store?

Thanks, Brian. I believe we've been consistent in recent calls about opportunities related to both new stores and product offerings per store. As we've been expanding our store presence, the focus has rightly shifted toward increasing the number of items per store, especially if we're targeting high-quality and productive locations. We have a proven strategy, illustrated by our early partnerships with customers like Whole Foods, which carries 19 of our retail products. By investing in marketing and building strong partnerships, we earn the opportunity to introduce more products over time. We have highly effective products, and it's usually straightforward to demonstrate to our retail partners how we can enhance their performance by offering more of our items. This naturally leads to increasing the number of products from two or three on a shelf to five, six, or seven, which I believe provides significant growth potential ahead of us.

Thanks Russell. Best of luck.

Thank you.

Thanks, Brian.

Great. Thanks so much. Good morning.

Good morning, Rob.

How are you? My first question is about the next round of pricing. Are you able to share any additional details on whether it will be similar in magnitude to previous rounds, and how much of the portfolio you anticipate pricing?

Yeah. Thanks for that, Rob. The price increase we are taking in January is more similar to the one that we took in May of this year and it’s just on the eggs business at this point, no further pricing involved.

Okay. Got it. Thanks. And then I feel like I always have to ask just around Avian flu, but it doesn’t seem like it’s been much of an impact. Things seem to be fairly contained on your end. So just kind of update on any kind of risk what you are seeing on your flock? And then, is there anything kind of around Avian that would also or could also increase kind of near-term cost to bring the birds in and what have you? That’s all.

Thank you, Rob. It's interesting to note that we have one of the most resilient egg supply chains today, mainly due to our network of over 300 small family farms. Each farm contributes less than 1% to our total supply, which means that even if one were impacted by Avian influenza, it would only affect a small part of our overall supply. We consistently follow and often surpass industry standards and best practices to protect our birds and our farming partners from the effects of Avian influenza. To date, we have not experienced any outbreaks on our farms, and we put in a lot of effort to maintain that record. While the risk exists, our historical performance has been strong, and we strive to keep it that way. Looking back to 2016, when Avian influenza impacted larger farms, such as the recent case in Iowa, it significantly affected shelf supply. I've come across reports about low service levels and fill rates in retail causing sustained price increases. If Avian influenza becomes a concern, I believe consumers might notice fewer eggs on the shelves. The biggest risk we face is the possibility of running out of eggs, which could actually boost sales if supply is limited. Our goal is to ensure that our loyal customers have access to our eggs, rather than being their only option due to a lack of alternatives on the shelf.

Okay. That’s helpful. Maybe just a quick follow-up. Russell, you said earlier the way maybe revenues are coming in kind of pricing volume is fairly close to kind of what you forecasted then you layer on, I guess, a bit of an Avian impact that could potentially come by causing some holes from other players in the shelf. But I mean, obviously, I would assume with kind of Egg Central Station kind of the agreements you have with your farmers inclusive of the incremental cost you pay those farmers to make them happy that there doesn’t seem to be any near-term issue with capacity despite the strong volume growth we are seeing? Thank you.

Yeah. I appreciate you calling that out, Rob. We expanded Egg Central Station on time and on budget earlier this year in advance of us needing the extra capacity. And so we actually are using some of that extra capacity to meet our current order volume, but we were very intentional on the timing to ensure that we would have no production bottlenecks and we do not. We have capacity to exceed a $650 million egg business today and we are already doing the site selection work for the next plant as we look ahead to building a business beyond $650 million. So I sure appreciate that question. Super. Thanks guys. Thanks, Rob.

One moment for our next question. Our next question is from Chris Growe with Stifel.

Hi. Good morning. Thank you.

Hey, Chris.

Good morning.

I wanted to follow up on the fourth quarter and the gross margin. Can that still be higher sequentially? With the increased payments coming in, I expect some relief from inflation after last year's grain price increases, and considering the strong pricing, I would like to understand how to approach the gross margin for the fourth quarter in light of these factors.

Yeah. Thanks for that, Chris. Yeah. It’s certainly going to be up year-over-year, but not sequentially. There’s conventional grains where you look at the CME, they are coming down, but we are also seeing an impact from our farms and seasonals that base is going up in the background, offsetting some of the things you are seeing in the headlines. But we also have organic feed prices going up and we have packaging going up. So there’s a little bit of a lag in how that all flows through as well. And so that’s why you may be looking at corn and soy coming down, but with based just on organic and packaging, we have some offsets there. So I think our gross margins will be flat to down sequentially and we will make up for that in the pricing in Q1.

That's helpful. Thank you. I have one more quick question regarding your significant cash reserves. What do you anticipate the uses of that cash will be moving forward? For instance, do you plan to reserve funds for a new product or any noteworthy capital projects? Additionally, I’m curious if you intend to repurchase your stock, considering your fundamentals have been quite strong while the stock price hasn't reflected that improvement.

I will let Bo...

Okay.

...address the current plans and then I will talk philosophically about buyback. How about that?

Sure. Okay. Well, I think, Chris, if you look at how we manage that, we are looking to use that capital to accelerate our long-term growth and for things to accelerate our growth. So we talked about in the past, investing in cost-saving opportunities that we can then reinvest that money back in the business. We could use that money if we were to look at new categories to enter as you said and there’s different ways to get into those categories again to accelerate our growth. So I think we are being very, very prudent and very thoughtful about how we use that capital. I think we have sufficient capital to allow us to do many things to continue on the long-term growth trajectory that we believe that we can deliver. I will let Russell talk to the stock buyback piece.

It's interesting to think about. We believe our stock price doesn't accurately reflect our company's performance and potential, making it feel undervalued, so buying at a low price seems appealing. However, as Bo mentioned, we have significant growth opportunities ahead, and we value having the flexibility to pursue financially sound growth strategies. While the stock may seem inexpensive, cash for high-growth companies is also highly sought after. Our strong balance sheet during these uncertain times is a unique advantage that reinforces our commitment to long-term objectives. It instills confidence in our team, our farmers, and our retailers that we will maintain our track record of delivering results. It would be unwise for me to take the chance to buy back shares to create a positive signal in the market while potentially compromising our company's resilience. Therefore, I would be very reluctant to engage in that in the short term.

Okay. Thank you for that perspective.

Thanks, Chris.

At this time, I would like to turn it back to Matt for further comments.

Thanks everybody for your time and interest in Vital Farms today. Have a good one.

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.