Okay, great. Okay, let's get started. Good morning, everyone. Thank you for being here. I'm Sarang Wara, Consumer Research Analyst at Telsey Advisory Group. It is my pleasure today to host Vital Farms at this conference. As many of you know, Vital Farms is a leader in pasture-raised eggs, and it's also one of the fastest-growing consumer brands we cover in our space. You know, this year in 2025, we are looking at a growth of at least 27% to about $770 million from them, and a profitable EBITDA of at least about $110 million. So very strong growth. From the company today, we have CFO Thilo Red, and welcome to the conference here. So let me start with the big picture question. And we keep hearing positively about the increased need for protein, and eggs are one of the key sources for protein. And then on the opposite side, over the past two years, we have seen shortages in the egg industry because of the avian flu that impacted the flocks. So help us understand the current state of the industry just from a demand supply standpoint, and where do you stand from that standpoint?

Yeah, I would I would Characterize it as when you go to a store today Shelves look pretty full again. You compare that to the first quarter this year when When shelves look pretty decimated at times Delaying flock population in the US which normally stands around 330 million birds still hasn't been fully rebuilt. Okay, so we're I think we're around 290 300 million birds right now But you don't see it on shelf as much anymore. There's probably some exports that are not happening right now So for the US consumer, it's it's less visible that the flock is not back to full strength yet Prices still tend to be somewhat elevated certainly below where prices were in the first quarter But we are we're in the process or the industry I should say is in the process of rebuilding We haven't had any impact from avian flu since the beginning of 2024 So even though this year already 40 million birds have been killed, which is about 15-20% of the total U.S. laying flock, none of our flocks have been killed. Same thing last year, about 40 million birds were killed because of avian flu, none of our birds were killed. So the industry per se is rebuilding, we are in good shape as it is.

That's great. And, you know, Vital Farm's story is more about the company-specific initiatives that you are rolling out, the category that you have been a leader in, than the industry, I would say. And, you know, the growth that is driven by volume a lot. The underlying strength of that comes from the supply chain that you have built, which is your relationship with the family farms, the expansion of production lines that you keep doing, including the one coming up later in the year. So can you provide us an update on the recruitment efforts that's undergoing right now to build a pipeline of growth for you as well as update on the upcoming production facility that's opening?

Yeah, you touched on our supply chain, right? We source our eggs from more than 500 family farms that we work with. We have a one-to-one relationship with these farms. We commit to buy all the eggs from the farm. The farmer commits to sellers all the eggs that they are producing. At the end of the second quarter, we were talking about working with more than 500 family farms. That's an increase from more than 300 farms at the end of 2023. So in 18 months, we recruited about 200 farms. All the indications are that we will continue to recruit at a similar pace. Let's call it 30, 35 farms a quarter. It's really a function of how big our recruiting team is to vet these farmers, to onboard them into our system. And so the farm growth, for us, it's a leading indicator where volume growth will come from. We only sell eggs that we source from farmers that work directly with us, that we have a contract with. We don't source any eggs on the open market. And so the supply that we are getting from these farms, that is really the indicator where we see volume growing. And then we need to be able to process all these eggs. We have currently one egg processing facility in Springfield, Missouri. We have two production lines there that are installed, that are operating. Those give us revenue capacity for about $900 million just from eggs. And then, Sarang, you alluded to it, we are in the process of bringing a third production line online that will increase our production capacity in Springfield to about $1.2 billion. And then, in parallel, we are working on a second new production facility. This will be located in Seymour, Indiana. and that facility is intended to come online at the beginning of 2027 and at that point we would have revenue capacity from X of about 2.1 billion dollars so Sarang said our guidance for this year is revenue of 770 million dollars and I think the capacity that we're installing it tells you about the the confidence that we have to continue the growth of the business and and our desire to fill this production capacity over time the third production line in Springfield what we had said publicly is that the line will come

online at the beginning of Q4 so we are now in Q4 I was actually in Springfield last week the line is in good shape we're in the process of qualifying it so all of that capacity expansion for right now it's it's on schedule it's on budget it's how we like to operate that's great to hear great update you know the supplies coming online you are processing it very fast distribution is the next question I have you know there is multiple opportunities on distribution new as well as existing so let me start with the new new distribution opportunity you know you're already in about twenty three and a

thousand stores across the nation so how big is the runway when you think from a new distribution standpoint yeah so based on our math there are about 32,000 stores in the US that sell what's called specialty eggs specialty access if you think about that classification the cheapest egg you can usually buy is an egg that comes from a caged bird. The next level up in terms of animal welfare would be a cage-free egg. The birds there don't really have that much more space than caged birds, but at least they're not crammed into a cage. The step above that is free-range eggs where the birds are supposed to have outdoor access and are able to go outside. And then the level where we are playing from an animal welfare perspective is called pasture-raised eggs. So our birds go outside every day. They have 108 square feet of space outdoors that they can access. They can express their natural behaviors. They do dust baths. They do perching outside. And so 32,000 stores in the US sell these specialty X cage-free free-range pasture-raised. As you said, we're in about 23,500 stores, and we think we're in the best 23,500 stores we could be in, so there is still an opportunity to expand distribution over time, but really the focus for us where the growth will come from is getting more SKUs on existing shelves and increasing the velocity on the shelf. We have We have in the natural channel, which is where we got our start at retail, we have about six SKUs on the shelf. In the food channel, we have about three SKUs on the shelf. In the mass channel, we have one, maybe two SKUs on the shelf. So when you think about future distribution opportunities, it's getting food channel, getting mass to something that resembles a little bit more where the natural channel is today. at Whole Foods, we have eight or nine SKUs on the shelf, right? So just the distribution opportunity from getting more SKUs on shelves where we are today, where we already have a relationship with the retailer, that is where we focus the distribution efforts. And then in addition to that, I think we are one of the rare cases where while we are growing our presence on the shelf, we're also increasing the average velocity for the items on the shelf, right? So we're not at the point yet where the next skew that we're putting on the shelf is this marginal skew that brings down the average velocity. The next skew that we are putting on the shelf is still incremental and with that we are growing the velocity similar to how we we're expanding our household penetration and our buy rate at the same time, right? So we're not at the marginal consumer yet who drags the average down as consumers try us for the first time and then buy us repeatedly, over time, they buy us more and more. And with that, we're increasing our buy rate as distribution goes up as well.

That's great. And, you know, as the volume is picking up, you know, throughout the year, are you seeing the repeat rates go up in your surveys or checks with the retailers?

Yeah, it's not so much a metric that moves a whole lot month by month, right? It's something that we track more over multi-year periods. But But it's interesting, when you think of our consumer distribution, we classify consumers into light, medium, heavy, ultra-heavy buyers. The distribution that we had five years ago between light, medium, heavy, ultra-heavy is the same distribution that we have today, even though we have doubled the number of households that we are in, right? So a consumer who was a light buyer five years ago probably is a medium buyer today. Consumer who was a medium buyer five years ago is a heavy buyer today, and so on. So as consumers try us for the first time and then they stay with us, their consumption increases over time.

That makes sense. They are stepping up once they use the product. You know, shifting gears a little bit to the product type, you know, egg is one of your main categories. But within egg, you know, over the past year, we were very regular eggs. But I think the mix is changing within towards organic. So can you share where you stand now and, you know, based on the pipelines of Family Farm that's coming up, how the mix is changing in the near future?

Yeah, you're right. We have a mix shift towards Organic X. Organic X are just over a third of our volume today. The farm recruiting that we're doing skews more towards organic. We think that is where we have more distribution opportunities than in conventional. and you know aside from from from just getting different skews on the shelf with organic eggs we also get a price mix benefit from that organic extent to have a higher revenue per unit and so as we're getting the volume growth from getting these organic skews on the shelf we're getting an additional price mix benefit to the P&L that's great and on the product you know I wanted to touch upon on the Butter segment.

I feel like the relaunch has been very positive. We can see in the numbers till second quarter. Talk to us about how you feel about the product category and its growth and distribution ahead on the Butter side.

Yeah, so Butter is a small part of our business. It's about 5% of our revenue. We rebuild our supply chain in Butter at the beginning of 2024. We changed sourcing of our butter from U.S. produced butter to Irish butter. With that Irish butter, we thought we were able to put different, better claims on the package. We had more supply certainty. There's much higher supply of the kind of butter that we are selling, where the cows are outdoors most of the year, where the cows eat grass for the majority of the year. So we now have a claim on our packaging that the cows where our butter comes from are 90% grass-fed because that's the time they spend outdoors. And so beginning of 2024, we rebuilt the supply chain. We had simply maxed out the butter that we could get that is produced to the standards that we adhere to. We had maxed out the capacity at the end of 2023. And so as we rebuilt the supply chain at the beginning of last year, we lost some retailers. We were simply unable to supply them and so since 24 beginning of 24. We have been in a in a rebuilding process I would argue. We're still in a process of stabilizing that supply chain from Ireland Certainly everything that you read about International trade these days is not helpful when you import product from Ireland And so there there's still a few kinks that we're working out of the system But the growth since beginning of 24 has been great There are still some retailers where we want to get back on the shelf. There are skews that we used to have we had a Spreadable tub butter you could take it out of the fridge and immediately spread it on on toast That's a product that we have discontinued that personally I would love to bring back simply as a consumer So there are opportunities to get back into retailers that discontinued us a discontinued us their opportunities to get products back into the rotation and we don't have right now so with that we see very bright future for butter for us but I will probably always be a smaller part of the business than X but it's a it's a very interesting opportunity for us to put the brand into another part of the store to create another opportunity for the consumer to actually see the brand the packaging is very consistent between butter and X and And so it's a very complementary product to the eggs that we have.

That makes sense. You know, shifting gears a bit to tariffs, and I know you guys are relatively less impacted by tariffs because it's eggs and mainly U.S., but there's still a little exposure to tariffs. So can you update us on, you know, what you are seeing from that standpoint and what are the mitigation efforts you have in place?

Yeah, so all of our eggs are produced in the U.S., But we're importing some of the packaging from outside the US. Simply our supplier in the US doesn't have enough capacity for our growth. And some of the feed that the farmers are buying to feed the chickens is imported. The organic feed that our farmers are buying, pretty much all of that comes from outside the US. And some of the components of conventional feed come from outside the US. so we do have tariff exposure we we took a price increase middle of second quarter to offset those tariff impacts that price increase you know given the relationships that we have with retailers we implemented that pretty much without any any major pushback from retailers I think we have we've built relationships where retailers trust that we do that we make decisions that consider all the stakeholders that's the business model that we have and and so retailers understood why we had to take pricing the pricing showed up in theory on shelf in the middle of Q2 retailers had already taken a lot of pricing on our eggs ahead of time and so for the consumer it wasn't really visible that we took pricing. But with that pricing, we are offsetting the tariff impact. Given how costs flow through our P&L, we're really only expecting to see the impact from the tariffs in the fourth quarter. So we have had healthy gross margins here to date at around 39%. We have a long-term target of 35 plus percent for gross margin.

So we've been a bit ahead of schedule third quarter we'll probably continue to be ahead of schedule and then fourth quarter we expect to get more of this tariff impact but we are prepared to that to to stay above that 35 percent target that's great um you know that just leads me to margin question as well um you know you have managed margin very well over the past several quarters in general um you know what are the puts and takes we should be mindful as we look at fourth quarter or even like you know just uh you know commodity cost promotions any color you can share on some of those variables that impact margin yeah commodity cost if you look the the majority of the chicken feed is corn and soybean

meals the conventional costs there are coming down still depending on which one you look at slightly higher than than pre the price spike that we saw when when covet happened organic feed which is about a third of the feed that our farmers are buying, much harder to track. You don't really see that in Chicago. So organic feed is still more expensive than it used to be. So commodities are mixed picture for us, tariffs we just talked about. And then the third biggest or the third component that's really driving gross margin for us is promotional environment. Given the X shortages that we saw at the beginning of the year we weren't doing a whole lot of promoting at the beginning of the year now that the shelves are fuller again that our own supply is improving we started promoting again in Q3 you should expect to see more of that in Q4 promotions for us our way to drive trial for the first time all right some promotions we don't use them to necessarily drive volume. That's a that's a drug that's really easy to get addicted to and really hard to to get away from again. Promotions for us are a way to create that the visual disruption on the shelf when there's a big tag for the consumer to to actually try us for the first time. And so we want to get back to promoting again a bit in Q4 so that we can start converting some of the increased brand awareness that we have seen year to date that we can start convert that into trial and then you know as we talked about before trial over time leads to increased consumption so with the promotions that we are starting now that we start in q3 frankly um that is all designed to to now capture the households that are aware of us that weren't aware of us a year ago Yeah, that makes sense.

You know, shifting gear to accelerator farms, very exciting topic, the test going on. Can you share some color on what are some of the tests you are doing with some of these farms over there at a high level to the extent you can share?

Yeah, so let me explain what accelerator farms are. As I said, we work with a network of over 500 family farms that produce X for us. On those farms, the farmer owns the land, the barn, the chickens. They're basically independent operators for us. We are in the process of building a few farms ourselves that we want to operate. We've talked about roughly 15 farms that we want to operate on our own. And the intention behind these farms is that we want to do a bit of R&D, a bit of test and learn. there are different ways you can configure a barn there is different equipment that you can put inside the barn for the chickens to to roost on and to perch on there are different there's different technology that you can use to heat or cool the barn right in the summer we want to cool it down a bit and in some way we want to cool down and whenever we need to heat it a bit and so we want to experiment a bit and find more efficient ways to operate these spawns. Ultimately, the goal is to produce more eggs and reduce the costs. It's still very early days for us. So far, we have brought one of these accelerator farms online. And this farm, we placed chickens there in late July. This farm will be our benchmark, basically, right? This will be the farm that we compare the other accelerator farms against. We'll place birds on the next iterations of farms in in the coming quarters and and then it really takes one whole flock cycle for us to really understand at least one fox cycle for us to understand whether these different ideas that we're testing whether they make a difference on or not so don't expect any learnings there for the next okay let's call it at least two years until we have some solid data this is really more of a long-term idea that We want to be able to try out a few things, do a bit of R&D. Ultimately, the goal is to drive better outcomes for the farmers that we work with, right? Whatever we learn from these farms, we then want to take back to the family farmers that we are recruiting to make sure that we improve their outcomes.

No, that makes sense. I like the test and learn approach, and that can be rolled out across the farms over time. I know we are almost up on the time, so there are two questions we are asking every company at this conference. You know, the first one is more a big-picture question, so on a scale of 1 to 10, how would you rate the current economy and consumer spending, especially second half of the year?

Look, I can talk about our consumers, right? Our consumers continue to be very strong. We continue to see very strong demand. I read the same news that you read. I think there are a few at least gray clouds on the horizon, but for our business, we're not seeing any impact on that, and we like to think of our consumer as maybe being a bit more recession-resistant than your average consumer in the U.S.

Makes sense. And then the second question I have is when you look at 2026 next year, what are one or two things that you are excited about and what are one or two things that you are concerned about for next year?

I think the part that I'm most excited about is for the last, and I've been with water farms for two and a half years now, for the last two and a half years we have been either supply constrained or production capacity constrained. For 26, I'm excited about having really improved supply, having the third production line in Springfield, having this new facility in Seymour, and being able to really demonstrate that what we are doing is not just a fluke, but that we are able to continue to drive growth. what am I concerned about the biggest challenge in our business is to grow X supply processing capacity demand all in harmony with each other that's the biggest challenge for us every quarter every year that won't change next year so that's what we'll we'll keep keeping an eye on that's cool thank you so much thank you Tilo thank you everyone on the webcast and in person here thank you