No? Probably. Probably more danger than Clock's ticking. Oh, boy. You got it. You got this. Yeah. All right. Perfect. Hello, everyone. Thank you for joining us today. My name is Brian Holland, Senior Research Analyst at D.A. Davidson. I'm pleased to have CEO Russell Diez-Canseco and CFO Thilo Wrede from Vital Farms with us to discuss their business. Certified B Corporation, the company has driven to improve the lives of people, animals, and the planet by bringing ethically produced food to the table. Today, Vital Farms is the second largest egg brand in the U.S., underpinned by its leading share of the fast-growing pasture-raised segment. From 2018 through 2024, the company grew net revenue and Adjusted EBITDA at a CAGR of 34% and 50%, respectively. 2025, year to date, revenues are up 24% and EBITDA 25%. I look forward to diving into the drivers behind that outsized growth this morning or afternoon. That was last year, I think. Russell, Thilo, good morning. Or afternoon. How are you both? Put the paper away. Yeah, I know. Don't read from the script, anchorman. Hey. Good to be here. For those who may be getting introduced to the story for the first time today, Russell, perhaps you could start with a brief background on the company. Who is Vital Farms? What's your mission? Sure. So Vital Farms is a food company primarily known for our very special pasture-raised eggs. We also have pasture-raised butter, which is a relatively small piece of what we do. And our purpose is to improve the lives of people, animals, and the planet through food. The place was founded in 2007 by Matt O'Hayer. Matt cares deeply about animal welfare. And he saw an opportunity back then with 98%+ of the laying hens in the United States locked in cages inside of big barns. He felt they were the most tortured farm animal. That was his perspective. And he wanted to see if you could produce eggs and let the birds exhibit their natural behaviors by going outside. A consummate entrepreneur, he saw an opportunity when he noticed that the eggs were different. When the birds had a varied diet, the eggs started to look a little bit different. He noticed a richer yolk with a different color, darker color, a thicker shell. That was a little bit of his eureka moment. Thilo and I have joked that if we'd met in business school and we wanted to get into CPG and we did a category screener, I don't know that eggs would have popped out at the top of the list. It's historically not been branded. It's had big boom and bust cycles. It's capital-intensive. By starting with an unmet consumer need and working backwards, he created an opportunity where it wasn't obvious one existed. Today, we've grown to become the second biggest egg brand in the United States. In our top 10 retailers, we're either the number one or the number two egg brand, including retailers as varied as Whole Foods and Kroger, where we're the number one egg brand in both. A few things I'd call out that maybe differentiate us versus other players in this category of eggs. We have a distributed supply chain, and we're not vertically integrated. We work with over 575 small family farms across the Near South, an area that we call the Pasture Belt, because that's where it's warm enough and wet enough to have the right environment year-round for those birds to go outside meaningfully. We have our own egg packing plant in Springfield, Missouri, which we affectionately call Egg Central Station, because that's where we can control the quality going out to customers. We're very judicious about applying capital where it makes strategic sense. The net result is that our high quality and high levels of animal welfare and the brand we've built around transparency have earned us the growth numbers you were sharing, but also a gross margin that isn't historically something you'd see in eggs, which is a number that starts with a three. That reflects the strength of our brand. So I appreciate you diving into the supply chain as well there. So we'll focus for just a moment on the birds and the farmers. First, on the birds, I think sort of interesting, sort of a hardened investor might look at your business and say, "Avian influenza, treatment of the birds." That's a good thing for you guys. Tight supply allows you guys to get into the market, maybe more narrow price gaps. Just talk about your perspective on avian influenza as it affects the industry, and then how that backdrop is impacting your business. Sure. So avian flu or avian influenza has been a pretty big factor over the last two fall and winter seasons when tens of millions of laying hens, mostly in bigger, more concentrated farms, were killed. That resulted in the eggflation meme that we've all heard about and was all the rage about a year ago: high prices, scarce supply. We hate to see it because we're here to improve the lives of animals, and to see tens of millions of them be slaughtered is terrible. It's a travesty. Over the last year and a half, we've had none of our farms affected. And that reflects a really strong commitment to biosecurity, but also the distributed nature of the supply chain. Even if one of our farms were to get it, it's one out of over 575. You're right. When avian influenza takes out a bunch of supply, there's a natural shock and the impact you see on pricing in that commodity egg space where you see egg prices jump up. But we manage Vital Farms like a branded CPG company. We don't price with commodity egg prices. We don't opportunistically take prices up when there's a shortage, and we don't expect to take them down just because others are doing that based on their business model. So the thing that is most exciting for me about 2026 is the opportunity to demonstrate the power of our brand and the power of our partnerships with retailers in the absence of avian influenza. So as you mentioned, I think there's a natural inclination because of the category you compete in to view Vital Farms as a commoditized product. Certainly, as you say, you don't price to supply-demand dynamics. You price to input cost, just like any other branded CPG company would. So maybe just talk about, if you're able to do that, why are consumers increasingly gravitating to your premium-priced products? And what metrics would you point to to sort of illustrate the strength and stickiness of that brand connection? Yeah, it's so interesting. There's a little story I'll tell to illustrate where I'm going. A few years back, we were doing consumer ethnography work. We had a panel of consumers that we paid to allow us to sort of follow them as they shopped in a grocery store so we could learn more about their shopping habits, and I remember this one shopper at a Target up in Minneapolis. We were in the dairy set, and she picks out a carton of milk, and then the facilitator asks her a bunch of questions about why that carton of milk and what does organic mean to you and why did you get a quart instead of a half gallon, all the questions. By the third or fourth item, the woman got a little frustrated, and she kind of threw up her hands. She said, "Look, you're asking me about all the words on the packages. But the reality is, it seems like every week I hear news of another food company that didn't do what they said they were going to do, whether it's the organic milk that doesn't have any of the CLA that indicates the outdoor access those cows are supposed to have, whether it's the organic grain that showed up in the Port of Baltimore as organic but left Romania as not organic and magically got certified over the ocean. It seems like there's not a lot of companies out there that I can trust. Once I trust you, then I'm kind of not checking all the words on your package. It's sort of binary." And that was the insight. That kind of insight is what led us to build a brand based on transparency and trust and do a bunch of things right that we're not as worried about explaining to attention-starved consumers. It's more about making sure that they have reasons to trust us, and that's why I think we have grown faster than others at a higher price point than others. Despite having a lot of other words in common with others, the Vital Farms words are the ones that are unique to us. Back to the supply chain, one long-held topic of debate around this story, I think, is farmer recruitment and retention, mindful of increased competitive entrance into the pasture-raised or broader specialty egg subsegment, as well as a change in Vital Farms' working capital. I think it was back in 2024 in support of new family farms. So can you help us frame sort of the white space opportunity as it pertains to farm capacity? And then also, how should we discern between rising farmer costs and competitive dynamics in and around broader specialty eggs? Sure. So the first thing to know is that when we add a farmer to our network, and that's the primary way that we grow supply, is we add a farmer who will then build a barn and a farm out to have about 20,000 birds. We grow supply by adding those farms. There are very few existing small family egg farmers in this country. They all got consolidated away in the 1970s and 1980s. And the few that are left mostly have really old kind of caged farms. So we're expanding the supply of eggs by expanding the supply of farms. And when other brands or private label offerings grow with similar types of farms, they're primarily doing so by doing the same thing, by expanding the supply of farms. The good news is that there are tens of thousands of small family farmers, even just within the handful of states that we've defined as the Pasture Belt, where it's warm enough and wet enough to do what we do year-round. For example, too cold up north, too hot in the southwest, et cetera. And so that's not really a limiting factor. Hundreds of millions of acres of land, tens of thousands of farmers. We're adding tens of farmers a quarter. So that's not really a constraint. Occasionally, when one of our farmers' contract is up for renewal, that farmer will receive offers from other egg companies. About mid-90s% of the time, he ignores them. A lot of that has to do not so much with the idea that we're paying more than we need to, but that everything else being equal, the way we work with the farmer, the way we collaborate, support, and treat them is our strength. It's just like an employer brand proposition. We want our people to join Vital Farms, not because we pay them more, but because we're a better place to work. We think that's true for our farmers working with us as well. Can I also ask quickly, how much is your balance sheet a consideration? I mean, because obviously these farmers need loans to start this business. Presumably, somebody's doing the diligence there for them. How does your balance sheet factor into your relative attractiveness to those other options? Yeah. You can imagine that that small regional banker that's lending $1 million - $1.5 million to the farmer needs some diligence for his or her underwriting. And it is a real point of differentiation that we have been in the marketplace for 10+ years working directly with small family farmers, that we consistently pay our bills on time in good times and bad, meaning there are times when other producers might have more eggs than they need. And unfortunately, they often just walk away from a farmer and ignore the contract they signed with them. We don't do that. And those bankers know that that's true for us. And they know that we have a very strong balance sheet, all of which makes us a safer bet than perhaps some other players that are trying to recruit that small family farmer. Often, the banker will steer that farmer to us for that reason. This time last year, a lot of investor focus on supply and capacity bottlenecks that resulted from the significant growth I alluded to in the introduction. Yeah. I think on the morning of this event a year ago, you announced plans to address these constraints, specifically the acceleration of the company's family farm network, which you just made reference to, as well as the addition of a third line at your egg washing and packing facility in Springfield, Missouri. Yeah. Fast forward to today, can you update us on the farm expansion progress? I think you kind of already did do that for us, but also the startup of that third line at ECS. Yeah. I'm excited that we did everything we said we would do in 2025 when it came to expanding capacity. That third production line at Egg Central Station was successfully opened a few months ago, is up and running, and incorporated into our production planning. We've added how many did we add in 2025? Number of farms? 150. About 150 farms. Again, very intentionally, very much on track. In order to do that, we had to first build up the team and the capability because we didn't want to obviously shortcut the really in-depth vetting process that we do for a new farmer. So we had to grow that team. We had to add a CRM tool for them to be more efficient. We did all that a year and a half ago, and the fruits of all those efforts have come through over the last year. We're, I think, very comfortably adding the farms we want on the pace we want to. Thilo, I think this question has come up throughout the day offline, so might as well ask it here. How do we model a depreciation for that third line as we start to think about gross margin in 2027, 2028? Yeah. Yeah. Based on the way we've talked about CapEx all throughout last year, the budget for that third line was, it's called a mid- to high-teens million dollars. We depreciate that over 15 years. So per year, we're adding about $1 million of depreciation. When you think about that, our cost of goods sold is over $400 million a year. That extra million dollars from a margin perspective is really negligible. And it gives us over $300 million of additional revenue capacity. When you think about the return that creates for every dollar of CapEx we put in, the amount of revenue capacity we get out, it's a really good investment for us. The next phase of footprint growth is a forthcoming second facility, ECS facility in Indiana, which is scheduled to begin operations in 2027. First, how does or how will this site differ or evolve from the Springfield location? Second, can we assume Indiana is tracking to begin operations on time? Maybe I'll take the design part. Over the course of expanding capacity in Springfield from one line to a second line to now a third line, and then the planning for Seymour, we've consistently taken advantage of the best information and our own learnings over time. There are probably two things that I would call out as, I would say, improvements in Seymour. The first is we'll open that building in the first year with both the first and second machine instead of phasing it one and then two, because frankly, I think we've just gotten better at projecting our growth, and we know we're going to need both of them sooner rather than later. The second thing is today, our eggs that come off farms first go to a cold storage facility where they're checked, quality checked, cataloged, entered into our system, and then stored and then supplied to Egg Central Station just in time. On the way back out, again, the finished goods go back to that cold storage facility and are then shipped out to our retail and distributor customers. This year, we moved the location of that facility from 10 miles down the road to less than a mile down the road, and we took about 100,000 miles a year off of the highway as a result. There's a cost savings there. There's an environmental savings. But the reality is it's still a lot of touch points for our products, both on the inbound and the outbound. So in Seymour, that cold storage facility will be integrated into the packing center, and it'll be a pass-through. We'll have a common wall. That'll take a lot of miles, a lot of touch points. It'll have a cost implication, and I think it'll improve quality. All right, Thilo, here we go. Speed round. Last month of Vital Farms Investor Day, fiscal 2025 net revenues were revised lower, which you attributed temporary shipment disruption back in October following ERP implementation. Can you explain what happened and perhaps what changed from the time you reported 3Q results and raised the 2025 outlook in early November with what we ultimately learned at Investor Day? Yeah. Yeah. We implemented a new ERP system at the beginning of the fourth quarter. I would say in the grand scheme of things, it was an extremely successful implementation. We were, I think, one of the outliers in the statistic where an ERP implementation leads to shutdown for several weeks or months. We kept producing throughout it. We kept shipping throughout it. But because we did this ERP implementation, ECS operated a bit slower than normal for a few weeks. That happened at the beginning of Q4 when we had our third quarter call at the beginning of November. We were just coming out of that phase where ECS was operating slowly, and we assumed that retailers would make up for the orders that we couldn't fulfill for the previous few weeks. That didn't materialize to the same degree that we anticipated. Leading up to the holidays, I think retailers wanted to make sure that they had product on the shelf, and we might have lost a bit of shelf space for a few weeks. And so by the time we came to the Investor Day, we had realized that those sales were lost for good. And that's why we adjusted the revenue guidance for the year. We're now guiding to $755-$765 million. We feel comfortable with that guidance. We are through the ERP implementation. ECS is operating normally. Orders and shipments are normal again. So that episode is behind us now. Look at that. Three answers in one question. That was good. Speed round. Yeah. To the extent the market is closely following that weekly scanner data, there was some concern that this is a demand problem and not a supply issue. Can you update us on how consumption trended into year-end relative to your internal expectations for where the business should be? Yeah. As I said, we feel good about the updated guidance that we gave at the Investor Day. So consumption is trending the way we thought it would. When you look at latest Nielsen data, the four weeks leading into the end of the year, we had record high volume levels for shell eggs. I don't see a demand problem for us. We weren't able to ship orders for several weeks. In full and f air. But the consumer demand was always there. So as we enter 2026, you're in a position of relatively unconstrained capacity, certainly relative to where you've been the last several years. I think you've talked a lot about this. We've written a lot about sort of the pent-up demand for this product. When you get more items on shelf, your velocity actually accelerates. So as we think about 2026, I think household penetration this past year, like high singles, low doubles, something in that range. Buy rate was flat. If we think about the drivers of growth in 2026, what should that mix look like between, say, distribution and velocity? Yeah. I would expect that maybe this year we're a bit more leaning towards velocity rather than distribution. I think we had some good TDP gains, total distribution point gains in Q4. If you look at the Nielsen data, you can see that there. And I would expect us to maintain those distribution gains and then add to them over the course of the year. But I think on a velocity perspective, for the first half of the year, there were plenty of periods where consumers couldn't find us. So those consumers had to buy other eggs. I think we'll capture those purchase opportunities again. We had a very healthy increase in our brand awareness over the course of 2025. We'll convert that into household penetration this year, which is another point for me that we will drive velocity this year in addition to a bit of distribution gains. Russell, can you just talk quickly about kind of framing the opportunity on shelf? You're in well over closer to 25,000 doors today. So it doesn't seem like the white space is as much about breadth as it is depth. Can you sort of frame the opportunity to get more items on shelf for this brand? Sure. So one of my roles is to be Chief Complexity Officer in that I like simplicity. Our top four items account for 80%+ of our egg revenue, and I don't have all four of them in all of those 24,000 doors yet. In fact, when you exclude the natural channel and you just focus on conventional grocery and mass, you're at under three items per door. And some portion of those three that we already have on average have been there single-digit years, not double-digit years. These are still relatively new accounts in the grand scheme of things relative to a Whole Foods. The net result of which is that our job primarily is to add to those existing sets to get those core four items onto all those shelves. That's a big part of a multi-year growth algorithm, which doesn't require innovation, which doesn't require us to sell something that isn't already proven in the marketplace. And from that perspective, I think it's a very straightforward conversation to have with our retail partners. Thilo, we did this in reverse order. You talked about the drivers for 2026. At your Investor Day last month, you did provide initial top-line guidance in the range of $930 million-$950 million. At the midpoint, that would imply about 24% growth next year. Can I assume we're, in essence, reaffirming that number today? No change to that? No change to that. We will provide EBITDA guidance for 2026 when we report in early March. Late February. Early February, early March. And then quickly on the long term, you established 2030 targets of $2 billion net revenue, 35% gross margin, EBITDA margins in the 15%-17% range. The sales outlook doesn't assume much deceleration over the next five years. What informs your confidence this business can continue to grow in excess of a 20% CAGR? Look, we see the success that we're having in driving brand awareness. We know that brand awareness is a leading indicator for household penetration down the road. We see the success that we have had driving household penetration and buy rate at the same time for many, many years now. We see the secular tailwinds that we have from consumers being more interested in where their food comes from, how their food is being produced. All those are indicators for us that there is still a lot of pent-up demand. We have more than twice the brand awareness than we have household penetration. Brand awareness is at 33%. We're only in 15% of households. We're not even in half of the households that we have defined as our target consumers. We see the success that we have on a retail shelf and the profit that we are driving for retailers in the exit. All these are indications for us that this growth will continue. We're putting the supply together. We have the capacity for it. Vital Crossroads and Seymour, that's the next unlock for us for the production capacity. All that gives us the confidence to get to $2 billion. And as a point of reference, just to put it into context, we have about 3% of the supply of eggs at retail today. So even if you were to think about it from a top-down perspective, you're still in the mid to high single-digit market share from a volume perspective. I think we're at time, so we'll leave it there. Russell, Thilo, thank you so much. Thank you, everyone, for being here today. Have a great conference. Thanks, Brian.