VITAL FARMS, INC. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, "Risk Factors," and "Special Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report and the audited financial information and the notes thereto included in our Annual Report.
Overview
Our mission is to bring ethical food to the table, and we are disrupting theU.S. food system by developing a framework that challenges the norms of the incumbent food model, allowing us to bring high-quality products from our network of family farms to a national audience. This framework has enabled us to become the leadingU.S. brand of pasture-raised eggs and the second-largestU.S. egg brand by retail dollar sales. Our ethics are exemplified by our focus on animal welfare and sustainable farming practices. We believe our standards produce happy hens with varied diets, which produce better eggs. There is a seismic shift in consumer demand for natural, traceable, clean-label, great-tasting and nutritious foods. Supported by a steadfast adherence to the values on which we were founded, we have designed our brand and products to appeal to this consumer movement. Our purpose is rooted in a commitment to Conscious Capitalism, which prioritizes the long-term benefits of each of our stakeholders (farmers and suppliers, customers and consumers, communities and the environment, crew members and stockholders). We make decisions based on what is sustainable for all our stakeholders. Our collective sustainable business practices will enable us to fulfill our purpose of improving the lives of people, animals, and the planet through food, now and long into the future. For us, it is not about short-term outcomes or a trade-off between purpose and profit. We are fierce business competitors who believe that prioritizing the long-term viability of all stakeholders will produce stronger outcomes, for everyone, over time. These principles guide our day-to-day operations and, we believe, help us deliver a more sustainable and successful business. Our approach has been validated by our financial performance and recertification as aCertified B Corporation inJanuary 2022 , a certification reserved for businesses that balance profit and purpose to meet the highest verified standards of social and environmental performance, public transparency and legal accountability. We source our products from a network of over 300 family farms. We have strategically designed our supply chain to ensure high production standards and optimal year-round operation. We are motivated by the positive impact we have on rural communities and enjoy a strong relationship and reputation with our network of farmers. We primarily work with our farms pursuant to buy-sell contracts. Under these arrangements, the farmer is responsible for all of the working capital and investments required to produce the eggs and manage the farm, including purchasing the birds and feed supply. We are contractually obligated to purchase all of the eggs produced by the farmer during the term of the contract at an agreed-upon price that depends upon pallet weight and is adjusted quarterly for changes in feed cost. We believe we are a strategic and valuable partner to retailers. We have continued to command premium prices for our products, including our shell eggs. Our loyal and growing consumer base has fueled the expansion of our brand from the natural channel to the mainstream channel. We believe the success of our brand demonstrates that consumers are demanding premium products that meet a higher ethical standard of food production. We have a strong presence at The Kroger Co., or Kroger, Sprouts Farmers Market, or Sprouts, Target Corporation andWhole Foods Market, Inc. , orWhole Foods , and we also sell our products at Albertsons Companies, Inc.,Publix Super Markets, Inc. and Walmart Inc. We currently offer 23 retail stock keeping units, or SKUs, through a multi-channel retail distribution network. We believe we have significant room for growth within the retail and foodservice channels through growing brand awareness, gaining additional points of distribution and new product innovation. Our shell eggs are collected from farmers by a third-party freight carrier and placed in cold storage until we pack them for shipping to our customers at our state-of-the-art shell egg processing facility,Egg Central Station .Egg Central Station is approximately 153,000 square feet and utilizes highly automated equipment to grade and package our shell egg products.Egg Central Station is capable of packing approximately six million eggs per day and has achieved Safe Quality Food, or SQF, Good rating, the highest level of such certification from the Global Food Safety Initiative. Our products are distributed through a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who will in turn sell our products to consumers. We serve the majority of natural channel customers through food distributors, which purchase, store, sell and deliver our products to customers. We serve mainstream retailers by arranging for delivery of our products directly through their distribution centers. We also leverage distributor relationships to fulfill orders for certain independent grocers and other customers. 20 -------------------------------------------------------------------------------- We have experienced consistent sales growth. We had net revenue of$119.2 million and$77.1 million , net income of$7.2 million and net loss of$1.5 million , and Adjusted EBITDA of$13.9 million and$0.5 million in the 13-week periods endedMarch 26, 2023 andMarch 27, 2022 , respectively. See the section titled "-Non-GAAP Financial Measure-Adjusted EBITDA" below for the definition of Adjusted EBITDA, as well as a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with GAAP.
Known Trends, Events and Uncertainties
Highly Pathogenic Avian Influenza
Since the initial outbreaks of highly pathogenic avian influenza ("HPAI") in
early 2022, we have been closely following the progression of the virus and
working with our farmers, veterinarians, government health officials and animal
welfare auditors to ensure that our flocks are kept as safe as possible. To
date, we have experienced outbreaks at two of our farms, one located in Missouri
and one in Tennessee . While we have not experienced material disruptions to our
egg supply due to HPAI outbreaks, if a substantial portion of our farms or
production facilities were affected, this could materially and negatively affect
our supply chain and operating results. Additionally, HPAI has resulted in
supply shortages and price increases across the egg market. We are confident in
the measures we have taken to reduce the risk of HPAI on our farms and
production facilities, as well as our ability to mitigate impacts on supply.
However, given continued uncertainty about future outbreaks and governmental
responses to such outbreaks, we cannot predict the ultimate impact that HPAI
will have on our business.
Inflation and Economic Uncertainties
The current inflationary environment may also affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and supplies, interest rates and overhead costs, may adversely affect our operating results. Rising interest rates also present a recent challenge impacting theU.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. We have experienced and may continue to experience increases in our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with COVID-19 and the ongoing war betweenRussia andUkraine , and employee availability and wage increases, which may result in additional stress on the Company's working capital resources. We work closely with our farmers, suppliers and third-party manufacturers to manage our supply chain activities and mitigate potential disruptions to our product supplies as a result of supply chain disruptions associated with such uncertainties. We currently expect to have an adequate supply of eggs, butter, packaging, and freight to meet anticipated demand through 2023, as well as adequate capacity for packaging and processing our eggs.
Liquidity and Capital Resources Overview
With cash, cash equivalents and marketable securities of$83.1 million as ofMarch 26, 2023 and$20.0 million available under our credit facility agreement withPNC Bank, National Association , or the Credit Facility, we anticipate having sufficient liquidity to make investments in our business to support our long-term growth strategy. We expect that our cash, cash equivalents and marketable securities as ofMarch 26, 2023 , together with cash provided by our operating activities and availability of borrowings under our existing Credit Facility, will be sufficient to fund our operating expenses for at least the next 12 months and to make investments in our business in support of our long-term growth strategy. Our future capital requirements will depend on many factors, including our pace of new and existing customer growth, our investments in innovation, our investments in acquisitions or other growth opportunities, our investments in partnerships and unexplored channels and ongoing costs associated with expansions of our production capacity. We may be required to seek additional equity or debt financing. However, a significant disruption of global financial markets (including a disruption due to public health pandemics, geopolitical tensions and wars, inflation or other factors) may result in our inability to access additional capital, which could in the future negatively affect our operations. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation and product expansion, we may not be able to compete successfully, which would harm our business, operations and results of operations. For additional information, see the section titled "Liquidity and Capital Resources" below. 21 --------------------------------------------------------------------------------
Our Fiscal Year
We report on a 52-53-week fiscal year, ending on the last Sunday in December, effective beginning with the first quarter of fiscal 2018. In a 52-53-week fiscal year, each fiscal quarter consists of 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. Our first 53-week fiscal year will be this year, fiscal 2023, which began onDecember 26, 2022 and we expect to end onDecember 31, 2023 . See "Nature of the Business and Basis of Presentation" in Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional details related to our fiscal calendar. Key Factors Affecting Our Business
We believe that the growth of our business and our future success are dependent upon many factors. While each of these factors presents significant opportunities for us, they also pose important challenges that we must successfully address to enable us to sustain the growth of our business and improve our results of operations.
Expand Household Penetration
We have positioned our brand to capitalize on growing consumer interest in natural, clean-label, traceable, ethical, great-tasting and nutritious foods. We believe there is substantial opportunity to grow our consumer base and increase the velocity at which households purchase our products.U.S. household penetration for the shell egg category is approximately 98%, while the household penetration for our shell eggs is approximately 7.0%. We intend to increase household penetration by continuing to invest significantly in sales and marketing to educate consumers about our brand, our values and the premium quality of our products. We believe these efforts will educate consumers on the attractive attributes of our products, generate further demand for our products and ultimately expand our consumer base. Our ability to attract new consumers will depend, among other things, on the perceived value and quality of our products, the offerings of our competitors and the effectiveness of our marketing efforts. Our performance depends significantly on factors that may affect the level and pattern of consumer spending in theU.S. natural food market in which we operate. Such factors include consumer preference, consumer confidence, consumer income, consumer perception of the safety and quality of our products and shifts in the perceived value for our products relative to alternatives.
Grow Within the Retail Channel
We believe that our ability to increase the number of customers that sell our products to consumers is an indicator of our market penetration and our future business opportunities. We define our customers as the entities that sell our products to consumers. With certain of our retail customers, likeWhole Foods , we sell our products through distributors. We are not able to precisely attribute our net revenue to a specific retailer for products sold through such channels. We rely on third-party data to calculate the portion of retail sales attributable to such retailers, but this data is inherently imprecise because it is based on gross sales generated by our products sold at retailers, without accounting for price concessions, promotional activities or chargebacks, and because it measures retail sales for only the portion of our retailers serviced through distributors. Based on this third-party data and internal analysis,Whole Foods accounted for approximately 24% and 25% of our retail sales for the 13-week periods endedMarch 26, 2023 andMarch 27, 2022 , respectively. Subsequent to the filing of our Annual Report, we noted that our percentage of retail sales toWhole Foods for the fiscal years endedDecember 26, 2021 andDecember 27, 2020 , reported in the Annual Report as 29% and 28%, respectively, should have been reported as 25% and 27%, respectively. While the amount of our retail sales toWhole Foods increased in real terms for the 13-week period endedMarch 26, 2023 , the percentage of our net revenue attributable toWhole Foods declined in this period as we added new customers and expanded distribution to other existing customers. As ofMarch 26, 2023 , there were more than 22,000 stores selling our products. We expect the retail channel to be our largest source of net revenue for the foreseeable future. By capturing greater shelf space, driving higher product velocities and increasing our SKU count, we believe there is meaningful runway for further growth with existing retail customers. Additionally, we believe there is significant opportunity to gain incremental stores from existing customers as well as by adding new retail customers. We also believe there is significant further long-term opportunity in additional distribution channels, including the convenience, drugstore, club, military and international markets. Our ability to execute on this strategy will increase our opportunities for incremental sales to consumers, and we also believe this growth will allow for margin expansion. To accomplish these objectives, we intend to continue leveraging consumer awareness of and demand for our brand, offering targeted sales incentives to our customers and utilizing customer-specific marketing tactics. Our ability to grow within the retail channel will depend on a number of factors, such as our customers' satisfaction with the sales, product velocities and profitability of our products. 22 --------------------------------------------------------------------------------
Expand Footprint Across Foodservice
We believe there is significant demand for our products in the foodservice channel since we offer versatile ingredients with high menu penetrations across all commercial and non-commercial operator segments. We see considerable opportunity to continue to grow the channel in the medium- to long-term with our two-pronged sales approach to values-aligned foodservice operators and their distributors. We are working with Waypoint, a foodservice sales and marketing agency in the consumer-packaged goods industry, to increase our category share in broad-line distribution and to get on national and regional restaurant chain menus. We believe that mostU.S. consumers' food preferences are driven primarily by what they encounter on restaurant menus, so we are also leveraging foodservice as a critical consumer touchpoint to drive brand awareness and build trust. We are investing in co-marketing to reach new households. We believe co-branding is mutually beneficial to us and foodservice operators as we believe it helps to differentiate their brands, enhance their perceived customer value and drive repeat traffic. A multi-unit example from our successful foodservice program isTrue Food Kitchen , an award-winning restaurant brand and a pioneer of wellness-driven dining with locations acrossthe United States , that shares our purpose of improving the lives of people, animals and the planet through food. We have launched similar relationships with national chains, including Hopdoddy Burger Bar and Original ChopShop. Additionally, we have regional chain collaborations in all four of ourU.S. sales territories. Several examples include:
•
Tacodeli, which sells breakfast tacos made exclusively with our shell eggs
across restaurant locations and points of distribution, such as coffee shops and
farmers' market stands, across
•
Black Seed Bagels, a bagel brand with locations across the
•
King David Tacos, which sells breakfast tacos made exclusively with our eggs at a brick-and-mortar location, multiple cart locations and over 70 retail partners in theNew York City area;
•
•
•
•
Moe's Broadway Bagel, an
Expand Our Product Offerings
We intend to continue to strengthen our product offerings by investing in innovation in new and existing categories. We have a history of product introductions and intend to continue to innovate by introducing new products from time to time. Egg and egg-related products generated$112.8 million , or approximately 95%, of net revenue in the 13-week period endedMarch 26, 2023 . We expect eggs and egg-related products to be our largest source of net revenue for the foreseeable future. We believe that investments in innovation will contribute to our long-term growth, including by reinforcing our efforts to increase household penetration. Our ability to successfully develop, market and sell new products will depend on a variety of factors, including the availability of capital to invest in innovation, as well as changing consumer preferences and demand for food products. Key Components of Results of Operations
Net Revenue
We generate net revenue primarily from sales of our products, including eggs and
butter, to our customers, which include natural retailers, mainstream retailers
and foodservice customers. We sell our products to customers on a purchase-order
basis. We serve the majority of our natural channel customers and certain
independent grocers and other customers through food distributors, which
purchase, store, sell and deliver our products to these customers.
We periodically offer sales incentives to our customers, including rebates,
temporary price reductions, off-invoice discounts, retailer advertisements,
product coupons and other trade activities. We record a provision for sales
incentives at the later of the date at which the related revenue is recognized
or when the sales incentive is offered. At the end of each accounting period, we
recognize a liability for an estimated promotional allowance reserve. We
periodically provide credits or discounts to our customers in the event that
products do not conform to customer expectations upon delivery or expire at a
customer's site. We treat these credits and discounts as a reduction of the
sales price of the related transaction at the time of sale. We anticipate that
these promotional activities, credits and discounts could impact our net revenue
and that changes in such activities could impact period-over-period results.
23
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Our shell eggs are sold to consumers at a premium price point, and when prices
for commodity shell eggs fall relative to the price of our shell eggs (including
due to any price increases we may implement), price-sensitive consumers may
choose to purchase commodity shell eggs offered by our competitors instead of
our eggs. As a result, low commodity shell egg prices may adversely affect our
net revenue. For example, we increased prices on certain of our products in
January 2022 , May 2022 and January 2023 . While we have not seen significant
decreases in volume due to previous price increases, if we further increase
prices to offset higher commodity prices or other costs, we could experience
lower demand for our products, decreased ability to attract new customers and
lower sales volumes. Net revenue may also vary from period to period depending
on the purchase orders we receive, the volume and mix of our products sold and
the channels through which our products are sold.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of broker and contractor fees for sales and marketing, as well as personnel costs for sales and marketing, finance, human resources and other administrative functions, including salaries, benefits, bonuses, stock-based compensation expense and sales commissions. Selling, general and administrative expenses also include advertising and digital media costs, agency fees, travel and entertainment costs, and costs associated with consumer promotions, product samples, sales aids incurred to acquire new customers, retain existing customers and build our brand awareness, overhead costs for facilities, including associated depreciation and amortization expenses, and information technology-related expenses.
Shipping and Distribution
Shipping and distribution expenses consist primarily of costs related to third-party freight for our products. We expect shipping and distribution expenses to increase in absolute dollars in the medium-to-long term, as we continue to scale our business.
Results of Operations
The results of operations data for the 13-week periods ended
24
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Comparison of the 13-Week Periods Ended
The following table sets forth our consolidated statement of operations data expressed as a percentage of net revenue for the periods presented:
13-Weeks Ended
March 26, March 27,
2023 2022
% of % of
Amount Revenue Amount Revenue
(dollars in thousands)
Net revenue $ 119,172 100 % $ 77,058 100 %
Cost of goods sold(1) 76,504 64 % 55,358 72 %
Gross profit 42,668 36 % 21,700 28 %
Operating expenses:
Selling, general and administrative(1) 23,946 20 % 17,624 23 %
Shipping and distribution 7,826 7 % 8,162 11 %
Total operating expenses 31,772 27 % 25,786 33 %
Income (loss) from operations 10,896 9 % (4,086 ) (5 )%
Other income, net:
Interest expense (139 ) - (8 ) -
Interest income 340 - 130 -
Other (expense) income, net (1,425 ) - 49 -
Total other income, net (1,224 ) - 171 -
Net income (loss) before income taxes 9,672 8 % (3,915 ) (5 )%
Income tax provision (benefit) 2,522 2 % (2,377 ) (3 )%
Net income (loss) 7,150 6 % (1,538 ) (2 )%
Less: Net loss attributable to
noncontrolling
interests - - (2 ) -
Net income (loss) attributable to Vital
Farms, Inc.
common stockholders $ 7,150 6 % $ (1,536 ) (2 )%
(1)
Includes stock-based compensation expense of
Net Revenue
13-Weeks Ended
March 26, March 27,
2023 2022 $ Change % Change
(in thousands)
Net revenue $ 119,172 $ 77,058 $ 42,114 55 %
The increase in net revenue of $42.1 million , or 55%, was primarily driven by
volume-related increases of $19.9 million and price increases of $22.2 million .
The volume favorability was primarily driven by increases at both new and
existing customers. Net revenue from sales through our retail channel was $108.7
million and $75.7 million for the 13-week periods ended March 26, 2023 and March
27, 2022 , respectively.
Gross Profit and Gross Margin
13-Weeks Ended
March 26, March 27,
2023 2022 $ Change % Change
(in thousands)
Gross profit $ 42,668 $ 21,700 $ 20,968 97 %
Gross margin 36 % 28 %
25-------------------------------------------------------------------------------- The increase in gross profit of$21.0 million , or 97%, was driven by higher net revenue generated during the period. The increase in gross margin during the 13-week period endedMarch 26, 2023 compared to the corresponding period in the prior year was primarily driven by increased pricing on our organic shell egg and butter products implemented at the end ofJanuary 2022 , along with additional pricing increases across the entire portfolio inMay 2022 andJanuary 2023 . The price increases offset an increase in input costs (inclusive of commodity impacts) across our shell egg and butter businesses as well as higher packaging costs. Operating Expenses
Selling, General and Administrative
13-Weeks Ended
March 26, March 27,
2023 2022 $ Change % Change
(in thousands)
Selling, general and administrative
36 %
Percentage of net revenue 20 % 23 %
The increase in selling, general and administrative expenses of
•
an increase of$3.3 million in employee-related costs, including stock-based compensation, driven by an overall increase in employee headcount to support our operations;
•
an increase of
•
an increase of$0.4 million in brokerage-related expenses due to the expansion of the business. Shipping and Distribution 13-Weeks Ended March 26, March 27, 2023 2022 $ Change % Change (in thousands) Shipping and distribution$ 7,826 $ 8,162 $ (336 ) (4 )% Percentage of net revenue 7 % 11 %
The decrease in shipping and distribution costs of
Interest Income
13-Weeks Ended
March 26, March 27,
2023 2022 $ Change % Change
(in thousands)
Interest income $ 340 $ 130 $ 210 162 %
The increase of
Other (Expense) Income, net
13-Weeks Ended
March 26, March 27,
2023 2022 $ Change % Change
(in thousands)
Other (expense) income, net $ (1,425 ) $ 49 $ (1,474 ) (3,008 %)
26-------------------------------------------------------------------------------- The change in other (expense) income, net of$1,474 , was primarily driven by losses on our commodity derivative instruments during the 13-week period endedMarch 26, 2023 .
Income Tax Provision (Benefit)
13-Weeks Ended
March 26, March 27,
2023 2022 $ Change % Change
(in thousands)
Income tax provision (benefit)
206 %
Percentage of net revenue 2 % (3 )%
The change in the income tax provision (benefit) of
Liquidity and Capital Resources
Since inception, we have funded our operations with proceeds from sales of our
capital stock, proceeds from borrowings and cash flows from the sale of our
products. We had net income of $7.2 million for 13-week period ended March 26,
2023 and retained earnings of $11.3 million as of March 26, 2023 .
Funding and Material Cash Requirements
We expect that our cash, cash equivalents and marketable securities, together with cash provided by our operating activities and availability of borrowings under our existing Credit Facility, will be sufficient to fund our operating expenses for at least the next 12 months. We further believe that we will be able to fund potential operating expenses and cash obligations beyond the next 12 months, through a combination of existing cash, cash equivalents and marketable securities, cash provided by our operating activities and available borrowing under our Credit Facility. Our future capital requirements will depend on many factors, including our pace of new and existing customer growth, our investments in innovation, our investments in acquisitions, partnerships and unexplored channels and the potential costs associated with future expansion of our production capacity. As ofMarch 26, 2023 , future minimum lease payments under non-cancelable operating leases totaled$1.8 million and future minimum lease payments under non-cancelable finance leases totaled$9.4 million .
Credit Facility
We originally entered into our Credit Facility with
Subsequently, terms of the Credit Facility were modified at various times between fiscal 2018 and fiscal 2022. Such amendments (i) amended various definitions, (ii) waived a technical default inMay 2020 which was triggered by exceeding the capital expenditure limit, (iii) increased borrowing capacity and (iv) extended the maturity date. The Ninth Amendment to the Credit Facility inApril 2021 eliminated the term loan and equipment loan. The Tenth Amendment to the Credit Facility inDecember 2022 modified certain covenants related to commodity hedging, consented to the dissolution of immaterial subsidiaries and implemented changes related to the discontinuation of LIBOR. The revolving line of credit matures inApril 2024 . The maximum borrowing capacity under the revolving line of credit is$20.0 million . Interest on borrowings under the revolving line of credit, as well as loan advances thereunder, accrues at a rate, at our election at the time of borrowing, equal to (i) the secured overnight financing rate as administered by theFederal Reserve Bank of New York plus 2.00% or (ii) 1.00% plus the alternate base rate, as defined in the Credit Facility. The Credit Facility is secured by all of our assets (other than real property and certain other property excluded pursuant to the terms of the Credit Facility) and requires us to maintain three financial covenants: a fixed charge coverage ratio, a leverage ratio and a minimum tangible net worth requirement. The Credit Facility also contains various covenants relating to limitations on indebtedness, acquisitions, mergers, consolidations, the sale of properties and liens. As a result of the limitations contained in the Credit Facility, certain of the net assets on our consolidated balance sheet as ofMarch 26, 2023 are restricted in use. The Credit Facility contains other customary covenants, representations and events of default. 27 --------------------------------------------------------------------------------
As of
Cash Flows
The following table summarizes our cash flows for the 13-week periods indicated:
13-Week Period Ended
March 26 , March 27,
2023 2022
(in thousands)
Net cash provided by (used in) operating activities
(4,939 ) Net cash provided by (used in) investing activities 8,519 (1,355 ) Net cash (used in) provided by financing activities (998 )
102
Net increase (decrease) in cash and cash equivalents
(6,192 ) Operating Activities The increase in net cash provided by operating activities during the 13-week period endedMarch 26, 2023 compared to the corresponding period in the prior year was due primarily to higher net income earned in the current period due to gross margin improvements and better leverage of selling, general and administrative costs.
Investing Activities
The increase in cash provided by investing activities during the 13-week period endedMarch 26, 2023 is primarily due to the cash provided from maturities of our available-for-sale securities that was not reinvested as ofMarch 26, 2023 . 28 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
Adjusted EBITDA
We report our financial results in accordance with GAAP. However, management
believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors
with additional useful information in evaluating our performance.
We calculate Adjusted EBITDA as net income (loss), adjusted to exclude:
•
Depreciation and amortization;
•
Stock-based compensation expense;
•
Costs related to the discontinuation of our convenient breakfast product line;
•
Benefit or provision for income taxes as applicable;
•
Interest expense;
•
Change in fair value of contingent consideration; and
•
Interest income.
Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, GAAP. We believe that Adjusted EBITDA, when taken together with our financial results presented in accordance with GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes. Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Some of the limitations of Adjusted EBITDA include the following:
•
It does not properly reflect capital commitments to be paid in the future;
•
Although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures;
•
It does not consider the impact of stock-based compensation expense, as such expenses in any specific period may not directly correlate to the underlying performance of our business operations and can vary significantly between periods as a result of the timing of grants of new stock-based awards;
•
It does not include the costs related to the discontinuation of our convenient breakfast product line, as these costs are infrequent, unusual and we do not anticipate that we will incur similar significant costs for product exits in the foreseeable future;
•
It does not reflect other non-operating expenses, including interest expense;
•
It does not consider the impact of any contingent consideration liability valuation adjustments; and
•
It does not reflect tax payments that may represent a reduction in cash available to us.
In addition, our use of Adjusted EBITDA may not be comparable to similarly
titled measures of other companies because they may not calculate Adjusted
EBITDA in the same manner, limiting its usefulness as a comparative measure.
Because of these limitations, when evaluating our performance, you should
consider Adjusted EBITDA alongside other financial measures, including our net
income or loss and other results stated in accordance with GAAP.
29
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The following table presents a reconciliation of Adjusted EBITDA to net income
(loss), the most directly comparable financial measure stated in accordance with
GAAP, for the periods presented:
13-Weeks Ended
March 26, March 27,
2023 2022
(in thousands)
Net income (loss) $ 7,150 $ (1,538 )
Depreciation and amortization 1 2,140 907
Stock-based compensation expense 2,241
1,296
Costs related to our exit of the convenient breakfast product line
- 2,341
Income tax provision (benefit) 2,522 (2,377 ) Interest expense 139
8
Change in fair value of contingent consideration 2 - 7 Interest income (340 ) (130 ) Adjusted EBITDA$ 13,852 $ 514
1 Amount also reflects finance lease amortization. 2 Amount reflects the change in fair value of a contingent consideration liability in connection with our 2014 acquisition of certain assets of Heartland Eggs.
Seasonality
Demand for our products fluctuates in response to seasonal factors. Demand tends
to increase with the start of the school year and is highest prior to holiday
periods, particularly Thanksgiving , Christmas and Easter, and lowest during the
summer months. As a result of these seasonal and quarterly fluctuations,
comparisons of our sales and results of operations between different quarters
within a single fiscal year are not necessarily meaningful comparisons.
Critical Accounting Estimates
The preparation of our unaudited condensed consolidated financial statements in
conformity with GAAP requires us to make estimates and judgments that affect the
amounts reported in the financial statements and related notes thereto. Critical
accounting estimates are those estimates that involve a significant level of
estimation uncertainty and have had, or are reasonably likely to have, a
material impact on our unaudited condensed consolidated financial statements.
Management has determined that our most critical accounting estimates are those
relating to trade promotion accruals and income taxes. Although we believe that
the estimates we use are reasonable, due to the inherent uncertainty involved in
making these estimates, actual results reported in future periods could differ
materially from those estimates. For further discussion about our accounting
policies, see "Summary of Significant Accounting Policies" in Note 2 to our
unaudited condensed consolidated financial statements included elsewhere in this
Quarterly Report.
The significant accounting estimates used in preparation of the unaudited
condensed consolidated financial statements are described in our audited
consolidated financial statements as of and for the fiscal year ended December
25, 2022 , and the notes thereto, which are included in our Annual Report. Except
as detailed in Note 2 to our unaudited condensed consolidated financial
statements included elsewhere in this Quarterly Report, there have been no
material changes to our significant accounting policies or critical accounting
estimates during the 13-week period ended March 26, 2023 .
Recent Accounting Pronouncements
See the sections titled "Summary of Significant Accounting Policies-Recently
Adopted Accounting Pronouncements" and "-Recently Issued Accounting
Pronouncements Not Yet Adopted" in Note 2 to our unaudited condensed
consolidated financial statements included elsewhere in this Quarterly Report
for a discussion of recent accounting pronouncements.
30
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Emerging Growth Company Status
In April 2012 , the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was
enacted. Section 107 of the JOBS Act provides that an "emerging growth company"
may take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. Therefore, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to
private companies. We have elected to use the extended transition period under
the JOBS Act. Accordingly, our financial statements may not be comparable to the
financial statements of public companies that comply with such new or revised
accounting standards.
We may take advantage of these exemptions until December 31, 2025 , or such
earlier time that we are no longer an emerging growth company. We would cease to
be an emerging growth company on the date that is the earliest of (1) the last
day of the fiscal year in which we have total annual gross revenues of $1.235
billion or more; (2) December 31, 2025 ; (3) the date on which we have issued
more than $1.0 billion in nonconvertible debt during the previous three years;
or (4) the date on which we are deemed to be a large accelerated filer under the
rules of the Securities and Exchange Commission . We may choose to take advantage
of some but not all of these exemptions.
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