10q10k10q10k.net

What changed in Vital Farms, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Vital Farms, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+498 added−465 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in Vital Farms, Inc.'s 2023 10-K

498 paragraphs added · 465 removed · 373 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

102 edited+15 added−22 removed55 unchanged
Biggest changeSeveral 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 Texas; • Black Seed Bagels, a bagel brand with locations across the New York metropolitan area; • 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 the New York City area; 12 • Pura Vida, a fresh all-day concept in the South Florida area; • Cafe Patachou, a breakfast and lunch restaurant chain based in the Indianapolis, Indiana area; • Blue Plate Restaurant Company, a casual dining group in the Minneapolis/St.
Biggest changeSeveral examples include: • HomeState, a growing brand in Southern California focused on Texas food and genuine hospitality; • Black Seed Bagels, a bagel brand with locations across the New York metropolitan area; • 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 the New York City area; • 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 Texas; • Pura Vida, a fresh all-day concept in South Florida; • Cafe Patachou, a breakfast and lunch restaurant chain based in the Indianapolis, Indiana area; • Blue Plate Restaurant Company, a casual dining group in the Minneapolis/St.
Across the industry, eggs may be sourced from hens that are caged, cage-free, free-range or pasture-raised. Large egg companies offer commodity eggs sourced from caged hens, and in an attempt to address growing consumer demand for ethically produced and higher quality eggs, they have also grown their cage-free and free-range offerings.
Across the industry, eggs may be sourced from hens that are caged, cage-free, free-range or pasture-raised. Large egg companies offer commodity eggs sourced from caged hens, and in an attempt to address growing consumer demand for ethically produced and higher quality eggs, they have also grown their cage-free, free-range and pasture-raised offerings.
We also compete directly with local and regional egg and dairy companies, as well as private-label specialty products processed by other egg and dairy companies. In our market, competition is based on, among other things, product quality and taste, brand recognition and loyalty, product variety, product packaging and package design, shelf space, reputation, price, advertising, promotion and nutritional claims.
We also compete with local and regional egg and dairy companies as well as private-label specialty products processed by other egg and dairy companies. In our market, competition is based on, among other things, product quality and taste, brand recognition and loyalty, product variety, product packaging and package design, shelf space, reputation, price, advertising, promotion and nutritional claims.
We believe the strength of our platform, coupled with significant investments in our crew members and infrastructure, position us to continue to deliver industry-leading growth across new and existing categories. 6 Our Strengths Trusted Brand Aligned with Consumer Demands We believe consumers have grown to trust our brand because of our adherence to our values and a high level of transparency.
We believe the strength of our platform, coupled with significant investments in our crew members and infrastructure, position us to continue to deliver industry-leading growth across new and existing categories. Our Strengths Trusted Brand Aligned with Consumer Demands We believe consumers have grown to trust our brand because of our adherence to our values and a high level of transparency.
Paul, Minnesota area; • Moe's Broadway Bagel, an East Coast-style family-run bagel chain in the Denver and Boulder Colorado area. Supply Chain We have strategically designed our supply chain to ensure high production standards and optimal year-round operation.
Paul, Minnesota area; • Moe's Broadway Bagel, an East Coast-style family-run bagel chain in the Denver and Boulder, Colorado area. 11 Supply Chain We have strategically designed our supply chain to ensure high production standards and optimal year-round operation.
Because of our brand equity, loyal consumer base and expanding line of high-quality products, we believe there are attractive growth opportunities across these channels, in addition to a sizable opportunity in the foodservice channel.
Because of our brand equity, loyal consumer base and line of high-quality products, we believe there are attractive growth opportunities across these channels, in addition to a sizable opportunity in the foodservice channel.
Our Ethical Decision-Making Model Stakeholders Guiding Principles Farmers and Suppliers • Forming strong relationships with our network of more than 300 family farms, who are the foundation of our resilient and reliable supply chain Customers and Consumers • Delivering the transparency and quality around food products that today's consumers demand Crew Members • Empowering our crew members by investing in their financial security, development and overall well-being Community and Environment • Investing in our community and being conscious stewards of the environment Stockholders • Building a sustainable company for the long term by delivering stockholder value 4 We have scaled our brand through our strong relationships with family farms and deliberate efforts to design and build the infrastructure to bring our products to a national audience.
Our Ethical Decision-Making Model Stakeholders Guiding Principles Farmers and Suppliers Forming strong relationships with our network of more than 300 family farms, who are the foundation of our resilient and reliable supply chain Customers and Consumers Delivering the transparency and quality around food products that today's consumers demand Crew Members Empowering our crew members by investing in their financial security, development and overall well-being Community and Environment Investing in the communities where we operate and being conscious stewards of the environment Stockholders Building a sustainable company for the long term by delivering stockholder value 4 We have scaled our brand through our strong relationships with family farms and deliberate efforts to design and build the infrastructure to bring our products to a national audience.
We believe a diverse, equitable and inclusive crew is crucial to our long-term success as a business and a priority for us as our values remain rooted in Conscious Capitalism.
We believe a diverse and inclusive crew is crucial to our long-term success as a business and a priority for us as our values remain rooted in Conscious Capitalism.
These laws and regulations apply to the processing, packaging, distribution, sale, marketing, labeling, quality, safety and transportation of our products, as well as our occupational safety and health practices.
These laws and regulations apply to the processing, packaging, distribution, sale, marketing, labeling, quality, safety, importation and transportation of our products, as well as our occupational safety and health practices.
We have circulated more than 100 million copies of our Vital Times newsletter since 2021. Building upon a landscape of shifting consumer preferences, we are focused on reaching new consumers to educate them about our ethically focused value proposition. We work continuously to understand our consumers and leverage those insights to develop impactful communication plans and messaging.
We have circulated more than 150 million copies of our Vital Times newsletter since 2021. Building upon a landscape of shifting consumer preferences, we are focused on reaching new consumers to educate them about our ethically focused value proposition. We work continuously to understand our consumers and leverage those insights to develop impactful communication plans and messaging.
Department of Agriculture, or USDA; the Food and Drug Administration, or FDA; the Federal Trade Commission, or FTC; the Environmental Protection Agency, or EPA; and the Occupational Safety and Health Administration, or 13 OSHA.
Department of Agriculture, or USDA; the Food and Drug Administration, or FDA; the Federal Trade Commission, or FTC; the Environmental Protection Agency, or EPA; and the Occupational Safety and Health Administration, or OSHA.
We also believe there are incremental growth opportunities in additional distribution channels, including the convenience, drugstore, club, military and international markets, which we may access along with retail growth opportunities to enable us to continue our net revenue growth. We have built a sustainable company founded on products that increasingly resonate with consumers.
We also believe there are incremental growth opportunities in additional distribution channels, including the convenience, drugstore, club, military and international markets, which we may access along with retail and foodservice growth opportunities to enable us to continue our net revenue growth. We have built a sustainable company founded on products that resonate with consumers.
Item 1. Business Our Company: Bringing Ethical Food to the Table Vital Farms is an ethically minded food company that is disrupting the U.S. food system. We have developed a framework that challenges the norms of the incumbent food model and allows us to bring high-quality products from our network of family farms to a national audience.
Item 1. Business Our Company: Bringing Ethical Food to the Table Vital Farms is an ethically minded food company that is disrupting the U.S. food system. We have developed a framework that challenges the norms of the factory food model and allows us to bring high-quality products from our network of family farms to a national audience.
As we continue our focus on scaling a world-class organization, we believe this tighter link between where we are going, the processes we will put in place to get there, and, most importantly, how we engage, inspire, and develop our crew members will fuel our continued growth. 9 Product Overview We produce products sourced from animals raised on family farms, including shell eggs, butter, hard-boiled eggs, liquid whole eggs and ghee.
As we continue our focus on scaling a world-class organization, we believe this tighter link between where we are going, the processes we will put in place to get there, and, most importantly, how we engage, inspire, and develop our crew members will fuel our continued growth. 8 Product Overview We produce products sourced from animals raised on family farms, including shell eggs, butter, hard-boiled eggs and liquid whole eggs.
The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.
The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov . 16
A multi-unit example from our successful foodservice program is True Food Kitchen, an award-winning restaurant brand and a pioneer of wellness-driven dining with 43 locations across the country that shares our values for improving the lives of people, animals and the planet. Our collaboration is a recipe for success to serve nourishing food that people know they can trust.
A multi-unit example from our successful foodservice program is True Food Kitchen, an award-winning restaurant brand and a pioneer of wellness-driven dining with over 40 locations across the country that shares our values for improving the lives of people, animals and the planet. Our collaboration is a recipe for success to serve nourishing food that people know they can trust.
This framework has enabled us to become the leading U.S. brand of pasture-raised eggs and the second largest U.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.
This framework has enabled us to become the leading U.S. brand of pasture-raised eggs and the second-largest U.S. egg brand by retail dollar sales. Our ethics are exemplified by our focus on animal welfare and sustainable farming practices, including regenerative agricultural practices. We believe our standards produce happy hens with varied diets, which produce better eggs.
Our leadership team works in partnership with Matthew O’Hayer, our founder and executive chairperson, who continues to inform our strategic vision with the entrepreneurial perspective gained through over 40 years of building businesses.
Our leadership team works in partnership with Matthew O’Hayer, our founder and the Executive Chairperson of our Board of Directors, who continues to inform our strategic vision with the entrepreneurial perspective gained through over 40 years of building businesses.
The mainstream channel represented approximately 53%, 58% and 61% of our retail dollar sales in fiscal years 2020, 2021 and 2022, respectively. Foodservice Channel In addition to our primary natural and mainstream channels, we sell shell and value-added eggs into the foodservice channel, which includes commercial and non-commercial foodservice operators.
The mainstream channel represented approximately 58%, 61% and 61% of our retail dollar sales in fiscal years 2021, 2022 and 2023, respectively. Foodservice Channel In addition to our primary natural and mainstream channels, we sell shell and value-added eggs into the foodservice channel, which includes commercial and non-commercial foodservice operators.
Crew Recruitment, Development and Retention Through a thoughtful and thorough screening process, we bring crew members into the business who we believe are aligned with our values and culture.
Crew Recruitment, Development and Retention Through a thoughtful and thorough selection process, we bring crew members into the business who we believe are aligned with our values and culture.
Motivated by our mission, our success and our customers’ feedback, we continue to innovate and expand our product offering to address growing consumer demand. Innovation The successes of our core products have confirmed our belief that there is significant demand for ethically produced food products.
Motivated by our mission, our success and our customers’ feedback, we continue to innovate and expand our product offerings to address growing consumer demand. 9 Innovation The successes of our core products have confirmed our belief that there is significant demand for ethically produced food products.
Our Purpose Our purpose is to improve the lives of people, animals and the planet through food. Our mission is to bring ethical food to the table. We carry out our purpose and mission by partnering with family farms that operate within our strictly defined set of ethically minded practices.
Our Purpose Our purpose is to improve the lives of people, animals and the planet through food. Our mission is to bring ethical food to the table. We carry out our purpose and mission by partnering with family farms that operate within our strictly defined set of ethical farming practices.
We have reached a broad set of consumers through a variety of retail partners, including Albertsons, Kroger, Publix, Target and Walmart. As of December 2022, we are the number one or two egg brand by retail dollar sales for branded eggs with key customers such as Albertsons, Kroger, Sprouts Farmers Market, or Sprouts, Target and Whole Foods.
We have reached a broad set of consumers through a variety of retail partners, including Albertsons, Kroger, Publix, Target and Walmart. As of December 2023, we were the number one or two egg brand by retail dollar sales for branded eggs with key customers such as Albertsons, Kroger, Sprouts Farmers Market, or Sprouts, Target and Whole Foods.
Natural Channel Natural channel retailers, including Whole Foods and Sprouts, represented approximately 47%, 42% and 39% of our retail dollar sales in fiscal years 2020, 2021 and 2022, respectively. 11 Mainstream Channel Widespread consumer demand for high-quality and traceable foods has driven our expansion into the mainstream channel with national retailers, including Albertsons, Kroger, Publix, Target and Walmart.
Natural Channel Natural channel retailers, including Whole Foods and Sprouts, represented approximately 42%, 39% and 39% of our retail dollar sales in fiscal years 2021, 2022 and 2023, respectively. Mainstream Channel Widespread consumer demand for high-quality and traceable foods has driven our expansion into the mainstream channel with national retailers, including Albertsons, Kroger, Publix, Target and Walmart.
Egg Central Station is capable of packing six million eggs per day and has achieved Safe Quality Food, or SQF, Level 3 certification, the highest level of such certification recognized by the Global Food Safety Initiative, or GFSI.
Egg Central Station is capable of packing six million eggs per day and has achieved Safe Quality Food, or SQF, Excellent rating, the highest level of such certification recognized by the Global Food Safety Initiative, or GFSI.
Environmental, Social and Governance At Vital Farms, we are dedicated to creating long-term benefits through sustainable practices for our stockholders, crew members, farmers and suppliers, customers and consumers, communities and the environment. We promote sustainable practices and place an emphasis on being conscious environmental stewards.
Our Commitment to Impact At Vital Farms, we are dedicated to creating long-term benefits through sustainable practices for our stockholders, crew members, farmers and suppliers, customers and consumers, communities and the environment. We promote sustainable practices and place an emphasis on being conscious environmental stewards.
The design of Egg Central Station includes investments in support of each of our stakeholders, from our crew members (daylighting, climate control and slip resistant floors in the egg grading room), to the community and environment (consulting with the community before we built the facility, restoring native vegetation on the property, best-in-class stormwater management and the use of solar panels), to our customers and consumers (food safety and maintenance investments far beyond regulatory requirements).
The design of Egg Central Station includes investments that support each of our stakeholders, from our crew members (daylighting, climate control and slip resistant floors in the egg grading room), to the community and environment (consulting with the community before we built the facility, restoring native vegetation on the property, water retention and stormwater management measures and the use of solar panels), to our customers and consumers (food safety and maintenance investments far beyond regulatory requirements).
Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report or any of our other filings with the Securities and Exchange Commission, or SEC.
Our website address is www.vitalfarms.com . Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report or any of our other filings with the Securities and Exchange Commission, or SEC.
Our Certified B Corporation designation remains in good standing. 14 Public Benefit Corporation Status In connection with our Certified B Corporation status and as a demonstration of our long-term commitment to our mission to bring ethical food to the table, we elected in October 2017 to be treated as a public benefit corporation under Delaware law.
Public Benefit Corporation Status In connection with our Certified B Corporation status and as a demonstration of our long-term commitment to our mission to bring ethical food to the table, we elected in October 2017 to be treated as a public benefit corporation under Delaware law.
We are also restricted from making certain types of claims about our products, including nutrient content claims, health claims, organic claims and claims regarding the effects of our products on any structure or function of the body, whether express or implied, unless we satisfy certain regulatory requirements.
We are also restricted from making certain types of claims about our products, including nutrient content claims, health claims, organic claims and claims regarding the effects of our products on any structure or function of the body, whether express or implied, unless we satisfy certain regulatory requirements. In addition, our suppliers are subject to numerous regulatory requirements.
Our relatively low household penetration of 7.0%, compared to the shell egg category penetration of approximately 98%, provides a significant long-term growth opportunity for our business.
Our relatively low household penetration of 7.5%, compared to the shell egg category penetration of approximately 96.5%, provides a significant long-term growth opportunity for our business.
Additionally, we have implemented and continue to follow an internal COVID-19 protocol and preventative measures to protect the health and safety of our crew members, customers and communities. What We Value We have defined our company values as (1) Be Humble, (2) Act Like an Owner, (3) Lead with a Growth Mindset, (4) Practice Empathy and (5) Compete to Win.
Additionally, we continue to follow protocols and take preventative measures to protect the health and safety of our crew members, customers, and communities. 15 What We Value We have defined our company values as (1) Be Humble, (2) Act Like an Owner, (3) Lead with a Growth Mindset, (4) Practice Empathy and (5) Compete to Win.
We believe we have significant room for growth within the retail and, in the medium- to long-term, foodservice channels, and we believe that we can capture this opportunity by growing brand awareness and through new product innovation.
We believe we have significant room for growth within the retail and foodservice channels, and we believe that we can capture this opportunity by growing brand awareness and through new product innovation.
At our Egg Central Station facility in Springfield, Missouri, our hourly crew members are paid wages that are least 25% above the living wage for an individual without children in this market.
At our Egg Central Station facility in Springfield, Missouri, our hourly crew members are paid wages that are in excess of the living wage for an individual without children in this market.
As of December 2022, we distribute through third parties and direct to retailers to reach more than 22,000 stores. With significant expansion in recent years, our retail sales are distributed between the natural channel and mainstream channel.
As of December 2023, we distribute through third parties and direct to retailers to reach approximately 24,000 stores. With significant expansion in recent years, our retail sales are distributed between the natural channel and mainstream channel.
Today, Egg Central Station is capable of packing six million eggs per day and has achieved an SQF Level 3 certification, the highest level of such certification recognized by GFSI.
Today, Egg Central Station is capable of packing six million eggs per day and has achieved an SQF Excellent rating, the highest level of such certification from the GFSI.
We expect to continue to expand our product offerings through innovation in both existing and new categories. We have a dedicated product development team that leverages comprehensive consumer insights and trend data to provide innovative solutions and ideas that meet new consumer needs and usage occasions.
We expect to continue to expand our product offerings through innovation in both existing and new categories. We will continue to leverage comprehensive consumer insights and trend data to provide innovative solutions and ideas that meet new consumer needs and usage occasions.
We have recently combined our strategic and people functions under a single leader to unify our organization in attracting talent that supports our growth initiatives and our culture. This effort is critical not only to our current success but the direction of our company in the future.
Our strategic and people functions are led by a single leader in order to unify our organization in attracting talent that supports our growth initiatives and our culture. This effort is critical not only to our current success but the direction of our company in the future.
Through our Vital Times newsletter and social media presence, we cultivate and support our relationship with consumers by communicating our values, building trust and promoting brand loyalty. Strategic and Valuable Brand for Retailers Our historical performance has demonstrated that we are a strategic and valuable partner to retailers.
Through our Vital Times newsletter, utilization of social media outlets and our high-touch consumer engagement marketing campaigns, we cultivate and support our relationship with consumers by communicating our values, building trust and promoting brand loyalty. 6 Strategic and Valuable Brand for Retailers Our historical performance has demonstrated that we are a strategic and valuable partner to retailers.
At Egg Central Station, these features have included identification of opportunities to automate more physically challenging processes, offering subsidies to purchase slip-resistant and safety toe shoes and partnering with a local sports medicine practice for regular training of Egg Central Station crew members on ergonomics.
At Egg Central Station, these features include continued identification of opportunities to automate more physically challenging processes, offering subsidies to purchase slip-resistant and safety toe shoes and partnering with a local occupational health organization for regular assessment and training of Egg Central Station crew members on ergonomics.
In 2021, we began to track and analyze our greenhouse gas emissions to understand and mitigate our carbon footprint, as well as water risks relative to our business and operations. In December 2022, we published our initial disclosures under the Task Force on Climate-Related Financial Disclosure framework.
In 2021, we began to track and analyze our greenhouse gas emissions to understand and mitigate our carbon footprint, as well as water risks relative to our business and operations. We conduct an annual inventory of our greenhouse gas emissions and assessment of our climate-related risks, publishing disclosures under the Task Force on Climate-Related Financial Disclosure framework.
As provided in our amended and restated certificate of incorporation, the public benefits that we promote, and pursuant to which we manage our company, are: (i) bringing ethically produced food to the table; (ii) bringing joy to our customers through products and services; (iii) allowing crew members to thrive in an empowering, fun environment; (iv) fostering lasting partnerships with our farms and suppliers; (v) forging an enduring profitable business; and (vi) being stewards of our animals, land, air and water, and being supportive of our community.
Public benefit corporations organized in Delaware are also required to assess their benefit performance internally and to disclose to stockholders at least biennially a report detailing their success in meeting their benefit objectives. 13 As provided in our amended and restated certificate of incorporation, the public benefits that we promote, and pursuant to which we manage our company, are: (i) bringing ethically produced food to the table; (ii) bringing joy to our customers through products and services; (iii) allowing crew members to thrive in an empowering, fun environment; (iv) fostering lasting partnerships with our farms and suppliers; (v) forging an enduring profitable business; and (vi) being stewards of our animals, land, air and water, and being supportive of our community.
Among other things, the facilities in which our products are manufactured or processed must register with the FDA and/or the USDA, comply with current good manufacturing practices, or cGMPs, and comply with a range of food safety and labeling requirements established by the Federal Food, Drug, and Cosmetic Act, as amended by the Food Safety Modernization Act of 2011, the Egg Products Inspection Act, the Federal Meat Inspection Act, the Organic Foods Production Act and the Agricultural Marketing Act of 1946, among other laws implemented by the FDA, the USDA and other regulators.
While the FDA has primary responsibility for the regulation of shell eggs, the USDA has primary responsibility for the regulation of dried, frozen or liquid eggs and other “egg products,” subject to certain exceptions. 12 Among other things, the facilities in which our products are manufactured or processed must register with the FDA and/or the USDA, comply with current good manufacturing practices, or cGMPs, and comply with a range of food safety and labeling requirements established by the Federal Food, Drug, and Cosmetic Act, as amended by the Food Safety Modernization Act of 2011, or FSMA, the Egg Products Inspection Act, the Federal Meat Inspection Act, the Organic Foods Production Act and the Agricultural Marketing Act of 1946, among other laws implemented by the FDA, the USDA and other regulators.
In addition, Egg Central Station is the only egg facility, and, as of January 2020, we were one of only six companies (and ten sites) globally, to have received the Safe Quality Food Institute, or SQFI, Select Site certification, indicating that the site has voluntarily elected to undergo annual unannounced recertification audits by SQFI, the organization responsible for administering a global food safety and quality program known as the SQF Program.
In addition, Egg Central Station has received the Safe Quality Food Institute, or SQFI, Select Site certification, indicating that the site has voluntarily elected to undergo annual unannounced recertification audits by SQFI, the organization responsible for administering a global food safety and quality program known as the SQF Program.
Our Crew Members As of December 25, 2022, we had approximately 368 full-time crew members, including 190 in operations, 52 in sales and marketing, 25 in finance and 101 in general and administrative functions, all of whom are located in the United States. Of our full-time crew members, one is a contract worker.
Our Crew Members As of December 31, 2023, we had approximately 447 full-time crew members, including 251 in operations, 59 in sales and marketing, 26 in finance and 111 in general and administrative functions, all of whom are located in the United States. Of our full-time crew members, one is a contract worker.
Compete to Win in Our Current Categories Continuing to compete at the top of our current categories will ensure we are continuing to earn trust with our fans across all consumer groups and fuel our continued profitable growth. We believe there is significant opportunity to grow volume with existing retail customers by building consumer awareness and demand for our brand.
Compete to Win in Our Current Categories We continue to compete at the top of our current categories, which helps fuel our continued, profitable growth and we believe there is significant opportunity to further grow volume with existing retail customers by building consumer awareness and demand for our brand.
According to SPINS, LLC, or SPINS, data, the U.S. shell egg market accounted for approximately $9.4 billion in retail sales for the 52 weeks ended December 25, 2022 and grew at a CAGR of 10.5% between 2018 and December 2022.
According to SPINS, LLC, or SPINS, data, the U.S. shell egg market accounted for approximately $9.0 billion in retail sales in 2023 and grew at a CAGR of 10.3% between December 2020 and December 2023.
We cultivate leaders across every level of the business and are committed to building a culture that embodies our values and understands the unique needs of our crew members.
We cultivate leaders across every level of the business and are committed to building a culture that embodies our values and understands the unique needs of our crew members. This commitment is evidenced by our investment in two new programs in 2023.
As of December 2022, our products are sold in more than 22,000 stores nationwide and through our online shopping platform. Over the course of our journey, our founder, Matthew O’Hayer, has continued to inform our strategic vision and remains intimately involved with the business as our executive chairperson.
As of December 2023, our products were sold in approximately 24,000 stores nationwide. Over the course of our journey, our founder, Matthew O’Hayer, has continued to inform our strategic vision and remains intimately involved with our business as the Executive Chairperson of our Board of Directors.
Our network of family farms gives us a strategic advantage through a scaled and sustainable supply chain and allows us to go to market with the highest quality premium products. 7 Map of the Pasture Belt Experienced and Passionate Team We have an experienced and passionate executive management team that has approximately 100 years of combined industry experience and includes our president and chief executive officer, Russell Diez-Canseco, a seasoned food industry expert with over 18 years of relevant experience, including at H-E-B, a privately held supermarket chain.
Map of the Pasture Belt Experienced and Passionate Team We have an experienced and passionate executive management team that has over 100 years of combined industry experience and includes our President and Chief Executive Officer Russell Diez-Canseco, a seasoned food industry expert with over 19 years of relevant experience, including at H-E-B, a privately held supermarket chain.
According to SPINS data, the U.S. pasture-raised retail egg market accounted for approximately $428.0 million in retail sales for the 52 weeks ended December 25, 2022 and grew at a CAGR of 32% between 2018 and December 2022, while the specialty egg (including pasture-raised, free-range and cage-free) market accounted for approximately $1.7 billion in retail sales for the 52 weeks ended December 25, 2022 and grew at a CAGR of 15% between 2018 and December 2022.
According to SPINS data, the U.S. pasture-raised retail egg market accounted for approximately $531.0 million in retail sales in 2023 and grew at a CAGR of 26.6% between December 2020 and December 2023, while the specialty egg (including pasture-raised, free-range and cage-free) market accounted for approximately $1.8 billion in retail sales in 2023 and grew at a CAGR of 11.2% between December 2020 and December 2023.
Our other products are packaged in jars, bottles, film and cartons that are primarily managed by our co-manufacturing partners. In every case, we strive to find the most sustainable and environmentally considered packaging, shipping materials and inks. Competition We operate in a highly competitive environment across each of our product categories.
In every case, we strive to find the most sustainable and environmentally considered packaging, shipping materials and inks. Competition We operate in a highly competitive environment across each of our product categories.
We also have a proven innovation model that utilizes a trusted network of partners to bring products to market without requiring significant upfront investment. We are committed to building on the success of our recent product launches and continuing to introduce consumers to our expanding range of product offerings.
We also have a proven innovation model that utilizes a trusted network of partners to bring products to market without requiring significant upfront investment. We are committed to continuing to introduce consumers to our expanding range of product offerings. Marketing Our multifaceted, consumer-centric marketing strategy has been instrumental in building our brand and driving net revenue.
In fiscal 2022, we engaged in an extensive restructuring of our orientation and onboarding processes, including in-person visits to our Austin headquarters and Egg Central Station processing facility, as well as fireside chats with functional leadership and substantive introductions to each business unit.
We have structured our crew member orientation and onboarding processes to help foster continued alignment, including through in-person visits to our Austin headquarters and Egg Central Station processing facility, as well as fireside chats with functional leadership and substantive introductions to each business unit.
Additionally, 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.
Beyond our existing retail footprint, we believe there are significant opportunities to gain incremental stores from existing retail customers and to add new retail customers. Additionally, we believe there is significant demand for our products in the foodservice channel since we offer versatile ingredients with high menu penetrations across commercial and non-commercial operator segments.
We believe in providing transparent disclosure of our ESG efforts and communicating our progress with stakeholders, and concurrently with this Annual Report, we released our annual Impact Report in March 2023 (previously referred to as our Sustainability Report). To learn more about our ESG efforts and our relevant policies, please visit our investor relations website: investors.vitalfarms.com.
We believe in providing transparent disclosure regarding our commitment to impact and communicating our progress with stakeholders. We released our most recent Impact Report in March 2023 and plan to continue to provide regular updates as to our progress toward our sustainability goals. To learn more about these efforts and our relevant policies, please visit our investor relations website: investors.vitalfarms.com.
According to SPINS data, the U.S. butter market accounted for approximately $4.2 billion in retail sales for the 52 weeks ended December 25, 2022 and grew at a CAGR of 6.9% between 2018 and December 2022.
According to SPINS data, the U.S. butter market accounted for approximately $4.8 billion in retail sales in 2023 and grew at a CAGR of 5.3% between December 2020 and December 2023.
In 2017, we opened Egg Central Station, a shell egg processing facility in Springfield, Missouri, which is centrally located within our network of family farms.
In 2017, we opened Egg Central Station, a shell egg processing facility in Springfield, Missouri, which is centrally located within our network of family farms. In April 2022, we completed an expansion of Egg Central Station that nearly doubled its square footage and capacity.
We intend to increase our household penetration by educating consumers about our brand, our values and the premium quality of our products. Our relatively low household penetration of 7.0% for our shell eggs, compared to the shell egg category penetration of approximately 98%, demonstrates that expanding the national presence of our brand offers a significant runway for future growth.
Our relatively low household penetration of 7.5% for our shell eggs, compared to the shell egg category penetration of approximately 96.5%, demonstrates that expanding the national presence of our brand offers a significant runway for future growth.
Our approach has been validated by our financial performance and our initial designation and January 2022 recertification as a Certified B Corporation, 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 are also a Certified B Corporation, a designation reserved for businesses that balance profit and purpose to meet the highest verified standards of social and environmental performance, public transparency and legal accountability.
Our eggs are kept in on-farm coolers using precise equipment specified by us. The eggs are then collected on a regular basis by a third-party freight carrier and placed in cold storage until packing for shipment to customers. Each of our butter, ghee, hard-boiled eggs, and liquid whole egg products have a dedicated co-manufacturer.
Our eggs are kept in on-farm coolers using equipment that meets our precise standards. The eggs are then collected on a regular basis by a third-party freight carrier and placed in cold storage until packing for shipment to customers.
We currently provide one of the only pasture-raised liquid whole egg offerings in the estimated $3.3 billion U.S. processed egg market, which has seen little innovation in decades and has traditionally been dominated by egg whites. 10 Ghee In February 2019, we introduced ghee, followed in August 2019 by the release of a first-of-its-kind ghee in a squeeze bottle format.
We currently provide one of the only pasture-raised liquid whole egg offerings in the U.S. processed egg market, which has seen little innovation in decades and has traditionally been dominated by egg whites.
In 2015, recognizing the opportunity to elevate our production process and bolster long-term growth and profitability, we began the design process for Egg Central Station, which opened in 2017 in Springfield, Missouri. We meticulously designed Egg Central Station in service of all of our stakeholders by improving on the best practices we observed across numerous world-class facilities.
In 2015, recognizing the opportunity to elevate our production process and bolster long-term growth and profitability, we began the design process for Egg Central Station, which opened in 2017 in Springfield, Missouri.
Culture and Human Capital Our Conscious Commitment Our commitment to prioritizing long-term benefits to each of our stakeholders includes our talented and passionate crew members, our employees who are invaluable to our business.
We aggressively protect our intellectual property rights by relying on trademark and copyright. 14 Culture and Human Capital Our Conscious Commitment We are committed to prioritizing long-term benefits to each of our stakeholders, including our talented and passionate crew members, our employees, who are invaluable to our business.
Information contained on, or that can be accessed through, our website (including information in our Impact Report) is not incorporated by reference into this Annual Report or any of our other filings with the SEC.
Information contained on, or that can be accessed through, our website (including information in our Impact Report) is not incorporated by reference into this Annual Report or any of our other filings with the SEC. We welcome our stakeholders’ feedback and can be contacted at investors@vitalfarms.com. Seasonality Demand for shell eggs and butter fluctuates in response to seasonal factors.
We intend to increase the number of consumers who buy our products by using digitally integrated media campaigns, social media tools and other owned media channels, and we believe these efforts will educate consumers on our values and the attractive attributes of our products, generate further demand for our products and ultimately expand our consumer base.
We believe these efforts will educate consumers on our values and the attractive attributes of our products, generate further demand for our products and ultimately expand our consumer base.
All our key trademarks are registered with the U.S. Patent and Trademark Office. Our trademarks are valuable assets that reinforce the distinctiveness of our brand to our consumers. We believe the protection of our trademarks, copyrights and domain names are important to our success. We aggressively protect our intellectual property rights by relying on trademark and copyright.
Trademarks and Other Intellectual Property We own trademarks and other proprietary rights that are important to our business, including our principal trademark, Vital Farms. All our key trademarks are registered with the U.S. Patent and Trademark Office. Our trademarks are valuable assets that reinforce the distinctiveness of our brand to our consumers.
We believe making strategic bets on larger-scale opportunities will support this expansion. The successes of our core products have confirmed our belief that there is significant demand for ethically produced food products, and our proprietary consumer surveys confirm our belief that there is significant demand for our brand across a wide spectrum of food categories.
The successes of our core products have confirmed our belief that there is significant demand for ethically produced food products, and our proprietary consumer surveys confirm our belief that there is significant demand for our brand across a wide spectrum of food categories. We are committed to continuing to introduce consumers to our expanding range of product offerings.
We are committed to building a people-first culture that embodies our values and understands the unique needs of our crew members. We will continue to hold ourselves accountable to the important role we play in helping transition the world around us to a more diverse, equitable and inclusive place.
We will continue to hold ourselves accountable to the important role we play in helping transition the world around us to a more diverse, equitable and inclusive place through initiatives to foster crew learning, inclusion, and belonging that are grounded in our purposes to improve the lives of people, animals, and the planet through food.
Our products generate stronger velocities and, we believe, greater profitability per unit for our retail customers in key traffic-generating categories as compared to products offered by our competitors.
As of December 2023, we offered 23 retail stock keeping units, or SKUs, through a multi-channel retail distribution network across approximately 24,000 stores. Our products generate stronger velocities and, we believe, greater profitability per unit for our retail customers in key traffic-generating categories as compared to products offered by our competitors.
Our brand has grown rapidly into the #1 U.S. pasture-raised, #1 U.S. natural channel and #2 U.S. overall egg brand by retail dollar sales, with an over 90% share of the U.S. pasture-raised retail egg market for the 52-week period ended December 25, 2022. Our brand awareness is represented by a strong social media following, with approximately 133,000 Instagram followers.
We maintain a presence across all major social media platforms. Our brand has grown rapidly into the #1 U.S. pasture-raised, #1 U.S. natural channel and #2 U.S. overall egg brand by retail dollar sales, with an over 85% share of the U.S. pasture-raised retail egg segment for the 53-week period ended December 31, 2023.
Marketing Our multi-faceted, consumer-centric marketing strategy has been instrumental in building our brand and driving net revenue. Our marketing strategy is aimed at solidifying our brand’s position as a leading provider of ethically minded food. We execute on this strategy by advertising through digitally integrated media campaigns, social media tools and other owned media channels.
Our marketing strategy is aimed at solidifying our brand’s position as a leading provider of ethically produced food. We execute this strategy by advertising through digitally integrated media campaigns, social media tools. earned awareness drivers like press outreach and other owned media channels. Our standout packaging has been a signature communication vehicle since our inception.
In April 2022, we completed expansion of Egg Central Station that nearly doubled its current square footage. We believe owning and operating this important element of our supply chain is a key differentiator and provides us with a competitive advantage, which we intend to continue to leverage to grow both our net revenue and gross margin.
Our efforts to build a sustainable, stakeholder-focused facility were recognized by the industry publication Food Processing , which named Egg Central Station as its 2022 “Green Plant of the Year.” We believe owning and operating this important element of our supply chain is a key differentiator and provides us with a competitive advantage, which we intend to continue to leverage to grow both our net revenue and gross margin.
We have leveraged the experience and passion of our leadership team, our founder and executive chairperson, and our other crew members to grow net revenue over 390% since the beginning of 2017, enter our second major food category, butter, and build and expand our first shell egg processing facility, Egg Central Station.
We have leveraged the experience and passion of our leadership team, our founder and Executive Chairperson, and our other crew members to grow net revenue at a CAGR of 35.3% since 2019, enter our second major food category, butter, and build and expand our first shell egg processing facility, Egg Central Station. 7 Our Growth Strategies We believe our investments in our brand, our stakeholders and our infrastructure position us to continue delivering industry-leading growth that outpaces both the natural food industry and the overall food industry.
We believe the success of our relationships with family farms and the efficiency of our supply chain provide us with a competitive advantage in the approximately $45 billion U.S. natural food and beverage industry, in which achieving reliable supply at a national scale can be challenging.
Today, with a network of more than 300 family farms, we believe we have set the national standard for pasture-raised eggs. We believe our relationships with family farms and the efficiency of our supply chain provide us with a competitive advantage in the consumer packaged goods industry, in which achieving reliable supply at a national scale can be challenging.
We also participate in the USDA’s voluntary egg grading program, which requires compliance with additional labeling and facility requirements. In addition, our suppliers are subject to numerous regulatory requirements. For example, the farmers who produce our shell eggs may be subject to requirements implemented by the FDA pertaining to pest control, salmonella enteritidis prevention and other requirements.
For example, the farmers who produce our shell eggs may be subject to requirements implemented by the FDA pertaining to pest control, salmonella enteritidis prevention and other requirements.
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, employees, who we refer to as crew members, and stockholders). We make decisions based on what we believe is sustainable for all our stakeholders.
Our purpose is rooted in a commitment to Conscious Capitalism, and our belief in co-creating positive, long-term outcomes with all of our stakeholders – farmers and suppliers, customers and consumers, communities and the environment, employees, who we refer to as crew members, and stockholders. Our approach has been validated by our financial performance and our impact on the food industry.
Our commitment to bringing ethical food to the table has enabled us to integrate sustainable practices throughout our business. Our dedication to our stakeholders inspires us to continuously raise our standards and practices. In 2022, we continued to develop and advance our environmental, social and governance, or ESG, strategy.
Our commitment to bringing ethical food to the table has helped us to integrate sustainable practices throughout our business. Our dedication to our stakeholders inspires us to continuously raise our standards and practices. In 2023, we continued to make progress toward the short- and medium-term sustainability goals we first identified in December 2022.
Armed with a small flock of hens, the company maintained a strong belief that a varied diet and better animal welfare practices would lead to superior eggs. Our first sales came from farmers markets and restaurants around Austin and, less than a year later, our eggs were discovered by Whole Foods Market, Inc., or Whole Foods.
Our first sales came from farmers markets and restaurants around Austin and, less than a year later, our eggs were discovered by Whole Foods Market, Inc., or Whole Foods.
We will continue to capitalize on these co-marketing tactics as we work to bring new foodservice operators into our customer base.
Our established foodservice relationships help to extend our marketing efforts through unique co-branding opportunities, which amplify our consumer awareness and allow us to reach new households. We will continue to capitalize on these co-marketing tactics as we work to bring new foodservice operators into our customer base.

… 59 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

186 edited+78 added−46 removed218 unchanged
Biggest changeAny disruption in that supply chain could materially and adversely affect our business, financial condition or results of operations. • Increases in interest rates could adversely affect our business. • Consolidation of retail customers or the loss of a significant retail customer could negatively impact our sales and profitability. • We source substantially all of our shell egg cartons from a sole source supplier, and any disruptions may impact our ability to sell our eggs. • Because we rely on a limited number of third-party vendors to store our products, we may not be able to maintain or obtain the capacity necessary to store our products. • Our brand and reputation may be diminished due to real or perceived quality or food safety issues with our products, which could have an adverse effect on our business, reputation, operating results and financial condition. • Demand for shell eggs is subject to seasonal fluctuations and can adversely impact our results of operations in certain quarters. • Packaging costs are volatile, have recently increased and may continue to rise significantly, which may negatively impact our profitability, and any reduced availability of packaging supplies may otherwise impact our business. • If we fail to retain and motivate members of our management team or other key crew members, fail to attract and retain additional crew members or fail to maintain our company culture and focus on our purpose, our business may be harmed. • Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition. • Public health pandemics, such as COVID-19, could have a material adverse impact on our business, results of operations and financial condition. • Failure to adequately respond to stakeholder scrutiny related to environmental, social and governance (ESG) issues, or failure to achieve our ESG goals, could adversely impact our reputation and brand. • Food safety and food-borne illness incidents or advertising or product mislabeling may materially and adversely affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings. • Our operations are subject to FDA and USDA federal regulation, as well as other federal, state and local regulations, and there is no assurance that we will be in compliance with all regulations. • Our status as a public benefit corporation and a Certified B Corporation may not result in the benefits we anticipate, or we may be unable to maintain our Certified B Corporation status. 19 Risks Related to Our Growth and Capital Requirements Our recent, rapid growth may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to effectively manage our growth or evaluate our future prospects.
Biggest changeAny disruption in that supply chain could materially and adversely affect our business, financial condition or results of operations. • Elevated interest rates could adversely affect our business and the ability of our family farmers to access capital. • Consolidation of retail customers or the loss of a significant retail customer could negatively impact our sales and profitability. • We source substantially all of our shell egg cartons from a sole source supplier, and any disruptions may impact our ability to sell our eggs. • Our brand and reputation may be diminished due to real or perceived quality or food safety issues with our products, which could have an adverse effect on our business, reputation, operating results and financial condition. • Demand for shell eggs and butter is subject to seasonal fluctuations, which can adversely impact our results of operations in certain quarters. • Packaging costs are volatile, have recently increased and may continue to increase, which may negatively impact our profitability, and reduced availability of packaging supplies may otherwise impact our business. • If we fail to retain and motivate members of our management team or other key crew members or fail to attract, train, develop and retain additional qualified crew members to support our operations, our business and future growth prospects may be harmed. • If we cannot maintain our company culture or focus on our purpose as we grow, our business and competitive position may be harmed. • Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition. • Failure to adequately respond to stakeholder scrutiny related to environmental, social and governance issues or failure to achieve our stated impact goals could adversely impact our reputation and brand. • Food safety and food-borne illness incidents or advertising or product mislabeling may materially and adversely affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings. • Our operations are subject to FDA and USDA federal regulations, as well as other federal, state and local regulations, and there is no assurance that we will be in compliance with all applicable regulations. • We are subject to stringent and evolving U.S. and foreign laws, regulations, and rules, contractual obligations, industry standards, policies and other obligations related to data privacy and security and our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation (including class claims) and mass arbitration demands, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits and other adverse consequences. • Our status as a public benefit corporation and a Certified B Corporation may not result in the benefits we anticipate, and we may be unable to maintain our Certified B Corporation status. • If our data or information technology systems, or the data or information technology systems of third parties upon which we rely, were compromised, we could experience adverse consequences, including but not limited to regulatory investigations or actions, litigation, fines and penalties, disruption of our business operations, reputational harm, loss of revenue or profits and other adverse consequences. • The implementation of a new enterprise resource planning system could cause disruption to our business, and we may not be able to effectively realize the benefits of this new system.
The growth and expansion of our business has placed, and will continue to place, significant demands on our management and operations teams and require significant additional resources, financial and otherwise, to meet our needs, which may not be available in a cost-effective manner, or at all.
The growth and expansion of our business has placed, and will continue to place, significant demands on our management and operations teams and will require significant additional resources, financial and otherwise, to meet our needs, which may not be available in a cost-effective manner or at all.
If we fail to effectively expand our processing, manufacturing and production capacity as we continue to grow and scale our business, our business and operating results and our brand reputation could be harmed.
If we fail to effectively expand our processing, manufacturing and production capacity as we continue to grow and scale our business, our operating results and brand reputation could be harmed.
For example, in order to meet our standards, we require our egg farms to invest in infrastructure at the outset of our relationship. The typical upfront investment for each of the farms is significant and many of the farmers seek financing assistance from local and regional banks as well as federal government loans from the U.S.
For example, in order to meet our standards, we require our egg farms to invest in infrastructure at the outset of our relationship. The typical upfront investment for each of the farms is significant, and many farmers seek financing assistance from local and regional banks as well as federal government loans from the U.S.
Shipment of contaminated products, even if inadvertent, could result in a violation of law and lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies, penalties and adverse publicity. In addition, products purchased from other producers, including co-manufacturers, could contain contaminants that we might inadvertently redistribute.
Shipment of contaminated products, even if inadvertent, could result in a violation of law and lead to increased risk of exposure to product liability claims, product recalls, increased scrutiny by federal and state regulatory agencies, penalties and adverse publicity. In addition, products purchased from other producers, including co-manufacturers, could contain contaminants that we might inadvertently redistribute.
For example, in connection with increased demand for shell eggs in relation to the COVID-19 pandemic in 2020, the supplier of substantially all of our shell egg cartons began to prioritize packaging for core egg products (such as 12-count packages), and we separately experienced certain quality issues with our 18-count egg cartons.
For example, in connection with increased demand for shell eggs in relation to the COVID-19 pandemic in 2020, the supplier of substantially all of our shell egg cartons began to prioritize packaging for core egg products (such as 12-count packages), and we separately experienced certain quality issues with our 18-count egg cartons.
As a result of these events, and in order to otherwise meet demand for our products, we began using recycled plastic packaging for certain of our shell egg products.
As a result of these events, and in order to otherwise meet demand for our products, we began using recycled plastic packaging for certain of our shell egg products.
The SQF Select Site certification is one of a number of available SQF certifications and involves both auditing for food safety issues and unannounced inspections by SQF personnel on an annual basis. The Global Food Safety Initiative, or GFSI, is a private organization established and managed by an international trade association, The Consumer Goods Forum.
The SQF Select Site certification is one of a number of available SQF certifications and involves both auditing for food safety issues and unannounced inspections by SQF personnel on an annual basis. The Global Food Safety Initiative, or GFSI, is a private organization established and managed by The Consumer Goods Forum, an international trade association.
Adverse weather conditions and natural disasters may also impact the habitability and pasture conditions of the farms where we source cream for our butter products. Further, we may incur increased transportation, storage and processing costs if we are unable to source products within a certain distance from our processing and co-manufacturing facilities due to the effects of climate change.
Adverse weather conditions and natural disasters may also impact the habitability and pasture conditions of the farms where we source the cream for our butter products. Further, we may incur increased transportation, storage and processing costs if we are unable to source products within a certain distance from our processing and co-manufacturing facilities due to the effects of climate change.
For example, in December 2019, our co-manufacturer for hard-boiled eggs conducted a voluntary Class I recall of all hard-boiled eggs produced at its facility, including ours, due to a potential listeria contamination at the production facility.
For example, in December 2019, our co-manufacturer for hard-boiled eggs conducted a voluntary Class I recall of all hard-boiled eggs produced at its facility, including ours, due to a potential listeria contamination at the production facility.
For example: • we may choose to revise our policies in ways that we believe will be beneficial to stakeholders other than our stockholders, including farmers, suppliers, crew members and local communities, even though the changes may be costly; • we may take actions, such as building state-of-the-art facilities with technology and quality control mechanisms that exceed the requirements of USDA and the FDA, even though these actions may be more costly than other alternatives; • we may be influenced to pursue programs and services to demonstrate our commitment to the communities to which we serve and bringing ethical food to the table, even though there is no immediate return to our stockholders; or • in responding to a possible proposal to acquire the company, our board of directors may be influenced by the interests of stakeholders other than our stockholders, including farmers, suppliers, crew members and local communities, whose interests may be different from the interests of our stockholders.
For example: • we may choose to revise our policies in ways that we believe will be beneficial to stakeholders other than our stockholders, including farmers, suppliers, crew members and local communities, even though the changes may be costly; • we may take actions, such as building state-of-the-art facilities with technology and quality control mechanisms that exceed the requirements of USDA and the FDA, even though these actions may be more costly than other alternatives; • we may be influenced to pursue programs and services to demonstrate our commitment to the communities to which we serve and bringing ethical food to the table, even though there may be no immediate return to our stockholders; or • in responding to a possible proposal to acquire the company, our Board of Directors may be influenced by the interests of stakeholders other than our stockholders, including farmers, suppliers, crew members and local communities, whose interests may be different from the interests of our stockholders.
Any failure to preserve our culture or focus on our purpose could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important values.
Any failure to preserve our culture or focus on our purpose could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we continue to grow and develop the infrastructure of a public company, we may find it difficult to maintain these important values.
Such supply shortages, together with price increases we or others in the industry have implemented and may choose to implement in the future, could result in declining consumer demand for shell eggs or inability to fulfill customer demand, each of which could have a material impact on our financial condition and results and operations.
Such supply shortages, together with price increases we or others in the industry have implemented or choose to implement in the future, could result in declining consumer demand for shell eggs or inability to fulfill customer demand, each of which could have a material impact on our financial condition and results and operations.
If the FDA, the USDA or another regulatory authority determines that we or these co-manufacturers have not complied with the applicable regulatory requirements, our business may be adversely impacted. Our liquid whole eggs are subject to the requirements of the Egg Products Inspection Act, or EPIA, and regulations promulgated thereunder by the USDA.
If the FDA, the USDA or another regulatory authority determines that we or these co-manufacturers have not complied with the applicable regulatory requirements, our business may be adversely impacted. 34 Our liquid whole eggs are subject to the requirements of the Egg Products Inspection Act, or EPIA, and regulations promulgated thereunder by the USDA.
As we expand our operations, we anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest to increase our household penetration, customer base, supplier network, marketing channels and product portfolio, expand and enhance our processing, manufacturing and distribution facilities as needed, and hire additional crew members.
As we continue to expand our operations, we anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest to increase our household penetration, customer base, supplier network, marketing channels and product portfolio, expand and enhance our processing, manufacturing and distribution facilities, and hire additional crew members.
Any failure to meet our staffing needs or any material increase in turnover rates of our crew members may adversely affect our business, financial condition and results of operations. If we cannot maintain our company culture or focus on our purpose as we grow, our success and our business and competitive position may be harmed.
Any failure to meet our staffing needs or any material increase in turnover rates of our crew members may adversely affect our business, financial condition and results of operations. If we cannot maintain our company culture or focus on our purpose as we grow, our business and competitive position may be harmed.
As a result, low commodity shell egg prices relative to the price of our shell eggs may adversely affect our business, financial condition and results of operations. We also sell a small percentage of our shell eggs to wholesalers and egg breaking plants at commodity shell egg prices, which fluctuate widely and are outside our control.
As a result, low commodity shell egg prices relative to the price of our shell eggs may adversely affect our business, financial condition and results of operations. 21 We also sell a small percentage of our shell eggs to wholesalers and egg breaking plants at commodity shell egg prices, which fluctuate widely and are outside our control.
Loss of SQF Select Site certification could impair our ability to do business with these customers, which could materially and adversely affect our business, financial condition and operating results. Risks Related to Socioeconomic, Political and Environmental Factors Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition.
Loss of SQF Select Site certification could impair our ability to do business with these customers, which could materially and adversely affect our business, financial condition and operating results. 31 Risks Related to Socioeconomic, Political and Environmental Factors Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition.
The occurrence of any of these events, the implementation of new laws and regulations, or stricter interpretation of existing laws or regulations, could adversely affect our business, financial condition and results of operations. Legal claims, government investigations or other regulatory enforcement actions could subject us to civil and criminal penalties.
The occurrence of any of these events, the implementation of new laws and regulations, or stricter interpretation of existing laws or regulations could adversely affect our business, financial condition and results of operations. 36 Legal claims, government investigations or other regulatory enforcement actions could subject us to civil and criminal penalties.
This concentration of ownership could limit stockholders’ ability to influence corporate matters, including, but not limited to, delaying or preventing a third party from acquiring control over us. Sales of our common stock in the public market could cause the market price of our common stock to decline.
This concentration of ownership could limit stockholders’ ability to influence corporate matters, including, but not limited to, delaying or preventing a third party from acquiring control over us. 42 Sales of our common stock in the public market could cause the market price of our common stock to decline.
While we have not yet seen significant decreases in sales volume due to such price increases, if we further increase prices, we could experience lower margins, declining demand for our products, decreased ability to attract new customers and lower sales volumes.
While we have not yet seen significant decreases in sales volume due to such price increases, if we further increase prices, we could experience declining demand for our products, decreased ability to attract new customers and lower sales volumes.
While we strive to operate our business in a manner that drives long-term and sustainable benefits for our stakeholders, including our farmers, we may make strategic decisions that the farmers disagree with and which could cause the farmers to terminate their relationships with us.
While we strive to operate our business in a manner that drives long-term and sustainable benefits for our stakeholders, including our farmers, we may make strategic decisions that our farmers disagree with and which could cause farmers to terminate their relationships with us.
Any of these events could result in lost sales, price increases, reduced gross margins or damage to our customer relationships, which would have a material adverse effect on our business, financial condition and results of operations.
Any of these events could result in lost sales, price increases, reduced gross margins or damage to our customer or consumer relationships, which would have a material adverse effect on our business, financial condition and results of operations.
Many of these farmers have alternative income opportunities and the relative financial performance of raising chickens and cows in accordance with our standards as compared to other potentially more profitable opportunities could affect their interest in working with us.
Many of these farmers have alternative income opportunities and the relative financial performance of raising chickens in accordance with our standards as compared to other potentially more profitable opportunities could affect their interest in working with us.
If we are unable to maintain and promote a favorable perception of our brand and products on a cost-effective basis, our business, financial condition and results of operations could be adversely affected. 29 If we fail to develop and maintain our brand, our business could suffer.
If we are unable to maintain and promote a favorable perception of our brand and products on a cost-effective basis, our business, financial condition and results of operations could be adversely affected. If we fail to develop and maintain our brand, our business could suffer.
Any shutdown or period of reduced production at Egg Central Station, which may be caused by regulatory noncompliance or other issues, as well as other factors beyond our control, such as natural disaster, weather, fire, power interruption, work stoppage, disease outbreaks or pandemics (such as COVID-19), equipment failure or delay in raw materials delivery, would significantly disrupt our ability to deliver our products in a timely manner, meet our contractual obligations and operate our business.
Any shutdown or period of reduced production at Egg Central Station, which may be caused by regulatory noncompliance or other issues, as well as factors beyond our control, such as natural disaster, weather, fire, power interruption, work stoppage, disease outbreaks or pandemics, equipment failure or delay in raw materials delivery, would significantly disrupt our ability to deliver our products in a timely manner, meet our contractual obligations and operate our business.
The loss of Whole Foods, Kroger or any other large retail customer, or the reduction of purchasing levels or the cancellation of any business from Whole Foods, Kroger or any other large retail customer, for an extended length of time could negatively impact our sales and profitability.
The loss of Whole Foods, Kroger or any other large retail customer, or the reduction of purchasing levels or the cancellation of any business from any such customer for an extended length of time could negatively impact our sales and profitability.
In addition, due to the limited number of co-manufacturers, an interruption in, or the loss of operations at, one or more of our co-manufacturing facilities, which may be caused by work stoppages, regulatory issues or noncompliance, disease outbreaks or pandemics (such as COVID-19), war, terrorism, fire, earthquakes, flooding or other weather or natural disasters, could delay, postpone or reduce production of some of our products, which could have an adverse effect on our business, financial condition and results of operations until such time as the interruption is resolved or an alternate source of production is secured, especially in times of low inventory.
In addition, due to the limited number of co-manufacturers, any interruption in, or the loss of operations at, one or more of our co-manufacturing facilities, which may be caused by work stoppages, regulatory issues or noncompliance, disease outbreaks or pandemics, war, terrorism, fire, earthquakes, flooding or other weather or natural disasters, could delay, postpone or reduce production of some of our products, which could have an adverse effect on our business, financial condition and results of operations until such time as the interruption is resolved or an alternate source of production is secured, especially in times of low inventory.
A general decline in the consumption of our products could occur at any time as a result of change in consumer preference, perception, confidence and spending habits, including an unwillingness to pay a premium or an inability to purchase our products due to financial hardship or increased price sensitivity, which may be exacerbated by economic uncertainty and general inflationary trends.
A general decline in the consumption of our products could occur at any time as a result of changes in consumer preference, perception, confidence and spending habits, including an unwillingness to pay a premium or an inability to purchase our products due to financial hardship or increased price sensitivity, which may be exacerbated by economic uncertainty and general inflationary trends.
This could put pressure on us to lower our prices, resulting in lower profitability or, in the alternative, cause us to lose market share if we fail to lower prices.
This could put pressure on us to lower our prices, resulting in lower profitability or, in the alternative, cause us to lose market share if we fail to reduce prices.
The loss of one or more of our significant distributor relationships that cannot be replaced in a timely manner (or at all), under similar terms and conditions, could adversely affect our business, financial condition and results of operations. We are dependent on hatcheries and pullet farms to supply our farmer network with laying hens.
The loss of one or more of our significant distributor relationships that cannot be replaced in a timely manner, under similar terms and conditions or at all could adversely affect our business, financial condition and results of operations. We are dependent on hatcheries and pullet farms to supply our network of family farms with laying hens.
This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying power that are able to resist price increases, as well as operate with lower inventories, decrease the number of brands that they carry and increase their emphasis on private-label products, all of which could negatively impact our business.
This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying power that are able to resist price increases, operate with lower inventories, decrease the number of brands that they carry and increase their emphasis on private-label products, all of which could negatively impact our business.
We believe that in periods of economic uncertainty, particularly in periods of uncertainty driven by high inflation, consumers may purchase more often from lower-priced private-label or other economy brands. To the extent this occurs, we could experience a decrease in the sales volume of our higher margin products or a shift in our product mix to lower margin offerings.
In periods of economic uncertainty, particularly in periods of uncertainty driven by high inflation, consumers may purchase more often from lower-priced private-label or other economy brands. To the extent this occurs, we could experience a decrease in the sales volume of our higher margin products or a shift in our product mix to lower margin offerings.
Further, the processing equipment used for our shell eggs is costly to replace or repair, particularly because certain of our processing equipment is sourced internationally.
Further, the processing equipment used for our shell eggs is costly to replace or repair, particularly because certain of such equipment is sourced internationally.
We may not be able to increase our product prices enough or in a timely manner to sufficiently offset increased transportation costs due to consumer price sensitivity or the pricing postures of our competitors and, in many cases, our retailers may not accept a price increase or may require price increases to occur after a specified period of time elapses.
We may not be able to increase our product prices enough or in a timely manner to sufficiently offset increased commodity costs due to consumer price sensitivity or the pricing postures of our competitors and, in many cases, our retailers may not accept a price increase or may require price increases to occur after a specified period of time elapses.
Item 1A. Ris k Factors Our operations and financial results are subject to various risks and uncertainties. The following is a description of the known factors that may materially affect our business, results of operations or financial condition. You should carefully consider the following risk factors, as well as the other information in this Annual Report.
Item 1A. Risk Factors Our operations and financial results are subject to various risks and uncertainties. The following is a description of the known factors that may materially affect our business, results of operations or financial condition. You should carefully consider the following risk factors, as well as the other information in this Annual Report.
These and other factors, including economic uncertainty, may make it more difficult for us to recruit and attract new farmers to our network in a number sufficient to meet product demand. 23 There are a number of factors that could impair our relationship with farmers, many of which are outside of our control.
These and other factors, including economic uncertainty, may make it more difficult for us to recruit and attract new farmers to our network in a number sufficient to meet product demand. 22 There are a number of factors that could impair our relationship with farmers, many of which are outside of our control.
The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial position, cash flows or results of operations.
The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in any of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial position, cash flows or results of operations.
We may be unable or slow to realize the benefits we expect from actions taken to benefit our stakeholders, including farmers, suppliers, crew members and local communities, which could adversely affect our business, financial condition and results of operations, which in turn could cause our stock price to decline. 38 As a public benefit corporation, we may be subject to increased derivative litigation concerning our duty to balance stockholder and public benefit interests, the occurrence of which may have an adverse impact on our financial condition and results of operations.
We may be unable to fully realize the benefits we expect from actions taken to benefit our stakeholders, including farmers, suppliers, crew members and local communities, which could adversely affect our business, financial condition and results of operations, which in turn could cause our stock price to decline. 38 As a public benefit corporation, we may be subject to increased derivative litigation concerning our duty to balance stockholder and public benefit interests, the occurrence of which may have an adverse impact on our financial condition and results of operations.
Conversely, if we were to raise prices, including as a result of fluctuations in the shell egg market, increased commodity or raw material costs, increased packaging or transportation costs or otherwise, any resulting decline in consumer demand for our products may be exacerbated by the competitiveness of our market.
Conversely, if we were to increase prices, including as a result of fluctuations in the shell egg market, increased commodity or raw material costs, increased packaging or transportation costs or otherwise, any resulting decline in consumer demand for our products may be exacerbated by the competitiveness of our market.
These organisms and pathogens also can be introduced to our products as a result of improper handling at the further-processing, foodservice or consumer level. These risks may be controlled, but may not be eliminated, by adherence to good manufacturing practices and finished product testing.
These organisms and pathogens also can be introduced to our products as a result of improper handling at the further-processing, foodservice or consumer level. These risks may be controlled, but may not be eliminated, by adherence to current good manufacturing practices, or cGMPs, and finished product testing.
We anticipate that these price concessions, promotional activities and chargebacks could adversely impact our net revenue and that changes in such activities could adversely impact period-over-period results. If we are not correct in predicting the performance of promotions, or if we are not correct in estimating chargebacks, our business, financial condition and results of operations would be adversely affected.
These price concessions, promotional activities and chargebacks could adversely impact our net revenue and changes in such activities could adversely impact period-over-period results. If we are not correct in predicting the performance of promotions, or if we are not correct in estimating chargebacks, our business, financial condition and results of operations would be adversely affected.
For example, in fiscal 2022 we completed an expansion of Egg Central Station, our shell egg processing facility in Springfield, Missouri, to increase our capacity for the distribution of shell eggs. Additionally, we announced that we have begun the design and the site selection process for our next egg packing center.
For example, in fiscal 2022 we completed an expansion of Egg Central Station, our shell egg processing facility in Springfield, Missouri, to increase our capacity for the distribution of shell eggs. Additionally, we announced that we had begun the design and the site selection process for our next egg packing center.
If our relationship with our existing or future farmers is disrupted due to these or other factors, we may not be able to sustain the supply necessary to meet customer and consumer demand for our products, each of which would negatively impact our operating results.
If our relationship with our existing or future farmers is disrupted due to these or other factors, we may not be able to sustain the supply necessary to meet customer and consumer demand for our products, which would negatively impact our operating results.
These competitive pressures could cause us to lose market share, which may require us to lower prices, increase marketing and advertising expenditures or increase the use of discounting or promotional campaigns, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability. 25 Failure to leverage our brand value propositions to compete against private-label products, especially during an economic downturn, may adversely affect our profitability.
These competitive pressures could cause us to lose market share, which may require us to lower prices, increase marketing and advertising expenditures or increase the use of discounting or promotional campaigns, each of which could adversely affect our margins and could result in a decrease in our operating results and profitability. 24 Failure to leverage our brand value propositions to compete against private-label products, especially during an economic downturn, may adversely affect our profitability.
If we fail to cost-effectively acquire new consumers or retain our existing consumers, our business could be adversely affected. Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to cost-effectively acquire new consumers, retain existing consumers and keep existing consumers engaged so that they continue to purchase our products.
If we fail to cost-effectively acquire new consumers or retain our existing consumers, our business could be adversely affected. Our success and our ability to increase revenue and operate profitably depend in part on our ability to cost-effectively acquire new consumers, retain existing consumers and keep existing consumers engaged so that they continue to purchase our products.
We, our suppliers and our network of family farms are dependent on equipment and other supplies imported from Europe and other locations.
Additionally, we, our suppliers and our network of family farms are dependent on equipment and other supplies imported from Europe and other locations.
These executives and key crew members have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand, culture and the reputation we enjoy with farmers, suppliers, co-manufacturers, distributors, customers and consumers.
These executives and key crew members are primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand, culture and the reputation we enjoy with farmers, suppliers, co-manufacturers, distributors, customers and consumers.
Our retail customers include natural channel and mainstream channel stores, which have been undergoing a consolidation in recent years.
Our retail customers include natural channel and mainstream channel stores, which have been undergoing consolidation in recent years.
Since the outbreak of highly pathogenic avian influenza, or HPAI, in early 2022, we have been closely following the progression of the virus. To date, we have experienced outbreaks at two of our farms, one located in Missouri and one in Tennessee.
Since the outbreak of highly pathogenic avian influenza, or HPAI, in early 2022, we have been closely following the progression of the virus. To date, we have experienced outbreaks at four of our farms, one located in Missouri, one in Tennessee and two in Kansas.
Loss of one or more of our co-manufacturers or our failure to timely identify and establish relationships with new co-manufacturers could harm our business and impede our growth. • Outbreaks of agricultural diseases, including avian influenza, the perception that outbreaks may occur or regulatory or market responses to outbreaks could reduce supply or demand for our products and harm our business. • We could be adversely affected by a change in consumer preferences, perception and spending habits in the natural food industry generally and with respect to animal-based products.
The loss of one or more of our co-manufacturers or cold storage providers or our failure to timely identify and establish new relationships could harm our business and impede our growth. • Outbreaks of agricultural diseases, including avian influenza, the perception that outbreaks may occur or regulatory or market responses to outbreaks could reduce supply or demand for our products and harm our business. • We could be adversely affected by a change in consumer preferences, perception and spending habits in the natural food industry generally and with respect to animal-based products in particular.
We compete with large egg companies such as Cal-Maine, Inc. and large international food companies such as Ornua Co-operative Limited (Kerrygold). We also compete directly with local and regional egg and dairy companies, as well as private-label specialty products processed by other egg and dairy companies.
We compete with large egg companies such as Cal-Maine, Inc. and large international food companies such as Ornua Co-operative Limited (Kerrygold). We also compete with local and regional egg and dairy companies, as well as private-label products processed by other egg and dairy companies.
If we fail to retain and motivate members of our management team or other key crew members, or fail to attract, train, develop and retain additional qualified crew members to support our operations, our business and future growth prospects would be harmed.
If we fail to retain and motivate members of our management team or other key crew members or fail to attract, train, develop and retain additional qualified crew members to support our operations, our business and future growth prospects may be harmed.
A retailer may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived quality of our products. Despite operating in different channel segments, our retailers sometimes compete for the same consumers.
A retailer may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived quality of our products. Despite operating in different channel segments, our retail customers sometimes compete for the same consumers.
If we do not maintain the favorable perception of our brands, our business, financial condition and results of operations could be adversely affected. We must expend resources to maintain consumer awareness of our brand, build brand loyalty and generate interest in our products. Our marketing strategies and channels will evolve and our programs may or may not be successful.
If we do not maintain a favorable perception of our brands, our business, financial condition and results of operations could be adversely affected. 28 We must expend resources to maintain consumer awareness of our brand, build brand loyalty and generate interest in our products. Our marketing strategies and channels will evolve, and our programs may or may not be successful.
Over time, if we are unable to price our products to cover increased costs, unable to offset operating cost increases with continuous improvement savings or unsuccessful in our current or any future commodity hedging program, then commodity price volatility or increases could adversely affect our business, financial condition and results of operations.
Over time, if we are unable to price our products to cover increased costs, are unable to offset operating cost increases with continuous improvement savings or are unsuccessful in our current or any future commodity derivative instrument program, then commodity price volatility or increases could adversely affect our business, financial condition and results of operations.
We have incurred significant expenses in connection with investing in our processing capacity, our co-manufacturing and co-packing relationships, and obtaining and storing raw materials, and we will continue to incur significant expenses in developing and marketing products. In addition, many of our expenses, including the costs associated with our existing and any future processing and manufacturing facilities, are fixed.
We have incurred significant expenses in connection with investing in our processing capacity, our co-manufacturing and co-packing relationships, and obtaining and storing raw materials, and we will continue to incur significant expenses in developing and marketing products. In addition, many of our expenses, including the costs associated with our existing and any future processing and manufacturing facilities, may be fixed.
Each of these competitors may have substantially greater financial and other resources than us and some of our competitors' products are well accepted in the marketplace today. They may also have lower operational costs, and as a result may be able to offer comparable or substitute products to customers at lower costs.
These competitors may have substantially greater financial and other resources than us, and some of our competitors’ products are well accepted in the marketplace today. Such competitors may also have lower operational costs, and as a result may be able to offer comparable or substitute products to customers at lower costs.
The price we pay to purchase shell eggs from farmers fluctuates based on pallet weight and is also indexed quarterly in arrears for changes in feed cost, which may cause our agreed-upon pricing under these contracts to fluctuate on a quarterly basis.
The price we pay to purchase shell eggs from farmers fluctuates based on pallet weight and is also adjusted quarterly for changes in feed cost, which may cause our agreed-upon pricing under these contracts to fluctuate on a quarterly basis.
Our ability to attract new consumers and retain our existing consumers will depend on the perceived value and quality of our products, consumers’ desire to purchase ethically produced products at a premium, offerings of our competitors, our ability to offer new and relevant products and the effectiveness of our marketing efforts, among other items.
Our ability to attract new consumers and retain our existing consumers depends on the perceived value and quality of our products, consumers’ desire to purchase ethically produced products at a premium, offerings of our competitors, our ability to offer new and relevant products and the effectiveness of our marketing efforts, among other items.
Our business faces increasing scrutiny related to ESG issues, including sustainable development, product packaging, renewable resources, environmental stewardship, supply chain management, climate change, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.
Our business faces scrutiny related to environmental, social and governance (ESG) issues, including sustainable development, product packaging, renewable resources, environmental stewardship, supply chain management, climate change, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.
If any of our family farms, suppliers or co-manufacturers fail to comply with food safety, environmental, health and safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted and our reputation could be harmed.
If any partners in our network of family farms, suppliers or co-manufacturers fail to comply with food safety, environmental, health and safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted and our reputation could be harmed.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including those described elsewhere in this "Risk Factors" section.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including those described elsewhere in this “Risk Factors” section.
Our utilization of pickup and delivery services for shipments is subject to risks, including increases in fuel prices, driver shortages, trucking capacity limitations due to general increases in freight demand, employee and contractor strikes or unavailability (including due to disease outbreaks and pandemics, such as COVID-19) or inclement weather, any of which could increase our transportation and freight costs.
Our utilization of pickup and delivery services for shipments is subject to risks, including increases in fuel prices, driver shortages, trucking capacity limitations due to general increases in freight demand, employee and contractor strikes or unavailability (including due to disease outbreaks and pandemics) or inclement weather, any of which could increase our transportation and freight costs.
In many product categories, we compete not only with other well-advertised nationally branded products, but also with private-label products. Such private-label products generally are sold at lower prices. Consumers are more likely to purchase our products if they believe that our products provide a higher quality and greater value than less expensive alternatives.
We compete not only with other well-advertised nationally branded products, but also with private-label products. Such private-label products generally are sold at lower prices than our products. Consumers are more likely to purchase our products if they believe that our products provide a higher quality and greater value than less expensive alternatives.
Sales of shell eggs constitute the vast majority of our net revenue, and a reduction in these sales would have an adverse effect on our financial condition. Shell eggs accounted for approximately 92% of our net revenue in fiscal 2020, 92% of our net revenue in fiscal 2021 and 94% of our net revenue in fiscal 2022.
Sales of shell eggs constitute the vast majority of our net revenue, and a reduction in these sales would have an adverse effect on our financial condition. Shell eggs accounted for approximately 92% of our net revenue in fiscal 2021, 94% of our net revenue in fiscal 2022 and 95% of our net revenue in fiscal 2023.
Moreover, we may not be able to obtain terms as favorable as those we receive from the third-party transportation providers that we currently use, which in turn would increase our costs and thereby adversely affect our operating results. 24 Our future business, results of operations and financial condition may be adversely affected by reduced or limited availability of eggs, cream and other raw materials that meet our standards.
Moreover, we may not be able to obtain terms as favorable as those we receive from the third-party transportation providers that we currently use, which in turn would increase our costs and adversely affect our operating results. 23 Our future business, results of operations and financial condition may be adversely affected by reduced or limited availability of eggs, cream for our butter and other raw materials that meet our standards.
For example, we require our egg farmers to build and equip their farms to certain specifications, which requires a significant upfront capital investment, and any inability of farmers to obtain adequate financing on acceptable terms, including due to interest rate increases, would impair their ability to contract with us.
For example, we require our egg farmers to build and equip their farms to certain specifications, which requires a significant upfront capital investment, and any inability of farmers to obtain adequate financing on acceptable terms, including due to elevated interest rates, would impair their ability to contract with us.
Adverse weather conditions and natural disasters, including those caused by climate change, can adversely impact pasture conditions, leading to reduced yields and quality. For example, in the summer of 2022, extreme temperatures in the Pasture Belt contributed to lower-than-normal shell egg yield at certain of our farms.
Adverse weather conditions and natural disasters, including those caused by climate change, can adversely impact pasture conditions, leading to reduced yields and quality. For example, elevated summer temperatures in the Pasture Belt have contributed to lower-than-normal shell egg yield at certain of our farms.
We require our egg farmers to build and equip their farms to certain specifications, which requires a significant upfront capital investment, and any inability of farmers to obtain adequate financing on acceptable terms, including as a result of interest rate increases, would impair their ability to partner with us.
We require our egg farmers to build and equip their farms to certain specifications, which requires a significant upfront capital investment, and any inability of farmers to obtain adequate financing on acceptable terms, including as a result of elevated interest rates, would impair their ability to partner with us.
The continued growth and expansion of our business depends on a number of factors, including our ability to: • increase awareness of our brand and successfully compete with other companies; • price our products effectively so that we are able to attract new customers and consumers and expand sales to our existing customers and consumers; • expand distribution to new points of sales with new and existing customers; • continue to innovate and introduce new products; • successfully expand into new product categories; • expand our supplier, co-manufacturing, co-packing, cold storage, processing and distribution capacities; • invest in information technology systems and related process and procedures improvements; and • maintain quality control over our product offerings.
The continued growth and expansion of our business depends on a number of factors, including our ability to: • increase awareness of our brand and successfully compete with other companies; 18 • price our products effectively so that we are able to attract new customers and consumers and expand sales to our existing customers and consumers; • expand distribution to new points of sales with new and existing customers; • continue to innovate and expand our product offerings; • expand our supplier, co-manufacturing, co-packing, cold storage, processing and distribution capacities; • invest in and effectively implement information technology systems and related improvements to our processes and procedures; and • maintain quality control over our product offerings.
Loss of one or more of our co-manufacturers or our failure to timely identify and establish relationships with new co-manufacturers could harm our business and impede our growth. A significant amount of our revenue is derived from products manufactured at facilities owned and operated by our co-manufacturers.
The loss of one or more of our co-manufacturers or cold storage providers or our failure to timely identify and establish new relationships with new co-manufacturers or cold storage providers could harm our business and impede our growth. A significant amount of our revenue is derived from products manufactured at facilities owned and operated by our co-manufacturers.
However, there is risk in our ability to effectively scale production and processing and effectively manage our supply chain requirements. We must accurately forecast demand for our products in order to ensure we have adequate processing and manufacturing capacity to effectively allocate product supply across our stock keeping units, or SKUs.
There is risk in our ability to effectively continue to scale production and processing and manage our supply chain requirements. We must accurately forecast demand for our products in order to ensure we have adequate processing and manufacturing capacity to effectively allocate product supply across our stock keeping units.
Due to the absence of written contracts with certain of our co-manufacturers, these co-manufacturers can generally seek to alter or terminate their relationships with us at any time, leaving us with periods during which we have limited or no ability to manufacture certain of our products.
Due to the absence of written contracts with certain of our co-manufacturers, these co-manufacturers can generally seek to alter or terminate their relationships with us at any time, resulting in periods during which we may have limited or no ability to manufacture certain of our products.
While our current supply, processing and manufacturing capabilities are sufficient to meet our present business needs, we may need to expand these capabilities in the future as we continue to grow and scale our business.
While our current supply, processing and manufacturing capabilities are sufficient to meet our present business needs, we are planning to expand these capabilities in the future as we continue to grow and scale our business.
Our ongoing expansion efforts may prove more expensive than we anticipate (including as a result of inflation, increases in input costs or disruptions in our supply chain relating to public health pandemics, such as COVID-19, trade wars, geopolitical tensions, such as the Russia-Ukraine war, or other factors), and we may not succeed in increasing our net revenue and margins sufficiently to offset the anticipated higher expenses.
Our ongoing expansion efforts may prove more expensive than we anticipate (including as a result of inflation, increases in input costs or disruptions in our supply chain relating to public health pandemics, trade wars, geopolitical tensions, or other factors), and we may not succeed in increasing our net revenue and margins sufficiently to offset the anticipated higher expenses.
If we fail to effectively manage our future growth or evaluate our future prospects, our business could be adversely affected. We have grown rapidly since inception and anticipate further growth. For example, our net revenue increased from $214.3 million in fiscal 2020 to $260.9 million in fiscal 2021 to $362.1 million in fiscal 2022.
If we fail to effectively manage our growth or evaluate our future prospects, our business could be adversely affected. We have grown rapidly since inception and anticipate further growth. For example, our net revenue increased from $260.9 million in fiscal 2021 to $362.1 million in fiscal 2022 to $471.9 million in fiscal 2023.
Our ability to ensure a continuing supply of eggs, cream and other raw materials for our products at competitive prices depends on many factors beyond our control.
Our ability to ensure a continued supply of eggs, cream for our butter and other raw materials for our products at competitive prices depends on many factors beyond our control.
However, our operating plan may change because of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations.
However, our operating plan may change because of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources.
In addition, our foodservice product sales will be reduced if consumers reduce the amount of food that they consume away-from-home at our foodservice customers, including as a result of public health pandemics or economic uncertainty driven by inflation or other factors. We currently have a limited number of co-manufacturers.
In addition, our foodservice product sales will be reduced if consumers reduce the amount of food that they consume away from home at our foodservice customers, including as a result of public health pandemics or economic uncertainty driven by inflation or other factors. We currently have a limited number of third-party co-manufacturers and cold storage providers.

… 230 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeWhile we believe that our current facilities are suitable and adequate to meet our current needs, we have recently announced that we have begun the design and site selection process for our next egg packing center.
Biggest changeWhile we believe that our current facilities are suitable and adequate to meet our current needs, we have begun the design and site selection process for our next egg packing center.
We own our shell egg processing facility in Springfield, Missouri totaling approximately 153,000 square feet, which we refer to as Egg Central Station. We also lease approximately 92,000 square feet of warehouse space in Springfield, Missouri, which provides access to 10,000 pallet spaces pursuant to a lease that expires in September 2023.
We own our shell egg processing facility in Springfield, Missouri totaling approximately 153,000 square feet, which we refer to as Egg Central Station. We also lease approximately 187,500 square feet of warehouse space in Springfield, Missouri, which provides access to approximately 17,500 pallet spaces pursuant to a lease that expires in December 2026.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−1 removed0 unchanged
Biggest changeAlthough the outcome of these and other claims cannot be predicted with certainty, we do not believe the ultimate resolution of the current matters will have a material adverse effect on our business, financial condition, results of operations or cash flows. Item 4. Mine Saf ety Disclosures Not applicable. 44 PART II
Biggest changeWe are not aware of any material pending or threatened legal proceedings, other than ordinary routine litigation incidental to the business, against us that we believe could have an adverse effect on our business, operating results or financial condition. Item 4. Mine Safety Disclosures Not applicable. 46 PART II
Removed
Item 3. Legal Proceedings We are subject to various legal proceedings and claims that arise in the ordinary course of our business.
Added
Item 3. Legal Proceedings From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. For additional information regarding legal proceedings, if any, see Note 20 “Commitments and Contingencies—Litigation” to our audited consolidated financial statements included elsewhere in this report.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−0 removed9 unchanged
Biggest changeSee Note 11 to our consolidated financial statements included elsewhere in this Annual Report for additional information on the Credit Facility. Issuer Purchases of Equity Securities None. Item 6. [R eserved] 46
Biggest changeSee Note 13 “Long-Term Debt” to our consolidated financial statements included elsewhere in this Annual Report for additional information on the Credit Facility. Issuer Purchases of Equity Securities None. Item 6. [R eserved] 48
See Note 11 to our consolidated financial statements included elsewhere in this Annual Report for additional information on the Credit Facility. We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeable future.
See Note 13 “Long-Term Debt” to our consolidated financial statements included elsewhere in this Annual Report for additional information on the Credit Facility. We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeable future.
Comparative Stock Performance Graph The following performance graph shows a comparison from July 31, 2020 (the date our common stock commenced trading on the Nasdaq Global Market) through December 25, 2022, of the cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq US Smart Food & Beverage Index. 45 The graph assumes an initial investment of $100 on July 31, 2020.
Comparative Stock Performance Graph The following performance graph shows a comparison from July 31, 2020 (the date our common stock commenced trading on the Nasdaq Global Market) through December 31, 2023, of the cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq US Smart Food & Beverage Index. 47 The graph assumes an initial investment of $100 on July 31, 2020.
Holders of Record As of March 6, 2023, we had 11 holders of record of our common stock. Certain shares are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
Holders of Record As of March 4, 2024, we had 11 holders of record of our common stock. Certain shares are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
We invested the funds received in cash equivalents and other marketable securities in accordance with our investment policy. As of December 25, 2022, we have used an aggregate of $34.8 million of the IPO proceeds, including $7.3 million to pay off our term loan, $1.9 million to pay off our equipment loan in 2020 and $25.6 million for capital expenditures.
We invested the funds received in cash equivalents and other marketable securities in accordance with our investment policy. As of December 31, 2023, we have used an aggregate of $35.2 million of the IPO proceeds, including $7.3 million to pay off our term loan, $1.9 million to pay off our equipment loan in 2020 and $26.0 million for capital expenditures.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

67 edited+30 added−23 removed52 unchanged
Biggest changeWe expect shipping and distribution expenses to increase in absolute dollars in the medium-to-long term as we continue to scale our business. 51 Results of Operations The following table sets forth our results of operations for the periods presented (in thousands): Fiscal Year Ended December 25, 2022 December 26, 2021 (in thousands) Net revenue $ 362,050 $ 260,901 Cost of goods sold (1) 252,606 178,002 Gross profit 109,444 82,899 Operating expenses: Selling, general and administrative (1) 77,236 57,868 Shipping and distribution 30,104 24,979 Total operating expenses 107,340 82,847 Income from operations 2,104 52 Other income (expense), net: Interest expense (114 ) (52 ) Interest income 992 381 Other income (expense), net (151 ) (27 ) Total other income (expense), net 727 302 Net income before income taxes 2,831 354 Income tax provision (benefit) 1,601 (2,028 ) Net income 1,230 2,382 Less: Net (loss) income attributable to noncontrolling interests (21 ) (47 ) Net income attributable to Vital Farms, Inc. stockholders $ 1,251 $ 2,429 (1) Includes stock-based compensation expense of $5,852 and $4,307 in selling, general and administrative for the fiscal years ended 2022 and 2021, respectively, and $188 and $133 in cost of goods sold for the fiscal years then ended, respectively. 52 The following table sets forth our consolidated statements of operations data expressed as a percentage of net revenue for the periods presented: Fiscal Year Ended December 25, 2022 December 26, 2021 Amount % of Revenue Amount % of Revenue (dollars in thousands) Net revenue $ 362,050 100 % $ 260,901 100 % Cost of goods sold (1) 252,606 70 % 178,002 68 % Gross profit 109,444 30 % 82,899 32 % Operating expenses: Selling, general and administrative (1) 77,236 21 % 57,868 22 % Shipping and distribution 30,104 8 % 24,979 10 % Total operating expenses 107,340 30 % 82,847 32 % Income from operations 2,104 1 % 52 — Other income (expense), net: Interest expense (114 ) — (52 ) — Interest income 992 — 381 — Other income (expense), net (151 ) — (27 ) — Total other income (expense), net 727 — 302 — Net income before income taxes 2,831 1 % 354 — Income tax provision (benefit) 1,601 — (2,028 ) (1 )% Net income 1,230 — 2,382 1 % Less: Net (loss) income attributable to noncontrolling interests (21 ) — (47 ) — Net income attributable to Vital Farms, Inc. stockholders $ 1,251 — $ 2,429 1 % Fiscal Year Ended December 25, 2022 Compared to Fiscal Year Ended December 26, 2021 Net Revenue Fiscal Year Ended December 25, 2022 December 26, 2021 $ Change % Change (in thousands) Net revenue $ 362,050 $ 260,901 $ 101,149 39 % The increase in net revenue of $101.1 million, or 39%, was primarily driven by volume-related increases of $74.4 million and price increases of $26.8 million.
Biggest changeComparison of Fiscal Years Ended December 31, 2023 and December 25, 2022 The following table sets forth our consolidated statements of income data expressed as a percentage of net revenue for the periods presented: Fiscal Year Ended² December 31, 2023 December 25, 2022 Amount % of Revenue Amount % of Revenue (dollars in thousands) Net revenue $ 471,857 100 % $ 362,050 100 % Cost of goods sold (1) 309,531 66 % 252,606 70 % Gross profit 162,326 34 % 109,444 30 % Operating expenses: Selling, general and administrative (1) 101,728 22 % 77,236 21 % Shipping and distribution 27,344 6 % 30,104 8 % Total operating expenses 129,072 27 % 107,340 30 % Income from operations 33,254 7 % 2,104 1 % Other income (expense), net: Interest expense (782 ) — (114 ) — Interest income 2,542 1 % 992 — Other expense, net (2,813 ) (1 )% (151 ) — Total other income (expense), net (1,053 ) — 727 — Net income before income taxes 32,201 7 % 2,831 1 % Income tax provision 6,635 1 % 1,601 — Net income 25,566 5 % 1,230 — Less: Net loss attributable to noncontrolling interests — — (21 ) — Net income attributable to Vital Farms, Inc. stockholders $ 25,566 5 % $ 1,251 — (1) Includes stock-based compensation expense of $7,157 and $5,852 in selling, general and administrative for the fiscal years ended 2023 and 2022, respectively, and $260 and $188 in cost of goods sold for the fiscal years then ended, respectively.
Known Trends, Events and Uncertainties Highly Pathogenic Avian Influenza Since the initial outbreaks of 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.
Known Trends, Events and Uncertainties Highly Pathogenic Avian Influenza (HPAI) Since the initial outbreaks of 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.
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; 55 • 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 the dissolution of the Ovabrite, Inc. variable interest entity due to the infrequent nature of this transaction and we do not expect to experience similar dissolutions 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.
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 the dissolution of the Ovabrite, Inc. variable interest entity due to the infrequent nature of this transaction and we do not expect to experience similar dissolutions 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.
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.
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 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.
A multi-unit example from our successful foodservice program is True Food Kitchen, an award-winning restaurant brand and a pioneer of wellness-driven dining with 43 locations across the United States, that shares our values for improving the lives of people, animals, and the planet through ethically produced food.
A multi-unit example from our successful foodservice program is True Food Kitchen, an award-winning restaurant brand and a pioneer of wellness-driven dining with locations across the United States that shares our values for improving the lives of people, animals, and the planet through ethically produced food.
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 execute 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.
To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established or are required to pay amounts in excess of our recorded liability, our effective tax rate in a given financial statement period could be materially affected. 58 Contingencies We recognize the costs of legal defense for the legal proceedings to which we are a party during the periods in which the costs are incurred.
To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established or are required to pay amounts in excess of our recorded liability, our effective tax rate in a given financial statement period could be materially affected. 60 Contingencies We recognize the costs of legal defense for the legal proceedings to which we are a party during the periods in which the costs are incurred.
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 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 promotional incentives to our customers, including rebates, temporary price reductions, off-invoice discounts, retailer advertisements, product coupons and other trade activities.
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’s sustainable for all our stakeholders.
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.
Funding Requirements We expect that our cash and cash equivalents, together with cash provided by our operating activities and available borrowings under our existing Credit Facility, will be sufficient to fund our operating expenses for at least the next 12 months.
Funding Requirements We expect that our cash, cash equivalents and marketable securities, together with cash provided by our operating activities and available borrowings under our existing Credit Facility, will be sufficient to fund our operating expenses for at least the next 12 months.
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 indexed quarterly in arrears for changes in feed cost. We believe we are a strategic and valuable partner to retailers.
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.
The Credit Facility initially included a $4.7 million term loan, a $10.0 million revolving line of credit and an equipment loan with a maximum borrowing capacity of $1.5 million. Subsequently, terms of the Credit Facility were modified at various times between fiscal 2018 and fiscal 2022.
The Credit Facility initially included a $4.7 million term loan, a $10.0 million revolving line of credit and an equipment loan with a maximum borrowing capacity of $1.5 million. 58 Subsequently, terms of the Credit Facility were modified at various times between fiscal 2018 and fiscal 2023.
See “Long-Term Debt” in Note 11 to our consolidated financial statements included elsewhere in this Annual Report for additional details related to our Credit Facility.
See “Long-Term Debt” in Note 13 to our consolidated financial statements included elsewhere in this Annual Report for additional details related to our Credit Facility.
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.
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.
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 further expansion of our processing capacity.
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.
Our approach has been validated by our financial performance and recertification as a Certified B Corporation in January 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.
Our approach has been validated by our financial performance and our January 2022 recertification as a Certified B Corporation, a designation 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 eggs from a network of over 300 family farms.
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.
U.S. household penetration for the shell egg category is approximately 96.5%, while the household penetration for our shell eggs is approximately 7.5%. 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.
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 of December 25, 2022 are restricted in use.
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 of December 31, 2023 are restricted in use.
Variable consideration related to these programs is recorded as a reduction to revenue, at the time of sale, based on the amount we expect to incur. The transaction price contains estimates of known or expected variable consideration. We base these estimates on current performance and historical utilization or experience.
Variable consideration related to these programs is recorded as a reduction to revenue, at the time of sale, based on the amount we expect to incur. The transaction price contains estimates of known or expected variable consideration. We base these estimates on current forecasted activity and historical experience.
The Credit Facility contains other customary covenants, representations and events of default. As of December 25, 2022, there was no outstanding balance under the Credit Facility. As of December 25, 2022, we were in compliance with all covenants under the Credit Facility.
The Credit Facility contains other customary covenants, representations and events of default. As of December 31, 2023, there was no outstanding balance under the Credit Facility, and we were in compliance with all covenants under the Credit Facility.
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.
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.
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 Fiscal Year We report on a 52-week or 53-week fiscal year, ending on the last Sunday in December. In a 52-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.
We define our customers as the entities that sell our products to consumers. With certain of our retail customers, like Whole 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.
With certain of our retail customers, like Whole 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.
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.
Additionally, some economic observers suggest 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 at times produced downward pressure on share prices.
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.
However, management believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our performance.
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 and cash equivalents, cash provided by our operating activities and access to additional funds held as investment securities as well as available borrowing under our Credit Facility.
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 borrowings under our Credit Facility.
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.
As a result, low commodity shell egg prices may adversely affect our net revenue. We increased prices on certain of our products in each of fiscal year 2022, fiscal year 2023 and fiscal year 2024.
As noted above, estimates are made based on historical experience and other factors. Typically, programs that are offered have a short duration and historical differences between actual experience compared to estimated volumes, performance and redemptions have not been significant to the quarterly or annual financial statements.
Typically, programs that are offered have a short duration and historical differences between actual experience compared to estimated volumes, performance and redemptions have not been significant to the quarterly or annual financial statements.
Our first 53-week fiscal year will be this year, fiscal 2023, which we expect to begin on December 26, 2022 and end on December 31, 2023. See “Nature of the Business and Basis of Presentation” in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report for additional details related to our fiscal calendar.
Our first 53-week fiscal year as a public company occurred in fiscal 2023, which began on December 26, 2022 and ended on December 31, 2023. See “Nature of the Business and Basis of Presentation” in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report for additional details related to our fiscal calendar.
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; • Costs related to the dissolution of the Ovabrite, Inc. variable interest entity; • Benefit or provision for income taxes, as applicable; • Interest expense; • Change in fair value of contingent consideration; and • Interest income.
We calculate Adjusted EBITDA as net income, adjusted to exclude: • Depreciation and amortization; • Stock-based compensation expense; • Costs related to the discontinuation of our convenient breakfast product line (see Note 12 “Product Exit Costs” to our audited consolidated financial statements included elsewhere in this report); • Costs related to the dissolution of the Ovabrite, Inc. variable interest entity; • Benefit or provision for income taxes, as applicable; • Interest expense; • Change in fair value of contingent consideration; and • Interest income.
We have a strong presence at Kroger, Sprouts, Target and Whole Foods, and we also sell our products at Albertsons, Publix and Walmart. We offer 25 retail stock keeping units, or SKUs through a multi-channel retail distribution network.
We have a strong presence at The Kroger Co., or Kroger, Sprouts Farmers Market, or Sprouts, Target Corporation and Whole Foods Market, Inc., or Whole Foods, and we also sell our products at Albertsons Companies, Inc., Publix Super Markets, Inc. and Walmart, Inc. We offer 23 retail stock keeping units, or SKUs, through a multi-channel retail distribution network.
We had net revenue of $362.1 million and $260.9 million, net income of $1.2 million and $2.4 million, and Adjusted EBITDA of $16.2 million and $8.0 million in the fiscal years ended December 25, 2022 and December 26, 2021, respectively. Adjusted EBITDA is a non-GAAP financial measure.
We had net revenue of $471.9 million and $362.1 million, net income of $25.6 million and $1.2 million, and Adjusted EBITDA of $48.3 million and $16.2 million in the fiscal years ended December 31, 2023 and December 25, 2022, respectively. Adjusted EBITDA is a non-GAAP financial measure.
Fiscal Year Ended December 26, 2021 Compared to Fiscal Year Ended December 27, 2020 For the discussion of the financial condition and results of operations for the fiscal year ended December 26, 2021 compared to the fiscal year ended December 27, 2020, refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021, filed with the Securities and Exchange Commission on March 10, 2022.
Comparison of Fiscal Years Ended December 25, 2022 and December 26, 2021 For the discussion of the financial condition and results of operations for the fiscal year ended December 25, 2022 compared to the fiscal year ended December 26, 2021, refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022, filed with the Securities and Exchange Commission on March 9, 2023. 56 Non-GAAP Financial Measures Adjusted EBITDA We report our financial results in accordance with GAAP.
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 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 our products, packaging, and freight through fiscal year 2024.
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.
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.
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.
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 at times resulted in supply shortages and price increases across the egg market.
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 between Russia and Ukraine, and employee availability and wage increases, which may result in additional stress on the Company’s working capital resources.
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 global health pandemics, geopolitical tensions, and employee availability and wage increases, all of which may result in additional stress on our working capital resources.
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.
We believe co-branding is mutually beneficial to foodservice operators because it helps to differentiate their brands, enhances their perceived customer value and drives loyalty.
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 are working with Acxion Foodservice, 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 menus. We are also leveraging foodservice as a critical consumer touchpoint to drive brand awareness, and we are investing in co-marketing to reach new households.
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.
We anticipate that these promotional activities, credits and discounts could materially impact our net revenue and that changes in such activities could impact period-over-period results. 52 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.
Based on this third-party data and internal analysis, Whole Foods accounted for approximately 23% and 29% of our retail sales for the fiscal years ended December 25, 2022 and December 26, 2021, respectively.
Based on this third-party data and internal analysis, Whole Foods accounted for approximately 23% of our retail sales for each of the fiscal years ended December 31, 2023 and December 25, 2022, respectively. 51 As of December 2023, there were approximately 24,000 stores selling our products.
Gross Profit and Gross Margin Fiscal Year Ended December 25, 2022 December 26, 2021 $ Change % Change (in thousands) Gross profit $ 109,444 $ 82,899 $ 26,545 32 % Gross margin 30 % 32 % 53 The increase in gross profit of $26.5 million, or 32%, was driven by higher net revenue generated during the fiscal year ended December 25, 2022.
Gross Profit and Gross Margin Fiscal Year Ended December 31, 2023 December 25, 2022 $ Change % Change (in thousands) Gross profit $ 162,326 $ 109,444 $ 52,882 48 % Gross margin 34 % 30 % The increase in gross profit of $52.9 million, or 48%, was driven by higher net revenue generated during the fiscal year ended December 31, 2023.
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 the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future.
Elevated interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future.
Our performance depends significantly on factors that may affect the level and pattern of consumer spending in the U.S. natural food market in which we operate.
Our performance depends significantly on factors that may affect the level and pattern of consumer spending in the U.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.
The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented: Fiscal Year Ended December 25, 2022 December 26, 2021 (in thousands) Net income $ 1,230 $ 2,382 Depreciation and amortization (1) 5,761 3,540 Stock-based compensation expense 6,040 4,440 Costs related to our exit of the convenient breakfast product line 2,341 — Dissolution of Ovabrite, Inc. 122 — Income tax provision (benefit) 1,601 (2,028 ) Interest expense 114 52 Change in fair value of contingent consideration (2) 19 44 Interest income (992 ) (381 ) Adjusted EBITDA $ 16,236 $ 8,049 (1) Amount also includes finance lease amortization.
Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial measures, including our net income and other results stated in accordance with GAAP. 57 The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented: Fiscal Year Ended December 31, 2023 December 25, 2022 (in thousands) Net income $ 25,566 $ 1,230 Depreciation and amortization 1 10,490 5,761 Stock-based compensation expense 7,417 6,040 Costs related to our exit of the convenient breakfast product line — 2,341 Dissolution of Ovabrite, Inc. — 122 Income tax provision 6,635 1,601 Interest expense 782 114 Change in fair value of contingent consideration 2 — 19 Interest income (2,542 ) (992 ) Adjusted EBITDA $ 48,348 $ 16,236 1 Amount also includes 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.
We expect that our cash and cash equivalents as of December 25, 2022, 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.
We expect that our cash, cash equivalents and marketable securities as of December 31, 2023, together with cash provided by our operating activities and availability of borrowings under our 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. 50 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 serve the majority of natural channel customers through food distributors, such as UNFI, US Foods and KeHE, which purchase, store, sell and deliver our products to Whole Foods (UNFI and US Foods) and Sprouts (KeHE). We serve mainstream retailers by arranging for delivery of our products directly through their distribution centers.
We serve the majority of natural channel customers through food distributors, which purchase, store, sell and deliver our products to our 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. We have experienced consistent sales growth.
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. 49 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.
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.
We record unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which, additional taxes will be due. However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.
We record unrecognized tax benefit liabilities for known or anticipated tax issues for which the benefit is more likely than not based on our analysis of whether, and the extent to which, additional taxes will be due.
We have a history of product introductions and intend to continue to innovate by introducing new products from time to time. Eggs and egg-related products generated $339.2 million, or approximately 94%, of net revenue in fiscal 2022. We expect eggs and egg-related products will be our largest source of net revenue for the foreseeable future.
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. Eggs and egg-related products generated $449.0 million, or approximately 95%, of net revenue in fiscal 2023.
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.
Demand tends to increase with the start of the school year and is highest prior to holiday periods, particularly Thanksgiving, Christmas and Easter, and is 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.
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.
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 currently expect to have an adequate supply of eggs, butter, packaging, and freight to meet anticipated demand through mid-2023, as well as adequate capacity for packaging and processing our eggs. 48 Liquidity and Capital Resources Overview With cash and cash equivalents of $12.9 million as of December 25, 2022 and access to additional funds held as investment securities and available borrowing under our credit facility agreement with PNC 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.
Liquidity and Capital Resources Overview With cash, cash equivalents and marketable securities of $116.8 million as of December 31, 2023 and $20.0 million available under our credit facility agreement with PNC 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.
The Tenth Amendment to the Credit Agreement in December 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 in April 2024. The maximum borrowing capacity under the revolving line of credit is $20.0 million.
The Tenth Amendment to the Credit Agreement in December 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 Eleventh Amendment to the Credit Facility, effective July 26, 2023, extended the maturity date by one year, from April 2, 2024 to April 2, 2025.
We review and update these estimates regularly until the incentives or product returns are realized and the impact of any adjustments are recognized in the period the adjustments are identified. We do not believe it is reasonably likely that there will be a material change in the estimates or assumptions used to recognize revenue.
We do not believe it is reasonably likely that there will be a material change in the estimates or assumptions used to recognize revenue. As noted above, estimates are made based on historical experience and other factors.
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.
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.
Cash Flows The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended December 25, 2022 December 26, 2021 (in thousands) Net cash (used in) provided by operating activities $ (8,098 ) $ 17,682 Net cash used in investing activities (10,037 ) (18,440 ) Net cash provided by financing activities 83 2,180 Net (decrease) increase in cash and cash equivalents $ (18,052 ) $ 1,422 Operating Activities Cash flows related to operating activities are dependent on net income, non-cash adjustments to net income, and changes in working capital.
Cash Flows The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended December 31, 2023 December 25, 2022 (in thousands) Net cash provided by (used in) operating activities $ 50,906 $ (8,098 ) Net cash provided by (used in) investing activities 22,383 (10,037 ) Net cash (used in) provided by financing activities (2,054 ) 83 Net increase (decrease) in cash and cash equivalents $ 71,235 $ (18,052 ) Operating Activities The increase in net cash provided by operating activities during the fiscal year ended December 31, 2023 compared to the fiscal year ended December 25, 2022 was due primarily to higher net income in the current fiscal year due to gross margin improvements and improving leverage our of selling, general and administrative costs.
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.
Egg Central Station is capable of packing approximately six million eggs per day and has an SQF Excellent rating, the highest level of such certification from the Global Food Safety Initiative. 49 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.
The decrease in gross margin during the fiscal year ended December 25, 2022 as compared to the fiscal year ended December 26, 2021 was primarily driven by an increase in input costs (including costs of organic feed and increased farmer pay) across our shell egg and butter businesses, increases in packaging costs and increases in transportation costs.
The increase in gross margin during the fiscal year ended December 31, 2023 compared to the fiscal year ended December 25, 2022 was primarily driven by volume increases, in addition to pricing increases across the entire shell egg portfolio in January 2023.
Interest Income Fiscal Year Ended December 25, 2022 December 26, 2021 $ Change % Change (in thousands) Interest income $ 992 $ 381 $ 611 160 % The increase of $611,000 in interest income, or 160%, was primarily driven by higher interest income in the fiscal year ended December 25, 2022 on our available-for-sale securities portfolio. 54 Provision (Benefit) for Income Taxes Fiscal Year Ended December 25, 2022 December 26, 2021 $ Change % Change (in thousands) Income tax provision (benefit) $ 1,601 $ (2,028 ) $ 3,629 179 % Percentage of net revenue 0 % (1 )% The change in income tax provision (benefit) of $3.6 million, or 179%, was primarily driven by higher pre-tax income in 2022 and favorable tax benefits from stock option exercises in the prior year which have not recurred at the same levels during the fiscal year ended December 25, 2022.
Interest Income Fiscal Year Ended December 31, 2023 December 25, 2022 $ Change % Change (in thousands) Interest income $ 2,542 $ 992 $ 1,550 156 % The increase in interest income of $1.6 million, or 156%, was primarily driven by higher interest income on our available-for-sale securities portfolio.
As of December 25, 2022, future minimum lease payments under non-cancelable operating leases totaled $2.2 million and future minimum lease payments under non-cancelable finance leases totaled $9.9 million. 56 Credit Facility We originally entered into our Credit Facility with PNC Bank, National Association, or PNC Bank, in October 2017.
Credit Facility We originally entered into our Credit Facility with PNC Bank, National Association, or PNC Bank, in October 2017.
Net revenue from sales through our retail channel was $348.9 million and $256.5 million for fiscal 2022 and 2021, respectively.
Net revenue from sales through our retail channel was $445.8 million and $348.9 million for fiscal years ended 2023 and 2022, respectively. 54 The extra week in fiscal year 2023, which was 53 weeks compared to 52 weeks in fiscal year 2022, contributed $8.5 million in net revenue, or 2.3%, to growth.
Shipping and Distribution Fiscal Year Ended December 25, 2022 December 26, 2021 $ Change % Change (in thousands) Shipping and distribution $ 30,104 $ 24,979 $ 5,125 21 % Percentage of net revenue 8 % 10 % The increase in shipping and distribution expenses of $5.1 million, or 21%, was driven by higher sales volumes and freight rates.
Net Revenue Fiscal Year Ended December 31, 2023 December 25, 2022 $ Change % Change (in thousands) Net revenue $ 471,857 $ 362,050 $ 109,807 30 % The increase in net revenue of $109.8 million, or 30%, was primarily driven by price-related increases of $59.4 million and volume-related increases of $50.5 million.
Net cash used in operating activities during the fiscal year ended December 25, 2022 is primarily due to an increase in cash used for working capital.
Financing Activities The change in cash used in financing activities during the fiscal year ended December 31, 2023 compared to the fiscal year ended December 25, 2022 was primarily due to an increase of principal payments on our finance lease obligations. 59 Seasonality Demand for our products fluctuates in response to seasonal factors.
(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. 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.
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 $25.6 million for the fiscal year ended December 31, 2023 and retained earnings of $29.7 million as of December 31, 2023.
The net cash used in investing activities for purchases, sales and maturities of our available-for-sale debt securities during the fiscal year ended December 25, 2022 compared to the prior fiscal year is immaterial. 57 Financing Activities Net cash provided by financing activities during the fiscal year ended December 25, 2022 is primarily comprised of proceeds from the exercise of stock options in the current fiscal year, partially offset by principal payments on finance lease obligations.
Investing Activities The increase in cash provided by investing activities during the fiscal year ended December 31, 2023 is primarily due to the continuing maturities of our available for sale securities and the reinvestment of these amounts into cash equivalents during the year ended December 31, 2023.
The dollar growth in selling, general and administrative expenses was primarily driven by: • an increase of $13.0 million in employee-related costs, including stock-based compensation, driven by an overall increase in employee headcount to support our operations and public company status; • an increase of $3.5 million in brokerage-related and selling-related expenses due to expansion of the business; • an increase of $1.8 million in marketing-related expenses related to continued investment in brand and product marketing; and • an increase of $1.0 million in technology and software related expenses to support increased operations and employee headcount.
Operating Expenses Selling, General and Administrative Fiscal Year Ended December 31, 2023 December 25, 2022 $ Change % Change (in thousands) Selling, general and administrative $ 101,728 $ 77,236 $ 24,492 32 % Percentage of net revenue 22 % 21 % The increase in selling, general and administrative expenses of $24.5 million, or 32%, was primarily driven by: • an increase of $10.3 million in marketing-related expenses related to continued investment in brand and product marketing; • an increase of $10.2 million in employee-related costs, including stock-based compensation, driven by an overall increase in employee headcount to support our continued growth; • an increase of $2.4 million in legal and professional service expense to support increased operations and expansion of the business; • an increase of $900,000 in brokerage-related and selling-related expenses due to expansion of the business; • an increase of $600,000 in technology and software-related expenses to support increased operations and employee headcount Shipping and Distribution Fiscal Year Ended December 31, 2023 December 25, 2022 $ Change % Change (in thousands) Shipping and distribution $ 27,344 $ 30,104 $ (2,760 ) (9 )% Percentage of net revenue 6 % 8 % The decrease in shipping and distribution costs of $2.8 million, or 9%, was driven by favorable freight rates and internal operational efficiency, partially offset by higher sales volumes. 55 Interest Expense Fiscal Year Ended December 31, 2023 December 25, 2022 $ Change % Change Interest expense $ (782 ) $ (114 ) $ (668 ) 586 % The increase in interest expense of $0.7 million, or 586%, was primarily driven by an increase in finance leases which generated an increase in interest expense related to those leases.
Removed
In addition, as of January 2020, Egg Central Station is the only egg facility to receive, and we are one of only six companies globally to have received, the SQFI Select Site certification. 47 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.
Added
During the last quarter of fiscal 2023, as a result of increasing construction costs associated with our new farms, we incurred incremental farm recruitment costs that will be required to be paid in advance of these farms beginning to produce eggs, and we expect such incremental costs to continue into fiscal 2024.
Removed
We also leverage distributor relationships to fulfill orders for certain independent grocers and other customers.
Added
These costs are expected to be recognized over the term of the related buy-sell contracts with the new farms, which are generally four to five years in length. We believe the unfavorable impact to our working capital resulting from these upfront costs could range from $10.0 million to $12.0 million during fiscal 2024.
Removed
UNFI, US Foods and KeHE sales as a percentage of the Company's net revenue is presented below: Fiscal Year Ended December 25, 2022 December 26, 2021 UNFI 26% 18% US Foods * 14% KeHE * 10% * less than 10% The increase in the percentage of net revenue for UNFI for fiscal 2022 is due to a net shift in the Company’s distribution channels away from US Foods during fiscal 2021.
Added
The impact to fiscal year 2023 working capital was immaterial, and the impact to our gross margin is also expected to be immaterial during the term of these agreements.
Removed
The decrease in percentage of net revenue for KeHE is due to general shifts in the Company's distribution channels. We have experienced consistent sales growth.
Added
To date, we have experienced outbreaks at four of our farms, one located in Missouri, one in Tennessee and two in Kansas.
Removed
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 recent trends towards rising inflation may also materially affect our business and corresponding financial position and cash flows.
Added
Economic Uncertainties The current inflationary environment may 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.
Removed
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.
Added
However, while we are currently ramping up capacity with our new supplier of butter, recent volatility in the markets for raw materials could affect supply of our butter products in fiscal year 2024.
Removed
While the amount of our retail sales to Whole Foods increased in real terms in the fiscal year ended December 25, 2022, the percentage of our net revenue attributable to Whole Foods declined in these periods as we added new customers and expanded distribution to existing customers. As of December 2022, there were more than 22,000 stores selling our products.

… 40 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+1 added−0 removed2 unchanged
Biggest changeUnder the remainder of our contracts, we are directly responsible for purchasing feed. Either type of contract subjects us to risk of price fluctuations in feed ingredients, primarily consisting of corn and soy. During January 2023, we entered into commodity hedging programs with respect to organic and conventional corn and soy feed ingredients.
Biggest changeOur buy-sell contracts subject us to risk of price fluctuations in feed ingredients, primarily consisting of corn and soy. The price we pay for cream is subject to butter commodity fluctuations.
We seek to mitigate the impact of raw materials cost increases with a combination of negotiated pricing agreements, cost savings initiatives and efficiencies and price increases to our customers. Interest Rate Risk We are subject to interest rate risk in connection with our credit facility agreement with PNC Bank, National Association, or the Credit Facility.
We seek to mitigate the impact of raw materials cost increases with a combination of negotiated pricing agreements, cost savings initiatives and efficiencies and price increases to our customers. 61 Interest Rate Risk We are subject to interest rate risk in connection with our credit facility agreement with PNC Bank, National Association, or the Credit Facility.
Our market risk exposure is primarily the result of fluctuations in commodity prices and interest rates. Commodity Price Risk We source our eggs and cream for our products from our network of family farms.
Our market risk exposure is primarily the result of fluctuations in commodity prices and interest rates. Commodity Price Risk We source our eggs and cream for our butter products from our network of family farms.
The price we pay to purchase shell eggs from farmers fluctuates based on pallet weight, and under our buy-sell contracts, which account for all of the laying hens in our network of family farms as of December 25, 2022, the price we pay is also indexed quarterly in arrears for changes in feed cost, which may cause our agreed-upon pricing under these contracts to fluctuate on a quarterly basis.
The price we pay to purchase shell eggs from farmers fluctuates based on pallet weight, and under our buy-sell contracts, which account for all of the laying hens in our network of family farms as of December 31, 2023, the price we pay is also adjusted quarterly for changes in feed cost, which may cause our agreed-upon pricing under these contracts to fluctuate on a quarterly basis.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure during the fiscal year ended December 25, 2022. 60
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure during the fiscal year ended December 31, 2023. 62
Based on the average interest rate on the instruments under the Credit Facility during the fiscal year ended December 25, 2022, and to the extent that borrowings were outstanding, we do not believe that a hypothetical 10% change in the interest rate would have a material effect on our results of operations or financial condition for the fiscal year ended December 25, 2022. 59 Our interest-earning instruments also carry a degree of interest rate risk.
Based on the average interest rate on the instruments under the Credit Facility during the fiscal year ended December 31, 2023, and to the extent that borrowings were outstanding, we do not believe that a hypothetical 10% change in the interest rate would have a material effect on our results of operations or financial condition for the fiscal year ended December 31, 2023.
A hypothetical 10% increase or decrease in the weighted-average cost of these raw materials as of December 25, 2022 would have resulted in an increase or decrease to cost of sales for the fiscal year ended December 25, 2022 of approximately $2.8 million.
A hypothetical 10% increase or decrease in the weighted-average cost of packaging raw materials as of December 31, 2023 would have resulted in an increase or decrease to cost of sales for the fiscal year ended December 31, 2023 of approximately $3.5 million.
The price we pay for cream is subject to butter commodity fluctuations. A hypothetical 10% increase or decrease in the weighted-average cost of these ingredients across our product lines as of December 25, 2022 would have resulted in an increase or decrease to cost of sales for the fiscal year ended December 25, 2022 of approximately $7.5 million.
A hypothetical 10% increase or decrease in the weighted-average cost of these ingredients across our product lines as of December 31, 2023 would have resulted in an increase or decrease to cost of sales for the fiscal year ended December 31, 2023 of approximately $8.8 million.
As of December 25, 2022, we had cash and cash equivalents of $12.9 million and investments in available for sale securities of $65.8 million. As of December 25, 2022, the effective maturity of our investment securities available for sale was approximately 12 months and the composite credit rating of the holdings is A2 on the Moody's rating scale.
As of December 31, 2023, the effective maturity of our investment securities available for sale was approximately 4 months and the composite credit rating of the holdings is Aa3 on the Moody's rating scale.
We strive to offset the impact of ingredient cost increases with a combination of cost savings initiatives and efficiencies and price increases to our customers. The packaging materials used for our products include cardboard, glass, corrugated fiberboard, kraft paper, flexible film and paperboard. These raw materials are subject to price fluctuations that may create price risk.
We strive to offset the impact of ingredient cost increases with a combination of cost savings initiatives and efficiencies and price increases to our customers. Costs of packaging are volatile and can fluctuate due to conditions that are difficult to predict creating price risk.
Added
Our interest-earning instruments also carry a degree of interest rate risk. As of December 31, 2023, we had cash and cash equivalents of $84.1 million and investments in available for sale securities of $32.7 million.

Other VITL 10-K year-over-year comparisons