VITAL FARMS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)


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The following discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including
those set forth in Part II, Item 1A, "Risk Factors," and "Special Note Regarding
Forward-Looking Statements" included elsewhere in this Quarterly Report on Form
10-Q. The following information should be read in conjunction with the unaudited
financial information and the notes thereto included in this Quarterly Report on
Form 10-Q and the audited financial information and the notes thereto included
in our Annual Report on Form 10-K.

Insight

Our mission is to bring ethical food to the table, and we are disrupting the
U.S. food system by developing a framework that challenges the norms of the
incumbent food model, allowing us to bring high-quality products from our
network of family farms to a national audience. This framework has enabled us to
become the 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. There is a
seismic shift in consumer demand for natural, traceable, clean label,
great-tasting and nutritious foods. Supported by a steadfast adherence to the
values on which we were founded, we have designed our brand and products to
appeal to this consumer movement.

Our purpose is rooted in a commitment to Conscious Capitalism, which prioritizes
the long-term benefits of each of our stakeholders (farmers and suppliers,
customers and consumers, communities and the environment, crew members and
stockholders). We make decisions based on what is sustainable for all our
stakeholders. Our collective sustainable business practices will enable us to
fulfill our purpose of improving the lives of people, animals, and the planet
through food, now and long into the future. For us, it is not about short-term
outcomes or a trade-off between purpose and profit. We are fierce business
competitors who believe that prioritizing the long-term viability of all
stakeholders will produce stronger outcomes, for everyone, over time. These
principles guide our day-to-day operations and, we believe, help us deliver a
more sustainable and successful business. Our approach has been validated by our
financial performance and our 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 source our products from a network of over 300 family farms. We have
strategically designed our supply chain to ensure high production standards and
optimal year-round operation. We are motivated by the positive impact we have on
rural communities and enjoy a strong relationship and reputation with our
network of farmers.

We primarily work with our farms pursuant to buy-sell contracts. Under these
arrangements, the farmer is responsible for all of the working capital and
investments required to produce the eggs and manage the farm, including
purchasing the birds and feed supply. We are contractually obligated to purchase
all of the eggs produced by the farmer during the term of the contract at an
agreed-upon price that depends upon pallet weight and is indexed quarterly in
arrears for changes in feed cost.

We believe we are a strategic and valuable partner to retailers. We have
continued to command premium prices for our products, including our shell eggs,
which sell for as much as three times the price of commodity eggs. Our loyal and
growing consumer base has fueled the expansion of our brand from the natural
channel to the mainstream channel. We believe the success of our brand
demonstrates that consumers are demanding premium products that meet a higher
ethical standard of food production. We have a strong presence at Kroger,
Sprouts Farmers Market, or Sprouts, Target and Whole Foods, and we also sell our
products at Albertsons, Publix and Walmart. We offer 26 retail stock keeping
units, or SKUs, through a multi-channel retail distribution network. We believe
we have significant room for growth within the retail and, in the medium- to
long-term, foodservice channels through growing brand awareness, gaining
additional points of distribution and new product innovation.

Our shell eggs are collected from farmers by a third-party freight carrier and
placed in cold storage until we pack them for shipping to our customers at our
state-of-the-art shell egg processing facility, Egg Central Station. Egg Central
Station is approximately 150,000 square feet and utilizes highly automated
equipment to grade and package our shell egg products. Egg Central Station is
capable of packing approximately six million eggs per day and has achieved Safe
Quality Food "Good" rating, the highest level of such certification from the
Global Food Safety Initiative. In addition, as of January 2020, Egg Central
Station was the only egg facility to receive, and we are one of only six
companies globally to have received, the SQFI Select Site certification.

Our products are distributed through a broker-distributor-retailer network
whereby brokers represent our products to distributors and retailers who will in
turn sell our products to consumers. We serve the majority of natural channel
customers through food distributors, which purchase, store, sell and deliver our
products to customers.

We have experienced consistent sales growth. We had net revenue of $92.0 million
and $64.6 million, net income of $0.7 million and net loss of $1.3 million, and
Adjusted EBITDA of $5.2 million and $0.2 million in the 13-week periods ended

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September 25, 2022 and September 26, 2021, respectively. We had net revenue of
$252.0 million and $183.5 million, net loss of $0.6 million and net income of
$6.0 million, and Adjusted EBITDA of $9.4 million and $10.1 million in the
39-week periods ended September 25, 2022 and September 26, 2021, respectively.
See the section titled "-Non-GAAP Financial Measure-Adjusted EBITDA" below for
the definition of Adjusted EBITDA, as well as a reconciliation of Adjusted
EBITDA to net income, the most directly comparable financial measure stated in
accordance with GAAP.

Known trends, events and uncertainties

While we are not experiencing material adverse impacts at this time due to the
COVID-19 pandemic, given the ongoing disruptions to global supply chains and
distribution systems and the other risks and uncertainties associated with the
pandemic, our business, financial condition, results of operations and growth
prospects could be materially and adversely affected. 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 the ongoing global supply chain disruptions. 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 packing
and processing our eggs.

Additionally, the recent trends towards rising inflation may also materially
affect our business and corresponding financial position and cash flows.
Inflationary factors, such as increases in the cost of materials and supplies,
interest rates and overhead costs may adversely affect our operating results.
Rising interest rates also present a recent challenge impacting 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. Additionally, the general consensus
among economists suggests that we should expect a higher recession risk to
continue over the next year, which, together with the foregoing, could result in
further economic uncertainty and volatility in the capital markets in the near
term, and could negatively affect our operations. Furthermore, such economic
conditions have produced downward pressure on share prices. We have experienced
and may continue to experience increases in our operating costs, including our
labor costs and research and development costs, due to supply chain constraints,
consequences associated with COVID-19 and the ongoing conflict between Russia
and Ukraine, and employee availability and wage increases, which may result in
additional stress on the Company's working capital resources.

Overview of liquidity and capital resources

With cash and cash equivalents of $18.8 million as of September 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. We expect that our
cash and cash equivalents as of September 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.

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 partnerships and unexplored channels and ongoing costs associated
with our recently completed expansion of Egg Central Station or future
expansions of our production capacity. We may be required to seek additional
equity or debt financing. However, a significant disruption of global financial
markets (including a disruption due to public health pandemics, geopolitical
tensions and wars, inflation or other factors) may result in our inability to
access additional capital, which could in the future negatively affect our
operations. In the event that we require additional financing, we may not be
able to raise such financing on terms acceptable to us or at all. If we are
unable to raise additional capital or generate cash flows necessary to expand
our operations and invest in continued innovation and product expansion, we may
not be able to compete successfully, which would harm our business, operations
and results of operations. For additional information, see the section titled
"Liquidity and Capital Resources" below.

Our fiscal year

We report on a 52-53-week fiscal year, ending on the last Sunday in December,
effective beginning with the first quarter of fiscal 2018. In a 52-53-week
fiscal year, each fiscal quarter consists of 13 weeks. The additional week in a
53-week fiscal year is added to the fourth quarter, making such quarter consist
of 14 weeks. Our first 53-week fiscal year will be 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 unaudited condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q for additional details related to our fiscal calendar.

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                       Key Factors Affecting Our Business

We believe that the growth of our business and our future success depends on many factors. While each of these factors presents significant opportunities for us, they also pose significant challenges that we must successfully address to enable us to sustain the growth of our business and improve our operating results.

Develop household penetration

We have positioned our brand to capitalize on growing consumer interest in
natural, clean-label, traceable, great-tasting and nutritious foods. We believe
there is substantial opportunity to grow our consumer base and increase the
velocity at which households purchase our products. We intend to increase
household penetration by continuing to invest significantly in sales and
marketing to educate consumers about our brand, our values and the premium
quality of our products. We believe these efforts will educate consumers on the
attractive attributes of our products, generate further demand for our products
and ultimately expand our consumer base. Our ability to attract new consumers
will depend, among other things, on the perceived value and quality of our
products, the offerings of our competitors and the effectiveness of our
marketing efforts. Our performance depends significantly on factors that may
affect the level and pattern of consumer spending in 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.

Growth within the retail channel

We believe that our ability to increase the number of customers that sell our
products to consumers is an indicator of our market penetration and our future
business opportunities. We define our customers as the entities that sell our
products to consumers. With certain of our retail customers, 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. We rely on third-party data to calculate the portion of retail sales
attributable to such retailers, but this data is inherently imprecise because it
is based on gross sales generated by our products sold at retailers, without
accounting for price concessions, promotional activities or chargebacks, and
because it measures retail sales for only the portion of our retailers serviced
through distributors. Based on this third-party data and internal analysis,
Whole Foods accounted for approximately 22% and 24% of our retail sales for the
13-week periods ended September 25, 2022 and September 26, 2021, respectively,
and 24% and 26% for the 39-week periods ended September 25, 2022 and September
26, 2021, respectively. While the amount of our retail sales to Whole Foods
increased in real terms in the 13-week and the 39-week periods ended September
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 September 25, 2022, there were more than 22,000 stores selling our
products. We expect the retail channel to be our largest source of net revenue
for the foreseeable future. By capturing greater shelf space, driving higher
product velocities and increasing our SKU count, we believe there is meaningful
runway for further growth with existing retail customers. Additionally, we
believe there is significant opportunity to gain incremental stores from
existing customers as well as by adding new retail customers. We also believe
there is significant further long-term opportunity in additional distribution
channels, including the convenience, drugstore, club, military and international
markets. Our ability to execute on this strategy will increase our opportunities
for incremental sales to consumers, and we also believe this growth will allow
for margin expansion. To accomplish these objectives, we intend to continue
leveraging consumer awareness of and demand for our brand, offering targeted
sales incentives to our customers and utilizing customer-specific marketing
tactics. Our ability to grow within the retail channel will depend on a number
of factors, such as our customers' satisfaction with the sales, product
velocities and profitability of our products.

Expand footprint across restoration

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 for medium- to long-term growth in this channel by increasing our
category market share through sales to values-aligned foodservice operators and
their distributors. We are working with Waypoint, a foodservice sales and
marketing agency in the consumer-packaged goods industry, to increase our
broadline distribution and presence in national and regional restaurant chains.
We believe that most U.S. consumers' food preferences are driven primarily by
what they encounter on restaurant menus, so we are also leveraging foodservice
as a critical consumer touchpoint to drive brand awareness and purchase rates of
our products in the retail channel. We are investing in co-marketing to reach
new households. We believe that joint marketing tactics are mutually beneficial
for operators and enhances their perceived consumer value and that our products
and on-menu branding can help operators differentiate themselves, increase check
sizes and drive loyalty in an industry still recovering from the pandemic and
its macro-economic impacts. An example of our recent

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foodservice growth initiative is our relationship with HomeState, a Texas
kitchen in Southern California which sells breakfast tacos made exclusively with
our liquid whole eggs. We have launched with similar regional concepts in all
four of our U.S. sales regions, including Blue Plate Restaurant Company, a
casual dining group in the Minneapolis/St. Paul, Minnesota area; Cafe Patachou,
a breakfast and lunch restaurant based in the Indianapolis, Indiana area; King
David Tacos, which sells breakfast tacos made exclusively with our medium shell
eggs at their locations and retail outlets in the New York City area; Pura Vida,
a fresh all-day concept in the Miami, Florida area; Hat Creek Burger Company, a
fast-casual restaurant with locations across Texas; Tacodeli, which sells
breakfast tacos made exclusively with our shell eggs across restaurant locations
points of distribution, such as coffee shops and farmers' market stands, across
Texas; and Moe's Broadway Bagel, an East Coast-style family-run bagel chain in
the Denver/Boulder, Colorado area. We have also recently expanded our national
footprint with additional chains, including Hopdoddy Burger Bar and Original
ChopShop.


Expand Our Product Offerings

We intend to continue to strengthen our product offerings by investing in
innovation in new and existing categories. We have a history of product
introductions and intend to continue to innovate by introducing new products
from time to time. Egg and egg-related products generated $86.2 million, or
approximately 94%, of net revenue in the 13-week period ended September 25,
2022. Egg and egg-related products generated $236.4 million, or approximately
94%, of net revenue in the 39-week period ended September 25, 2022. We expect
eggs will be our largest source of net revenue for the foreseeable future. We
believe that investments in innovation will contribute to our long-term growth,
including by reinforcing our efforts to increase household penetration. Our
ability to successfully develop, market and sell new products will depend on a
variety of factors, including the availability of capital to invest in
innovation, as well as changing consumer preferences and demand for food
products.

                    Key Components of Results of Operations

Net Revenue

We generate net revenue primarily from sales of our products, including eggs and
butter, to our customers, which include natural retailers, mainstream retailers
and foodservice partners. We sell our products to customers on a purchase-order
basis. We serve the majority of our natural channel customers and certain
independent grocers and other customers through food distributors, which
purchase, store, sell and deliver our products to these customers.

We periodically offer sales incentives to our customers, including rebates,
temporary price reductions, off-invoice discounts, retailer advertisements,
product coupons and other trade activities. We record a provision for sales
incentives at the later of the date at which the related revenue is recognized
or when the sales incentive is offered. At the end of each accounting period, we
recognize a liability for an estimated promotional allowance reserve. We
periodically provide credits or discounts to our customers in the event that
products do not conform to customer expectations upon delivery or expire at a
customer's site. We treat these credits and discounts as a reduction of the
sales price of the related transaction at the time of sale. We anticipate that
these promotional activities, credits and discounts could impact our net revenue
and that changes in such activities could impact period-over-period results.

Our shell eggs are sold to consumers at a premium price point, and when prices
for commodity shell eggs fall relative to the price of our shell eggs (including
due to any price increases we may implement), price-sensitive consumers may
choose to purchase commodity shell eggs offered by our competitors instead of
our eggs. As a result, low commodity shell egg prices may adversely affect our
net revenue. For example, we increased prices on certain of our products in
January 2022 and May 2022, and we are planning an additional price increase on
certain of our products effective January 2023. While we have not seen
significant decreases in volume due to previous price increases, if we further
increase prices to offset higher commodity prices or other costs, we could
experience lower demand for our products, decreased ability to attract new
customers and lower sales volumes. Net revenue may also vary from period to
period depending on the purchase orders we receive, the volume and mix of our
products sold, and the channels through which our products are sold.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of broker and
contractor fees for sales and marketing, and personnel costs for sales and
marketing, finance, human resources and other administrative functions,
consisting of salaries, benefits, bonuses, stock-based compensation expense and
sales commissions. Selling, general and administrative expenses also include
advertising and digital media costs, agency fees, travel and entertainment
costs, and costs associated with consumer promotions, product samples, sales
aids incurred to acquire new customers, retain existing customers and build our
brand awareness, overhead costs for facilities, including associated
depreciation and amortization expenses, and information technology-related
expenses.

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Shipping and Distribution

Shipping and distribution costs primarily include costs related to the transportation of our products by third parties. We expect shipping and distribution expenses to increase in absolute dollars over the medium to long term as we continue to grow our business.

Operating results

The results of operations data for the 13-week and 39-week periods ended
September 25, 2022 and September 26, 2021 have been derived from the unaudited
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q.

Comparison of completed 13-week periods September 25, 2022 and September 26, 2021

The following table presents the consolidated data in our income statement expressed as a percentage of net sales for the quarters presented.

                                                              13-Weeks Ended
                                           September 25, 2022                 September 26, 2021
                                                           % of                               % of
                                        Amount           Revenue           Amount           Revenue
                                                          (dollars in thousands)
Net revenue                          $     92,040               100 %   $     64,627               100 %
Cost of goods sold(1)                      62,549                68 %         44,788                69 %
Gross profit                               29,491                32 %         19,839                31 %
Operating expenses:
Selling, general and
administrative(1)                          20,561                22 %         15,326                24 %
Shipping and distribution                   6,906                 8 %          6,318                10 %
Total operating expenses                   27,467                30 %         21,644                33 %
Income (loss) from operations               2,024                 2 %         (1,805 )              (3 )%
Other income (expense), net:
Interest expense                              (12 )               -              (11 )               -
Other income (expense), net                   164                 -                3                 -
Total other income (expense), net             152                 -               (8 )               -
Net income (loss) before income
taxes                                       2,176                 2 %         (1,813 )              (3 )%
Income tax provision (benefit)              1,465                 2 %           (486 )              (1 )%
Net income (loss)                             711                 1 %         (1,327 )              (2 )%
Less: Net loss attributable to
noncontrolling
  interests                                   (12 )               -               (6 )               -
Net income (loss) attributable to
Vital Farms, Inc.
  common stockholders                $        723                 1 %   $     (1,321 )              (2 )%




(1)
Includes stock-based compensation expense of $1,513 and $1,161 in selling,
general and administrative for the 13-week periods ended September 25, 2022 and
September 26, 2021, respectively, and $56 and $37 in cost of goods sold for the
13-week periods then ended, respectively.


Net revenue

                             13-Weeks Ended
               September 25, 2022       September 26, 2021      $ Change       % Change
                             (in thousands)
Net revenue   $             92,040     $             64,627     $  27,413             42 %




The increase in net revenue of $27.4 million, or 42%, was primarily driven by
volume-related increases of $18.0 million and price increases of $9.4 million.
The volume favorability was primarily due to increasing volumes through our
current distributors and new distribution with new and existing customers. Net
revenue from sales through our retail channel was $89.1 million and $63.6
million for the 13-week periods ended September 25, 2022 and September 26, 2021,
respectively.

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Gross profit and gross margin

                              13-Weeks Ended
                September 25, 2022       September 26, 2021       $ Change       % Change
                              (in thousands)
Gross profit   $             29,491     $             19,839     $    9,652             49 %
Gross margin                     32 %                     31 %



The increase in gross profit of $9.7 million, or 49%, was driven by higher net
revenue generated during the period. The increase in gross margin during the
13-week period ended September 25, 2022 as compared to the 13-week period ended
September 26, 2021 was primarily driven by increased pricing on our organic
shell egg and butter implemented at the end of January 2022, along with
additional pricing increases across the entire portfolio in May 2022. The price
increases offset an increase in input costs (including costs of organic feed)
across our shell egg and butter businesses as well as higher packaging costs.

Functionnary costs

Selling, general and administrative expenses

                                                    13-Weeks Ended
                                           September 25,       September 26,
                                               2022                2021            $ Change        % Change
                                                    (in thousands)
Selling, general and administrative       $        20,561     $        15,326     $    5,235               34 %
Percentage of net revenue                              22 %                24 %


The increase in selling, general and administrative expenses of $5.2 millionor 34%, was primarily motivated by:

an increase of $2.3 million in employee-related costs, including stock-based
compensation, driven by an overall increase in employee headcount to support our
operations;

$1.5 million increased marketing expenses; and

an increase of $0.7 million in brokerage-related expenses due to the expansion
of the business.


Shipping and Distribution

                                      13-Weeks Ended
                             September 25,       September 26,
                                 2022                2021           $ Change      % Change
                                      (in thousands)
Shipping and distribution   $         6,906     $         6,318     $     588             9 %
Percentage of net revenue                 8 %                10 %


The increase in shipping and distribution costs for $0.6 millionor 9%, was driven by higher sales volumes and freight rates, partially offset by internal operating efficiencies and lower liner rates.

Other Income (Expense), Net

                                                    13-Weeks Ended
                                          September 25,         September 26,
                                              2022                  2021            $ Change       % Change
                                                    (in thousands)
Other income (expense), net              $           152       $            (8 )   $      160          2,000 %




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The increase in other income (expense), net of $160,000, was primarily driven by
higher interest income earned in the period compared to the increase in realized
losses on our available-for-sale debt securities.

Provision for income tax (benefit)

                                                   13-Weeks Ended
                                          September 25,       September 26,
                                              2022                2021             $ Change       % Change
                                                   (in thousands)
Income tax provision (benefit)           $         1,465     $          (486 )    $    1,951            401 %
Percentage of net revenue                              2 %                (1 )%


The modification of the provision (benefit) for the income tax of $2.0 million was primarily due to the increase in net income earned during the period and favorable tax benefits from the exercise of stock options in the prior year that did not recur during of the 13 week period ended September 25, 2022.

Net loss attributable to non-controlling interests

                                                    13-Weeks Ended
                                          September 25,         September 26,
                                              2022                  2021            $ Change        % Change
                                                    (in thousands)
Net loss attributable to
noncontrolling interests                 $           (12 )     $            (6 )   $        (6 )          100 %



The increase in net loss attributable to non-controlling interests of $6,000or 100%, was mainly due to higher general and administrative expenses in 2022.

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Comparison of completed 39-week periods September 25, 2022 and September 26, 2021

The following table presents the consolidated data in our income statement expressed as a percentage of net sales for the quarters presented.

                                                              39-Weeks Ended
                                               September 25,                  September 26,
                                                    2022                          2021
                                                           % of                          % of
                                           Amount        Revenue         Amount         Revenue
                                                          (dollars in thousands)
Net revenue                               $ 251,969            100 %    $ 183,496             100 %
Cost of goods sold(1)                       175,838             70 %      120,394              66 %
Gross profit                                 76,131             30 %       63,102              34 %
Operating expenses:
Selling, general and administrative(1)       55,193             22 %       42,053              23 %
Shipping and distribution                    22,279              9 %       16,755               9 %
Total operating expenses                     77,472             31 %       58,808              32 %
(Loss) income from operations                (1,341 )           (1 )%       4,294               2 %
Other income (expense), net:
Interest expense                                (27 )            -            (42 )             -
Other income (expense), net                     501              -            300               -
Total other income (expense), net               474              -            258               -
Net (loss) income before income taxes          (867 )            -          4,552               2 %
Income tax benefit                             (232 )           (0 )%      (1,485 )            (1 )%
Net (loss) income                              (635 )            -          6,037               3 %
Less: Net loss attributable to
noncontrolling interests                        (21 )            -            (41 )             -
Net (loss) income attributable to Vital
Farms, Inc. common
  stockholders                            $    (614 )            -      $   6,078               3 %


(1)

Includes stock-based compensation expense of $4,352 and $3,090 in sales, general and administrative for the 39 weeks ended September 25, 2022 and
September 26, 2021respectively, and $146 and $102 of the cost of goods sold for the 39 weeks then ended, respectively.

Net revenue

                             39-Weeks Ended
               September 25, 2022       September 26, 2021      $ Change       % Change
                             (in thousands)
Net revenue   $            251,969     $            183,496     $  68,473             37 %



The increase in net revenue of $68.5 million, or 37%, was primarily driven by
volume-related increases of $53.6 million and price increases of $14.8 million.
The volume favorability was primarily due to increasing volumes through our
current distributors and new distribution with new and existing customers. Net
revenue from sales through our retail channel was $244.6 million and $180.6
million for the 39-week periods ended September 25, 2022 and September 26, 2021,
respectively.

Gross profit and gross margin

                              39-Weeks Ended
                September 25, 2022       September 26, 2021      $ Change       % Change
                              (in thousands)
Gross profit   $             76,131     $             63,102     $  13,029             21 %
Gross margin                     30 %                     34 %



The increase in gross profit of $13.0 million, or 21%, was driven by higher net
revenue generated during the period. The decrease in gross margin during the
39-weeks ended September 25, 2022 as compared to the 39-weeks ended September
26, 2021 was primarily driven by an increase in input costs (including costs of
organic feed) across our shell egg and butter businesses, increase in

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packaging costs and increase in transportation costs. Increased pricing on our
organic shell egg and butter businesses at the end of January 2022, along with
additional pricing increases across the entire portfolio in May 2022, partially
offset the input costs headwinds.

Functionnary costs

Selling, general and administrative expenses

                                                 39-Weeks Ended
                                           September        September
                                            25, 2022         26, 2021       $ Change        % Change
                                                 (in thousands)
Selling, general and administrative       $     55,193     $     42,053     $  13,140               31 %
Percentage of net revenue                           22 %             23 %




Selling, general, and administrative expenses increased to $55.2 million for the
39-week period ended September 25, 2022, compared to $42.1 million for the
39-week period ended September 26, 2021. The increase in selling, general and
administrative expenses was primarily driven by:

an increase of $7.6 million in employee-related costs, including stock-based
compensation, driven by an overall increase in employee headcount to support our
operations;

an augmentation of $2.3 million brokerage fees related to business expansion;

an augmentation of $1.2 million exit costs and disposal of assets related to the decision to exit our egg breakfast bars and egg products; and

an augmentation of $0.3 million in marketing expenses.

Shipping and Distribution

                                                 39-Weeks Ended
                                           September        September
                                            25, 2022         26, 2021        $ Change        % Change
                                                 (in thousands)
Shipping and distribution                 $     22,279     $     16,755     $    5,524               33 %
Percentage of net revenue                            9 %              9 %



The increase in shipping and distribution expense of $5.5 million, or 33%, was
driven by higher sales volumes and freight rates. We are beginning to see
freight rates stabilize due to a combination of steadying line haul rates and
internal operational efficiency.

Other Income (Expense), Net

                                                    39-Weeks Ended
                                          September 25,       September 26,
                                               2022                2021           $ Change        % Change
                                                    (in thousands)
Other income (expense), net               $          474      $          258     $      216               84 %




                                       28
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The increase in other income (expense), net of $216,000, or 84%, was primarily
driven higher interest income in the 39-week period ended September 25, 2022
from available-for-sale debt securities.

Income tax benefit

                                                  39-Weeks Ended
                                          September 25,       September
                                              2022             26, 2021         $ Change        % Change
                                                  (in thousands)
 Income tax benefit                       $        (232 )    $     (1,485 )    $    1,253               84 %
Percentage of net revenue                            (0 )%             (1 )%



The decrease in the income tax benefit of $1.3 million, or 84%, was primarily
driven by favorable tax benefits from significant stock option exercises in the
prior year which have not recurred at the same levels during the 39-week period
ended September 25, 2022.

Net loss attributable to non-controlling interests

                                                      39-Weeks Ended
                                                                   September 26,
                                          September 25, 2022            2021           $ Change         % Change
                                                      (in thousands)
Net loss attributable to
noncontrolling interests                 $                (21 )    $          (41 )   $        20               49 %


The decrease in the net loss attributable to non-controlling interests of $20,000or 49%, was mainly driven by favorable tax benefits in 2022.

                        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 $0.7 million and net loss of $0.6 million for the
13-week and 39-week periods ended September 25, 2022, respectively, and retained
earnings of $2.3 million as of September 25, 2022. We completed our IPO on
August 4, 2020, resulting in net proceeds to us of approximately $99.7 million,
after deducting underwriting discounts, commissions and offering costs
associated with the offering.

Financing and cash requirements

We expect that our cash and cash equivalents, together with cash provided by our
operating activities and availability of borrowings under our existing Credit
Facility, will be sufficient to fund our operating expenses for at least the
next 12 months. We further believe that we will be able to fund potential
operating expenses and cash obligations beyond the next 12 months, through a
combination of existing cash 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.

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 partnerships and unexplored channels and the potential costs
associated with future expansions of our production capacity. We lease certain
office facilities under operating lease arrangements that expire on various
dates through fiscal year 2026. Under the terms of the leases, we are
responsible for certain operating expenses, such as insurance, property taxes,
and maintenance expenses. Future minimum lease payments under non-cancelable
operating leases totaled $2.6 million as of September 25, 2022. During the
13-week period ended September 25, 2022, the Company entered into a new
long-term transportation agreement commencing in the fourth quarter of fiscal
2022. Future undiscounted minimum payments contained in this agreement are
approximately $10.3 million over the five-year term of the lease.

Credit facility

We originally entered into our credit facility with PNC Bank, National Associationor PNC Bank, in October 2017. The credit facility initially included a $7.9 million term loan, $15.0 million a revolving line of credit and an equipment loan with a maximum borrowing capacity of $3.0 million.

                                       29
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Subsequently, terms of the Credit Facility were modified at various times
between fiscal 2018 and fiscal 2021. These modifications (i) amended various
definitions, (ii) waived a technical default in May 2020 which was triggered by
exceeding the capital expenditure limit, (iii) increased borrowing capacity and
(iv) extended the maturity date. The Ninth Amendment to the Credit Facility in
April 2021 eliminated the term loan and equipment loan. The revolving line of
credit matures in April 2024.

The maximum borrowing capacity under the revolving line of credit is currently
$20.0 million. Interest on borrowings under the revolving line of credit, as
well as loan advances thereunder, accrues at a rate, at our election at the time
of borrowing, equal to (i) LIBOR plus 2.00% or (ii) 1.00% plus the alternate
base rate, as defined in the Credit Facility. In April 2020, all
then-outstanding amounts under the Revolving Line of Credit were repaid at an
effective rate of 4.5%.

The Credit Facility is secured by all of our assets (other than real property
and certain other property excluded pursuant to the terms of the Credit
Facility) and requires us to maintain three financial covenants: a fixed charge
coverage ratio, a leverage ratio and a minimum tangible net worth requirement.
The Credit Facility also contains various covenants relating to limitations on
indebtedness, acquisitions, mergers, consolidations, the sale of properties and
liens. As a result of the limitations contained in the Credit Facility, certain
of the net assets on our consolidated balance sheet as of September 25, 2022 are
restricted in use. The Credit Facility contains other customary covenants,
representations and events of default.

From September 25, 2022there were no outstanding balances under the credit facility and we were in compliance with all covenants under the credit facility.


Cash Flows

The following table summarizes our cash flows for the 39-week periods indicated:

                                                               39-Weeks Ended
                                                September 25, 2022        September 26, 2021
                                                               (in thousands)
Net cash (used in) provided by operating
activities                                     $             (3,368 )    $             13,304
Net cash used in investing activities                        (8,945 )                 (16,562 )
Net cash provided by financing activities                       185                     1,558
Net decrease in cash and cash equivalents      $            (12,128 )    $             (1,700 )


Operating Activities

Cash flows related to operating activities are dependent on net income (loss),
non-cash adjustments to net income (loss), and changes in working capital. The
change in cash used in operating activities during the 39-week period ended
September 25, 2022 compared to cash provided by operating activities during the
39-week period ended September 26, 2021 is primarily due to the net loss in the
current period adjusted for non-cash items and an increase in net cash used for
working capital. The increase in cash used for working capital was primarily due
to (i) a significant increase in inventory to support the ongoing growth of our
business, (ii) an increase in accounts receivable as a result of significantly
higher sales in the current period, and (iii) an increase in accrued liabilities
for promotional spending to drive continued sales growth, freight charges and
higher employee related accruals.

Investing activities

The decrease in cash used in investing activities during the 39-week period
ended September 25, 2022 compared to the 39-week period ended September 26, 2021
was primarily due to a reduction in capital spending related to our expansion of
Egg Central Station that was substantially complete in April 2022. The net cash
used in investing activities for purchases, sales and maturities of our
available-for-sale securities during the 39-weeks ended September 25, 2022
compared to the prior year period was immaterial.

Fundraising activities

The decrease in cash provided by financing activities during the 39-week period
ended September 25, 2022 compared to the 39-week period ended September 26, 2021
was primarily due to a reduction in the number of options exercised in the
current fiscal year, resulting in reduced proceeds from the exercises.

                                       30
--------------------------------------------------------------------------------

                          Non-GAAP Financial Measures

Adjusted EBITDA

We report our financial results in accordance with GAAP. However, management
believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors
with additional useful information in evaluating our performance.

We calculate Adjusted EBITDA as net income (loss), adjusted to exclude:

Depreciation and amortization;

Stock-based compensation expense;

Costs associated with discontinuing our convenience breakfast product line;

The costs associated with the dissolution of the Ovabrite, Inc. variable interest entity;

Benefit or provision for income taxes as the case may be;

Interest charges;

Change in fair value of contingent consideration; and

Interest income.

Adjusted EBITDA is a financial measure that is not required by, or presented in
accordance with, GAAP. We believe that Adjusted EBITDA, when taken together with
our financial results presented in accordance with GAAP, provides meaningful
supplemental information regarding our operating performance and facilitates
internal comparisons of our historical operating performance on a more
consistent basis by excluding certain items that may not be indicative of our
business, results of operations or outlook. In particular, we believe that the
use of Adjusted EBITDA is helpful to our investors as it is a measure used by
management in assessing the health of our business, determining incentive
compensation and evaluating our operating performance, as well as for internal
planning and forecasting purposes.

Adjusted EBITDA is presented for supplemental informational purposes only, has
limitations as an analytical tool and should not be considered in isolation or
as a substitute for financial information presented in accordance with GAAP.
Some of the limitations of Adjusted EBITDA include the following:

It does not correctly 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 such 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 reflect other non-operating expenses, including interest charges;

It does not take into account the impact of any valuation adjustments to the contingent consideration liability; and

It does not take into account tax payments which may represent a reduction in the cash available to us.

In addition, our use of Adjusted EBITDA may not be comparable to similarly
titled measures of other companies because they may not calculate Adjusted
EBITDA in the same manner, limiting its usefulness as a comparative measure.
Because of these limitations, when evaluating our performance, you should
consider Adjusted EBITDA alongside other financial measures, including our net
income or loss and other results stated in accordance with GAAP.

                                       31
--------------------------------------------------------------------------------


The following table presents a reconciliation of Adjusted EBITDA to Net income
(loss), the most directly comparable financial measure stated in accordance with
GAAP, for the periods presented:

                                              13-Weeks Ended                

39 weeks completed

                                     September 25,       September 26,       September 25,       September 26,
                                         2022                2021                2022                2021
                                              (in thousands)
Net income (loss)                   $           711     $        (1,327 )   $          (635 )   $         6,037
Depreciation and amortization                 1,646                 907               3,892               2,527
Stock-based compensation expense              1,569               1,198               4,498               3,192
Costs related to our exit of the                  -                   -               2,341                   -
convenient breakfast product line
Dissolution of Ovabrite, Inc.                   122                   -                 122                   -
Income tax provision (benefit)                1,465                (486 )              (232 )            (1,485 )
Interest expense                                 12                  11                  27                  42
Change in fair value of                           -                  14                  19                  34
contingent consideration(1)
Interest income                                (312 )               (95 )              (652 )              (280 )
Adjusted EBITDA                     $         5,213     $           222     $         9,380     $        10,067



(1)

The amount reflects the change in fair value of a contingent consideration liability in connection with our 2014 acquisition of certain Heartland Eggs assets.

                                  Seasonality

Demand for our products fluctuates in response to seasonal factors. Demand tends
to increase with the start of the school year and is highest prior to holiday
periods, particularly Thanksgiving, Christmas and Easter, and lowest during the
summer months. As a result of these seasonal and quarterly fluctuations,
comparisons of our sales and results of operations between different quarters
within a single fiscal year are not necessarily meaningful comparisons.

                         Critical Accounting Estimates

The preparation of our unaudited condensed consolidated financial statements in
conformity with GAAP requires us to make estimates and judgments that affect the
amounts reported in the financial statements and related notes thereto. Critical
accounting estimates are those estimates that, in accordance with GAAP, involve
a significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on our unaudited condensed consolidated
financial statements. Management has determined that our most critical
accounting estimates are those relating to revenue recognition and trade
promotions, income taxes, and contingencies. Although we believe that the
estimates we use are reasonable, due to the inherent uncertainty involved in
making these estimates, actual results reported in future periods could differ
materially from those estimates. For further discussion about our accounting
policies, see "Summary of Significant Accounting Policies" in Note 2 to our
unaudited condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q.

The significant accounting estimates used in preparation of the unaudited
condensed consolidated financial statements are described in our audited
consolidated financial statements as of and for the fiscal year ended December
26, 2021, and the notes thereto, which are included in our Annual Report on Form
10-K. Except as detailed in Note 2 to our unaudited condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q,
there have been no material changes to our significant accounting policies or
critical accounting estimates during the 39-week period ended September 25,
2022.

                        Recent Accounting Pronouncements

See the sections titled "Summary of Significant Accounting Policies-Recently
Adopted Accounting Pronouncements" and "-Recently Issued Accounting
Pronouncements Not Yet Adopted" in Note 2 to our unaudited condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q for a discussion of recent accounting pronouncements.

                                       32
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                         Emerging Growth Company Status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was
enacted. Section 107 of the JOBS Act provides that an "emerging growth company"
may take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. Therefore, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to
private companies. We have elected to use the extended transition period under
the JOBS Act. Accordingly, our financial statements may not be comparable to the
financial statements of public companies that comply with such new or revised
accounting standards.

We may take advantage of these exemptions until December 31, 2025, or such
earlier time that we are no longer an emerging growth company. We would cease to
be an emerging growth company on the date that is the earliest of (1) the last
day of the fiscal year in which we have total annual gross revenues of $1.235
billion or more; (2) December 31, 2025; (3) the date on which we have issued
more than $1.0 billion in nonconvertible debt during the previous three years;
or (4) the date on which we are deemed to be a large accelerated filer under the
rules of the Securities and Exchange Commission. We may choose to take advantage
of some but not all of these exemptions.

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