Vital Farms (VITL) has filed to raise U.S. public market capital in an IPO of its common stock, according to an S-1 registration statement.

The firm has developed a network of small family-owned farms that provide pasture-raised eggs to U.S. consumers.

VITL is well positioned to benefit from changing consumer tastes toward ethically produced egg and related products.

Austin, Texas-based Vital was founded to sell ethically-farmed, pasture-raised eggs. Pasture-raised eggs are from chickens that have spent at least some time in or have access to a pasture.

Management is led by president and Chief Executive Officer Mr. Russell Diez-Canseco, who has been with the firm since January 2014 and was previously a consultant at McKinsey & Company.

The company was founded by Executive Chairman Matthew O-Hayer.

Below is a brief overview video of Vital Foods:

Source: Forbes

Vital sells its eggs through major supermarket chains including:

  • Albertsons Companies (ACI)
  • The Kroger Company (KR)
  • Publix Super Markets (PUSH)
  • Target (TGT)
  • Walmart (WMT)
  • Whole Foods
  • Others

Vital has received at least $43 million from investors including Jason Jones, Bowie Strategic Investments, Manna Tree Partners, SJF Ventures, Sunrise Strategic Partners and Arborview Capital Partners.

The firm secures eggs from a network of approximately 200 small farms, processes them in its dedicated facilities and sells them via distributors to supermarkets throughout the United States.

Vital also produces butter products.

The company said its products were in a total of 13,313 stores nationwide, as the chart shows below:

vitalstores

Selling, G&A expenses as a percentage of total revenue have been variable as revenues have trended upward.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rose to 1.5x in the most recent reporting period.

According to a 2020 market research report by United Egg Producers, the U.S. market for eggs continues to grow at a significant rate.

U.S. per capita egg consumption reached an all-time high in 2019, as the chart shows below:

vitaleggconsumption

Most of egg production is sold at retail, followed by eggs that were further processed into products for foodservice, manufacturing, retail and export, shown in the chart below:

vitaleggutil

Major competitive or other industry participants include:

  • Cal-Maine
  • Ornua (Kerrygold)
  • Local and regional egg companies

Vital’s recent financial results can be summarized as follows:

  • Growing topline revenue
  • Increasing gross profit and variable gross margin
  • Fluctuating operating profit
  • Uneven cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

vitalpl

Source: Company registration statement

As of March 29, 2020, Vital had $1.7 million in cash and $33.2 million in total liabilities.

Free cash flow during the twelve months ended March 29, 2020, was negative ($15.9 million).

Vital intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO as follows:

...we currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We currently expect that these capital expenditures will include approximately $15.0 million of net proceeds from this offering to further fund the expansion of Egg Central Station, additional funding for which may also come from cash on hand or borrowings under our credit facility with PNC Bank, National Association, or the Credit Facility.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Goldman Sachs, Morgan Stanley, Credit Suisse, Jefferies, BMO Capital Markets and Stifel.

Commentary

Vital is seeking public investment to fund expanding its egg processing capacity and other corporate initiatives.

The firm’s financials show accelerating topline revenue growth, uneven operating and net profits and a swing to positive cash flow from operations.

Selling, G&A expenses as a percentage of total revenue have been trending upward; its Selling, G&A efficiency rate has also been trending upward.

The market opportunity for egg consumption has grown substantially in recent years in the U.S.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 86.3% since their IPO. This is a top-tier performance for all major underwriters during the period.

Vital is well positioned to capitalize on increased demand for eggs as well as for sustainably-raised chicken products as younger demographics seek more ethically produced products.

I’ll provide an update when we learn more about the IPO from management.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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