Vital Farms, Inc. (VITL) Q3 2021 Earnings Call Transcript

Vital Farms, Inc. (VITL 0.40%)
Q3 2021 Earnings Call
Nov 09, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by, and welcome to Vital Farms third quarter 2021 earnings conference call. [Operator instructions]. Please be advised that today's conference is being recorded. [Operator instructions].

I would now like to hand the conference over to your host today, Matt Siler. You may begin.

Matt Siler -- Vice President of Investor Relations

Thank you. Good morning, and welcome to Vital Farms third quarter 2021 earnings conference call and webcast. I am pleased to be joined on today's call by Russell Diez-Canseco, president and chief executive officer; and Bo Meissner, chief financial officer. By now, everyone should have access to the company's third quarter 2021 earnings press release issued this morning.

This is available on the investor relations section of Vital Farm's website at investors.vitalfarms.com. Through the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and to the company's quarterly report on Form 10-Q for the fiscal quarter ended September 26, 2021, which is filed with the SEC earlier today and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Please note that on today's call, management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with GAAP. And now I'd like to turn the call over to Russell Diez-Canseco, president and chief executive officer of Vital Farms.

Russell Diez-Canseco -- President and Chief Executive Officer

Thanks, Matt, and good morning, everyone. Thanks for joining us today. We hope you're enjoying the cooler temperatures as much as our girls on grass to around this time of the year. We had a strong third quarter and are pleased with the momentum we sustained across our business in 2021.

We delivered record net revenue for the third quarter and continue to manage our margins despite the extraordinary inflation we are seeing in so many sectors of the global economy. Net revenue was $64.6 million, a 21.1% increase from the prior year period. We grew our network of small family farms to over 250 and we continue to increase retail distribution. Our products are now available in over 18,000 stores.

Finally, household penetration remained steady relative to the last quarter at over 5.5 million households, a 5% increase from the same time last year. We're raising our 2021 fiscal year revenue outlook, which reflects our confidence in continuing the positive momentum we've experienced all year. Bo will elaborate more on our detailed guidance in a few minutes. Turning now to updates on the business.

A few weeks ago, we hosted our first Investor Day in Springfield, Missouri as a relatively new public company and due to the ongoing COVID-19 pandemic. Our Investor Day was the first time we were able to meet some of our stockholders and other members of the investment community in person. It was also their first opportunity to tour Egg Central Station, our world-class egg washing and packing facility and to meet crew members from functions spanning the entire company. We were especially pleased to introduce analysts and investors to our crew members at Egg Central Station.

We saw genuine interest and enthusiasm of those who attended our Investor Day, particularly around the many instances in which they saw our stakeholder model come to life, including the culture we've cultivated among our crew members, our robust network of small family farms, our environmental conservation efforts across our supply chain, and the thoughtful ways we are building loyal relationships with our consumers. We believe in co-creation with our stakeholders. For our crew members, this means we listen and make decisions that benefit their long-term sustainability. We believe that if we prioritize their professional development and financial well-being, they will prosper as well our business.

Two topics of particular interest that came up at Investor Day involved our pricing strategy and the desire for greater detail around our marketing strategy. So I want to spend a few minutes discussing these areas. First on pricing. As I mentioned earlier, we are at a time of extraordinary inflation that has impacted feed, transportation, and labor costs.

To date, we have absorbed these incremental costs as we felt most of them were transitory in nature. We have also helped offset these costs within our own supply chain. However, the severity of inflation in recent months across some of our key inputs and the fact that in certain areas, it appears to be more sustaining has led us to take a modest price increase across roughly 40% of our product portfolio. This planned price increase will take effect early next year.

Recognizing the close partnership we foster with our stakeholders, we communicated this update to our retail customers with significant lead time. We believe they understand that this is a responsible decision made in the best interest of long-term sustainability for our stakeholders. Now I want to be clear about a couple of points. First this decision does not deviate from our consistent stance on pricing.

We have always said that if and when we feel inflationary pressure is going to last longer than what we've seen in prior instances, we would take action to offset the effects of sustained increased input costs. Second, we have not seen a material impact from the U.S. labor market shortage. While we are not immune to these labor issues, our supply chain has remained nimble, which we believe is a testament to our continued investments in human capital.

Now moving to our marketing strategy. We're often asked how we connect consumers with the multifaceted stories about our brand. In Slides 17 through 20 in the investor presentation that we posted this morning, we provided more detail on how we are building a strong brand in eggs and beyond through premium positioning, of breakthrough personality, and consistent point of view. Our storytelling is bold and honest.

And while a focus on ethical food is a thread that is woven throughout all communication, we apply our playful, mindful, and savvy tone through diverse storytelling that connects consumers with every aspect of our brand, including family farmers, the girls on grass, and consumers who love cooking with us. A recent example is hens behind the lens, which launched last week. For this new campaign, we wanted to show a day in the life of our girls in the most honest and transparent way possible. So we created a way for the hens to take photos of their life out in the past year.

The result is a series of unedited, beautiful, and at times hilarious photos of life out on the pasture through the eyes of their most honest residents, the hens. This is our first out-of-home campaign, which will be featured on digital billboards and geo-targeted mobile in major markets across the country. The initial consumer response to hens behind the lens has been incredibly positive. And we were pleased to see the campaign recognized as the ad of the day by [Inaudible] magazine.

Consistent with our belief in experimentation, we are excited to meet consumers in new places and learn the effectiveness of channels beyond paid social media. We have a thorough understanding of our core consumers and how to reach them in the diverse places to which they are attuned. This includes online video, podcasts, in retail stores on e-commerce platforms and across myriad social feeds, as you'll see on Slide 19. We know our strategy is working.

We've added 2 million net new households to our consumer base in the last two years we're leading in dollar share requirements among all premium egg brands, and we have the highest brand iTrust score among purchasers. Finally, we're pleased that Vital Farms is often recognized for thinking creatively and disruptively about how our brand shows up in the world. Just a few weeks ago, we were recognized by Fast Company as a 2021 brand that matters, which is a list of 95 companies and organizations that have achieved relevance through cultural impact, social engagement, and have authentically communicated their mission and ideas. We were thrilled to be listed along so many purpose-driven brands that we admire, including Patagonia, Nike, Sweetgreen, YETI, and more.

Now I'll spend a few minutes reviewing household penetration, retail distribution, food service, and innovation. Our household penetration on eggs stands at over 5.5 million households or 4.4%. This measure is steady versus last quarter and is up about 60 basis points from the same period last year. Given we offer an expanding product portfolio, we thought it would be helpful to provide you with our total brand household penetration metric, which currently stands at 5%.

This is also higher relative to the prior year. As we discussed previously, we are focused on gaining share at retail and are happy to report that we gained another 20 basis points of share in Q3 2021 and now command 5.8% of the total egg market. In terms of retail distribution, our products are now available in over 18,000 retail stores nationwide, which represents growth of 10% over this time last year. Looked at another way, our total placements in stores grew over 19% relative to this time last year.

We saw strong distribution gains across the country, including further distribution at Whole Foods on certain SKUs. I'm also excited to announce we recently launched the Vital Farms, Farm shop, our first e-commerce storefront, featuring 11 of our SKUs, including butter, Ghee, and our convenient recast offerings. This will make some of our products available to new households across the country and allow us to learn more about today's direct-to-consumer landscape in the process. Now turning to food service.

Since the end of 2020, we have increased the number of food service distribution centers that carry our Vital Farms products by over 175%. We believe the first key step in scaling our foodservice business is making our products available for distribution in many regions across the country. This is allowing us to expand our presence with new regionally focused foodservice concepts, including the unwind cafe, which has locations across the country. On innovation.

As shared on our last earnings call, we recently introduced new products in the convenient breakfast and butter categories. What we've learned about convenient breakfast today, especially from egg bites is that 70% of the volume was incremental to the category and the remaining purchases come from other existing brands. We're pleased with the response we've seen both from our consumers and retail customers as distribution for our breakfast bars and pasture-raised spreadable tub butter has ramped nationally. We believe our pasture-raised spreadable tub butter will be especially popular on dinner tables this holiday season.

Before I turn the call over to Bo, I want to conclude with some remarks I recently shared at the Conscious Capitalism CEO summit, an annual event that brings together conscious business leaders. I think there's a misconception that Conscious Capitalism is a trade-off for successful capitalist competition. We believe that it is a better way to produce outsized returns over time. I believe our market leadership and the consistent revenue and penetration growth we've demonstrated within the specialty egg segment and category more broadly is a testament to how fiercely we compete to win.

Simply put, if I did not think this was the right way to do business, I wouldn't do it. I'd now like to turn the call over to Bo.

Bo Meissner -- Chief Financial Officer

Thank you, Russell. Hi, everyone, and thank you for joining us today. I will review our financial results for the third quarter ended September 26, 2021, and provide an update on our full year outlook. As Russell mentioned, we achieved record quarterly net revenue of $64.6 million, an increase of 21.1% compared to the third quarter of 2020.

We achieved a 37.7%, two-year net revenue growth CAGR, which represents 100 basis points of acceleration relative to what we experienced in Q2 2021. Growth in net revenue was due to continued growth in egg-related sales driven by volume increases at our existing customers as well as distribution gains at both new and existing retail partners and an increase in butter-related sales. Gross profit for the third quarter was 19.9 million or 30.7% of net revenue, compared to 18.4 million or 34.4% of net revenue for the third quarter of 2020. The change in gross profit was primarily driven by higher sales.

The change in gross margin was primarily attributable to an increase in grain input costs, which occurred in the second quarter of 2021 along with higher planned promotional spend as we return to normalized spend at retailers. SG&A for the third quarter was 15.3 million, compared to 12.2 million in the third quarter last year. The increase in SG&A was primarily driven by higher employee-related costs as we grew headcount to support our continued growth, an increase in our marketing spend, and higher broker commission payments based on the increase in our sales volumes. Shipping and distribution increased 68% or 2.6 million relative to the third quarter of 2020, driven by higher third-party freight rates and, to a lesser extent, higher levels of sales volume.

Adjusted EBITDA for the third quarter was 0.2 million, compared to 7.1 million for the third quarter of 2020. Now an update on our capital structure. As of September 26, 2021, we had a total balance of cash and cash equivalents and investment securities of 97.6 million, and we have no long-term debt outstanding. Turning to our forecast for the full year 2021.

We are increasing our guidance for net revenue to between 253 million to $256 million, an increase of 18 to 19% over 2020. Finally, we are tightening our expectations on adjusted EBITDA and anticipate it will be in the range of 8 to 9 million for the full year 2021. Thanks for your time and interest in Vital Farms. Before we move to taking questions, I want to reiterate our confidence in the current trajectory of our business.

Our portfolio of high-quality, ethically produced foods is trusted by millions of households across the country. We remain focused on further laying a strong foundation to propel future growth as both the company and the brand. With that, I'll turn the call back over to Russell.

Russell Diez-Canseco -- President and Chief Executive Officer

Thank you, everyone, for your interest in Vital Farms and for your time today. We'd now like to turn it over to the operator to take your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions]. Our first question comes from Pamela Kaufman from Morgan Stanley.

Pamela Kaufman -- Morgan Stanley -- Analyst

Good morning.

Russell Diez-Canseco -- President and Chief Executive Officer

Good morning.

Pamela Kaufman -- Morgan Stanley -- Analyst

Can you elaborate on where your expectations around inflation have changed relative to last quarter? And what you see as more structural versus transient previously? And then as a follow-up, do you expect the pricing that you're implementing to fully offset the inflationary pressures next year?

Bo Meissner -- Chief Financial Officer

Sure, Pam. I'd be happy to talk to that. Thanks for the question. I mean, I think as we've been talking, and you can see in the external world, we still see that grain prices have come down, but remain elevated.

But particularly within transportation costs, we're seeing significant increases versus where we've been, and those don't seem to come back down. So that's one of the key areas that I think we still see pressure on our P&L on. And your question on pricing was?

Pamela Kaufman -- Morgan Stanley -- Analyst

The question is if you expect that the pricing that you've announced will -- if it should fully offset the inflationary pressures that you anticipate next year?

Bo Meissner -- Chief Financial Officer

Well, it's hard to say in totality because we don't know exactly where transportation is going to go and grain costs are going to go. But we think that we're going to offset a good portion of it, but it's difficult to say whether it will be all.

Pamela Kaufman -- Morgan Stanley -- Analyst

Thanks. And then I just had a question on your distribution expansion. So you saw good store growth during the quarter that accelerated sequentially. Is there anything that you're doing differently that's contributing to that distribution expansion.

And I'm curious about the composition of the store growth if you're seeing particular growth in a specific region or within existing or new retail customers?

Russell Diez-Canseco -- President and Chief Executive Officer

Thanks, Pam. So the first thing I'd call out is, last year, about a year ago, we hired Pete Pappas to lead sales for our organization. And he went to work building not just an organization, but a real strategy around how to focus our team, how to allocate resources. And frankly, the biggest factor, I think, at play here is we're starting to see that strategy and that team come to life in the results we're seeing.

It's frankly, we're just executing at a higher level than we were a year ago in this regard. Beyond that, again, I think it is investments we're making in everything from marketing to category insights and we work to become trusted partners and thought partners to our retailers. And that also has the effect of helping us continue to build out those relationships in sort of mutually beneficial way. So there are a lot of factors here, which again goes back to that stakeholder model or conscious capitalism that I'm always talking about, but the specific things would be, I think, great execution on the part of our marketing and sales teams and frankly, a very resilient supply chain despite lots of interesting headwinds across the sector this year.

Pamela Kaufman -- Morgan Stanley -- Analyst

OK. Thank you.

Operator

Thank you. [Operator instructions]. And our next question comes from Adam Samuelson from Goldman Sachs. Your line is open.

Adam Samuelson -- Goldman Sachs -- Analyst

Good morning, everyone. So I guess my first question is thinking about the distribution expansion, just to know one of the big pushes this year has been to really increase total number of placements and items per store in conventional grocery, where you're significantly under-indexed versus kind of what you can do in the natural channel. Just how do you -- any elaboration on progress there? And as you think about shelf resets for '22, any kind of optimism that there's an increasing take rate? Or is it just a slow steady build from where we are today?

Bo Meissner -- Chief Financial Officer

Yes. I appreciate that, Adam. And you're absolutely right. There is a massive opportunity for us in conventional grocery.

We already, in many parts of natural enjoy sort of the No. 1 rank in sales of branded eggs and have been there for quite a while, and we have great relationships there. I think there is an element of a flywheel effect here where sort of the success in natural helped get us into the conventional grocery years ago. And as momentum builds there, it makes it easier and easier to open more doors over time.

I don't know that I'd call out a particular area within conventional grocery, although I think it's been very consistent, but our biggest opportunity to grow share is in the Northeast, and that is certainly where we put additional resources. So as I mentioned earlier, the team that we've built out under Pete Pappas' leadership over the last year has really brought additional sales resources. So we've grown the team, and we've really started to play a little more zone in terms of putting great people against great opportunities. And so that's really, I think, what's driving this increased momentum.

And again, while I don't know that I would forecast whether it's accelerating sustainably or whether it's just more of the same. What I would say is we're not taking our foot off the gas. And this work that we're doing to put the right people against the right opportunities and develop stronger partnerships continues at pace.

Adam Samuelson -- Goldman Sachs -- Analyst

OK. And then just a quick follow-up on the pricing kind of point. You talked about 40% of the portfolio kind of being subject to price increases. Is that a -- Any way to quantify just or help us frame just the magnitude of it as we think about where the wholesale price is going?

Bo Meissner -- Chief Financial Officer

Sure. I'd be happy to, Adam. So again, you're right, we said 40% of the portfolio, we're taking a price increase in the mid-single digits on that portion of the portfolio.

Adam Samuelson -- Goldman Sachs -- Analyst

OK. Great. That's really helpful. I will pass it on.

Thank you.

Operator

Thank you. And our next question comes from Rob Dickerson from Jefferies. Your line is now open.

Matt Fishbein

This is Matt Fishbein on for Rob. Thanks for the question. So Q3 household penetration on a percentage basis was 4.4% versus the 4.5 in Q2. And I think households were essentially flat sequentially as well.

Maybe we're splitting hairs here, but the first quarter since the lease 2019 that there wasn't any sequential increase in household penetration. So wanted to get your take on this. And given the new distribution gains, both in breadth and depth of distribution, how much of that sequentially flat, household penetration is owing to the total egg category household penetration unwind as maybe consumers commute a bit more to work rather than cooking breathes and home. And I guess just a follow-up broader question on it, is household penetration even the best measurement for us to use when we think about brand awareness?

Russell Diez-Canseco -- President and Chief Executive Officer

Yes. Thanks, Matt, for that. And you sure have eagle to see that I think, very small sequential change for sure. Look, the headline here is headline -- the household penetration continues to grow year on year.

And the reality is it's a 52-week look. And so if you think about the prior period, the prior year compare and the sequential compare, we were comparing to Q2 when likely we had some initial stock-up demand still in the households. And so the reality is between that and this sort of moment in time look that this calculation uses there's inevitably some slight rounding, etc., etc. We're not too caught up in a 10-basis-point change quarter over quarter.

The trajectory is very much still up and to the right.

Matt Fishbein

Cool. Thank you. And just impressions in Q3, I think the figure you called out is a jump since this summer. Anything you can share regarding who these incremental impressions are from, assuming some of these households are already purchasing, but are you able to see the mix of potential new households on the receiving end of your updated messaging?

Russell Diez-Canseco -- President and Chief Executive Officer

It's really early. We definitely have an eye toward experimentation and learning from all the different sort of advertising efforts that we put down aided by the investment we've made over the last year in the insights team on our marketing team. And so while we don't have any clear reads to share, I would say that everything we do is intentional and it is designed to continue to learn and get better over time with how we invest in building our brand and getting our story out there.

Matt Fishbein

Great. And I just want to squeeze a follow-up. And just given the strain across the food distribution landscape, were there any third-party related one-offs during the quarter that we should keep in mind? Thanks very much.

Russell Diez-Canseco -- President and Chief Executive Officer

Third-party in terms of suppliers to us or?

Matt Fishbein

Distributors. Was there anything going on in the quarter or this current presently that just for modeling purposes that we should keep in mind?

Russell Diez-Canseco -- President and Chief Executive Officer

Got it. No, no material one-offs, just inflation in freight rates is the biggest thing that we saw.

Bo Meissner -- Chief Financial Officer

Yes. That's correct.

Matt Fishbein

Great. Thanks very much. I will pass it on.

Bo Meissner -- Chief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from Jacob Nivasch from Credit Suisse. Your line is now open.

Jacob Nivasch -- Credit Suisse -- Analyst

Good morning, guys.

Russell Diez-Canseco -- President and Chief Executive Officer

Good morning.

Jacob Nivasch -- Credit Suisse -- Analyst

Just a follow-up here on pricing. To what extension should we think about -- I guess, yes, how should we think about demand elasticity given the price increase for 40% of the portfolio, is that something that you guys see as a risk, I guess, once the pricing does flow through? And then I have a follow-up here.

Russell Diez-Canseco -- President and Chief Executive Officer

I can take that one. So it's a great question and certainly one that we think about a lot. The reality is that a lot of it has to do with what the rest of the category does. So we are more interested in cross elasticity of demand than the elasticity of our products specifically because it has to do with the interplay of the shelf.

What we're hearing and seeing is some other premium brands also taking price as well. And so we won't know with confidence until we see how it all plays out next year. But that's the BDOs the decision we're making, which is we can always adjust as we see how it plays out. And what the competition does as well.

I believe that since we frankly enjoy, I think, really strong margins for this category and enjoy, we believe, the strongest brand in the category, we've got more room to play.

Jacob Nivasch -- Credit Suisse -- Analyst

Got you. OK. Yes. And then just, I guess, a bigger picture on foodservice.

I think you mentioned that food service distribution went up by 175% this quarter. And I'm just trying to think like just longer term, what's the strategy for that side of the business? Where do you see that play -- what kind of role do you see that playing in the business? Is that -- do you see that changing, I guess, from initial expectations? Yes, just any sort of color there.

Russell Diez-Canseco -- President and Chief Executive Officer

It's interesting. If you'd asked me a year or two ago about food service, I might have said something a little more circumspect, hey, look, we've got great products and a great brand. And on more of an opportunistic basis, we find these really powerful partnerships with local and regional concepts, and it works really well for both of us. Under Pete Pappas' leadership, we, frankly, are a lot more bullish on food service.

Pete is building up that food service team. And as you saw in what we reported, the first step is really building out our distribution network. And once we're in those distribution points, then we can go region by region and really have the conversations with the right concept, the right food service concepts at -- in the right locations and at the right time. And so this doesn't happen overnight, but it's definitely a place where we're placing incremental investments, and we expect to see some nice returns over time.

Jacob Nivasch -- Credit Suisse -- Analyst

Gotcha. Perfect. All right. Thank you very much.

Russell Diez-Canseco -- President and Chief Executive Officer

Thanks, Jacob.

Bo Meissner -- Chief Financial Officer

Thanks.

Operator

Thank you. And our next question comes from Matt Smith from Stifel. Your line is now open.

Matt Smith -- Stifel Financial Corp. -- Analyst

Good morning.

Bo Meissner -- Chief Financial Officer

Good morning, Matt.

Matt Smith -- Stifel Financial Corp. -- Analyst

Promotional activity is up compared to the prior year. But if we take a step back, can you talk about the level of promotional support you currently have in the market? And has the near-term inflation you're facing impacted your ability to achieve your desired level of in-store activity to support trial by new customers?

Bo Meissner -- Chief Financial Officer

Yes. I think --

Russell Diez-Canseco -- President and Chief Executive Officer

Go ahead.

Bo Meissner -- Chief Financial Officer

Sorry, Russell?

Russell Diez-Canseco -- President and Chief Executive Officer

Go ahead.

Bo Meissner -- Chief Financial Officer

Yes, the level of promotional activity that we've talked to in the past in Q3 and Q4, we had to support the new distribution is planned distribution. I don't think that the inflationary costs of how to take our foot off the gas there because we feel it's important to drive that trial. And really, we're just returning to the more normal cadence post a year of COVID, as all other competitors are. And we're seeing rational pricing in the marketplace both on base and promotional pricing.

So no real surprises in that area for us.

Matt Smith -- Stifel Financial Corp. -- Analyst

OK. And then as a follow-up, does the recent pricing action allow you to maintain a more normal promotional calendar next year? Or I guess, do you expect to realize that mid-single-digit price increase on the 40% of your portfolio? Or should we expect there to be some incremental promotional investment taken against that list price increase?

Russell Diez-Canseco -- President and Chief Executive Officer

What I'd say to that is because of the way that we communicated it to retailers and because frankly, we didn't overreach as I reportedly some CPG companies are really reaching as far as they can on pricing. We don't believe we'll see pressure to kind of give it all back in promotional spend, and we'll work very hard to stay disciplined on that.

Matt Smith -- Stifel Financial Corp. -- Analyst

Thank you very much. I will leave it there and pass it on.

Russell Diez-Canseco -- President and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator instructions]. And our next question comes from Ken Zaslow from Bank of Montreal. Your line is now open.

Ken Zaslow -- BMO Capital Markets -- Analyst

Hi. Good morning, everyone.

Russell Diez-Canseco -- President and Chief Executive Officer

Hey, Ken.

Ken Zaslow -- BMO Capital Markets -- Analyst

Just two quick questions. One I think is an easy answer is because of the egg market, you don't get any pre-buying or accelerated buying because ahead of your raising prices, right, you can't stack up on the eggs or anything like that. So there's no change to the distribution of your sales. Is that -- I'm assuming that's right? Is that fair? And then I just have one follow-up.

Russell Diez-Canseco -- President and Chief Executive Officer

Yes. I think the key factor there, you're right, is that, frankly, it's a very perishable product. So there's a limit to how much a retailer could forward buy. And so while they might be tempted to do it, it'd be very limited.

Ken Zaslow -- BMO Capital Markets -- Analyst

OK. And then the second question is, you talked about how the pricing may or may not cover the entire inflationary pressures. Can you talk about other opportunities that you have to offset that, what you're doing with the contracts that you're doing with the distribution center? Are things like that may be able to stabilize your margins in 2022? And I appreciate it.

Russell Diez-Canseco -- President and Chief Executive Officer

Yes. Sure thing, Ken. So we are constantly and continuously focused on eliminating waste in our system. And I mean waste in the lean operation sense of it.

So a couple of things that I would call out as really exciting opportunities that we've been working on for a while now, and we'll continue to focus on in '22. One has to do with the utilization rate of the trucks on which we ship our products. So just an opportunity to fully cube out each of those trucks. And our team is really focused on that as a goal in 2022, which can help offset the freight inflation.

The price of a truck goes up, but if our utilization of it goes up faster, it can really be a game changer. The second thing I'd call out is we have this amazing network of over 250 small family farms, and they provide us with an amazingly rich data set about what works well and what works less well in terms of farming practices. And so we have been working. This is a big part of our strategy to have great resources, internal resources and boots on the ground to support those farms, which is helping the ones that aren't achieving the very best results in the network, get a little closer to the best.

And as we help those farmers become more efficient and effective, we will then, in turn, have an opportunity to share in that savings. So this is an example where, it's better outcomes for the farmer, better outcomes for us and frankly, better outcomes for animal welfare and for the environment. So those are two areas I'd call out as ways that we're going to eliminate waste in '22 that will help offset some of the inflation we're seeing.

Ken Zaslow -- BMO Capital Markets -- Analyst

I appreciate it. Thank you, guys.

Russell Diez-Canseco -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And I'm showing no further questions. I would now like to turn the call back to Matt Siler for closing remarks.

Matt Siler -- Vice President of Investor Relations

Just want to say thanks, everybody, for your time today. If you have any questions, please feel free to reach out. Have a great day.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Matt Siler -- Vice President of Investor Relations

Russell Diez-Canseco -- President and Chief Executive Officer

Bo Meissner -- Chief Financial Officer

Pamela Kaufman -- Morgan Stanley -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Matt Fishbein

Jacob Nivasch -- Credit Suisse -- Analyst

Matt Smith -- Stifel Financial Corp. -- Analyst

Ken Zaslow -- BMO Capital Markets -- Analyst

More VITL analysis

All earnings call transcripts