BEYOND MEAT, INC.(BYND)Q3 2024 法說會逐字稿

Good afternoon, and welcome to the Beyond Meat Third Quarter 2024 Conference Call. All participants are in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Paul Sheppard, Vice President, FP&A, and Investor Relations. Please go ahead.

Thank you. Hello, everyone, and thank you for your participation on today's call. Joining me are Ethan Brown, Founder, President, and Chief Executive Officer; and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our third quarter 2024 earnings press release, filed today after market close. This document is available in the Investor Relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented today is unaudited and that during 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. Forward-looking statements in our earnings release along with the comments on this call are made only as of today and will not be updated as actual events unfold.

We refer you to today's press release, our quarterly reports on Form 10-Q for the quarter ended September 28, 2024, to be filed with the SEC and our annual report on Form 10-K for the fiscal year ended December 31, 2023, along with 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 also note that on today's call, management may reference adjusted EBITDA, adjusted loss from operations, and adjusted net loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, any reference to 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 today's press release for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown.

Thank you, Paul, and good afternoon, everyone. The third quarter marks another period of meaningful progress at Beyond Meat. We returned to growth, continued our gross margin expansion, and reduced operating expenses to their lowest level in four years as we drive the business toward cash flow and profitability objectives. I'll briefly highlight these results before diving deeper into them as I review performance against our five priorities in 2024. Net revenues were $81 million for the third quarter of 2024, reflecting a 7.6% increase year-over-year. Notably, compared to the year-ago period, net revenue per pound rose 15.8%, including a 22.6% increase in our U.S. retail channel net revenue per pound, and a 10.5% increase in our international retail channel net revenue per pound. Increases were driven by a full quarter benefit of price increases on certain products in the U.S. combined with substantially reduced trade discounts in both U.S. and international retail.

These factors generated our highest net revenue per pound since the fourth quarter of 2022, and importantly, we saw simultaneous improvements in our year-over-year volume trends in three of our four sales channels, an encouraging sign regarding price elasticity for our brand. These pricing and reduced promotional spending measures were joined by continued COGS improvement to strengthen gross margin which rose to 17.7% compared to negative gross margin of 9.6% in the third quarter last year. Notably, this gross margin also represented a sequential improvement of 300 basis points vis-a-vis the second quarter of 2024. Operating expenses fell to $45.2 million as we realized greater efficiencies throughout the organization. This marked a $17.2 million reduction year-over-year. Operating expenses were also sequentially down $2.4 million versus the second quarter of 2024. Even as we continue to take measures to further tighten operating expenses, as we've articulated previously, the key goal for 2024 has been to bolster the balance sheet.

We are not backing off this objective and expect to take measures yet this year to increase the company cash levels. I'd like to now turn to our five priorities for 2024. Our first priority is getting leaner and more efficient. Over the past two years, we have continued to implement lean management practices and principles. This effort has enabled us to look at our business in new ways, establishing value streams with the intent of working across business functions to deliver higher value more quickly to our customers and consumers. Though we have miles to travel, we are seeing proof points. We generated higher gross profit, incurred lower operating expenses, and posted a narrower adjusted EBITDA loss on both the year-over-year and sequential basis. Part of our lean implementation is a narrowing of focus around products, markets, specific consumers, and messages. Nowhere is this focus more evident than in our emphasis on helping consumers lead healthier lives through great-tasting Beyond Meat products.

This brings us to our second priority. This year's launch of Beyond 4, our fourth generation Beyond Burger, Beyond Beef, and Beyond Dinner Sausage. As you will recall, these core platforms reflect years of research and development that have successfully advanced both taste and nutrition, resulting in recognition by leading health organizations, with the products being included in the American Diabetes Association's evidence-based nutritional guidelines for its Better Choices for Life program and the American Heart Association's Heart Check Recipe Certification program. I personally love this product not only for its texture and savory taste, but its concise and clean ingredient list, coupled with very high levels of protein, contrasted with very low levels of saturated fat. More generally, you will increasingly hear Beyond Meat proudly share the process we use to make our delicious plant-based meats.

It is past time we put to bed any misconceptions about our processes. I expect consumers to agree once they know the facts. Our focus on healthy, clean ingredients and the clear messaging around Beyond 4's health benefits fuel our return to growth. Furthermore, we are expanding consumer choice by diversifying our portfolio in new ways. We were pleased to showcase for media a product that has been in the works for many years, our whole muscle steak line, Beyond Steak Filet. Beyond Steak Filet is made with mycelium, a root-like structure found in mushrooms, legume protein, and a limited number of natural ingredients. This process is one that should indeed be marketed, it should be celebrated, in fact. Simply put, it is a better and simpler process than that of industrial factory-farmed meat. And we expect consumers to agree once they understand the facts. One final update on products. Leading up to this relaunch, Panda Express initially reintroduced Beyond The Original Orange Chicken at 300 stores and recently expanded distribution to nearly 600 locations.

It's a delicious product that I hope you'll try if you haven't already. Our third priority is to support improved gross margin through our U.S. trade and pricing programs. We are making good progress and the results speak for themselves. As I said earlier, net revenue per pound in the U.S. retail channel rose 22.6% as compared to the year-ago period. We encourage that the consumer sees value in our products, including our use of premium ingredients, and that our messaging on taste, health, and clean label is resonating. Turning now to our fourth priority, the consolidation of our production network, which has substantially been completed on the manufacturing side. We are now seeing the benefits in the form of reduced tolling fees, better asset utilization and inventory management, freeing up working capital which has enhanced quality control. These initiatives to reduce COGS, which in Q3 of 2024 reached their lowest levels in just over three years, represent meaningful steps up toward restored and sustained higher gross margin.

Fifth, we are maintaining our investment focus in Europe, where we recently were able to meet certain shelf life requirements necessary to expand our retail reach in the EU. We are thrilled to now be in German retailers, which is one of the strongest, in my view, plant-based markets in the world. We are seeing encouraging initial sell-through in this important market. Lastly, on behalf of all Beyond Meat employees, we are thankful to be included in Fortune's 2024 Change the World list, a prestigious recognition of the top 52 global companies shaping the future by making a positive social impact. As I look back, the third quarter of 2024 serves as a pivotal quarter in our company's history. From this challenging vantage point, we faced a fundamental choice on how to respond. As I've said before, we chose to get stronger, including moving our products along the continuum of health benefits, most notably in our Beyond 4 platform and its broad endorsements from leading health institutions.

Today, we are pleased to report a quarter of solid growth, our highest gross margin and lowest cost of goods sold in three years, and our lowest operating expenses in four years. Each of you is writing history. Our journey has not been for the faint of heart, yet our time is ahead of us, and we face it wiser, stronger, and ready to compete and win as we drive Beyond Meat forward.

Thank you, Ethan, and good afternoon, everyone. Before reviewing our quarterly financial results and updating our full year outlook, I would just like to note that Ethan was recently recognized on the inaugural Independent Climate 100 list, 2024. This recognition reflects his passion, innovation, and visionary leadership in reducing the environmental footprint of global food systems and championing sustainable diets worldwide. On behalf of everyone here at Beyond Meat, we applaud his unwavering commitment to tackling climate change. Now let's get to our Q3 results. Net revenues increased 7.6% to $81 million in the third quarter of 2024 compared to $75.3 million in the year ago period, representing our first quarter of year-over-year growth since the first quarter of 2022. The increase in net revenues was primarily driven by a 15.8% increase in net revenue per pound, partially offset by a 7.1% decrease in volume of products sold.

The increase in net revenue per pound was primarily driven by lower trade discounts, price increases of certain products, and changes in product sales mix. We are pleased to see a sequential improvement in our year-over-year volume trends despite a tougher year-ago comparison and a significant increase in net price realization. Looking deeper, net revenue in the U.S. retail channel increased 14.6% to $35 million, mainly due to a 22.6% increase in net revenue per pound. Overall, our cost of production continues to benefit from our network consolidation measures and more efficient inventory management. Gross profit in the third quarter of 2024 was $14.3 million, or gross margin of 17.7% compared to a loss of $7.3 million, or gross margin of negative 9.6% in the year ago period. This was our highest quarterly gross margin since the third quarter of 2021 and our lowest cost per pound since the second quarter of that year.

In addition to the benefit from net price realization, gross margin was also positively impacted by decreased cost per pound resulting from lower inventory provision, reduced logistics cost, and lower materials cost per pound. Overall, total operating expenses were $45.2 million, a decrease compared to $62.4 million in the year ago period, primarily due to reduced general and administrative expenses. As a result, loss from operations decreased to $30.9 million, compared to $69.6 million in the year ago period, an improvement of nearly $40 million year-over-year. Total other income net increased $5.1 million year-over-year, primarily reflecting unrealized foreign currency transaction gains, leading to a net loss of $26.6 million compared to $70.5 million in the year-ago period. Looking at cash usage for the quarter, total cash consumption increased versus the second quarter but our cash conversion cycle and working capital efficiency reflect substantial improvements from prior years.

In the nine months ended September 28, 2024, net cash used in operating activities was $69.9 million compared to $79.3 million in the year ago period. Lastly, I will conclude my remarks by commenting on our full year outlook which we are updating. Net revenues for the full year 2024 are expected to be in the range of $320 million to $330 million. Gross margin is expected to be in the mid-teens range. Operating expenses are expected to be in the range of $180 million to $190 million. Lastly, with regard to our balance sheet, we expect to add additional liquidity through our ATM program by the end of the year.

We will now begin the question-and-answer session. The first question is from Peter Saleh with BTIG. Please go ahead.

Great. Thanks for taking the question. I wanted to ask maybe on the gross margin today. The 17.7% rate was nice to see. Can you give us a sense of if sales stay where they are and given your projections, do you anticipate you can hold this type of gross margin as we head into 2025?

Sure. I appreciate you asking. I think it is a function of all the work we've been doing around network consolidation, around reducing logistics costs, and taking out material costs. So, I don't think that we would expect to move backwards at all. I think we will continue to show progress in the margin, especially as we have an opportunity to make some smaller investments to increase efficiency in our plants. And with that, I expect to hold and improve in 2025.

Great. As a quick follow-up on the capital raise, Lubi, can you provide any more color in terms of how you may go about this or how much you think you may need?

Yes, we do intend to add additional cash to the balance sheet before the end of the year and, obviously, the ATM is a vehicle that we have in place that will allow us to do that. We are looking to bolster and restructure the balance sheet, which is taking longer than anticipated, and we now expect that to carry over into 2025. But we do intend to put additional liquidity on the balance sheet before the end of the year.

Good afternoon. Thanks for taking my question, Ethan, and Lubi. I would like to follow up on what we're seeing in data regarding volume in the U.S. retail channel compared to what you reported. Can you help us reconcile that?

Sure. Regarding volume, in U.S. retail, roughly 16% of the year-over-year growth is due to an increase in the net revenue per pound, but that was offset by about a 7% decrease in the volume sold. So that’s part of what we see; particularly some of the disconnect is between consumption data and our sell-in data. We also expect to see more accurate tracking going forward.

Thanks. I was wondering if you could touch on pricing dynamics and how the higher prices might impact new consumer adoption while also ensuring the existing customers are retained.

We have seen the buyer rate go up, and I'll emphasize that the biggest thing dissuading consumers from our products is misconceptions about health benefits and ingredients, not pricing. Once consumers understand the health advantages and quality of our offerings, we anticipate a broader adoption.

Can you talk about the innovation launched earlier this year and how it's been received by consumers and its impact on sales?

The Beyond 4 platform has had a positive reception, contributing to expanded velocity for some products in retailers. The overall strategy of enhancing health messaging and optimizing taste is crucial for our growth. We believe these factors are helping to reverse some of the challenges we faced in the past. To conclude, we are focused on driving profitability and growth, and as we continue to refine our product offerings and enhance our marketing efforts, I am optimistic about the direction in which we are heading. Thank you, and I look forward to our next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.