Q4 2019 Earnings Call
Thank you for standing by and welcome to the beyond me fourth quarter 2019 earnings Conference call.
Time, all participants' lines are in listen only mode. After the speakers presentation, there will be a question answer session.
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Now I'd like to hand, the conference over your speaker today, Mr. Lubi to VP of <unk> and Investor Relations Beyond me. Thank you. Please go ahead Sir.
Thank you.
Good afternoon, and welcome to beyond me fourth quarter and full year 2019 earnings conference call and webcast.
Today's call ourselves Goldman Chairman of the board eat them Brown, founder, President and Chief Executive Officer, and Mark Nelson, Chief Financial Officer and Treasurer.
By now everyone should have access to the company's fourth quarter and full year 2019 earnings press release and Investor presentation filed today after market close.
These documents are available on the Investor Relations section of beyond meets website at Www Dot beyond me Dot com.
Before we begin please note that all the information presented on today's call is on audited and during the course of this call management may make forward looking statements within the meeting all 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 could differ materially from those described in these forward looking statements.
Please refer to todays press release, the company's quarterly report on form 10-Q for the quarter ended September 28, 2019 filed with the Securities and Exchange Commission on November 12 2019.
The Companys annual report on form 10-K for the year ended December 31st 2019 to be filed with the FCC and other filings with the FCC 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 todays call management will refer to adjusted EBITDA, which is a non-GAAP financial measure while the company believes this non-GAAP financial measure provides useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial and for me.
Nation presented in accordance with gap. Please refer to todays press release for a reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with gap now I'd like to turn the call over to SAP Goldman our chairman of the board.
Thank you Lubi.
2019 was remarkable year.
It's amazing the thing, but a little more than two years ago beyond Burger was in just 5000 grocery stores, but today is carried in almost all the major U.S. chains.
Similarly, two years ago, the beyond Burger within a few hundred restaurant and food service locations and today, you can find their products and thousands of foodservice outlets around the world, including some of the largest and most recognizable QSR chains in North America.
At this time last year, we were excited to have beyond meet achieved 2018 annual net revenues of $88 million.
Which is less than our net revenue for Q4 2019 alone.
I certainly never seen anything like this in my 20 plus years in the food business.
Now that we've completed our first calendar year financial results as a public company.
Stepping down the executive chair effective today, and we'll continue to serve as chair of the board.
I intend to continue to support the growth to be Amit as non executive chair and look forward, you're working with our board of directors and leadership team in pursuit of Biamby's mission of building, great tasting need from plants.
We are focused on empowering consumers globally to make better choices on nutrition and sustainably producing food and the way that is good for our plant and animal populations alike.
I'm proud to say that beyond meat has a strong experienced team in place and I'm extremely confident and this team's ability to lead the company and aggressively pursuing the significant growth opportunities ahead.
In short if it didn't seem or building a powerful and impactful business for the long term.
As a difference runner I would say we're off to a strong start.
But this is a marathon and we are still an early Myles.
We've got the right challenge right mindset, and I believe we're better prepare to navigate the terrain than any other chains.
With that I'll turn it over to our lead rather and CEO, Keith and Brown.
Thanks, Good afternoon, everyone.
29, Sheehan with record fourth quarter, an annual financial results looking back at 29 team, we exceeded the sales financial and operational expectations, we set for the year.
Formats reflects rapidly increasing awareness among consumers around the benefits of plant based meats.
Continued investment in closing the gap between our products and animal protein equivalents.
Sure and of organization as we scale new levels of growth and expansion.
We achieved net revenues of 298 million in 2019 increase of 239% compared to 2018.
Our products are now available and over 77000 retail restaurant and food service outlets and over 65 countries worldwide. The were only scratching the surface in the vast majority of these geographies.
In U.S. retail, we generate strong velocity growth of 106% contributing to 830 basis point increase in market share. According to spins data for total U.S. multi outlet natural and specialty channels for the 52 week period ended December 29, 29 team while growing 26.
Lines faster the largest competitive brand in the category during the same period.
More recently with our brands velocity growth of 127% and a 12 week period ended December 29 to 29 team Yeah, I mean owned before best selling skews and all the plant based me all by a wide margin.
And we're pleased to show that we now have full distribution of the beyond Berger cosco across all the increase in the United States.
This record growth in retail occurred in mid headlines an incumbent upstarts entering the category and their products being sold next hours in no way complacent. We believe that are focused on rapid in constant improvement towards the highest product quality standards listening to and connecting with the consumer and avoiding jambo and artificial ingredients continues to resonate.
We are expanding retail availability globally. For example, we started 2020 by announcing distribution across France, and 500 retail grocery stores owned by the Casino group sort of consumers who are enjoying [noise].
Our products in French quick serve restaurant, such as P. and why it's taken shakes can now add them to the shopping cart.
Retail rollout in France follow successful launch the beyond Burger and beyond sausage across other European supermarket chains, including the likes of Albert time Metro Utica.
Though delhaize Tesco a quarter's Inglis me gross and co up.
Canada, we're now like in the U.S. and full distribution, what the beyond Burger Cross all Costco stores and recently, Canada became the first international market seller beyond these product line distribution at all major retailers, including so these loblaws.
True whole foods and Walmart.
In foodservice, we completed another quarter of outstanding sales and distribution growth announcing new or expanding relationships with quick serve restaurant partners.
According to NPD data for the fourth quarter 2019 be Amit, it's not only the largest that base meet branded U.S. food service. It is also the fastest growing brand with dollar sales up 180% year over year.
During the quarter, we expanded our partnership with Duncan making to be on sausage sandwich available more than 9000 dumping source nationwide, we launched the beyond Burger Denny's and the Los Angeles market.
Expanded correlation with Carl's junior through the introduction of three new menu items, the beyond Bbq cheeseburger to be on sausage burrito, maybe on salted egg and cheese biscuit.
And we announced new partnership with parties, including the offering a four beyond items on the menu across the chain.
Our momentum in foodservice continues in 2020, we now see expansion of our test Mcdonald's to 52 restaurants, and south Western Ontario.
A nationwide limited time offer a beyond me, Paul it's subway locations across Canada.
I knew limited time test beyond fried chicken at nearly 70, Kentucky fried chicken locations in Charlotte, North Carolina, and Nashville, Tennessee.
We expanded our partnership with Denny's locations nationwide across the U.S and Canada.
He added to be on sauces to Papa John's it over 70 locations throughout Spain.
Most recently, we announced a new partnerships Starbucks Canada.
Around the beyond meat.
Cheddar, an egg sandwich as a permanent menu item nationwide.
We are grateful im proud to sort of each of our customers and believes strongly that our share of success and bodies our commitment to the consumer to eat what you love where are you love it well achieving help sustainability and animal welfare gains.
I'd also like to take a moment to highlight the teams achievements as it relates to our collaboration with KFC.
At our core we strive to be innovation engine.
I think technology to source the core parts of me directly from plants.
Avoiding jumbo and artificial ingredients.
Foster this culture the beyond me rapid in relentless innovation program, we pushed to constantly improve our protein platforms seeking to make our products indistinguishable from their animal protein equivalents.
For example, we were proud of the strong results from the one day tested KFC in Atlanta, Georgia in August, but we remain focused on introducing them more fibers architecture, and the product better capture the muscle structure with chicken breast.
Your thankful to KFC for the shared vision patient spirit of partnership required to achieve this improvement a production scale.
They have a saying emanating from the days of the kernel around doing things to hard way. He was the comdata complexity exhausting amounts of trial and error and other considerations.
We believe that latest launch of beyond fried chicken, which now exhibits more muscle structure and the process taking to get there reflects this commitment to superior results.
Look forward to continuing along innovation curve with this and other products across our beef pork and poultry platform.
Unlike other stores innovation coming that we chase the animal is largely static and the speed with which we can catch it is governed only by our willingness to invest.
Our ability to make the right research choices and the pace of our trial and error.
If I can import one perspective on this call. It is the following right now and I won't try to book and this is a time of growth for be Amit.
Looking at our past one could argue there's always been the case.
And then be right to point.
Theres something different about this moment becomes clear by the day that a growing number of consumers want what we're doing to work.
Fortunate to be leading this sector with all the benefits and challenges that accompany first mover advantage.
The World is also rapidly changing and ways to propel this movement it movement it increasingly intertwined with our brand.
Systemic port disruption in Asia.
Hi School Kids protest me an action they see with regard to greenhouse gas emission reduction.
An increasing number of world class athletes, turning to plant based eating improved recovery and performance.
And more and more members of the medical community returning to the agent Democratic understanding the food as medicine, all come to mind.
We hope our shareholders are aligned with us, believing that in order to build long term value on a global scale and size or focus today should be on aggressive growth.
Both in terms of customers geography isn't markets production infrastructure innovation capabilities product offerings in consumer engagement. Even if this comes at the expense of near term profit and margin expansion.
Along these lines as we gain traction in global markets.
It is our intention to add production capacity and key geographies to gain efficiencies and to participate economically in the communities that we serve.
In Europe, we expect to open a new co packing facility operated by our partners and Bergen Endo and by the end of this quarter.
This more localized production increase the availability and speed with which we can get beyond these products to customers across Europe, and the middle East.
Similarly.
As we continue to grow in the Canadian market.
We opened a co manufacturing facility in Quebec, and our sourcing protein crops from Canada. In addition to Europe and United States.
Finally, we continue to focus on Asia with the goal of producing in the region before the end of 2020.
Pending some level of resolution of the krona virus crisis.
So we were active with important in distribution partners in Asia, the magnitude of the opportunity merits significant investment.
Systems with a sense of urgency we apply elsewhere in our business. We believe the port price in Asia provides an unprecedented opening to introduce new production models for meat.
I want to now turn to competition and the subject of our ingredients in our process. Specifically many you may have seen TV digital newsprint advertisements funded by incoming industry groups. The challenge ingredients we use.
And the production process, we employ for a plant based meats.
We'd rather see no want an atmosphere relationship with animal protein providers.
As I noted previously we have great passion and respect for agricultural communities. The families are the backbone therein and we truly believe that what we were doing brink's innovation back to the farmer.
Like many new technologies, we bring change the change that is rich with opportunity for many though not all within the agricultural supply chain.
As I understood grows this positive economic impact mineral economies of our work should become clear one day, we'll overshadow the current an unfortunate zero sum retro versus plant based meet story line.
Until then because of the confusion that can result from industry funded campaigns targeting that base means you will see our brand raise the profile of our ingredients in our process. We're proud of both and believe that far from being a liability our ingredients in our process represent important strikes.
As I shared on previous earnings calls, we believe that building need retro implants gives us the opportunity to include that which is good about me dinner products and exclude or reduce that which consumers may have concern about.
We do this without genetically modifying plants, we are using artificial ingredients. It is our view that all that is needed is when the plant kingdom already if you're willing to look and iterate long enough.
In the coming months and for the balance of 2020, you'll see us tell our story on ingredients in process with content across digital and print media, helping consumers have information they need to make informed purchasing decisions.
Finally, a word on health.
We spoken at length about the pace and focus we applied improving our products in our beef pork and pulte platforms across flavor aroma appearance and texture.
We've been less vocal with regard to our efforts to be a leader in the plant based meet sector on health.
In addition to continue to research and qualify new all natural plant based inputs and deliver health advantages, we are raising the visibility of our work in this area with two important actions.
One we are joining the partnership for a healthier America, an organization founded to bring lasting system wide changes that increased healthy choices in the food supply to we're creating advisory board of leading experts in health and medicine to ensure that we have access the latest thinking in peer reviewed research on health and nutrition ingredients These and.
This is will not only in former research and development will also help the consumer better understand health benefits of our product lines.
In closing.
We began 2020 focused on growth and expansion.
We are grateful to be in business with a growing number of leading retail.
Foodservice and quick serve restaurant partners.
We're increasing our retail presence across stores or number of skews and our velocities, we're investing in research and development to advanced product attributes across our beef pork and pulte platforms, while pursuing longer term science technology that may support step change progress across sensory nutritional and cost objectives.
I just states Europe in Canada, we are starting up new production infrastructure with partners for growing our organizational team and talent across sales marketing operations quality and innovation.
In short remain focused today on establishment building blocks necessary to become the global plant based protein company, we envision for tomorrow.
I'd like now turn the call over to Mark Nelson, Our Chief Financial Officer, who walk us through fourth quarter results in detail.
Thank you Ethan and good afternoon, everyone.
We're very pleased with our fourth quarter and full year financial results and our continued opportunities for future long term growth.
As Ethan indicated net revenues in the quarter or 98.5 million up 212% compared to the fourth quarter of last year.
Growth in net revenues for the fourth quarter of 2019 was driven primarily by an increase in volume of products sold from our fresh platform across retail restaurant and food service channels.
This reflects continued expansion in the number of retail and foodservice points of distribution, including new strategic customers.
New international customers.
And higher sales velocities at our existing customers.
Looking at our distribution channels.
Retail net revenue increased 199% well restaurant and food service net revenues increased 223% versus the fourth quarter 2018.
Sales to international customers, excluding Canada represented 26% of our net revenues during the quarter.
17% in the prior year period.
Given the substantial growth and strategic importance of our international business.
Beginning with our first quarter 2020 financial results, we will work out international separately.
From our current distribution channel reporting structure.
On the product side gross revenues for our fresh platform increased 238% versus the year ago period, representing 97% of our gross revenues in the fourth quarter of 2019.
I heard your 87% of gross revenues in the fourth quarter of 2018.
Gross revenues for our frozen platform decreased 17% year over year, primarily due to the discontinuation of our frozen chicken products in first quarter 2019.
Continue to prioritize distribution expansion.
And increased sales velocity of our fresh products across retail foodservice and international channels.
Due to the declining proportion of our frozen product category revenues, which in 2019 represented 5% of gross revenues.
We will no longer be reporting a product category breakout commencing in the first quarter of 2020.
Gross profit was 33.5 million for 34% of net revenues in the fourth quarter of 2019 compared to 7.9 or 25% of net revenues in the fourth quarter of last year.
The 900 basis points year over year improvement in gross margin was primarily driven by operating leverage from the increase in volume of products sold.
Other production efficiency improvements and a more favorable sales mix of our fresh products relative to Q4 2018.
However.
For 2019 gross margin improvements were partially offset by temporary disruptions related to capacity expansion projects at two of our co manufacturing project partners, which drove the sequential decline in gross margins as compared to the third quarter of 2019.
Over the next several years, we continue to expect gross profit improvements will be delivered primarily through improved volume leverage.
Greater internalization of our manufacturing footprint.
Materials and packaging input cost reductions.
Tolling fee efficiencies.
And improved supply chain logistics and distribution costs.
As we've stated previously overtime, we intend to pass some of these cost savings onto the consumer as we pursue our goal to achieve price parity with animal protein in at least one of our product categories by 2024.
In addition to leveraging our cost of goods sold we were also able to achieve strong year over year operating cost leverage in Q4 2019.
Operating expenses were 34.9% of net revenues in the fourth quarter of 2019 as compared to 47.6% in Q4 last year.
Net loss was point 5 million or one cents per common share.
Compared to net loss of 7.5 million or one dollar in 10 cents per common share in the fourth quarter of last year.
The narrowed year over year net loss was primarily the result of the increase in net revenues and gross profit compared to Q4 2018.
While the sequential decline in net income relative to Q3 2019.
Predominantly the result of higher stock based compensation expense.
As we recognized an accumulation of pending awards for brand ambassadors and new employees in Q4 2019.
At a higher fair market value per share.
Adjusted EBITDA was 9.5 million in the fourth quarter of 2019 compared to an adjusted EBITDA loss of 3.8 million in the fourth quarter of 2018.
The improvement in adjusted EBITDA was primarily the result of our strong revenue growth and gross margin expansion as well as operating expense leverage achieved during the quarter.
Now looking at our capital structure.
The company's cash and cash equivalent balance was 276 million and total debt outstanding was 30.6 million as of December 31st 2019.
Net cash used in operating activities was 47 million for the year ended December 31st 2019.
It's a 37.7 million for the prior year period.
Capital expenditures totaled 23.8 million for 2019 compared to 22.2 million for the prior year.
Finally shifting to our full year outlook for 2020.
We expect net revenues to be in the range of 492 510 million.
Presenting year over year growth of 64% to 71% compared to 2019.
We expect gross margin to be in the range of 33% to 35%.
And adjusted EBITDA as a percent of net revenues to be approximately equivalent to our 2019 level.
As we anticipate accelerated investments in marketing R&D and international expansion initiatives in 2020.
Furthermore, as a result of the phasing of these investments we expect profit delivery to be more heavily weighted towards the latter portions of the here.
With that I'll now turn the call back over to Ethan.
Thank you Mark in closing we were very pleased with results for the fourth quarter and for 2019.
We're more excited than ever about the opportunities before us and the work we're doing today to lay the foundation for future growth.
I would now like to turn it over the operator for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question first the pound key and the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Please standby, we compile the keeping a roster.
Our first question comes from Ken Goldman with Jpmorgan. Your line is now open.
Hi, Thank you.
Two for me if I can first Seth.
I.
Never a good sign I'd say when he found or senior leaders sort of pulls back on his or her responsibilities.
Sure you have your reasons, but could you fill us in a little bit on what your thought process is why now and why it's not necessarily a bad indicator for those of us on the outside looking in.
Okay and so what was your is what was your second question, we'll we'll get.
Setback and while that was the second part, yes, sure I stunting.
Yes, no. He said he would have enough.
[laughter] [laughter] I didn't realize he was leaving the company that quickly.
I guess my other question Ethan.
I think both this quarter and the third quarter.
For us in Canada retail locations were sort of flat at 28001st is that correct and second is that.
A little bit of a downside surprises nothing group or is it just a timing situation.
Yes, definitely not downside if you look at you are right in a number and if you look at the direction of the company, we're drawing extremely fast within retail from a velocity respective 127% over the a 12 week period, ending 12 29 19.
For the top.
Selling products in retail in the plant based me category hours.
Only six skews that's the main messages that we have very small number of skews in each of our retail locations and so instead of trying to grow the footprint. We're more focused on product introduction into those new I'm, sorry into those existing retail outlets and we'll be doing that this year.
If you look at the the pace at which we grew internationally within retail condition for example, the French retailer.
Many throughout Europe, we're seeing more growth there, but it is purposeful we're trying to two to maximize.
Those relationships as well as grow and foodservice internationally.
Hey, this is that sorry can I was on the news, but this decision.
Very comfortable with the mean Ethan I had been collaborating for so long and this is just a matter of me, having such confidence in the team, which frankly 18 months ago. We didn't have the level. The caliber of leadership, we have to support Ethan and so that we do and I'm absolutely going to continue to be engaged I am.
Continue to be out there every month as they have been and just excited to to see I continue to grow and flourish.
Thank you.
Thank you. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is now.
Hi, yes. Thank you good afternoon, everyone.
Yeah, Hi, I was hoping to maybe dissect the 2020 outlook.
A little bit and specifically on the revenue growth.
Expectations, one just to clarify it is.
Still prior practice, the you're only including in guidance products in the market with customers that you have today or is there a timing expectation of channel expansion and distribute distribution point expansion.
Especially internationally that that was that what is embedded in there.
Yes, so we continue to adhere to that practice, we don't build in expected customers would build and only those which we have one. So if you consider for example, what's in the forecast would be things like Starbucks, Canada, Duncan somewhat Canada, Costco, the French retailer I mentioned.
Things like that what would be out would be things like China as a region KFC Mcdonald's et cetera. So we try to taking very conservative approach to what's included in the guns.
Okay. So and that's that's very helpful. So in that kind of break down then.
Just maybe frame kind of the expectation for domestic versus international growth just velocity and on the velocity point.
Maybe in the last three to six months any data any view on differences in velocity by retailer, where there is more competing brands on the shelf is it are those guys also expanding the category, bringing people to the aisle are you seeing.
Your market share your velocity change when new products are put side put head to head to you.
Yeah, I know, it's been the fourth quarter was a really important.
Important moment for us in that regard in the sense that headlines were full of incumbents coming into the category and maybe we're going to get crust and we've got to start discounting.
All of our products and in fact that much about 11% of the beat that you guys saw was due to the fact that we actually discounted less than we had modeled anticipated so.
It was sort of the inverse instead of having to discount to compete we continue to keep our pricing where we need to be.
And your outperform the other brands of the market.
You know to think about in the.
Richard Atlanta based meet set in retail.
Outselling our closest petition by a factor to and that's again would just excuse so we feel really good about our ability to compete we always expect this competition.
And it just comes down to who has the best product who is a brand that resonates consumers goes right ingredients.
Who is willing to to innovate at the pace that we do.
Okay. Okay I'll I'll leave internationally you had a question you had it yet but international yeah, just the growth revenue growth domestic international just how you're how you dissect that as you think about 2020.
Yes, so we do expect about the same percentage.
Of international sales that we had in 2019 in 2020 and again, we think that's just part of being conservative.
We are going to pursue a lot of activities internationally, this year, including putting and I'll touch on this later more production.
In the U. production in Asia.
So what we wanted to not get ahead of ourselves and so we've got section it's about the same.
Okay. That's very helpful. Thank you.
<unk>.
Thank you. Our next question comes from Robert Moskow with Credit Suisse. Your line now.
Hi, Thanks, and good afternoon.
I have no question about I was about the R&D efforts and.
Really I can't see.
Thank you you have developed a a better chicken products is that.
Are you done I or are there going to be continuous integration to make it better and then kind of same kind of question for.
Your Burger products, you know you can I say I know you say, you're you're always striving to to make it.
Closer and closer to me does that mean that I.
I should expect another 25, 50% increase in R&D spending to make that happen.
And what are all of that the R&D resorts doing.
Specifically to make it better.
Right.
Great set of questions.
KFC, if we always will be making that product is all of our products better.
I mentioned in the comments that case he was a great partner in that regard, giving us the patience and and a in room to do that and it's important to get that muscle structure right.
But in innovation, we do have these three platforms before poultry, we continue to drive across four parameters there flavor around the parents and texture to try to optimize those so that the gap between our products and M protein diminishes every year.
So there's a lot of fundamental work going on to accomplish that in a in a disciplined you'd expect.
Over 100 folks now in our in our research and development Center all working on these issues. We also have applied research going on so with the team in two.
Yes, more computing this put in to cast essentially we have a fundamental research teams and we've applied research and applied research divided into two groups to focus on specific QSR as.
We want to serve them the best that we possibly can and so we have dedicated.
Groups to to be able to two to run down Pat those are them around different skews, they would like from us and products I'd like from us. So overtime. We also have this more disruptive platform, whether its stake bacon or the fresh chicken breasts. It I mentioned.
And so you think about that the organization is really around that fundamental research applied research and then something we refer to as a longer term each us.
Okay. [laughter] policy you mentioned in your prepared remarks that you're you're going to take more steps from a marketing standpoint to respond to the I guess criticism about your product another plant based.
Meet substitutes.
Can you tell me are you hearing anything from consumers, who aren't your brand ambassadors.
Any concerns that are similar to what we're seeing and he's.
Rather bias.
Tax.
I know thank you for the question.
Not really I think that.
So many of our consumers are also advocates for doing it so they've taken the time to to get to know our products and get to know ingredients in our eat those around no GM most nothing artificial its the efforts to expand.
The addressable market that we have and to cut down on some of this noise. It's being generated is why we're investing so much in explaining the health of our products explaining the.
Process and I really get back to.
The process and whether or not people will be more comfortable with our process or the process that we.
Our all to competing against which traditionally into Mercosur and so we're going to do a lot. This year to educate to consume on exactly how our products are made and I think the results of that will be very strong.
The health side as I mentioned, one of things I'm really excited about Asus Medical Advisory Board, we want to have people around us that have access to an are driving the latest peer reviewed literature on and research on the link between nutrition and disease. So that we can continue to make our products healthier and healthier its.
Part of our mantra of constant improvement and we've just been less vocal about it but this year you'll hear us.
The much more much more vocal about it.
Okay. Thank you.
<unk>.
Thank you. Our next question comes from Bryan Spillane with Bank of America. Your line is now open.
Hey, good afternoon, everyone.
Hey, Brian just.
So I guess I guess I Q2 questions I wanted to ask what was just.
As you've looked at the growth this year and you've had you know, especially more traffic it in restaurants, maybe getting a better sense of who's actually buying the product versus what you. Originally expected I don't know two or three years ago is the consumer whose whose consuming the product is that profile different.
Younger or is it just different consumer and then just tied to that any sense right now for how much is of the sales of the growth is still trial versus repeat purchases.
Sure Great questions I'll, just start with the repeat question can retail we continue to have very strong repeat numbers for.
Packaged food to 45.8% I think was the most recent.
Number we got and if you look at the consumer trends in terms of who's coming into the brand you does shake out as we expected over the last several years with people who are 40 in over a being driven by health and then secondary consideration run environment and the animal welfare and things of that nature.
Well I think what is surprising to us is the use movement around this brand.
And they use movement around the plant based meet in general and that is really being driven by sustainability and by animal welfare and I think it's picking up on the same vein that you see as I mentioned in my comments of.
Yeah, Hi school children and college age students.
Getting active around in action on climate and becoming active.
Around some of the issues that none of these ideas or new I mean, if you look at die for small planet door silence bring all these books were written over 50 years ago, now or I think that's what they're saying 71 actually but the did ideas, it's been there, but except process of the public becoming more and more aware of it and that is now.
Galvanized entire generation around the work that we're doing and others are doing too to help address climate. So that does surprise me the strength and the passion above that movement among younger crowd.
Alright, Thanks, and then just one quick follow up on the capacity you can you have you up you give us a sense of how much capacity you have available for Uh huh.
For 2020 relative to your revenue guide.
Yeah for sure.
So we began the year, we have roughly I'd say 700 million or so and gross revenue capacity.
But we will scale that to over 1 billion by the ended the year.
We're sourcing now.
Protein from several different providers. So we're happy about that as well as new people often overlook. The fact, we do use other proteins. So we have suppliers for sunflower seed protein lung being protein Brown rice protein for example.
We're really investing in internal production, we have several year end targets as mentioned run West coast production.
Exclusion capacity and that you and then and of course, the Asian production, which we signed up to four to put in place, but in the year pending the the current a virus.
Settling a little bit.
So adding more co packers to our network, we have about six now how should we can have six now and we'll be adding five additional ones. This year. So we are making the investments and that's really what I was talking about entering this is our moment. This is our time for growth we want to make sure that we're investing not only in R&D to keep pushing forward and getting closer and closer.
To that animal protein equivalent to do the fundamental work necessary to make sure. There's nothing is going to disrupt us.
And then continue to grow that production footprint. So we're able to serve demand as increases and of course, the marketing efforts to get out there and really clarify some of the things that are being used negatively to slower sales.
Thank you can appreciate the color.
Thank you.
Thank you. Our next question comes from Benjamin Theurer with Barclays. Your line is now.
Hey, good afternoon, Thanks, Ethan Mark and congrats on good results through 2019, so actually following up on on the question from Brian and with the capacity available could you update us on on your Capex needs for 2020.
Do you think this is still going to be roughly in that $40 million range, you've mentioned, which would be almost doubled and would you have essentially spend in 2019, and if you could give us a breakdown of the capex allocation in between international and domestic to get a sense of where you really focus on capital expenditure enough a quick follow up.
Yep.
Benchmark us so we I think that's a good number I think we're talking about the same proportion of capex spending to revenue that we saw in 2019, so that would put us closer that 40 think that may scale.
As we as we look at opportunities.
Potentially acquire additional assets, but the breakdown as far as what's in international I believe we've talked about that extrusion footprint.
Driving about 20% of that capital, we don't have an exact.
Deployment, because we're still.
Putting assets down trying to understand but the best configuration is but I'd say, that's a pretty good capital number for us overall.
Okay and then my follow up was on the on the international piece I mean clearly.
Good taste profiles within Europe was in Asia are there certain differences to taste profiles of the U.S. in Canada. So how much of our indeed do you think is actually needed to get closer to some of the more regional taste profiles in those markets in Europe that are even with.
In Europe significant differences.
But then also going over to to China operation countries at some stage.
How much do you think do you need to invest in R&D to get to get the product right for those markets in order to be successful.
That's a great question and so so we do look at that in two different buckets. The first is what we're trying to create.
Blank canvas that is beef pork or poultry that can be then utilized by folks and whatever culinary application they want and so to some degree it's really about just being as true as we possibly can to the taste and texture parents and aroma of the animal protein that we're targeting.
But you're right. There is you know when it comes to preparation into.
Value added meals and things like that a flavor profile that people come to expect regionally and we do work extensively on that we also have flavor houses that are there very well versed in serving different cultures. So I wouldn't say, it's a massive investment on our part it does come up quite a bit as we talked to as an example, QSR that as footprints and more than.
One region of the world, but there's just from my perspective, I haven't seen it had a big budgetary impact.
Okay.
Perfect. Thank you very much.
Thanks.
Thank you. Our next question comes from Rob Dickerson with Jefferies. Your line is now open.
Great. Thank you so much.
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I just had a question.
On the price parity goal.
I think you said 2024, and I think it's one skew.
I know now you only if it's excuse maybe you'd have more school excuse by then.
But yeah, regardless of all that it is this kind of more general thought process of you know how I just how you do that and I just say.
I asked the question you know just kind of Ralph relative to how traditional meet companies operate in a level of profitability that they're willing to operate and how that product might be a bit more commoditized, obviously than your maybe more value added products. So just how do you.
Bridge the gap from price point relative to cost production scale, and then margin profile to get to that price point and that's it. Thank you some student.
Good question I'm sitting across the table from margin Mark himself and so [laughter] I have promised in that I'm not going and reach this goal at the expensive as margin but.
In all seriousness, it really starts with direct material indirect labor and and.
Can go through that in a little bit. So if you look at our efforts to grow the protein supply chain a lot of that is focused on cost right is how do we get more competition, how do we get different providers and that have access to pay team in the markets. We're producing so I think you will see a cost structure shift.
Alan word in the protein supply.
And then it comes to things like flavor, we are had very extensive dialogues with.
Analysis, we work with a and explain this goal lay it out and try to join hands on on getting that reduction.
We need.
And then on the production side and took so I guess before I leave that point of materials. There is no material obstacle to underpricing animal protein. So we're I came from those in a sector, where we had issued a precious metals and energy.
And the the commodity markets moving them on Rex right. There's no that's not happening here. It's in fact, the other way.
So I don't see material obstacle Underpricing, then you start to look at labor costs and handling cost logistics costs, we have still a lot of low hanging fruit.
Without a doubt if you look at the way our production is set up it was set up for speed to market.
Not necessarily for optimized efficiency and so we do have a lot of design work occurring around continuous lines that would allow us to take out a lot of that handling logistics costs that we currently have in today. So between those two oh I'm very comfortable with the target we set and in fact, I think we're being conservative I Bill.
We we can achieve that in a couple of different a couple of an area. So very much looking forward to it because I think if you ask the consumer.
Think about three four years from now we get the product to the point, where its indistinguishable from animal protein from a set sensory experience at satiated provides an overall minor text or et cetera.
[noise] has nutrition that either meets or exceeds that of animal protein and then as lower cost that animal protein. They're very few consumers I think would say you know I just don't want that right and so it's really important to me that we get there and we're setting up the organization to do that.
Fair point, thank you so much.
Thank you. Our next question comes from Alexia Howard with Bernstein. Your line is now.
Good evening everyone.
Hi, there.
Right. So two questions first of all I know that last summer.
Caution about how over the next couple of years.
I'd like to bring some of that co packing.
Capacity in house for that you're actually during the whole and.
Production and backs.
Have a beneficial impact on margin.
My distort the asset light model that you've got just by focusing on the extrusion onstage because that I know that you've had some trouble with I would kinda talk is in the park, but as you're thinking changed on that because obviously, it's great that you can throw down each of these experiences and drives a fairly cheap per day.
And obviously it takes work you did a co packing arrangements, but sorry has your thinking change we still be factoring that in I learned about 20 during Q1, and then I have a follow up.
Sure. So great question and I don't think it has changed we.
We do intend to increase the amount of internal production that we do what we will strike a balance between in house and a and the more.
I do a model that we have right now, but we are looking at facilities, both on the east and West Coast a in the U.S. here that would allow us to go from.
You know protein all the way through to package good.
That is around that cost model and the reason that we're pursuing that so so I think the model remains the same what is actually executing it and you will see somebody in house production and continuous line work occurred before 2022.
Okay very helpful. Thank you and then I'm sorry, if I missed it. So did you actually quantify how much your marketing spending is expected to increase this year.
We did not get a number now.
Okay. Thank you very much I'll pass it on.
Okay.
Thank you our next question comes from.
Rupesh Parikh with Oppenheimer. Your line is now.
Good afternoon. Thanks for taking my questions I'm I was hoping asked more about what you guys you're seeing in a competitive backdrop in some of your international markets versus what you're seeing in the U.S.
Right.
So the good question.
In the E. U we are seeing a lot of entrance in into the market Weve.
Been able to try a lot of those products and we still feel pretty comfortable at where we are.
Certainly that market is more fragmented with lot of a different players. So you would expect that and that is occurring.
In Asia, there's two things going on really one is there's the.
Kind of.
Historical legacy plant based needs that came out it where can you just temples and things of that that her known there and I think accepted and there are some startup said I think are reacting to not only the poor crisis, there having their but the success of companies like ours and their forming.
Companies to to go after that market in Asia, but there is not yet a.
[noise] competitor that we feel.
Has been able to do what we're doing it to scale that we're doing the quality, we're doing and the quality that we were able to achieve rather and so we stay very hungry and focused on making sure that we're leading the market and in all the statistics as I shared with you today we are.
Plan to keep it though.
Okay, great and if I guess when we just one more follow up so obviously a lot of headlines out there I just garden, while you're foodservice wins and maybe one last out there as well I'm. Just curious you know what do you say is your overall feedback from customers on the foodservice side and on any positive or negative surprises thus far.
I think it's really positive.
The list.
Very proud of it.
I'll get back to that statistic about 650000 outlets in the U.S. were less than 4%, but if you think about the names that were working with.
In a more general sense from from Mcdonald's to KFC to Hardys Denny's subway Starbucks del Taco Duncan.
And W.
<unk> Friday's Ms. So many it's hard to list the mall and the key there is to serve not only the management there in terms of their expectations about movement, but really the franchisees right. That's that's where I think that really important work occurs our we increasing foot traffic or are we increasing sales have.
We need a product that adds complexity, the backhouse or makes it simpler for them or is a rough exchange all the things really matter one of the thing is going to start to matter more as pricing and so again, you see me coming back to this notion of plant based meet should not be more expensive in animal protein we have to lead the market on that.
We have to lead the market and help these QSR differentiate on health.
And things of that nature. So I think if anything it's a very pleasant surprise or no surprises right word, but encouraging sign that so many of these QSR partners are leaning and not to check the box, but they believe in what we're doing and I think the franchisees are excited about we're doing inside the opportunity to work with many of those.
As we do these launches and I think I'm getting a glimpse into something it's quite special that this that consumer that market those customers seem to be leaning into is the way that I've never seen before and working on this for for a long time.
Great. Thank you.
Mm.
Thank you. Our next question comes from Jon Andersen with William Blair. Your line is now open.
Yeah, Hi.
Thanks for the questions.
Sure I was wondering hi.
I was wondering if you could talk a little bit about the service levels, just the operational side of the business and how you're servicing customers and I know that you know given the rapid growth that that's an ongoing challenge and effort. So could you talk a little bit about that in terms of overall service level.
Sure. Thank you for the question. So so our goal that we don't get into fill rates, specifically, we really have.
Risen now to kind of what's more considered best in class at least in that range and transfer brookdale rates and the two years ago or so we were really really quite poor in that area.
So I'm very pleased with the change we've seen and if such a good team now in operations No. Stephanie Hart has been with us for a long time. She can you just a great work being insomnia saw who has been exceptional coming out of it really hyper growth environment at Amazon and then a Tesla. So we are trying to surround ourselves with people.
That that not only extend high growth, but also supplement that with people who are really burst in and feed manufacturing you have to combine those those those two.
Kind of perspective, because you off they often don't exist in the same organization and we're putting those together here. So I feel really comfortable where we on an operations basis from where we were year ago.
Great that's helpful.
Yeah, Mark I think you talked about.
The.
Second half of the year, perhaps being a little bit stronger promote sales or margin perspective could could you just kind of discuss that little bit more cadence through the year is there anything we should be aware of a quarter to quarter.
Either in terms of sales or margin results as you as you look at 2020.
Yeah. So we continue to think the back half will be stronger. We've we've mapped out about a 60 40 split on revenues of 40% in a in the first half 60% percent of volume coming in in the back half.
I believe you shouldn't see too much.
Shifts in margin throughout the quarters.
But because of the the increased spending in R&D and marketing, we're going to be investing more aggressively upfront so you'll see that profit.
Contribution probably be even stronger towards the latter quarters, but once again that revenue targeting around fourninety to 510, you call. It a.
You know as we look to be approximately 500 no. It does it does only incorporate the things that we know.
Those things that have launched we can quantify and we can see them you know in math them out by quarter. So.
As the forecast sits right now that's kind of the picture that we see.
Right really helpful. If I could squeeze just one more in.
The despite the temporary issue that you mentioned with a couple of co Packers is that behind you now or is there any kind of lingering impact from that thanks.
Yes that that is largely behind us.
As we went to start up you saw some yield loss.
As you typically do when you when you start a start up production. We think that that may have been a couple hundred basis points impact on gross margins in the quarter or the other the other elements in the quarter, we had a a much stronger stock based compensation expense and that's really been had been the accumulation of away.
Awards, as we had gone through the lockup period and and granted.
The majority of those grants in the fourth quarter. So combination of those two had a kind of binary impact on EPS in the quarter, we expect our stock comp to stabilize as we move forward into 2020, and certainly there they'll be.
Blessing in gross margin here and then but those those are kind of capacity expansion projects are behind us at those comments.
Great. Thanks, so much and congratulations on an incredible your.
Thank you very much pressure to.
Thank you.
Thank you. Our next question comes from Steve strike.
Yes. Your line is now.
Hi, good afternoon.
So my first question would be on the revenue guidance. The midpoint takes you to $500 million, which is definitely impressive gross and $200 million incremental revenues versus what we haven't 2019. My question Mark would be how off of $200 million or the incremental revenue due to gross margins not go up on it.
Year over year basis.
Material way.
Specifically can you kind of quantify how much it goes back into reinvestment or international margins as much lower that'd be helpful. Then have a quick follow.
Sure and so the margin range 33 to 35 as we look into 2020 once again have visibility of of our mix and how we've kind of model. The forecast now some of the offsetting impacts we expect and we're going to be investing in promotion and trade we know that.
And we want to continue to be a prominent and be the leader as as we as we go into retail there's there's additional investments in.
The international space, So we'll be.
Certainly as we drive into the international area will be we'll be spending more looking at optimal pricing in that area and then the we always look at mix.
To the extent that you know QSR is stronger as that starts to come in does that have an impact in our overall margin.
Yeah.
You know go out with that kind of growth you know, we certainly are looking at things that will help to offset that we have tremendous programs as far as cost savings looking at internalization of manufacturing material and impaction cost savings, but just the timing of those and as those start to.
Impact.
Margins and and offset some of the investment we're doing so that's what we see right now in the forecast and certainly as we as we progress for the year will.
I will update as we go along.
Thanks, and then Ethan I was going to ask in Maryland basketball question, but I'll say that all the time time no.
[laughter], but Oh last night.
Definitely I caught the main three pointed out was out what mattered, most [laughter], but I'll ask where youre going out and watching that.
[laughter].
I'll ask you about the foodservice business.
I wanted to understand as you build out that business quite quickly and as you kind of.
Work to improve or in source somebody is on middle part of the supply chain.
Would you get any pushback from the food service companies in terms of multi sourcing.
Since they own the formulations for some of these products in some cases I mean, if its branded beyond clearly, they're not going to source. It from someone else in cases, where it's not how should investors think about.
Large suppliers wanting to diversify their production and make sure there everything is filled on time. Thanks.
Yes, no great question and the right. There is attention there and I think how we've addressed that with large QSR as is.
We really have worked in concert with their operations team. So use KFC example, but I could go way back to NW.
They've been in our facilities with US we've we've asked them what they need in terms of redundancy and in terms of.
Feeling good about that particular issue. We're now for example, if somebody other QSR those qualifying.
Rather calibrating a relationship with with some of their co Packers, so that groups and they work with four decades on end are going to be producing some of our products on the co packing side. So it's really about beginning their relationship with the dialogue and listening to them and what that concern is that how we can help mitigate that.
Without giving up our formula or without requiring them to try to do something that's throughput.
This.
Youre going to rival us at someday. So so we've been I think fortunate in avoiding that issue so far.
Alright, thanks, so much.
Thank you and the interest of time. Our final question comes from Michael Lavery with Piper Sir Your line is now.
Good evening. Thank you.
Just back on the pricing strategy.
I understand the interest to make it more broadly appealing in to bring the price down and get that back to consumers, but give consumers already willing to pay a premium now is there any way you might consider a tiered strategy, where you would have.
Premium price point, and something a little bit more of the value price point below that.
Yeah. That's a great question then there is something I think about all the time you will see that so if you look at the way the animal protein market is today, you see degrees of that with Angus and things of that nature.
So we'll continue to push the envelope on our products and trends of the ingredient claims and.
Somebody to maybe inorganic version.
Not committing to that at all but we will find ways to continued to deliver.
Hi levels of innovation that may cost more well supplementing that with products that are more accessible from a price points. So yes, I think it's a really good strategy and where we will.
Consider.
Okay, great. Thanks, and just a follow up on the repeat.
Level, you gave a retail number if I heard you correctly, but is there any sense how it compares on the foodservice side I know some of those launches are some new it may be harder to have data, but is it a similar repeat usage rate how does that play out so far.
Yes, they indications they do share the data with US we obviously would give a share that I know not asking for that but at a general observation.
We think there is it's gone well beyond just trial and error consumers that are.
You are buying more and more of it and I think the best indication it's public about that.
Is the is the fact that some of the QSR has been working with her well or adding new beyond items to their menu. So del Taco would be a good example, Carl's junior would be an example of that and W. Launching first with the Burger and then going with with sausage.
So so we hope we're doing a good job serving them and they continue to to expand.
There are many offices will be on and I think that speaks to the fact that they're getting more more consumers coming back repeat purchase.
Okay. Thank you very much.
Okay. Thank you.
Thank you ladies and gentlemen, this concludes our question and answer session.
I'd now like to turn the call back over to eat and Brown for any closing remarks.
Thank you very much and thank you for joining today I think the main message that I really didn't want to in part is around growth the opportunity before us I think is unprecedented the consumer is ready for what we're doing we're in a position.
Execute against that consumer expectation and desire for our products, you'll see us make a lot of investment this year I enter production capacity.
Our international growth.
In our marketing and of course, continuing to research and.
Pushed forward the idea that you can build a piece of meat directly from plant that is indistinguishable from animal protein.
Working with these QSR partners, and hopefully, bringing new products to market that folks can enjoy we really do believes in the notion that we're here, creating products that will enable to consumer to you what they love and where they love. It. So we look forward to continue to talk a in coming quarters. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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