Q2 2020 Beyond Meat Inc Earnings Call

And welcome to the beyond me second order 2020 <unk> earnings call.

At this time, all participants' lines down to listen only mode.

After the speakers presentation, there will be a question and answer session.

The question during the session do any press Star then one your telephone.

Please be advised today's conference maybe recorded if your party further assistance. Please press Star then zero.

I would now like the hand, the conference over to your speaker today.

Maybe could Sheila VP of Investor Relations you may begin.

Thank you.

Welcome to beyond me second quarter, 2020, <unk> earnings conference call and webcast.

Today's call eat and Brown, Sounder, President and Chief Executive Officer, and Mark Nelson, Chief Financial Officer and Treasurer.

By now everyone should have access to the company second quarter earnings press release, an 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 meaning of federal Securities laws.

These statements are based on managements 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 Companys annual report on form 10-K for the year ended December 31st 2019 filed with the Securities and Exchange Commission on March 19th 2020, the company's quarterly report on form 10-Q, four the quarter ended June 27, 2020 to be filed with the FCC.

Okay 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 adjusted gross profit and adjusted net income or loss, 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 not intended to be considered in isolation.

Whereas a substitute for the financial information presented in accordance with Yep.

Please refer to todays press release for a reconciliation of adjusted EBITDA adjusted gross profit and adjusted net income or loss to their most comparable measures prepared in accordance with gap and now I'd like to turn the call over to eat them Brown, Chief Executive Officer Beyond me.

Thank you Laurie and good afternoon, everyone.

I'm pleased to discuss our second quarter financial results with you today that we achieved record net revenues of 113 million, our first ever quarter in excess of 100 million. Despite a challenging macroeconomic environment brought on by the global krona virus epidemic.

Proud upper management team's ability to pivot southwest remain on our steep growth trajectory.

Much of this activity involved quickly reorienting the business from a cold in 19 impacted food sector to retail grocery.

Called in the beginning of the year the split between a retail and foodservice business was approximately 50 50.

As we report today the balance was 88 retail 12 food service in the second quarter of 2020.

Dr. Just such a dramatic change in mix over a short period of time with no small feat.

By the shifting consumer behavior toward retail.

Re purpose assets and repacked rerouted inventory to the sector.

As a result, we were able to demonstrate extraordinary year over year games, even as food service demand rapidly deteriorating.

Well sure U.S. International markets.

Retail net revenues increased 192% year over year, driven by expansion in total distribution points higher sales velocity at existing outlets.

New product introductions.

In the U.S. or expansion the club stores, including most recently Sam's club Bjs wholesale added to existing retail Tailwinds. Further we continued our expansion into convenience store channel, where our breakfast sausage product recently became available 650, why well locations and will expand into law was remaining 220 stores.

As of next week.

And as philosophies grow across your grocery channel, we continue to gain important new distribution.

For example September Walmart will be expanding distribution to be on Burger to more than 2400 stores what brings our breakfast sausage bodies to over 2200 stores.

Each of these wins advance our goal that make you'd be on new products more easily accessible to consumers across the nation. We are now in approximately 112000 retail and foodservice outlets globally.

10000 trust since the end of March with roughly half of that coming from or international retail outlets, where products are male build one in four countries outside the U.S. up from 51 a year ago.

Looking to consumer take away and U.S. retail according to spins data for total U.S. multi outlet natural and specialty channels for the 12 week period ended June 14th 2020.

He also beyond be products were up 121% year over year for the philosophy growth at 88% contribute to a 550 basis point increase in market share what the plant based you kinda, there's a whole was up 57% year over year.

During this period like the Pureed before that exact year to date.

How do you continue to own the top four bestselling skews in all swiftly skewed it out piece is closest competitor in terms of year over year sales growth.

Factor of nearly four times.

We continue to see strong consumer trend takeaways with only a limited number of skews available in retail fueling continued optimism as we accelerate or piece of new product introduction through the newly formed center for commercialization.

And what maybe the most beautiful combination of metrics, Rob real story.

We are fortunate to be in a position were three critically important consumer trends concurrently increasing.

One more households are buying or products to even as the number of households grow the average spend per household will be on the products is increasing.

[laughter], three more consumers, who try or products for buying them again.

That is a repeat rates are rising.

According to spend I, Alright panel data U.S. household penetration for the be Amit brand increased to 4.9% as of June 2020, compared to 3.5% January of this year nearly 40% increase over just five months.

On a year over year basis.

Yes household penetration has more than doubled from 2% as of June 29.

Approximately 3.7 million buyers as estimated by spend I right.

This increase in household penetration has occurred in conjunction with extremely favorable trends is 36% increase in buyer rates be 23% increase and purchase frequency a strong increase and repeat rates from approximately 45% in January to nearly 50% in June.

This repeat rate should be compared what generally constitutes success at the retail CPG sector, which is typically anywhere from 30% to 40%.

We continue to expand or retail presence in the international Reno, We will look to share insights with you on the performance over international retail business where available.

Turning to our foodservice business as expected, we experienced a challenging operating environment to the second quarter due to cope with 19 related restaurant closures skilled dock operations and delays further beyond me tests that are launches among our foodservice customers.

Overall net revenue across or U.S. international foodservice business decreased 59% year over year during the second quarter.

Despite the ongoing challenges facing scoot service businesses. There are several positive takeaways, we can glean from a quarter.

First and foremost I want to recognize the determination and focus where foodservice teams continued to demonstrate the face a formidable headwinds.

We focused on what matter so much in business true partnership it's simply asking sought to understand how we could best serve our customers. During this period of uncertain.

We were made and continue to remain in close contact with the food service partners and have.

So orchestrator tested launches, even as cobot 19, cask continued cloud over the sector.

Touching remains to make it clear the beyond me just determined to be a true long term partner to each of our food service customers irrespective of any particular economic cycle.

At this and we offered aggressive promotional product programs to many of our food service partners, helping them to offer up that based need options to consumers have reduced price points.

For me and encouraged by the long term strikes in the foodservice business for our company and see some very nascent positive trends.

First we saw small, but nonetheless steady sequential improvement in our foodservice sales as a quarter progressed with each successive months.

Second.

During the quarter, we were able to increase our total foodservice distribution points globally by approximately 8000 outlets, where 60% sequential increase.

And third a relative performance in U.S. food service as implied by NPD data.

It is to show favorable overall trends for beyond me versus our peers.

We were pleased to secure several new food service opportunities, including the addition of the be Obsoleted wake up rapid Duncan introduction or limited time beyond spicy barbecue cheeseburger Carl's junior in hardee's locations nationwide.

Threed, new beyond epic Brito items at del Taco.

The introduction of the Amit coastal medical Luna grille locations in Southern California.

Let me talk more for the beyond sausage spicy Sunrise exiting unless you Big Feinstein Brothers Denver, Colorado.

A pizza offering featuring beyond me the Papa John's nationwide in Costa Rica.

And then limited time test of a new pizza offering at select pizza at locations in Puerto Rico.

In addition, particularly noteworthy as it relates to continued advancement of our Pulte platform. We recently initiated in limited time promotion.

On fried chicken with KFC in southern California.

KFC beyond fried chicken was available more than 50 restaurants throughout southern California.

Six or 12 piece combo meal for planned one month to sneak peak.

The product sold out in that time in Los Angeles, San Diego not far behind.

This test follow successful consumer sauces in Atlanta.

Well beyond fried chicken did you had a single location in August of 2019 and sold out less than five hours.

Handed market test in February 2020 in the Nashville, Charlotte markets, which also received very positive consumer response.

We are fortunate to partner with such an iconic brand is KFC. It couldn't be more pleased with these initial positive results.

These numerous examples of foodservice trials and expanded menu offerings are illustrative of how restaurants, you consumers alike are integrating to be on mute brand into their menus and lives respectively.

More generally according to NPD U.S. foodservice data for the quarter ended June 2020, with trucks broadband distribution and generally excludes major quick serve restaurants.

Parents significantly better than the broader plant based meat category in the food service sector brand sales actually up 35% year over year versus the 23% decline for the overall category.

Although this data reflects only broadline distribution. It is a relative performance of beyond the first its peers that is both informative and encouraging.

The year over year increase in NPD was driven by sales of our ground beef and dinner sauces products, both of which were new entrance in the marketplace in the year ago period.

Then MPD be Amit remains the number one branded offerings <unk> dollar sales and also led all other top 10 brands in the category in terms of year over year sales growth for the second quarter.

To sum up what foodservice as expected we felt the negative impact of cold 19, and our sales to these customers. So many dealt with closures endorse significant complexity and deterioration of business. However, as noted.

We're also seems a positive signs that bode well for post cobot resumption of our growth in this critically important channel.

We see no fundamental issues related to where foodservice business itself.

Well our strategy it would request from returning to a strong growth trajectory on some level of normalcy returns.

For the remainder of the year. However, we do anticipate U.S. foodservice demand will remain soft relative to your ago, given the return of high rates of cobot 19 infections across many parts of our country, including here in Los Angeles.

Similar to a strong pivot from foodservice retail, we ask ourselves how to best utilize or international plans and precedence to continue growth limits the pandemic.

In this context would it not cut international spending it's accelerated international activities.

We've shared with you previously the China and more broadly Asia represents a critical part of our long term strategy.

To this end, though it is still early days, we're pleased to see the beyond meet brand beginning to gain traction and it's important region.

During Q2 in collaboration with Yum, China, We launched a limited time offer across KFC Pizza Hut and Taco Bell restaurants. In addition, recent wins at retail include our availability at 50 freshly both stores, which are part of the Alibaba group in Shanghai with a plan to expand into 48 more in September and our availability of Metro China.

Would be on B product sort of select Shanghai locations.

As we announced previously we entered into distribution agreement with notice in China, We look forward to their help and increasing our availability throughout the retail and foodservice sectors.

In South America, we enter Brazil will there be on Berger dinner sausage ground beef products to be sold at 19% Marsh locations across all Apollo.

In Canada, we introduced our latest iteration of the on Burger with availability major grocery stores nationwide.

This product is made in Canada through a partnership with our local manufacturing, Quebec, enabling us to better serve the commodity market, reducing environmental footprint of our shipping logistics activities in support jobs within this important market.

We did not allow the pandemic slow or infrastructure expansion activities. This includes facilities acquisition and development, you and Asia respectively.

In June we acquired a manufacturing facility, that's good day, Netherlands.

Where do you extrusion operations. This facility work in tandem with ours and Bergen co manufacturing facility to allow for end to end production up the Amit products in the EU, resulting in greater efficiencies and again lowering our company's Brahma <unk> footprint, while creating jobs and the communities. We serve our new facility will not only bring production close at the European consumer.

But will also allow us to leverage local supply chains, improving our cost structure.

We expect this new production facility to be operational by the end of 2020.

In Asia or gold, establishing a production footprint before the end of 2020 remains on track and we are building on the strong local team in the region.

As I've said before we believe the magnitude of the opportunity in Asia. There are significant investments. We will continue to proceed with such an urgency appropriate for the challenge and opportunity like.

Our continued focus on investment an expansion throughout the quarter clearly demonstrates our unwavering commitment to long term growth.

This orientation also runs throughout the offensive measures we instituted in response to cope with 19.

As a reminder, or offensive measures fell into to actually be sets. One refurbishing who is thought to pivot resources away from cobot 19 impacted business segments.

Two rerouting, we aim to be consumers, where they are in this on stable cobot 19 economy.

But are these two broad themes, we developed value packs for retailers offered promotional and reduced pricing at retail to encourage greater consumer trial during a period of higher beef prices.

Switch foodservice production lines over to retail products Repax foodservice inventory for retail sale.

Supported our QSR in foodservice partners with incremental programs.

I continue to invest in what our brands dance floor by providing free product to first responders and those immediate.

Many of these efforts like the Cobot 19 crisis itself continue.

Proud to report that early indications suggest each had been highly effective.

Taking a retail value pack for example, despite being introduced at the tail end second quarter. The Cookout classic value pack contributed 16 points of your do your volume growth, where U.S. retail business has been very positive received by retailers across the board.

As you will recall, our attention with value taxes increased accessibility and reduce the pricing delta between our burgers and conventional be equivalents.

With an MSR P 50, 99 per pack and a per pound price of 6040 cents. This value offering puts at roughly 20% premium against the recent you Sta retail average for beef that he's bringing a substantially closer than the two X premium associated with our beyond Burger too.

As Mark will discuss in greater detail, we incurred considerable cost of goods sold and thereby gross margin impact associated with repacking foodservice inventory into value products, but drove trial advanced pricing that accessibility goals and brought new consumers into the brand, providing a lighter base from which to continue to grow.

This limited time offering what's the potential to unlock much broader adoption of the Amit products overtime.

We traveled a downward cost curve toward pricing parity with animal protein over the next several years.

Throughout the balance of the year, we will continue to invest an existing and new markets with a focus on the U.S., Canada you in Asia.

Domestic and global production infrastructure additional innovation capabilities and talent, new product offerings increased consumer engagement and being the best partner, we could possibly be to our customers.

Magnitude of this opportunity, where we stand space and the value. We know we can build deserves nothing less.

Before closing I want to turned back square feet, a million plus pledge, which and to provide more than 1 million beyond burgers and nursing meals at no cost to frontline healthcare workers and communities that need.

We launched this initiative in early April will there be Amit employees communities baskets advocates and I'm pleased to report the program provided over 5 million beyond burgers and nursing meals through donations to organizations such as feeding America.

Food Bank for New York City, the feedback for Central Northeast, Missouri.

You see central Kitchen, Houston, Food Bank second harvest, Canada and more.

Given the enormous need, particularly drink cope with Nike, we feel strongly this part of our brand itos to be a service and we can.

We're also honor to join in partnership with Chris call blame Wade Carmelo Anthony in support of the social change from to address racial inequalities nutrition access and health outcomes in America.

We will need dedicated to serving broader social goals using what's on the Seneca place as a critical starting point.

I'd be abhi, we've made commitments to fight disparities and the black and brown communities through initiatives tied to health and education equity.

Within this context, social change gone to be on mute share the goal of creating lasting systemic change for black and brown communities across America.

Lastly on previous calls we promise, you'll see us tell our story on health ingredients and process with content across television digital and print media.

Today, I'm proud to announce that our brand that them and what if we all do beyond campaign officially launched yesterday.

Kurt you all to watch it. This ran at them speaks to who we are simplicity of a process of converting plant protein to meet and our commitment to clean non G.M.O. ingredients.

With that I'd like now I'll turn the call to Mark Nelson, Our Chief Financial Officer, who walk us through the second quarter financial results in detail.

Thank you Susan and good afternoon, everyone.

We are extremely pleased with our second quarter financial results as we achieved record net revenues and solid underlying performance. Despite a difficult operating environment due to the cobot 19 pandemic.

Even as we made meaningful tactical adjustments in response to the sudden shift in consumer behavior. We continue to push forward with our aggressive agenda to drive long term growth and international expansion.

I'd like to Echo Eaton's acknowledgement of the hard work and relentless focus exhibited by each of our team members throughout the organization.

We are grateful for their extra ordinary efforts during this period of high uncertainty.

Without which our exceptional second quarter results would not have been possible.

Now turning to our financial performance as you indicated.

Revenues in the quarter were 113.3 million, 69% compared to the second quarter of last year.

Total net revenues for the second quarter of 2020 was primarily driven by an increase in volume sold.

Partially offset by lower net price per pound as we implemented our strategy to offer more aggressive pricing and promotional programs amid temporary dislocations in the animal protein market.

In aggregate, although our Q2 net price per pound, a $5.69 was down only 3% year over year and 2% sequentially. This number was heavily influenced by the significant mix shift from foodservice towards retail sales channels that we experienced.

As a reminder, our retail products generally have a higher net selling price per pound versus our foodservice products.

Growth in volume sold was driven by continued expansion in the number of distribution points, both domestically and abroad. As we grew our total global outlets from 94000 at the end of Q1 212000 in Q2 or 19% increase.

Well as higher sales velocities at existing retail outlets and to a lesser extent contribution from new products.

Taking a closer look at our distribution channels retail net revenues increased 192% well foodservice net revenues decreased 59% versus the second quarter of 2019.

In retail our recent expansion into club stores continues to drive exceptional growth along with strong distribution gains in international markets and increased sales velocities across the remainder of our retail footprint.

In foodservice, while we were still able to grow our total distribution points, we saw a significant deterioration in demand due to cope with 19.

As you can mentioned within foodservice independent or smaller chain reach an old restaurants generally they are worse than larger chain QSR customers.

Although we saw improvement in our foodservice business as the quarter progressed demand remains weak relative to year ago levels.

Sales to international customers across retail and foodservice channels represented 15% of our net revenues during the quarter compared to 30% in a year ago period.

Gross profit during the quarter was 33.7 million or 29.7% of net revenues compared to 22.7 million or 33.8% of net revenues and the second quarter 2019.

Included in cost of goods sold during the quarter was 5.9 million of expenses related to product repacking activities due to covert 19.

As mentioned earlier, we experienced a sudden and significant shift in demand from our food service to our retail business, prompting our decision to convert and meaningful portion of our foodservice inventory into retail product items.

To provide some context on what this undertaking entailed these activities primarily involved costs associated with retrieving finished goods products from third party storage facilities.

Supporting them to our own and our co manufacturing partners facilities for Repacking.

Direct labor and tolling fee cost associated with the physical repacking itself.

Installing new retail packaging as well as disposal of the original foodservice packaging and transportation back to our warehousing facilities.

In addition, we incurred costs associated with the write off of Unrecoverable portions of the original inventory items.

Following the rebalancing of our finished goods inventory through these efforts, we do not anticipate a need for further repacking activity going forward.

Given the cumulative total of these repacking activities attributed to covert 19.

We determined that it was sufficiently material and appropriate to disclose or underlying operating results. Excluding the impact of these activities to facilitate a clear.

Thing and year over year comparability of our performance during the quarter.

On that basis, our adjusted gross profit, which excludes 5.9 billion of the Repacking expenses.

Was 39 point sixmillion or 34.9% of net revenues during the second quarter of 2020.

As compared to our prior year gross margin of 33.8%.

The 100 than 10 basis point increase on an adjusted basis was primarily driven by direct materials and packaging input cost savings.

Direct labor efficiencies and an increase in the volume of products sold versus the prior year period.

Partially offset by incremental investments in trade promotional activities.

Operating expenses totaled 41.8 million or 36.9% of net revenues and the second quarter of 2020.

That's compared to 20 point, sixmillion or 30.6% of net revenues in the year ago period.

In Q2 2020 operating expenses included 1.6 million in product donation costs associated with our cobot 19 frontline relief campaign.

In addition, the year over year increase in operating expenses also reflect increased headcount to support the company's long term growth.

Higher share based compensation expense.

Increases and the company's marketing initiatives.

Continued investments in innovation.

Investments in our international expansion activities.

And higher restructuring expenses.

Net loss during the second quarter of 2020 was 10.2 million or 16 cents per common share as compared to net loss of 9.4 million or 24 cents per common share in the second quarter last year.

Adjusted net loss, which excludes 7.5 million in costs directly attributed to covert 19.

Specifically 5.9 billion in product repackaging activities at 1.6 million in product donation costs.

As well as 1.5 million in early debt extinguishment costs associated with the company's refinanced credit facilities.

It was 1.2 million or a loss of two cents per common share during the second quarter of 2020 compared to adjusted net income of 2.3 million or five cents per diluted common share in the prior year period, which excludes remeasurement of warrant liability costs.

As I mentioned previously and reflecting the long term mindset Ethan emphasized we.

We continued to invest in strategic initiatives to support our long term growth.

Even as we made short term tactical adjustments in response to covert 19.

These long term initiatives included investments in our international expansion efforts as well as new hires to enhance our capabilities in key areas and this spending represented roughly three cents per share sequential reduction in the P. S and the second quarter 2020.

Adjusted EBITDA was 11.7 billion or 10.3% of net revenues in the second quarter of 2020.

Compared to adjusted EBITDA of 6.9 million or 10.2% of net revenues in the year ago period.

We note that in Q2 2020, adjusted EBITDA also excludes the expenses to find earlier attributed to cope with 19 totaling 7.5 million.

In addition to the customary add backs we have historically included in adjusted EBITDA.

Now looking at our balance sheet and Cashel highlights the company's cash and cash equivalent balance was 222.3 million and total debt outstanding was 50 million as of June 27.

2020.

We saw a significant increase in our inventory balance to 143 million versus 120.7 million at the end of Q1, driven by an increase in raw materials, specifically, our core pea protein inputs.

That's partially offset by a reduction of our finished goods and work in progress inventory levels during the quarter.

With respect to Pea protein given the nature of our contractual commitments our volume deliveries are front loaded during the year in anticipation of higher demand levels during the summer grilling season.

Given that we dial back or production in response to cobot 19 and to reduce our existing finished good inventory levels.

You've seen an increase in our pea protein stocks.

However, as our Pea protein raw materials have a shelf life of approximately two years, we see minimal risk of obsolescence at this time.

For the six months ended June 27 2020.

Cash used in operating activities was 44.3 million compared to 22.4 million for the prior year period.

The increase in cash used in operating activities was primarily due to working capital usage and more specifically to our inventory investments as previously discussed.

Capital expenditures totaled 26 million for the six months ended June 27, 2020, compared to 7.5 million for the prior year period.

The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to our capacity expansion initiatives.

Finally.

With respect to our 2020 outlook as noted in today's press release.

Given the ongoing uncertainty regarding the ultimate duration magnitude and effects of the cobot 19 pandemic on our business and those of our customers are 2020 guidance remain suspended.

We will periodically reevaluate our ability to provide clear visibility into our near term outlook.

However at this time, we do expect Tobin 19 to continue to impact our business operating environment at least through the balance of the here.

With that I'll now turn the call back over to you said.

Thank you Mark.

In closing, we're very proud of our results for the second quarter of 2020.

While we acknowledge the road ahead may present, additional challenges and uncertainty due to the cold at 19 pandemic, we hope that weve conveyed the deep sense of optimism that pervades beyond <unk>.

We're just scratching the surface is what we continue to view as an immense global opportunity.

Every confidence in our team's ability to adapt to challenges and continue to push forward with our aggressive growth agenda.

At this point I'd like to turn the call over to the operator for your questions.

Thank you.

Ladies and gentlemen, if you have a question at this time, Please press star Oh by the number one key on your touched some telephone if your question has been answered what's your move yourself from the Q. Please press the pound gain any interest and we do ask that you. Please limit yourself to one question and follow up.

And our first question comes from Ken Goldman from JP Morgan Your line is open.

Please check that your line is that you Sir.

And we will move to a secondary line Mr called men again your line is open.

Every go can you hear me now.

Yes again.

How are you doing.

Good how are you I'm not sure what happened there usually it's my fault, but not this time.

Your growth in the U.S. Ethan it was a lot better than what scanner data might have suggested there any <unk>, maybe shipment timing issues, we should be aware that either boosted are affected your shipments during the quarter just thinking about how we should you know model the third quarter a little bit.

Yeah. So we did have this tremendous growth in U.S. retail activity and that's the thing that was most stunning me was around this shifted the team was able to accomplish from roughly a 50 50 foodservice two to two retail.

[noise] distribution in the beginning of the a year to this 88% retail, 12% foodservice and all the lines and the products over that way.

Some of the think it really did help to drive this extraordinary results for the second quarter.

May not be fully captured the Daters Costco for example, we've done tremendously well in that platform.

I can't share their internal data, but it's something that we are very proud of here in terms of where we rank in entered a total frozen goods.

Cosco so its elements like that that are also captured.

In the data, but overall, it's extremely strong.

Set of trends that we continue to face across retail.

Today with a number one selling refrigerate plant based meat over the 12 week period and its 614.

And we're seeing is 195% increase in domestic retail sales, it's really driven around increase philosophy as well with 88% increase in retail velocity and that's that we're still in that really sweet spot that is so enviable in terms of.

Where brand wants to be or household penetration. This really surprised me. It grew 40% from the from January through to June.

To reach by 5% of U.S. households, but even as more households were coming into the brand on average. Each household is also buying more right. So you get that those two trends coming together you get an increase in frequency, we had about a 23% increase in purchase frequency as well. So all that drives. This this this tremendous growth we saw in the increase in market.

Sure I think what about 550 basis points. So overall felt very good about the performance in retail and ability to pivot into that I think the numbers represent that.

So that's all helpful. But let me circle back to the no question, which is is inventory at retail as far as you know at the levels that you want it to be or is there and the potential for shipments to maybe trail consumption a little bit in the third quarter.

No I don't see that I don't see that at all I mean, I think I think we're we're very comfortable where they are and again I look to to the uptake that we're seeing and and Costco and some of these.

You know Sams and BJ et cetera that are driving a lot of of growth. So so no we feel pretty comfortable we are.

Okay I'll, let it go there thanks so much.

Sure.

Thank you.

Next question comes from Robert Moskow from Credit Suisse. Your line is open.

Hi, Thank you.

The retail sales rose.

Was phenomenal is better than I thought it would be but but the foodservice decline was also bigger than I expected.

Down 16%, Yeah. Most of the restaurant chains that are reporting numbers are reporting better results than that and in particular, the QSR is our reporting better resolves and maybe even better exit rates. So.

I I guess I'm I'm, a little surprised to see it's kinda.

Lagging the restaurant sector.

And I wanted to know are you seeing anything within those chains that indicates that maybe maybe consumers are just buying their old favorites. During this timeframe, they're going to trust it products.

<unk> is trial, a little bit lower than normal just because of that pandemic and then and then when do we think we get it back at hormones.

Sure. So no very very good set of questions and so.

Our story in foodservice, it's really around the split in our customers between QSR listen into smaller independents.

So as you'd expect.

You know the larger QSR as some of them are doing quite well, particularly those would drive true.

But it's so smaller regional chains that don't have drive throughs or the mom and pops that are struggling so much and if you if you look at.

Overall distribution.

Our mix of large TJX to others is really about 30% strategic and about 70% smaller accounts and so that was in the fourth quarter of a of 2019.

We have a lot of exposure to those smaller accounts now as the that sector has become a more destabilized. We have the shift as occurred where were now about 42% strategic and about 58% smaller accounts. So that revenue change that's occurring is predominantly being driven by that decline and and the.

In a smaller account business that we've done so well and.

Independent accounts it fell about 60% last few just decline for us about roughly 40%. So it's a dynamic that is particularly hard hitting for small business owners and and we certainly are experiencing that as they struggled to keep their stores open under these closed or condition. So we.

We do expect a and we're seeing some some decent signs that Oh, we have reason to be hopeful in terms of general uptick a month over month.

Food service, but it's too early to tell when they'll be a full resumption of sales in the category.

Yeah, I guess to follow up everything is.

Our your sales at these customers weaker than there than there overall sales like are you.

No.

<unk>.

Yeah No in fact, we do have some data just around the plant based sector.

So we actually in this in this in the NPD data, which is the broad line dataset, which excludes.

Large quick serve restaurants and generally deals with.

Cash and carry and smaller accounts.

Our sales are actually up in that smaller category, a 35% year over year.

I think at about a 20, 23% decline.

And the overall category. So no we're not seeing that we are facing a disproportionate.

Level of deterioration relative to other products in those and those restaurants. It has to do with restaurants being open or closed or because of the condition to their under.

Okay. Thank you.

Mm.

Thank you Sir.

Our next question comes from Ben There from Barclays. Your line is open.

Hi, good afternoon, any sunmarke think thank you very much for taking my question one of the shift a little gears into the international market actually if you. If you could talk a little bit about the dynamic there similar along the lines within your exposure on on food service and if you could share maybe a little.

But at the breakdown large box where is the smaller independent QSR is it that similar is as it isn't the U.S. and then on the international retail piece, which clearly gained traction during the quarter.

But if you could elaborate a little bit on on the more recent strategic initiatives and maybe new outlets you've been winning within retail on the international side.

Sure sure. So no all very good good questions. Let me just tackle that one around international foodservice, so the break out there.

It's really about roughly 30, 35% strategics and then and the balance being these other smaller accounts.

So so again, a similar kind of distribution what I just talked about but we are very optimistic about the growth of both retail and foodservice internationally and that optimism is stemming from some some considerable proof points.

We've done well with Starbucks in China, there over 3000 stores there in the good good campaign, what they call good good campaign.

And they're promoting our products now is permanent items not as an LTL. So we feel really good about that and we're always looking at pricing in these international markets. As you know we set a goal to have production up and running in China by the ended the year end up.

We do plan to accomplish that and would that be able to Brian.

Lower pricing in into that market I'll get a great test with KFC Pizza hut and Taco Bell in China. So it was a extremely pleased to see that.

And I think we can expect some more activity there, although I can't make any promises or provide details.

We're also being to work with local Chinese QSR Sandwich, which is a new set of business for us and something that that we're going to continue see growth around and I know that people are familiar with our work with some notice which is a distributor that we use in China and that makes our product accessible to casual dining into.

Two hotels et cetera. So.

Well as extending into retail such as Metro and a city suprane, cosco et cetera, and ER in China, So very very significant growth in activity for us in China, we have a small team.

Now in Shanghai led by very capable leader out of a young China.

So so a lot of expectation there if you look at in Europe.

We also see a good growth in the European market got a lot of I know you questions more on the food service side, but we did pick up a lot of wins.

In in retail a in a in a in Europe and while I can't we don't have spent to date or things like that what I can talk about a little bit is.

[noise].

The the fact that stores introducing our products, let's say a year ago six months ago three months ago are already starting to expand whether it's a number of stores or pick up additional items. So our retail sales.

And internationally.

Continued to rise significantly grew up 167%.

So things like Metro Germany.

Began and then expanded into a into other you countries and of course in China. As it has mentioned Cosco span had really good success and expand into the UK, France in Ireland.

You know Sobi, U.S, and Canada or continue to add new items, Loblaws et cetera. So you're seeing all of these examples of where they are having great success with products coming off the shelf with beyond on.

Serving them very well and wanted to expand examples in Sweden, and Denmark et cetera. So Oh, we have a lot of we put a lot of just want to things. This quarter. One is to affect this pivot from from food service to tour to retail I just want to commend the team on this.

It's not a small exercise when its physical goods to make a change like that over a quarter and so you got to put yourself in a shoes or the men and women that are working for us in our facilities, where we had 50% of our infrastructure set up for a sector that essentially disappeared.

We were then able to transition those lines directly over to two to retail as well as repack all those products in a very very short period of time. So that was the first real point to focus second was the pandemic is not equally distributed across the globe. Some economies are recovering more quickly right and so we went to China with expert.

Station that the recovery there was gonna be quicker that was correct and and we are doing well there as a result parts of Europe. The same so we'll continue to find growth where it exists and we'll continue to pivot our comp or company to take advantage of that even in the expensive incurring some near term costs were at such a point in our growth today, that's very important.

That we continue to gain market share. So that's been our primary focus will take captured some of your questions happy to take a fall.

And actually kept at all of it including my follow on so I'll leave it here in thanks, Congrats on the result.

Okay, great. Thank you very much appreciate it.

Thank you. Our next question comes from Alexia Howard from Bernstein. Your line is open.

Good evening everyone.

Hi, there can you give me a there how are you.

Yes, how you doing.

I'm good.

So I don't think about the share trends in particularly on the fresh patchy, obviously Uh huh.

A major competitor come into the markets and as I look at the Schansman kind of down sales growth flowing I guess my question is I know you called given this quarter. How can you give us we're disappointed about how we should think about.

What does that dynamic plays out obviously, that's still like growth flat, we've seen in the gap between measured channel data on what you reported this time, but I'm just wondering whether there's anything that we need to be aware of.

Sure I can bounce out thank you.

Sure. Thank you. So so just on on the main point and we continue to grow faster than the category, but by a large measure.

We continue to lead the category in terms of the top for selling items in grocery.

So I think we feel feel really good about that.

You know in in this economy in general and free free enterprise economy. It would be incredibly unusual to not have competitors come in at a 1.5 trillion dollar opportunity. So.

Like I said over the last several quarters and before.

We have no surprise that this and we continue to compete extremely well as the numbers that I've I've shared indicate.

So I think if someone were to try to build the case that beyond is somehow suffering as real competition. The numbers just know supported in any shape or form.

We see no overall decline and beyond me sales up across the other chains or maybe an exception one or two.

The small chains.

But but overall extremely strong continued continued growth continued increases across both moloon natural channels and all retailers and I think this really speaks of the strength or brand.

It's a very competitive environment, we have large and comments coming in we have upstarts as well.

There are making.

No isn't in the media and coming into the market, but we continue to outperform and lead the sector growth and grow as I mentioned more quickly than sector. So.

Yep competition does natural part of being in business and and we feel really good about how we're doing against competitors are entering the market I think numbers bear that out.

Great. Thank you very much in the Indian tried to try and I'll comment on thank you.

Thank you so much.

Thank you.

Our next question comes from <unk> Aspirate from Oppenheimer. Your line is open.

Good afternoon. Thanks for taking my questions <unk> two related questions I on the U.S. retail segment. So in the in the club channel as you look at Costco BJ Sam's club dues outlets plan to keep your your product year around and then also as you look at the Cookout Classic that I think you debuted at some of the discounters Ami that more it sounds like that's more temporary theres that board.

Just for Q2 benefit or do you see that benefit in future quarters as well.

Yes, so as you know cosco will move things in and out, but but we have no.

The way indication from them I just had a good color there. She already today that are they're not at that anything, but it's actually thrilled with our performance. So I had to guess and this is not anything that I've been told but I'd guess, you'll see more of beyond in Costco, rather than less centrifuges et cetera. We're just we're doing extremely well in those and those formats on the.

On the value packs that is something that I personally I'm very proud of and and care a lot about its part of this five year.

On a five year goal that we said about EUR 18, 19 months ago to be able to underprice animal protein or at least one category and I think we're well on a weighted out and hopefully be able to do it in more than one category trends of beef pork in poultry.

And something really interesting happened right over this quarter. So we saw an opportunity.

With beef prices being much higher than they typically have been a in recent years.

And Oh, we have a products in the two pack that is about two X that beef prices.

Within a single quarter, we're able to bring that price delta down to 20% premium right and this is think they'll smaller companies. We're talking about we just registered or first quarter of over 100 million in sales again, we're getting help from the beef industry because of the higher prices, but were than 20% of the cost of conventional piece patties. So you can see.

I think very clearly that we're going to be able to underprice animal protein within that three and a half your window that we set for ourselves and the value pack speaks to that now we sold.

That's 70000 cases of that products.

And in Great distribution, Walmart target Kroger, Harris, Teeter, Publix, Wegmans et cetera.

No I stop in shop.

But we weren't able to get that to the market until about the last two or three weeks of the quarter, but even so that led to about 860 points 16 points of our year over year domestic retail growth. So it's a very promising start I wouldn't say its short term item. I mean is that particular item is limited time offer but that idea is one that will have long.

Standing European the we will make this product accessible to people at the price points. They can afford and a in a cook a classic pack is is a step in that direction. So very pleased with its initial introduction minutes initial sales and expect to see it begins to grow.

Great. Thank you.

<unk>.

Thank you Sir our next question comes from Michael Lavery from Piper Sandler Your line is open.

Good afternoon. Thank you.

If you looked at them international sales and just see what looks like a sharper deceleration.

In foodservice than in the U.S. and.

It's a little hard to know.

The number of outlets are just with Canada shifting I think you know into the international segment from how you've shown the how that totals before but.

Is there, but if we look at the number of outlets it looks like.

Yeah, sharp acceleration, maybe 300%, but but then the declines obviously on the sales.

Clearly, there's some pressure from closures and co bid, but I guess is there a different dynamic we should expect in terms of sales per store and then also maybe or some of those authorized but haven't shipped in product yet.

So this is on the on the international front or in general.

Yeah on international I mean, I guess anywhere in particular, but internet I mean anywhere in general but in particular it looks like on in international the outlet growth. It's far ahead of what you are seeing on the sale side and I just want to understand how to reconcile that yes.

Yeah, absolutely. So so we did have a disproportionate.

Service or two to retail distribution.

Internationally, and obviously cold it is as dramatically impacted the food service sectors I would say that really is a driving factor behind behind that that said, we've really been able to make up some ground on the retail side internationally that that was our focus as as the food service sector started to decline.

But it really did it comes if it comes down to that we had a very disproportionate or.

The percentage of our of our sales going into foodservice internationally as well as we started international growth, we expect that to two to normalize a little bit.

As we continue to pick up retail and as the international foodservice sector comes back into a a healthy mix.

I think the mix now is about a 43% foodservice, 57% retail roughly.

But that reflects a pretty significant decline.

In 2019 for about 84% foodservice. So so that those numbers I think tell the story.

I guess I just want to maybe look at Oh, maybe at the same thing a little bit differently. The I.

I think its was 47000 outlets retail and foodservice internationally. One Q, obviously may have had a little bit of tail end of the quarter pressure on foodservice from co bid.

[noise], although we've actually year the numbers are so small it's a little bit tricky, but if you look at some of the Threed Cuda twoq progression.

Number international outlet is up almost 300 person, but the.

They also do.

The kind in foodservice around 40%, where you as side, it's more like 14 little bit weird sequential comparison, not from the previous quarter, but I.

I guess I'm, just trying to make sure actually an outlet number correctly are a lot of those ones, but maybe you have been authorized like say.

Starbucks, China, or something where you're not you know it's going to be a phasing launch that does exactly you don't have sales yet is that part of how to reconcile that gap. Yes, yes. Two things one is the general instability in the food service sector, and then and into a lot of these wins are extremely new right. There nascent so you'll start to see the materialize. The Starbucks is it.

Terrific example.

No doubt goes or that's registering much right now, but it's at 3000 stores than it will.

Okay. That's helpful and just a quick follow up on the frozen.

Value launch it have you found any change from consumer perception. It you know having had be refrigerated launch initially it does this does it confused the consumer any of you have any sense of how that response has gone it sounds like the sales are really good as it incremental consumers as it is at the same one who knows it from the for Greater case, you. If you haven't read on any of that.

Yes, it's too early for us to tell but but we haven't seen.

Any any any significant decline at all in fact, the our part to pack sales continue to increase.

In general I'm, so so it doesn't seem to be harming those.

Yeah, I think we tried at one point, we're gonna put it in a sleeve, but the product in a sleeve two to mimic the exact parents that frozen be studies have a in the and the frozen meat section.

And so I think it's our hope to consumers will think about the two products in the same with it we think about fresh P values and frozen.

Paddy's. So so we can get back to you know maybe next quarter with if there's any observations around.

No particular consumer trends, but but we're very much hoping to mimic the the I'm.

The same sense that you get from from the.

Fresh beef versus road.

Okay perfect. Thank you very much.

<unk>.

Thank you.

And we'll take our last caller from Brian Lane Bank of America. Your line is open.

Hey, good afternoon, everyone.

Hi, there.

You can just a question I.

I guess in the U.S. as we're thinking about just the dynamic between retail and foodservice.

I guess you just two questions related to one is in parts of the country, just where do you have seen restaurants reopening has that at all had any impact on our retail growth.

And then second again this is a pretty this is obviously very on anticipated rate in terms of the pivot to retail and I'm like I guess my question, how incremental can this be overtime right now you've got a much bigger retail business than you would anticipate a year ago.

As foodservice begins to come back you know do you expect that these retail gains are going to be.

Right sort of sticky and essentially you you've accelerated the retail growth, while you're still building the foodservice business. So it you may end to end up being further ahead on your curve than you originally thought.

You know look I, it's great great question and set up for an answer that I think is very sincere which is absolutely.

You know I think that you're seeing a maturing of our brand not in the sense of slowing down but in the positive sense in that and we're starting to get recognition.

Within a mainstream consumers in America, you know one example, oh yesterday that add that we released I think is extremely well receive has been very well received.

Attrition numbers, the increasing buying rates per household all these things I don't think are temporary and so what we know a is that we're going to be back and foodservice, we'll be back in I think in a big way when it when it gets back up and started again and I don't expect that will give back all the retail so yes I'm very.

Are you optimistic that we'll be able to continue the growth in and retail that that this has allowed has been an enormous trial program for us and that was one of the reasons I wanted to get that too that the value Backout, we had an opportunity for consumers to go to the store to seek out our products and enjoy them and when when when you do try them you tend to like him.

As our repeat rates suggest.

And so.

Well not stopping here with eight items in retail.

The incumbent that in the in the meet all set we don't pay that much attention too, but just as an example, as 23 skews right. So there's a huge opportunity proliferate across.

Category unable to meet industry and the diversity there.

It's and products, though so we had a lot of room to grow in existing doors that we're in.

And then you take units example, we're launching new products I mean, its independent make is a very serious thing that we're not going to stop innovating.

For breakfast sausage bodies are launching over 2000, Walmart stores 20 Super target stores in September.

We're expanding distribution of the soft wood products and the public's for both as opposed to sausage skews breakfast sausage.

Doing really well by the way with that product and whole foods, it's one of the top five.

Ranks breakfast skews up for the peak weeks ending 620, so really good progress and new products that we're launching.

Beyond me balls that are coming out great acceptance looking for early shipment September retailers like whole foods, and Kroger et cetera.

So we'll continue to see great pick up of of our retail items. So my hope is that will take the momentum that we've been able to achieve by shifting magically from this 50 50 split too.

What is today 80, 812, which is remarkable.

And then take back a the foodservice losses that we had and turn those into very significant gains. The partnerships. We had we haven't talked about much on this call, but if you look at KFC here in Los Angeles, 50 store launch, Los Angeles, Southern California, San Diego et cetera.

Ill here, we had to rush the second weekend as a family to go get Nuggets, because we were aware that they were running out and in fact ran out within two weeks here in Los Angeles. It was a scheduled for a month.

So so we're continuing to see when we do these launches really good results and we have great partners I mean look would Duncan just did they.

Dave Hoffman's has been a keeping close touch on these things and shared with me that the.

To wrap they're doing as is the introduced recently is doing really well.

So whether it's.

Pizza hut or all these different brands that were so fortunate involved and they're not going to just go away right. We are building long term relationships and trying to be a servicing them during a very difficult period.

For the expectation that we'll be able to serve them as the economy gets back to normal here, which it will we've been through these things before as a country and as the globe and things we back to normal and expect to see beyond me, it's growing really strongly.

Throughout the throughout the [noise].

Next several quarters.

Great. Thanks Ethan.

Yeah.

Thank you and that does conclude our question and answer session for today's conference I'm, just trying to convert Echo where do you think brown for any closing remark.

But it's one of the thankful for calling in and I think the main messages to be safe and take care of one another.

We'll go period and [laughter], it's time to just be Lexia careful everybody and and let's just trying to get through this I'm very hopeful that that we're gonna emerged from the stronger as a as an economy and country and a tail looking forward to that and and wishing you all wells with as we continue to.

To a to manage the independent it take care. Thanks.

Okay.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.

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