Q3 2020 Beyond Meat Inc Earnings Call
Thank you.
[music].
Baker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone keypad <unk>.
As a reminder, this conference call is being recorded if you require any further assistance. Please press star zero.
This time I would like to turn the conference over to Mr. lupica toward Vice President of Investor Relations. Sir Please begin.
[music]. Thank you.
Welcome.
It's called Brown, founder, President and Chief Executive Officer, Mark Nelson, Chief Financial Officer and Treasurer.
Everyone should have access to our third quarter earnings press release, and Investor presentation today after market close.
The amounts are available on the Investor Relations section of the Ami its website at Www Dot beyond me.
Before we begin please note that all the information presented on today's call is audits.
During the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These.
Statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements forward.
Forward looking statements in the earnings release that we issued today along with the comments on this call are made only as of today and will not be updated actual events unfold.
Please refer to todays press release.
Reports on form 10-K for the year ended December 31st 2019 filed with the Securities and Exchange Commission on March 19th 2020.
Our quarterly report on form 10-Q for the quarter ended September 26, 2020 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 also note that on todays call management will refer to adjusted EBITDA adjusted gross profit adjusted gross margin and adjusted net income or loss, which are non-GAAP financial measures.
We believe these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation, whereas a substitute for the financial information presented in accordance with GAAP. Please.
Please refer to todays press release for a reconciliation of adjusted EBITDA adjusted gross profit adjusted gross margin and adjusted net income or loss to their most comparable GAAP metrics now I would like to turn the call over to Ethan Brown, Chief Executive Officer Beyond me.
Thank you and good afternoon.
For Q3, 2020 results more careful consideration to capture full and accurate appreciation for business today.
Let me begin by sharing brought observations on the overall im confident that macro environment.
Revenue results.
Well its highly compelling underlying.
Hi, good momentum and growth.
First in line with the overall category.
Yes, all clear just pattern consumer panic buying Q2.
About moderation in Q3.
Second.
Cover you know keeps it services.
Overall food service sector, given our exposure to certain segments.
Fortunately I couldn't.
Yes.
Third we continue to contend with Cobra next easily timing delays with large strategic quick serve restaurants for QSR.
But notwithstanding the fundamental supporting.
Well, the VR, increasing U.S. retail market share.
Also penetration our risk.
Frequencies and repeat rates are increasing points of domestic and international distribution.
Increasing rates of new products.
Promising indications the QSR partners, maybe working what has been an appropriate understandably.
Launches.
In light of what we view as predatory coopers craft.
Kraft food and drink strikes.
We have not blink focus on exciting long term growth.
As such we retracted more delays.
This expansion agenda.
Well that's it for me to our Q3 performance, we experienced a football.
Good night.
For Q3.
Reducing net revenue.
The sequential drop some record net revenues of 130 million in Q2.
Well, he said corporate banking fees.
Services offset.
Sure.
Retail door for demand in the second quarter outlook, what does not enjoy the same level.
Conversely, if.
Dan its buttons you much stock freezers subsequent by region and by problems for spending for the previous quarter.
Q3 reflects our second largest core retail sales ever.
<unk> retail revenue growth is less offset.
If we can pull that back to you.
For food service revenues, including glazing watches for expansions with strategic partners.
To keep all this in perspective, it's important to note that should also be public school, 63% year over year for the.
Category as a whole was up 41%.
Moving to a 270 basis points year over year increase in markets, you're going to be on mute.
According to spins data for you what's most outlets.
Natural and specialty channel sales 12 week period ended October 420 20.
Fourth call.
Oh total distribution points was three and a half times higher than the category average increase.
Increased 15% year over year, the latest 12 week period.
<unk> points of distribution.
55% year over year.
I understand the significance of these trends keep in mind the velocity typically declines as you had distribution points.
More stores, we're also seeing higher revenue for store base.
Very encouraging signs.
Proposition to consumers.
More generally holding that you'd consider one.
Retail food service sales notwithstanding.
The year over year revenue.
For the nine months ended September 26, 2020 stands at 52.9%.
Revenue from retail loans.
16.5% for the same period versus a year ago.
The positive metrics underpinning this growth further bolstered combination to resist short cromer crops and the like.
Yes for insistence on investing for future for any period of disruption puts pressure on the piano.
An additional look it's been.
See what kind of data provides a clear picture of progress well U.S. household penetration increased to 5.2% compared to 4.9% as of June.
Just 2.7% a year ago.
Well repeat rates increased to 51.9% September versus 49.3% June.
Purchase frequency increased 8% September while our buyer rate increased 13% from June to September in other words, despite challenging macroeconomic conditions, but highly durable bye.
More helpful. The virus.
You're buying them more frequently.
Average, they're spending more per household products overtime.
Recent distribution wins include but are not limited to incremental placements are there beyond just the softest studies Walmart.
Its full distribution gains for beyond breakfast sausage studies, that's like Kroger supermarket public and Harris teeter locations across the nation.
Further we have secured distribution optimization of exciting new revenue with.
Retail outlets for us.
We are pleased to announce today, but as of January 20 Twond.
On burden will be available 7000, Cvs pharmacy locations nationwide.
And be on People's will be available at 5000, Cvs pharmacy locations across the country, we continue to launch new products.
This innovation.
Having brought to retail markets.
Sauces.
Three months this fall retailer acceptance.
Lastly, as I mentioned, a moment ago feels losses remain well above category.
Hi, I'm on we're seeing an increased focus for our retail customers around shelf space optimization decisions.
Suing our kids are second to favor brands such as ours.
We need to drive overall had a word.
Further increasing our ability to expand our onshore cousins even than our existing retailers today. The deceleration caused by intensified Q2 by threes are loving followed by moderation in Q3 was felt across all retail category looking.
Looking at a time series of Rolling 12 week sales for the plastic food category as a whole according to spins data for U.S., Lou natural and specialty channels category sequential growth rate piece, the 20% during the height of consumers kind of five cents decelerated sharply.
Slide a 3% the 12 week period ended October four 2020.
For 23 point negative swing sequential growth.
Late Q1 and early Q2.
This pattern of Q2, resulting followed by Q3 moderation not appeared.
Category as evidenced by similar buying habits elsewhere.
Grocery space.
International retail we saw you suddenly is Q2 Q3 as we did here in the U.S. similar dynamics played out of several of our most important markets.
Nevertheless.
We sold domestically that revenues in our international retail channel also increased considerably.
27% year over year in Q3 2020.
During Q3, we increased our international retail outlets from approximately 27000.
To roughly 33000.
Include surface as noted our Q2 results reflect continued cope with 19 disruption.
Well, we're not revenues for tourist business declined 41% year over year or U.S. International business is declining 11, and 65% respectively.
But then Packer performance in Foodservice, let me first address the broader non quick serve restaurant portion of our business call.
Called the quick serve restaurants, or QSR customers make up roughly one third of our overall foodservice sales remaining two thirds consist of sales to a wide variety of customers, including but not limited to.
In restaurants smaller regional chains or.
Logic venues casinos academic institution health care facilities corporate carriage services government institution.
Some centers movie Theater sports arenas other recreation.
As you can imagine many of these customers have been disproportionately affected by coupled with my team and it generally experienced slower rate recovery relative to the overall food service sector.
Well, we did see a sequential improvement in overall demand for these customers relative to Q2.
Total sales contribution.
Well below year ago levels.
With cold 19 infection rates beginning to pick up again in many parts of the U.S. and abroad.
Certainty around the shape of the recovery this portion of our business remain elevated.
To provide further context I'd like to focus a bit more on trend within this broader two thirds from where he was food service business has captured NPD data and then turn to our QSR apartments.
As a reminder, NPD tracked broad line distribution to U.S. food service outlets generally excludes major QSR often utilize direct delivery systems.
According to NPD data for Q3 sales that beyond me products declined 34.7% from a year over year basis, compared with 37.5 decline for the overall category.
In other words, we achieved a slight gain in market share NPD tracked channel, even if the entire category.
Challenged.
Although our outperformance relative to the overall TV category.
Quarter versus our recent history, we do believe our results were equally impressive our segment mix to alluded to earlier imports.
Unfortunately, several of our highest year segments within NPD tracked channels, including lodging recreation full service restaurants.
Industry for example.
I've been hardest hit by cope with my team here as is the case with our large QSR.
Can you provide most important patient that's our customers adapt to the changing realities.
Turning to meeting one third of our foodservice business large QSR plus we saw a sequential improvement from Q2 to three for this portion of our business.
However, total sales contribution from these customers also remained well below year ago levels.
The only dynamic funding or work with large QSR customers onset of COVID-19 has been a delay in classic mushy tests or expansions planned phase <unk>.
Despite some near term impact on our business.
Fully understand and respect sensitive as large customers.
Menu status quo.
Streamline offerings for independent.
Here again is important not to interpret this near term endemic induced drop in activity as a weakening in our long term value proposition that's critically important states we.
We certainly do not and just like the potential for another round of stain stayed home orders, we are seeing strong signs that certain large QSR <unk> planning.
<unk> additions.
As always we cannot promise anything launches for a variety of reasons, including the inability of course of corporate nineties.
Impact on March four expansion strategies within the QSR space.
Looking abroad, Asia, you're probably thinking them apart.
Which recently conducted a new test on Burger across 210 Ks. These locations six major Chinese cities for treating trial.
As I will discuss in a moment you need to invest in personnel and production capabilities in China.
Throughout our operations continued investment businesses for current and future growth.
First we recently completed the acquisition of one of our former co manufacturing facilities in Pennsylvania.
Capabilities produce a certain portion of our finished goods completely in house as a key part of a longer term strategy to reach price parity without a minimal cook.
We tend to use our new Pennsylvania facilities, not only reduce production costs, but the pilot processing products, including a new design construction lives and perform initial scale up trials products.
Well. The addition of this wholly owned production capacity were also wealth.
On 180 employees to be on mute family.
I should note that we will continue to align ourselves with best in class co packing partners here and abroad and expect the acquisition of our new Pennsylvania facility to only strengthen these relationships.
To be able to do important products feeling more in house for transferring certain downstream activities. These partners.
Internationally, we continue to invest in production capacity in China and you as you know in early September we announced the signing agreements with gushing economic and technological development and Philips.
Philip two manufacturing facilities in China, including the state of the art silly of which the size sophistication sold dedication that Fascinates me, we believe will be unique.
This larger facility was preceded by our first production plants for work is well underway to get ready for production trials.
The end of this year.
The second facilities that could be a significantly larger purpose built plant and once completed its second.
One of the largest dedicated plant these factors in the world.
Similarly work is well underway at our recently acquired many fashion so.
What's also remains on track to begin production trial before year end.
And we have continued to be strong teams in both regions.
Finally, a word of appreciation for all talented team members working in operations around the globe.
These essential employees work tirelessly to meet demands that difficult operating environment, <unk> scrip mandates around social distancing masks.
And sanitation requirements related to cold at night.
I did these conditions highly variable fulfillment requirements given unusual consumer buying patterns that are present in a cold nights in economy and.
Actually become clear why we are so grateful for their work ethic and sacrifice.
We continue to make strong progress and be sure you felt like you didn't have to pull that night.
Our ability to operate at full scale.
Each project for innovation Center here in Los Angeles.
ISIS engineers and technicians continue to work to ship model to better support social distance.
I can't emphasize enough how proud I am the team's productivity like myriad pandemic related positions.
In addition to the new retail one of the recently launched continues to make great progress on our next generation to be on.
And I'll have more to share with you about that soon.
World. These talented women and continue to work deep partnerships with our QSR partners.
Until you worked full shifts it's.
It's hard to fully grasp the difficulty performing challenging research and development day after day these conditions.
As with our operations team.
So.
In keeping with us that make our products as widely accessible as possible.
We lost the direct to consumer or DTC ecommerce site in late August.
It seems like across the contiguous United States.
Order.
<unk>.
Drilling two day shipping one each quarter.
We're proud to utilize.
Hi, couple shifting boxes, and U.P.S. carbon neutral shipping.
This initiative.
Well TTC group life and <unk> portion.
Portion of overall sales near term.
Nonetheless, the effort symbolizes our commitment to beauty consumers wherever they prefer to shop.
Overall with regard to availability.
It is now available in approximately 122000 retail and food service outlets globally.
Proximately 10000 locations or 9% since the end of June.
Majority of that increase coming from our international retail outlets.
So now also available 80 countries across the U.S. up from over 50, a year ago.
I'd like now comment briefly on Mark.
Mark will expand on in greater detail shortly.
Results reflect the combination of ongoing challenges.
As well as deliberate decisions, we made for the benefit of our long term strategy. Despite the understanding that these would negatively impact profitability metrics in the near term.
On a year over year basis, adjusted gross margin of 28.9% third quarter 2020 was down 670 basis points compared to Q3 2019.
This variance over 500 basis points attributed price mix, largely driven by increased trade discounts primarily not exclusively in retail.
Kinda opportunistically increase emotional intensity hold strategic importance as weve communicated in the past is aimed at driving increased household penetration for our brand.
According to the skins.
Consumer panel date I've referenced earlier these tactical actions appear to be working.
Latest U.S. household penetration nearly doubled versus a year ago, and increasing roughly 23% just over the last two quarters.
Well, Bob referenced system club, continuing to sort of long term growth ambition national impacted a female during this period of disruption where operating margins suffered in the face of lighter net revenues, we believe seasoning global opportunity within that space needs over the years to come.
With a clear focus on long term strategy and a willingness to make your term sacrifices in order to establish a much stronger position our brands.
The long run.
Finally, before I turn the call over to Mark.
While the competitive environment.
We watch entrance carefully and C level investment interest in the category generally positive deal and the long term growth of the plant based category and.
In this environment, if against and I knew wouldn't commit players.
Seeing as mentioned last increase our key panel data metrics moving in the right direction, including as noted a number of households buying your products spend per household frequency of purchase and repeat rates all increasing.
Strong retailer and consumer interest in our new skews and continued expansion of our points of distribution, both domestically and abroad.
Lastly, we continue to see solid gross profit.
Category above and beyond that I mean, all protein and importantly, our brand continues to outpace the category growth.
With that I'd like to now turn the call over to Mark Nelson, Our Chief Financial Officer, Who'll walk us through our third quarter financial results in greater detail.
Thank you Ethan and good afternoon, everyone.
As Ethan described a moment ago, we experienced a meaningful deceleration in our financial performance during the third quarter, causing our results to fall short of our expectations.
However, we believe this was in large part attributable to challenges associated with Cobot, 19, which we view as a transitory factor.
The underlying fundamentals of our business continued to give us confidence about beyond meets future. Notwithstanding the fact that near term volatility will likely remain elevated as the shape and impact of the global pandemic remains uncertain.
When you Peel back the layers of our Q3 performance certainly is a 39% year over year revenue growth across our retail channel was solid.
But as you might expect demand in our foodservice channel, while up 78% sequentially from last quarter.
Remained significantly weaker than the prior year offsetting most of the growth we saw in the retail channel.
Operationally, we reacted admirably to mitigate much of the impact of this demand shift by reducing excess capacity and thereby minimizing inventory charges during the softened demand period.
Going forward, our near term goal is to drive growth within our retail channel, while continuing to manage through the difficulties in foodservice and standing ready to capitalize in that channel has the pandemic subsides and consumers were gain confidence in away from home consumption habits.
With that broader perspective shared.
Let me now walk you through our third quarter financial results in a bit more detail.
Net revenues in the quarter were 94.4 million.
2.7% compared to the third quarter of last year.
In aggregate growth in net revenues in the third quarter was driven by an 11% increase in volumes sold partially offset by lower net price per pound.
[music], mainly to our continued strategy to drive incremental consumer trial by offering more aggressive pricing and promotional programs.
To a lesser extent.
Net price per pound was also affected by product mix as we sold a far greater amount of large pack items in retail primarily in the form of our clubs store pack and the cookout classic versus the year ago period.
Overall net price per pound was $5.33 in the third quarter of 2020 as compared to $5.74 in Q3 2019.
Taking a closer look at our distribution channels retail net revenues increased 39% year over year, while food service net revenue decreased 41%.
Versus the third quarter of 2019.
In retail our volume of products sold increased 46% year over year, driven by continued expansion in the number of distribution points, both domestically and abroad as well as higher sales velocities at existing retail outlets.
And contribution from new products.
As I mentioned, a moment ago net revenue growth in our retail business was partially offset by price owing to higher trade discounts as well as changes in product mix.
In foodservice, we continued to experience significantly lower levels of demand relative to a year ago.
Albeit meaningfully improved on a sequential basis.
Our food service net revenues declined 41% year over year with non QSR locations generally faring worse than larger chain QSR customers.
Yes, Ethan mentioned, excluding our partnership with large QSR customers. Our foodservice business has broad exposure to certain formats that have been disproportionately affected by the COVID-19 pandemic.
Among others. These include independent restaurants.
Fast casual dining bar.
Bars and clubs.
Lodging academic.
Academic institutions movie theaters sports arenas and convention centers.
As you can imagine and not surprisingly many of these venues are experiencing a slower rate of recovery send the broader food service sector, which is complicated further by recent upticks in the rate of spread of COVID-19, both domestically and abroad.
Sales to our international customers across retail and foodservice channels represented 17% of our net revenues during the quarter compared to 32% in the year ago period.
Gross profit during the quarter was 25.5 million or 27% of net revenues compared to 32.8 million or 35.6% of net revenues in the third quarter of 2019.
Included in the cost of goods sold during the quarter was 1.8 million of expenses directly attributable to COVID-19.
Including 1.1 million inventory write offs and reserves associated with foodservice products seem to be unsalable.
And point.
Point Sevenmillion in product repackaging costs, as we leveraged additional opportunities to re purpose certain foodservice items for retail channels.
Excluding these items specifically attributable to COVID-19.
Our adjusted gross profit was 27.3 million or 28.9% of net revenues during the third quarter of 2020.
On that basis as compared to our prior year gross margin of 35.6%.
The 670 basis point decrease in adjusted gross margin was primarily driven by lower net price realization as a result of higher trade discounts and product mix.
And to a lesser extent from lower absorption of fixed overhead cost as we scaled back production to draw down inventory levels.
Operating expenses totaled $44 million or 46.6% of net revenues in the third quarter of 2020.
As compared to 29.2 million or 31.8% of net revenues in the year ago period.
The year over year increase in operating expenses, primarily reflects increased headcount to support our long term growth initiatives.
Increases in marketing investments.
Higher share based compensation expense.
Investments in international expansion.
And continued investment in innovation.
Net loss during the third quarter of 2020 was 19.3 million or 31 cents per common share as compared to net income of 4.1 million or six cents per common diluted share in the third quarter of last year.
Adjusted net loss, which excludes 1.8 million in cost attributable to COVID-19, namely inventory write offs and reserves and products Repacking activities discussed previously.
Was a loss of 17.5 million or 28 cents per common share during the third quarter of 2020.
Adjusted EBITDA.
Well, it's a loss of 4.3 million or negative 4.5% of net revenues in the third quarter of 2020 compared to adjusted EBITDA of $11 million or 12% of net revenues in the year ago period.
Now looking at our balance sheet and cash flow highlights.
The companys cash and cash equivalent balance was 214.6 million.
And the total debt outstanding was 50 million as of September 26, 2020.
For the nine months ended September 26, 2020, net cash used in operating activities was 42.7 million.
Her to 18.3 million.
For the prior year period.
Capital expenditures totaled 38 million for the nine months ended September 26, 2020, compared to 9.5 million for the prior year period.
The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to domestic and international capacity expansion initiatives.
As he said and mentioned we recently completed the acquisition of a former co manufacturing facility in Pennsylvania.
Overtime, we expect Britain this manufacturing in house will lower our cost and production, while increasing our supply and U.S. distribution capabilities.
As a reminder, this acquisition complements our ongoing capacity expansion projects in Europe, and China, all of which collectively advance our long term strategic goal of closing the price gap of our products relative to animal protein.
Finally, with respect to our 2020 outlook and given the ongoing uncertainty regarding the duration magnitude and effects of COVID-19 on our business and those of our customers are 2020 guidance remain suspended at this time.
We will continue to periodically reevaluate this position as broader macroeconomic conditions continue to evolve.
With that I'll now turn the call back over to the operator to open it up for your questions.
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Our first question or comment comes from the line of Alexia Howard from Bernstein. Your line is open.
Good evening everyone.
Hey, there.
Great Yes.
I'm sorry.
I guess my Mike.
Question and follow up on would suddenly be.
I know, you're not providing guidance for the fourth quarter, but could you give us some idea about how the retail side of the business and the seat sabic channels trending.
As we look out into the fourth quarter do you expect a sequential improvement on either side of the business on and also what's happening internationally said, just some sense of how things are trending.
Then I guess my second follow up question would be given the yacht the news about the Mcdonalds PON.
Platform that came out this afternoon could you talk a little bit about what your role might be in that platform and how you expect that to play out over time. Thank you very much I'll pass it on not sure. Thanks for the question and just before I delve into the specifics on that I do want to.
Just recap and reiterate where I think this quarter ended up and why I think the headline really is the foodservice remains highly challenged like if you look at our Q4 2019.
Sales into that sector. We were about 58 million. Net then you come to today. We're about 24.4 million that is what is clearly something going on.
Around cold it where folks that were drawing on our products Oh, we're not doing so at the same clip as we are into the third quarter.
That does not mean that it's not a very healthy and long term segment for us and if that they'll share reasons why.
That is in fact, the case that we will see some some good recovery. There. We think and then second you look at what happened in retail that was largely masked in the second quarter by stockpiling that was going on as consumers felt were to stay at home orders were going to be a very enduring part of our economy.
And so that stockpiling that mass the weaker foodservice activity in the second quarter simply didnt occur in the third quarter and one was in fact.
Exacerbated somewhat.
By the fact that freezers will fall up across homes throughout the country and so you then saw the full brunt of this decline.
In the food service sector.
That said, we remain really encouraged around the performance of the brand, particularly in retail and then some of the activities that we'll talk about coming up in food service, but if you look at that household penetration the buyer rate the purchase frequency and because the repeat rates are those are all things that any brand would be really happy.
And then you go to the market share and our market share increased 270 basis points on a year over year basis. So we're looking I think quite strong.
In those areas.
And then lastly on on the two questions.
On on on retail and foodservice as we head out of the third quarter and into the fourth are we seeing signs of recovery.
Really shied away and want to caution against providing any guidance for the fourth quarter, but one thing that I can share is that this has been such a year of unpredictable buying patterns by the consumer and that has continued into the fourth quarter in the sense that some of the activity we've seen early.
Is it much more in keeping with what we would have seen over the summer buying months. So there has been some trading out of consumption given the stockpiling and then the inventory rundown.
As we head into the fourth quarter, but again I want to be really clear that I don't want that data to be used to create any forecast for the fourth quarter of this simply to variable, but we are seeing that we're buying is happening in large lumps versus.
Maybe the more even distribution that we've seen in the past.
Food service side, we are seeing some.
Recovery there.
But it's too early to tell and with the with the with Kobin continuing to spike up in the country. We can't offer guidance in that category, but you will see us active with some of the large QSR partners that we've talked about in the in that in the coming period provided that.
Well that doesn't overtake the economy again, so I think overall, we're feeling very optimistic about where we're headed and ER and look forward to sharing some good results. If you look at where this quarter ended up.
From the second quarter, we were about 113 net and now about 94 and this is in a period of extreme pandemic. So we think we're doing pretty well and we look forward to continuing to grow.
The second was around to the plant a question.
As I watch it unfold today I was reminded of the Mark Twain quote that reports of my death have been greatly exaggerated [laughter] you know our relation with Mcdonalds is good it's really strong our work there on behalf of what they're doing continues.
And you know I really want to defer to our large media customers, what they want to share about their supplier base and what they want to share about their launch plans I don't want to get ahead of <unk> and then insert ourselves to the point where we're.
Were dominating the headlines of their investor day, So I respect their decision to to refer to the big plant platform in a generic sense.
You know we are working very closely with them on a number of matters, but.
I think that folks.
Just had to do to be patient.
I feel as I said in the past good about that relationship and good about what we're contributing to the mcclintock platform.
Great. Thank you very much all profit on yes.
Thank you.
Thank you. Our next question or comment comes from the line of Robert Moskow from Credit Suisse. Your line is open.
Hi, Thanks. He said I think you answered my first question, Bob I, referring to.
Tumor retail activity, maybe re accelerating a in fourth quarter.
Does that Uh huh.
Sure you I suppose that.
That consumers have Nick what they have in their own freezer is now normalized and maybe you know that at.
All that excess inventory from panic buying is now over.
And can you also give us some assurances that inventory at retail.
It is also a normalized that it's not that what we saw in third quarter was not too much inventory at retailers.
Do you have any do you have any visibility as to what that looks like right now.
Yes, so we're not seeing buying behavior at the customer level at the end I mean customer I mean, the grocer level that would suggest that they are still trying to burn through a lot of inventory.
They were pretty quick to react I think to the consumer downturn in buying that occurred in the third quarter.
So I think they're pretty well calibrated.
So yeah, I mean like I said, we had some pretty good returns in the beginning part of this this quarter and I think we just have to wait and see what the rest of the quarter looks like it's such a variable year Buddy.
Uh huh.
I think I'd like to avoid offering guidance for the for the quarter anymore sick or not.
Okay, and just any color so I mean, we get Nielsen data.
Lagged so [laughter].
There's a few weeks I haven't seen that but it doesn't show at least through October 7th I think.
A dramatic pick up you know growth.
Growth is decelerating, a little bit maybe down to 42% still strong, but but there's no.
Rebound are you, saying that that as you look towards the end of October and that it does go higher.
I think I think some of what happened is to just try to give you little more detail is the end of the third quarter. We did see a lot of buying a occur from the retailer base and then we still have a lot of those orders in the first part of October. So I don't think its matching directly with the Nielsen data that you're seeing.
And so.
But again, we're seeing a pretty strong beginning whether that'll persist throughout throughout the rest of the quarter, We just can't say.
Okay, and and I know you you don't want to comment on what Mcdonalds is plans are but I.
I think it is it fair to say that in general you're okay with you.
Our product being on the QSR menus.
They get whether or not your brand gets gets mentioned on the menu or not.
Is that are you kind of I'm sure you'd prefer one over the other but are are you. Okay. If it doesn't show up on the menu.
I think you're right.
Yeah, I would say not actually I think given the.
Tumor residents with our brand.
And and just the momentum we have with consumers.
The brand that we've established we think it deserves to be up there on the menu and.
Nearly all of our QSR partners have done that benefited as a result, and a if you look at how the plc was positioned.
It was pretty clear in all sales collateral and signage.
It was with the beyond me Burger now, we can't specify or speak from a dollar as to how we made interplay with me plant Burger, but.
Clearly think it'd be in everybody's best interest to to use our brand and I would resist efforts to to not to not use it.
Okay. Thanks for the clarity.
Thank you for the questions and just on the on the on the issue around the velocity is I mean I'm looking it.
Cross are moving and.
And other data and we're seeing even as we.
Dramatically expand point to distribution I think we have grown by about 55% year over year.
We're still seeing that were our velocity is about three and a half times higher than the category average and our year to year basis, they're up about 15% over the last 12 week period. So.
There's puts and takes in there is going to be differences, depending on the skew and whether a particular competitor is going heavily on promotions, but overall that 15% rise in velocity year over year coupled with.
55% increase in distribution.
It's pretty hard to do and.
And so we feel pretty good about that that even as we expand in.
In our total distribution, you're seeing a higher overall level philosophy, I think that speaks to some of the underlying strength of the brand around the household data that we shared.
I think we're up it now 5.2%.
Up from 2.7, a year ago on on household penetration, but what's also happening there, which I find so alluring and encouraging for our brand.
Buyer rate since June <unk>, even in this period of crisis right is rising and so you have great economic challenges across the nation.
And you have this tremendous disruption in retail buying patterns as well as in foodservice engagement and yet what are households, doing they're buying more beyond me. So if you look at I think our ring in per buyer rate in September was about 36 and a half bucks.
That's up from $32.
In in June.
So from a September to do and you're seeing that very large increase in buying across household and obviously look at all the scouting reports on on on animal protein and on our competitors and those numbers are great on a relative basis.
Okay. Thank you thanks, Rob yes.
Thank you, ladies and gentlemen in an effort to answer as many questions as possible. We ask that you. Please limit yourself to one question and one follow up our next question or comment comes from the line of Brian explained from Bank of America. Your line is open hey, Thanks, operator, and good afternoon, everyone <unk>.
I guess a quick.
I do kind of transition from summer to fall you know you spent the summer you know putting some some product into into the freezer. In addition to having product burgers in the in the in the meat case.
And I guess, you know now that we're past barbecue season can you just talk a little bit about you know how or if the merchandising at all changes between as we kind of move into the into the fourth quarter and first quarter and if there's anything we should be thinking about there in terms of.
You know retail inventory or you know does that cause any sort of disruption in terms of of revenues as you move.
As we move through the fourth and first quarter and then maybe get connected to that on seasonality right. I know demand has been pretty strong but are we still do you still see kind of the seasonality around grilling season or as household penetration has grown.
Are you are you actually seeing its less seasonal than maybe it had been the last couple of years.
Yeah. So I was going to answer your first question with that.
Perspective that are brand does have some seasonality to it.
Grilling season, but as we continue to offer new skews to the public I think that will be dampened somewhat.
So while we expect to see seasonality mix.
Exert itself over the course of the of the the the fourth quarter.
The buying pattern again have been so unusual for this year, we can't say with any precision about what that if that will be it may be that.
Some of the buying and we didn't see in the third would occur in the fourth and maybe that doesn't happen in the seasonality is fully expressed.
But one thing I do want to talk about.
As we think about the fourth and first quarter is as I've always said beyond me, there's an innovation engine at its core that's what we do.
Core asset as an understanding of protein and lip bids from plants and getting them to behave and structure of of animal protein and that could provide the sensory experience to consumers are so used to.
I'm very pleased to announce that we are going to be launching our beyond Burger 3.0 and.
That it could not be more excited about you know we've always.
Maintained.
That our brand stands not only for the ability to do something great for the globe from a fund environmental perspective, animal welfare et cetera climate, but also for your own body in your own health and so when when people think about beyond they should thinking about tremendous great taste that we're striving everyday to be closer and closer to the animal protein equivalent.
But also this is going to help me lead a healthier lifestyle and this is going to help me do something good for the planet and this burger deliver on those promises it we've done extensive consumer testing on it it did better than our current version, which is always somebody want to do we want to make our current version obsolete it did absolutely.
Very well against competition and started to scratch a little bit on some characteristics about 80, 20, so something I'm excited to get out.
And it represents I think continued growth for us and so when that hits in we're not going to say exactly right now, but we'll make an announcement soon and we think that will have some impact as well as we talk about the fourth then and particularly the first quarter.
Great. Thanks Ethan.
Thank you. Our next question or comment comes from the line of Ken Goldman from JP Morgan Your line is open.
Hey, good afternoon.
Hey, Ken are you doing.
How are you. Thanks.
[laughter] I am I.
I think you described mcdonalds worse today, a little bit more benign Lee and I think some investors might see it they they they really said.
But they were kind of going on their own and it was my impression based.
Based on beyond you know I guess quasi public statement that you didn't like that where you kind of said no. We're collaborating with them and that was I imagine not something you were planning on doing so.
To me I think you're smoking people, a little bit right, you're not telling investors anything substantial about what potentially could be your biggest biggest growth driver. So we're kind of assuming the worst thing you're not producing anything at all years licensing some know how maybe.
I guess is there anything you can give us to sink our teeth into today that helps us understand your relationship with this customer.
Sure No that's a fair and it's a good question and I know, it's always [laughter], you're asking the right one here.
Yeah, I mean, I as I've said, I really want to like I value. So much these relationships with the customer and you know as much as I want to provide assurance to the street into all the people that have helped us over the years that things are such in such a way Uh huh.
It's really their show and if I look I think if I if I have a supposition about why they were more general in their comments today is my own deep and brown observation not not on mute or were Mcdonald is it. This is their day, it's their investor day and news of something more broadly it would be.
Beyond meet within the MC plant platform I think would have been disruptive to their own desire to stay on message and so I respect that and understand that and I really need to leave it to them to to make further comments about the the the how we plan to interact with wouldn't the class I will say this everything I've said is true that we have.
I've developed very long term relationship with them, we worked very hard on developing the Burger that will that was in the plc and.
It will be in the MC plant, but it's really up to them to say the extent of that where it's going to be how it's going to be there, but everything that I've been doing and our research team has been doing is marching toward a particular outcome with them and I feel good about that.
Okay I'll leave it there thank you.
Yep.
Thank you. Our next question or comment comes from the line of Rupesh Parikh from Oppenheimer. Your line is open.
Good afternoon, and thanks for taking my question. So I wanted to ask a little bit more about your retail distribution do you worry at all about over distribution at this point on the retail side. It was interesting to hear just about yours plant CBS launch as well later this year.
Yeah, No you know what I worry more about isn't it was just a sort of.
Embedded in patients within our company is that we know the consumer wants different and additional skews from us.
We know they want to have the beyond option a different eating occasions through throughout the day and so the sense of urgency that we feel about lets get additional skews out there is very real and so.
Yeah, we're scratching the surface of what we could be distributing in these large grocers, whether kroger Walmart.
Et cetera, and so they're.
Really our foot in the door, but that's about it we have the opportunity to proliferate up to 25 30 excuse in these stores.
And you'll hear from us.
In the coming months on some exciting developments in that regard.
But our goal has always been in whether it's the reference to the Dol discussion, we just had or some of the other partnerships. We've had is to meet people where they are buying and CBS has now become a place where people are picking up some household a grocery goods. So we want to be there.
And and we want to do really well there so having 7000, new locations, where someone is going to be on Burger that CBS heading the 5000, new location that CBS for someone to get the false yeah, Thats, great and we plan to try to add to that distribution with other products that are appropriate for that channel.
So I really do view this as word because we're just getting started.
Okay, Great I'll pass it on thank you.
Mm.
Thank you. Our next question or comment comes from the line of Ben Hur from Barclays. Your line is open.
Hey, good evening.
No Mark Thanks for thanks for taking my question sure.
When did you pick a little bit into the dynamics on the international market, both retail and food service. So.
Yeah, we look at the.
The European market, but to a certain degree the Asian market at least hearing what this would last quarter a lot of food service locations were actually not locked down because we'd like first wave of Copel get and then everybody was able to go out again I was expecting that would be a more meaningful uptick here, but were actually if we look at it on on the foodservice side.
It was just marginally better than during the second quarter when the most of the impact from corporate related restrictions happened on the foodservice side and for example markets like Europe, but also partially in Asia and in the same line. If we look at retail it was obviously very strong into the second quarter, but.
Well, there's a meaningful deceleration on a on a sequential basis into free Q. So I was just wondering if you could elaborate a little bit about the dynamics.
Both markets foodservice and retail segments foodservice and retail on the international side, just to understand a little bit better.
Better where we are heading on in coming quarters in those markets.
Yeah sure so on the on the foodservice side.
Yeah. If you look at the distribution of our sales into that channel or something you've talked about in my opening comments and I'll get a little bit more detail here.
We were.
We're two thirds or so of our exposure is to independence and institutions in places that are just either closed or operating at a at a much diminished capacity.
And then you have the strategic market, which is about a third of our distribution and those are the ones that are doing quite well with drive through and be able to streamline menus and and the cash flow et cetera.
But we're not participating as much in that part of the food service category. So even internationally right. We're not participating in that recovery. If you look at some of the tests that we've done in the past that have done well, but are not being extended yet due.
Due to the kind of uncertainty around coal that.
It's a lot of those locations and so whether it's a pizza hut in Puerto Rico or.
KFC in China, or Taco Bell in China.
Yes.
The test.
Testing going on but I think folks are waiting for resumption of full economic activity before.
Before they start to really add things into the menu so thats happening in the U.S. and it's happening.
In the EU as well and we get that is just complexity.
To the menus already.
When you are trying to stay afloat independent Mike.
Holding off on new additions, we think it's understandable.
On the retail side.
We were pleased to see a 27% increase in.
International retail.
Sales in the quarter and.
Provided that this the uptick and co that globally doesn't shut that down we think we're seeing some good.
Good recovery, there I don't know.
If you guys want to add to that.
Okay. Thank you.
Thank you. Our next question or comment comes from the line of Adam Samuelson from Goldman Sachs. Your line is open.
Hi, yes. Thank you good evening everyone.
Hi, Jamie.
I guess my question is really just on on the cost side and so two parts. One just wanted to get a sense of having that Pope.
Oh packing investing and then some reading that you're right. There was 14 and a half million dollars I'm just trying to make sense of kind of what that can do to get even more costly new insourced and not paying that co packing fees for a portion of your production.
Second on.
He protein isolate purchase commitments looks like looks the purchase commitments for the fourth quarter and the purchase today events into 2021 are substantially in excess of the year.
You can see.
Both in third quarter and year to date, and just I know, there's a shelf life, but I mean, it would imply that revenues are.
Well over doubling some understanding the math you're right on I just want to give some comments on how you look at just the ability to consume those purchase guns. Thank you.
Sure. Thanks, Adam.
Yeah, when we look at the.
The internalization of.
That.
That backend, the forming and mixing and.
Packaging elements of the product it is a pretty significant piece of our costs and so we look at it.
Internalization through this acquisition is a it's a great way to to offset that bring that cost in house, and then leverage that to achieve.
A better cost profile.
It's a it's a very mature.
Attractive.
Payback for us both in a.
Period payback, but also in a kind of unit cost perspective, we don't want to identified specifically, but it's a compelling argument to start looking at internalization of some of this backend and it's we're excited about it we're really excited to work.
Work with a 180, new employees and really start to leverage this.
So yeah, we'll update more as we go but needs.
Needless to say, it's one of the bigger pieces of our cost component right now and so it's a great.
Thing that we can work on to take cost out.
On Pea protein Islip.
You know, we do keep a close eye on that.
Our our.
Our contracts with suppliers of the Pea protein nice with.
Work with those suppliers and make sure you know that protein is his current.
Typically has a two year shelf life. So we work to make sure any inventories we have a rotating very efficiently.
Efficiently.
We we know we have more as you know things have slowed down but as we continue to move forward. We're optimistic that that will level out and I will be matching to two that inflow in demand and it's it's not linear you we take more in earlier in the year to prepare for.
Where we have stronger growth typically in second and third quarter. So the overlay of of the slowdown in demand here in Q3 did did cause some growth in that inventory level, but it's something we're comfortable with we continue to look at and make sure. We have you know.
Current inventory and it's it's the right inventory.
Okay. Thank you.
Thank you. Our next question or comment comes from the line of John Baumgartner from Wells Fargo. Your line is open.
Good afternoon, thanks for the question.
Good morning.
Back to the consumer stockpiling, and what sort of changed relative to your outlook from August because I guess, presumably consumptions expandable here given the low starting base you have the overlap of grilling season, and then also the work from home, which could also be a tailwind for demand. So it seems like a pretty solid backdrop. I mean are you just not seeing consumption and.
10 city progress in line with your expectations and then I guess you. How are you thinking about how quickly dietary habits can shift here in the short term for that marginal buyer to sustain these growth rates. Thank you.
Yeah sure so.
As we talked about in the second quarter call. We saw this 195% increase in shipments.
Occur throughout the second quarter relative to 121% increase in our sales according to spend an IR panel data.
And you.
At the time, we attributed which actually turned out to be right.
Most of that to club and into some some also some very late shipments and a cookout classic that weren't caught in that consumption data because the cut off date.
So so there was just a tremendous amount of buying that was going on by the consumer and the second quarter and then if you think about the stay at home orders relaxing.
And people going back into foodservice, where people were getting buckets of KFC and other large.
Larger T to quick serve restaurant offerings, and we weren't really participating in that because the streamlining of their menus.
Food service was coming more from that other two thirds institutional et cetera.
And smaller smaller.
Uh huh.
Restaurants, as well as you know think about lodging and casinos and recreational center stuff like that so we just didn't participate in that sort of consumption went into another category, we weren't really being well represented and that was what caused in our view that the.
Sequential deceleration in retail buying.
But you can't get around in my view. These very strong numbers to make a case for example that somehow dietary changes are occurring that would run.
In the face of household penetration rising repeat rates rising purchase refi rising and of course every buyer is buying more per household so.
All the right trends are here again, I think we went from 113 million in net which is a record quarter for us in the company's history to 94 million in net during a pandemic and we feel okay. About that is one of the reasons that I did not do anything to disrupt the investments we're making in long term infrastructure, whether it's in China with a new plant or.
You with our new plant were literally bought and put into play or at least and then bought in one case put into play new facilities and put new work workers on the ground, there and new personnel leadership et cetera.
We're not slowing down because we don't think the models were adjusted properly because we can't provide guidance.
We don't think that this was a a massive step backwards by any stretch of the imagination. I mean, it was all still pretty strong quarter for us relative to what's going on in the world. So I wouldn't point to a dietary change I.
I think if there is a change in diet as more and more people are coming into the space, but the young people. If you look at some of the most recent data around.
Generation Z and and their their enthusiasm for plant based eating for the brand.
We continue to see enormous upside in consumer behavior.
Okay. Thank you.
Thank you. Our next question or comment comes from the line of Mark left really from Piper family. Your line is open.
Thank you good evening.
[laughter] really looking fewer outlets internationally and U.S. and sales per outlet.
On the foodservice side, they don't look very different but on the retail side. It looks like the U.S. is significantly higher.
The cumulative reclass.
Through some of the comparisons a little bit but is it maybe even 10 times with your outside the U.S.
How should we think about what drives some of that is the number of facings is it just some consumer preferences or lack of awareness.
How does the international piece of retail evolve and what should we expect there.
No. Thanks for the question and you know this is an area that I I look very optimistically toward its so early in our.
Well I think we're in 80 countries now, but but that is truly scratching the surface and so if you think about our sales team here and our broker network and all the relationships, we have with the weather cosco or kroger or whole foods.
We're still building those globally and and so I think that is really what is speaking out in those numbers is that we just don't have a mature sales organization globally that is something that you'll see us investing in and we have been investing in we just hired sons.
Sales team, we put together sales team in China as an example.
And and I think our for.
Better reasons won't share the number but I have some additional staff in in the E U.
So to me it gets down to just let's test the market, let's make sure we understand it let's make sure we make the right hires in terms of relationships and those go forward and that's kind of happening now and I think you'll see.
The retail outlets grow substantially I mean in the last quarter, though I think we were it started at 27000.
In retail outlets and now up at 33000 internationally. So so so feel pretty good about that.
And would it so if you see the outlet number growing but the sales not really following that or are there. Other measures internationally you focus on in terms of.
How do you gauge early or preliminary success.
Yes, I mean, one of the reasons that it's not as I mean, we were not putting that many new skews also into into each of those new stores that are coming online. So I think we just got to get the opportunity for us to build out our.
Our brand portfolio and those aisles, and you'll start to see those sales rise.
But overall, we do we look at the same metric however, our sales growth.
Year over year, or whether it's domestic or international.
Okay, great. Thank you very much.
Huh.
Thank you. Our next question or comment comes from the line of Bill Colonial from Baird. Your line is open.
Hey, thanks.
Thanks, guys.
Sure.
I wanted to talk about.
Your capacity or you talked about your 1 billion ending the year or.
You mentioned the second phase of China could you talk about what the second phase does and then I.
I guess the worry is obviously brick house is today and.
How you flex that's all.
Of that capacity going forward based on what you're seeing out there and then my second question is just on on your visibility.
Because I think that you know.
The starts talking was that we were all surprised by this.
Oh.
Can you just remind us about your level of visibility going forward and across all channels fixed.
So.
Sure. So can you repeat that last part I, just I Didnt I Didnt catch the last part of your question.
Just your visibility on ours across channels.
[noise] across channels.
For the Yeah, I mean, I think your board looking trailed our QSR.
Yep.
<unk> I think it is the same we're very cautious against.
A cautious with regard to offering.
New guidance.
I continue to look though at some of the.
The data that we're seeing both in the foodservice and retail sector that is positive.
As well as some of the pending launches that you guys will be hearing about pretty soon.
And so it just all gets back to the same central point.
At what point as an economy can we say that you know cobot is is under control are behind us until that point I think we can offer a much much guidance on on either retail or forfeit service.
Well I guess my bigger question was just on your capacity build out so.
You talked about a billion dollars exiting this year.
And then the next trying to face you talked profile that you Oh, the ducks a capacity.
But water said, what the next phase of China brings you up to a revenue.
To understand how much that impacts your margin if you can't fill that capacity.
Right. So we can't give guidance specific to China, but I think you can see the amount of investment, we're making there and energy and focus.
And on the capacity that we have itself. It's a lot of the work we've done to secure for example, Pea protein we feel good about that because of the shelf life of that of that ingredient.
It's not something that we have to consume them right away.
We don't have any reason to pull are more optimistic long term growth projections, we want to make sure that we have the capacity in place to to be able to serve those and so thats really what the capacity is about us not a commitment to the markets that we're going to hit that on any given date, but we are prepared to do it and have the.
Both the supply contracts in place as well as the capacity now so that when the economy does recover from gold and were able to resume the higher levels of growth that we've seen in the past on a mark you want to add to that.
No I think thats right and specifically in China that's.
Thats capacity for a new market for us and so the expectation is that matches as that that volume grows in region, but that capacity is there to service so.
And the same with the European facility designed the same way to really match the growth in those regions. So we're not shipping product from the U.S. into Europe or.
To to Asia, but that product is produced in region and we expect that will be beneficial from a supply chain perspective, as well as ultimately get us to better price points for product producing region.
Right I guess thought just on the margin front, though if you build that capacity out you can't sell it how do we think about how that affects the margin.
Well I mean, certainly it's the cleanest used to match that capacity with the growth in those regions. So we will continue to.
To drive to to make sure that that capacity is online when we need it.
You know it's still there.
We're just working towards a a a good matching of those two as those facilities come up.
Yes, I mean, if you look at some of the activities even during this cold period.
Whether its KFC in China, where we went into 210 restaurants, Starbucks and Taiwan, Starbucks in Thailand mentioned, the Puerto Rico, a pizza hut in Belgium, Puerto Rico Pizza as well.
You know, we don't see any reason to not continue on the path that we have put forward around growth and there's a transitory environment with respect to the pandemic. So I mentioned in my comments our growth path I think is enduring and so we hope that our absorption because it in time it exactly right that's fun.
Not building this business quarter by quarter, we're building it for many many years and so.
What will keep making that investment and if for some reason.
It doesn't time exactly would the way that our growth.
Well, we'll be okay.
Thank you ladies and gentlemen, this concludes today's session and I'd like to turn the conference over back over to management for any closing remarks.
So just wanted to thank everybody for for calling in and appreciate the great questions.
Lets up as we head into holiday season us all be safe and we look forward to talking to you again next quarter. Thanks very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
[noise].