Q1 2021 Beyond Meat Inc Earnings Call
Welcome to the beyond Meat, Inc, 2021, first quarter conference call during.
During the presentation, all participants will be in a listen all day mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press. The one followed by this for on your telephone if at any time during the conference you need to reach an operator. Please press star N zero as a reminder, this conference is being recorded.
I would not want to put on the conference over the book people are by T. R. Please go ahead.
Thank you good afternoon and welcome on today's caller, Ethan Brown, founder President and Chief Executive Officer of beyond meat, and Louie could to the company's vice President of S T and a and industrial relations.
By now everyone should have access to the company's first quarter earnings press release, an investor presentation filed today aftermarket clothes.
Documents for available on the industrial relations section of beyond meat website at www dot beyond meat Dot com.
Before we begin please note that all of the information presented on today's call zone audited and 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 is current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Forward looking statements and the earnings release that we issued today along with the comments on on this call are made only as of today and we will not be updated as actual events unfold.
Please refer to today's press release, the company's annual report on for them 10-K for the fiscal year ended December 31st 2020.
[noise] companies quarterly report on for them 10-Q for the quarter ended April 3rd 2021 to be filed with the S. E C.
And other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied any forward looking statements made today.
Please also note that on today's call manager will referred to adjusted EBITDA and adjusted net income or loss with your non-GAAP financial measures. While 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 or as a substitute for.
Financial information presented in accordance with cap. Please refer to today's press release for the Investor presentation for a reconciliation of adjusted EBITDA and adjusted net income or loss to their most comparable GAAP measures and with that I would like to turn the call over to Ethan Brown Ethan.
Thank you for had some good afternoon everyone.
Before I dive into a business highlights let me begin with a few comments on Mark Nelson, Our Chief Financial Officer, and Treasurer for the past five and a half years.
Though mark will stay on on his advisor to me yesterday as planned he officially transition from the role of CFO It beyond meat.
And beyond me you have benefited greatly from marks leadership during a critical time in our growth isn't.
Is impeccable integrity is expansive knowledge of and great facility with all financial matters large and small is tireless work ethic and operational dense we're just for some of what recommends mark.
Mark work side by side with me throughout so many important moments in our history.
And no matter of the background noise he delivered.
Mark is also a close friend of mine and as such I Hope you will not mind me sharing an example, but there's a legendary personal frugality.
The office Mark shows across the hall from small kitchenette here at our headquarters.
I Love poking my head and when grabbing water of the Lake.
I felt as if I was getting a glimpse other CFO in his natural habitat.
Larger than a closet, but smaller than a freshman single marks office had the element survival, but a little more.
His own small coffee pot.
Fan a dog bed a day.
<unk> for skinny legs.
And two chairs.
All he needed was a few posters and I would've felt like I was back in the dorm room, which is how I referred to his office.
I'm going to Miss Mark in the day to day excitement of building our business and I'm glad we will have is continued support as an adviser.
We've run a robust process to identify mark successor, and I will make that announcement in the coming weeks.
Before I dive into Q1, 2021 result, I'd like to share some broader thoughts on context.
We spent the last year investing heavily on our business, establishing infrastructure personnel innovation capabilities partnerships and product pipeline against our long term growth and market share objectives.
More specifically, we are making a series of investments here in the U S and the EU.
And in China to be in a position to serve customers and consumers alike and.
And apply increasing pressure on the three key leavers of taste health and cost that we believe are critical for mass adoption.
Make any sizable investments during the period of serious disruption too important segments of our business impacts are operating margin and important metrics such as gross margin through higher fixed overhead.
These outcomes are not unexpected.
And are a direct result of our beliefs that it makes little sense to limit our ability to capture future growth due to transient pandemic of conditions.
We will continue to make such investments and I'm grateful for all of our team members, who worked so diligently to keep building our foundation through such a tumultuous time.
Whether it is our ability to compete and win here on the U S as evidenced by our leadership position in retail or MPD foodservice for.
Or on the E U as indicated by prestigious win for the beyond Berger.
The strength and breath of our partnerships with global quick serve restaurants, and so many valued retail on foodservice customers.
The latest release of on through no Burger with its taste and nutrition gains.
Along with exciting new product launch around the corner the.
Sizable investments, we're making production infrastructure here in the U S E U in China.
Our joint venture with Pepsi the planet partnership.
And finally, the resources, we are adding to the Manhattan Beach project that we build out our new corporate campus I have never been more optimistic about the future of beyond meat.
It is with this optimism that I am pleased to share that we are seeing enough stability in recent trends to cautiously resume offer near term guidance beginning with net revenue for cute to 2021.
<unk>.
We of course take this step with the understanding that should there be a resurgence of COVID-19 here in the us for any of our most important economies, we will need to revisit our guidance.
Let me now turn to our first quarter highlights.
Our first quarter net revenues on 108 million met our internal plan, representing an 11% year over year increase.
This despite cycling a quarter that largely proceeded and as such was unscathed by COVID-19 disruption of the economy and our business.
As noted we are encouraged by the trends we saw on queue on revenue reach.
Retail net revenues, let our growth increasing 45% year over year, and although foodservice net revenues were down 34% versus the prior year period. The sector appears to be showing directional early signs of recovery from COVID-19.
And U S retail each of our key brand metrics of household penetration buyer rates purchase frequency and repeat grades continue to advance.
According to spins IRI consumer panel data for the 52 weeks ended March 28th 2021 U S health hold penetration for the beyond meat ran increased to five 4%, representing a 10 basis points increase sequentially and 100 basis point increase versus a year ago.
Our buyer rate, which ranks highest among all plant based meat brands and U S retail increased five per cent sequentially and approximately 54% versus prior year.
Purchase frequency was up three per cent sequentially and 37% versus the prior year.
And finally Ah repeat rate increased to 56.9% versus 55, three as a cue for and $44, 8% a year ago.
This consistent strengthening across each of these metrics continues to drive our position as the number one brand and Frigerator plant based meat.
Consistent with the strength of these metrics, our net revenues and U S retail of $63.8 million were up 28% year over year.
This performance reflects growth on the sales of beyond beef and club pack burgers as well as contributions from new products, primarily breakfast losses, patties and meat balls.
In terms of consumer takeaway.
According to spins data for us multi outlet in natural and specialty channels for the 12 week period ended March 21, 2021 sales.
Sales of beyond meat products were up 16% year over year, while the plant based meat category as a whole was up 6% contributing to a 160 basis point year over year increase in market share for the beyond meat brand.
Across Mueller for the same 12 week period are total distribution points or tvp's increased 46% year over year driven by growth in total outlets as well as the introduction of new items, including the Cookout classic.
And meat balls and beyond breakfast sausage links as.
As a reminder, while increasing tdp's as a good sign for a long term sales growth and retail it typically exerts near term downward pressure on velocity and in our case, we solid roughly 18% year over year decline.
Turning to international retail we saw continued momentum in the first quarter of 2021 with net revenues up 189% year over year.
Put that in context, our first quarter net revenues of 17.2 million and international retail where nearly half of our entire of 2020 revenues for that segment.
As in the US this growth is driven by the strength of our product quality for example in Germany. The beyond Burger was recently rated a number one plant base Burger by the around stepped on while invest organization. This organization is the most prominent consumer advocate group in Germany. Originally established by the German Federal Parliament to help consumers by providing objective information.
A nation on certain goods and services.
And enjoys over 97% consumer awareness in Germany and was recently determined to have the highest trust among the population from the 20, most important labels on Germany. According to label Monitor 2020 survey.
This award was followed by German consumers ranking beyond meat in the top five of all innovative companies. According to market research performed for Hondas plot and leading German newspaper more generally our global progress is driven by increases in both the breadth and depth of our distribution as we entered new doors and add new skews to existing outlets.
Regarding our distribution footprint in international retail, we recently transitioned away from a sales and distribution partner in Germany, who relied heavily on discounting and limited time placements.
This transition, which will better position us for sustained growth on this important market resulted in what we believe is a largely temporary 10000 location reduction of our total reported outlets compared to queue for 2020.
We have since added our own and country sales manager and brought on a new distribution partner is part of our overall strategy for certain EU countries. Meanwhile, we've continued to advance distribution gains across the UK, Austria, Switzerland, and Australia and in Germany. As we later in more strategic stores totaling approximately 2400 new.
Retail outlets for beyond meat products during Q1 2021.
Now turning to foodservice, where Q1 2021 reflects COVID-19 to continue to impact on away from home meeting generally and specifically the segments. There in where we are most active.
These COVID-19 related dynamics aside beyond meat continues to hold the number one brand position in terms of dollar sales for our category and use foodservice According to MTV data.
As a reminder, MTV captured broadline distribution foodservice sales generally excluding large chains and other direct shipment customers.
Sales of beyond meat products were down 22% year over year on the quarter, which was roughly in line with the overall categories, 20% decline during the same period.
This decline reflects the size of per cent of our business that is tied to independent operators lodging facilities and recreation venues and a disproportionate impact of COVID-19 on these venues.
In aggregate across foodservice channels R. U S. Foodservice net revenues were down 26% year over year as the business continues to contend with weaker away from home demand stemming from COVID-19.
However, consistent with the slow and steady thought that we saw throughout Q1, we were up 9% sequentially and use foodservice from Q for 2022 Q1 2021.
International Foodservice net revenues were down 44% year over year on the first quarter as the impact of COVID-19 continues to weigh on foodservice demand and in many cases lockdown restrictions in certain international markets remain more severe than the U S.
Let me know provide a brief update on key strategic initiatives that are at one might expect sent around our core leavers of taste nutrition and cost.
First and foremost as you were likely aware last week, we announced the launch of the latest version of our iconic beyond Burger. This three porno version delivers on our promise of constantly improving the taste in century experience for our products. While also seeking to further their health benefits. The three point O improvements in flavor inducing this have been validated through extensive consumer testing.
Where like ability scores have been on par with 80, 20 ground beef burgers and from an interest in perspective Neuberger contains 35% less saturated in total fat compared to 80, 20 ground beef fewer calories and no cholesterol and a b vitamin and mineral micronutrient profile that is comparable to beef.
And of course stick into our brand innovation Guardrails, our latest per contains no gmos or bioengineered ingredients.
The three point O Burger Patties began to arrive on store shelves earlier this week and will be sold on our familiar to pack as well as our first ever value for pack as we continue on March toward price parody and beyond lay.
Later, this summer or one pound ground beef back with the new <unk> recipe will also become available throughout retail with both three point O products launching it R. U S food service partners beginning in June.
Additionally, as we have previously mentioned and consistent with the importance of human health to our mission, we expect to introduce a second beyond Burger Patty option with fully less than half the saturated fat of 80 20 beef later this year.
Our goal of the second Patty option is to provide consumers with even greater choice not unlike the presentation of animal beef with 80, 20, and 90 10 cuts.
We are supporting the launch of three porno with an ambitious marketing program to tell the story of this latest burgers, great taste and health advantages specific examples of our three porno marketing efforts include a recent mobile pop ups and select few of cities that offered consumers free exclusive first taste of the new product ahead of its in store availability increased social media activity to.
Build consumer awareness and excitement.
Shopper marketing programs to incentivize consumer trial among others.
Second we are accompanying a three point O go on to the announcements of the plant based diet initiative at Stanford University School of Medicine, we are establishing in funding that's five year initiatives Port peer reviewed clinically significant studies on the health implications of a plant based diet, including plant based meat.
This project will inform beyond meat rapid and relentless innovation initiative and our efforts can you to optimize taste and health, while importantly, assisting in the establishment of a publicly accessible repository appear reviewed data and literature on health benefits a plant based meats.
Third we are investing significant focus and spend against our goal the TV price parity for underpricing animal protein in at least one of our product categories by the end of 2024.
We are attacking this objective internally as well as leveraging the support of external global resources that bring many decades of Cogs optimization experience to bear in partnership with us.
Specific investments and activities include the establishment of more localized production within close proximity of our highest priority markets.
More integrated end to end production processes across a greater proportion of our manufacturing network.
Scale, driven efficiencies in procurement and fixed cost absorption for.
Further diversification of our core protein ingredients supply chain continued improvements and throughput across or manufacturing network certain product and process innovations and re formulations and packaging optimization clear.
Clearly a critical component of our costs down effort is scale and I'll take a moment here to elaborate more fully on a strategic investments and capacity in the us and abroad.
We are continuing to optimize commercial production at the Pennsylvania plant, we acquired late last year and the support of strategic USR customers on a retail business, we are adding new lines and our Columbia, Missouri facilities.
As recently announced we've commenced for commercial production at our new facility and Yohji in China. This new plant represents our first and and production facility outside of the U S. Coming just one year after our initial entry into mainland China.
I am extremely proud of our operations team and our China management, who works so hard to achieve significant milestone despite travel constraints and other COVID-19 related barriers, we expect engaging facility to significantly speed, our path to market, while improving our cost structure and the sustainability of our operations in China.
As discussed we're pursuing the same playbook and that you were the construction phase of on new facility in Netherlands is largely complete we've been conducting production trial runs over the past several weeks and look forward to for commercial production in the near future.
As in China, We expect this local production to make a strong contribution to our costs down on sustainability objectives for the EU.
And in both economies to you in China, where make investments and strong local teams to further accelerate and help manage our growth there in.
As noted this for an investment in activities have an impact on the day operating expenses and where we are growing into infrastructure gross margin, but are important pillars in support of long term costs down and growth Lake.
Finally in early March we completed under highly attractive terms, our largest capitalization transaction yet we closed 1 billion dollar convertible senior notes offering with a final aggregate principal amount of 1.15 billion. After the exercise of the Greens you option.
Net of fees and Ah simultaneously capped call transaction, we entered into the deal raised $1.04 billion in net proceeds for beyond meat.
We see a rapidly growing global market for plant based meat, we recognize our first mover position and we will leverage these proceeds to accelerate our capture of market share.
Touched on many of these initiatives today, the medically or specifically if given the importance to our investment strategy in future growth I'll take a moment to summarize seven core buckets of activities.
First we will further our capacity expansion goals, both that existing and new production sites here in the us and abroad.
Second we will expand in Manhattan Beach project here on the us and establish innovation centres in the <unk> in China with the goal of advancing the century performance of our existing platforms to other animal protein equivalents.
Exploring longer term disruptive technologies and approaches accelerating and broadening our product pipeline for retail on foodservice customers and supporting our costs down program to ingredients in process innovation.
Third we will continue to build out of our new campus here in La which will house, along with our headquarter operations in Manhattan Beach project, and it's customer focused innovation centers.
Fourth we will further scale up and expand our commercialization activities, including our first fully dedicated pilot production facility here on the Los Angeles area.
Fifth we are launching on most aggressive costs down initiatives, yet with a goal of realizing a step change reduction or on a unit production costs with the next two to three years.
Six we'd be investing more heavily in our marketing activities around the taste and health attribute for a product lines and seven and we will continue to bring in talent required of strength in critical areas and our business operations, both domestically and abroad.
In summary, we believe we are well poised to embark on a mission of driving the next phase of beyond meat growth as we crossed the bridge to mainstream consumption.
With that I'll turn it over to Louie to walk through our first quarter financial results and a bit more detail.
Thank you Ethan and good afternoon, everyone. We achieved net revenues of $108 $2 million from the first quarter of 2021, representing an increase of 11 for percent compared to the first quarter of 2020.
Growth in net revenues in the first quarter, what's driven by a 14 per cent increase in volume sold partially offset by lowered net price realisation.
The latter was mainly driven by increased trade discounts relative to the prior year and to a lesser extent by product mix shifts we sold a greater proportion of large pack items in retail, which carry a lower net price per unit volume.
Overall net price per pound was $5.70 in the first quarter of 2021 compared to $5.83 in Q1 2020.
Looking at our distribution channels in aggregate.
Tell him that revenue increased 45 per cent year over year, while foodservice net revenues were down 34% versus the first quarter of 2020.
And retail or volume of product. So increased 52 per cent year over year, driven by growth in the number of distribution points and contributions from new products.
Overall across the U S and international retail net revenue per pound lower by approximately five per cent year over year due to increased trade discounts and product mix ships.
In foodservice net revenues declined 34% year over year as we continue to experience weaker demand due to the ongoing impact of COVID-19.
We will face an easier year over year comparison in the second quarter of 2021, However, and therefore expect to see year over year growth and our sales to foodservice customers.
On a sequential basis in the first quarter of 2021 sales for food service customers continued this steady, albeit moderate recovery from the queue to 2020 trough.
Although we generally expect continued sequential improvement in our foodservice business as more of the population gets vaccinated and economic activity reopens, we still anticipate that recovery in our food service business will generally lag a broader foodservice sector, given our exposure to certain channels that have been disproportionately.
Impacted by COVID-19.
Gross profit during the quarter was 32 7 million or 32% of net revenues compared to 37 $7 million with 38 eight per cent of net revenues in the first quarter of 2020.
The year over year decrease in gross margin was primarily driven by higher transportation and warehousing costs, which reduced gross margin by approximately 350 basis points.
Lower net realized price, which represented eight 150 basis point drag higher depreciation expense eight 140 basis point drag and increased fixed overhead costs, roughly eight 100 basis point drag.
With regard to transportation and warehousing costs year over year increase was driven by higher lane rates as well as higher inventory levels, particularly for P protein as we aggregated larger quantities of peat protein due to 2020 volume shortfalls, primarily in our foodservice business.
As we have mentioned before we do not for see any inventory obsolescence issues related to Pee protein given it's long shelf life and we're gradually beginning to drive down the inventory levels as our revenue growth recovers.
As for the increases in depreciation and fixed overhead expenses the year over year increase was primarily attributable two or three newest production sites in Pennsylvania, China in the Netherlands.
Operating expenses totalled 57, 4 million or 53% of net revenues and the first quarter of 2021 as compared to 35.9 million for 37 per cent of net revenues and the year ago period.
The year over year increase in operating expenses, primarily reflects a significant increase in production trial activities increased head count levels as we continue to build out our R&D capabilities and support our international expansion plan higher customer for a costs, which are on included in selling expenses and higher share based comps.
Insatiate expense.
Net loss in the first quarter of 2021 was 27 3 million or 43 per common share compared to net income 1.8 million or three per common share in the first quarter of 2020.
Dusted net loss, which excludes $1 million in expenses attributable to the early extinguishment of our former credit agreement was $26.2 million or 42 per common share in the first quarter of 2021.
Justin EBITDA with a loss of 10 $8 million or 10% of net revenues and the first quarter of 2021 compared to adjusted EBITDA $13.9 million or 14.3 per cent of net revenue in Q1 2020.
Turning to our balance sheet and cash flow highlights or cash and cash equivalent balance as well as that total debt outstanding was approximately 1.1 billion as of April 3rd 2021.
During the quarter, we completed a convertible senior notes offering with an aggregate principal amount of 1.15 billion after taking into account the exercise of a $150 million green hue option.
The convertible notes, which carry a zero percent coupon have a six year maturity and the conversion price of approximately $206 per share a common stock.
In conjunction with the convertible notes offering we also entered into a privately negotiated cap quality transaction, which is generally expected to reduce potential dilution to our common stock up to what price of approximately $279.32 per share.
Net of transaction fee and the cap call. The convertible senior notes offering generated approximately 1.04 billion in net proceeds for beyond meat for it.
Respect to cash flow for the three months ended April 3rd 2021, net cash used an operating activities was $37 million compared to $17.2 million for the prior year period.
Capital expenditures totaled $23 for million for the three months ended April 3rd 2021, compared to $12.4 million for the prior year period the.
The increase in capital expenditures was primarily driven by continued investments and production equipment and facilities related to capacity expansion initiatives, primarily in China in the Netherlands.
Finally, with respect to our outlook for 2021 variability of customer demand levels, particularly in foodservice channels remains elevated on the result of COVID-19 induced disruption.
Therefore, given low visibility beyond the limited time horizon, we are continuing to refrain from providing for your financial guidance at this time however.
However in order to provide some degree of visibility into our near term outlook. We will now provide on an interim basis limited quarterly guidance for net revenues.
This and for the second quarter of 2021, we expect net revenues to be in the range of $135 million to $150 million, representing a year over year increase of 19% to 32% compared to the second quarter of 2020.
As a reminder.
Call that our second and third quarters are typically are strongest revenue quarters due to the summer grilling season, However, software aggregate demand levels and foodservice channels may partially offset the typical seasonality.
I'll also remind you that we intend to continue on our aggressive investment agenda in 2021 laying the foundation for our longer term growth by advancing our most critical strategic initiatives.
As such we continue to expect minimal operating expense leverage this year.
While production trial costs tend to be highly variable from one period to another keep in mind that sequentially. We typically step up our marketing activity in the second quarter as we enter the summer grilling season, and we will look for support the launch will buy a new three point O Burger with a robust campaign.
With that I'll turn on the call back over to the operator to open it up for your questions. Thank you.
Thank you if you would like to register a question. Please press the one followed by the for on your telephone you. We here at three telling prompt until acknowledged you request it.
For your question has been answered and you would like to withdraw please press the one and three.
And our first question is from the line of Brian Spillane with Bank of America. Please go ahead.
Hi, good afternoon, everyone.
I guess just two questions for me one in terms of the launch of the three point O. Ethan. Thank you said that it would you it's hitting store shelves now so would you expect it to be fully in stock I guess for for Labor day or Memorial day, and Labor day for the big.
Sort of grilling holidays, and will you be doing a lot more merchandising that maybe you normally do around that period.
Hey, Brian get good to hear your voice and I. Appreciate the question on up here and talk about <unk>.
Yes, I mean, we certainly planned this wants to make sure that we were locked in for the summer grilling season. So those day too very meaningful to us as we push the team to finalize.
You will see enhance activity from us from a shop for marketing perspective.
One of the things it's been challenging about COVID-19 is the inability to do the robust sampling programs that we usually do.
And in this case, we have such high confidence in this week on aversion.
We'd love to be doing that but we'll get at folks in other ways, but you'll see promotional activity around three point O. You'll see social media that can be around it and other means of drawing consumer attention toward it. It's a great advance in terms of the overall sensory experience as well as nutrition, where we're <unk>.
<unk> the total amount of that we keep the saturated fat at 35% less than 80, 20, that'd be vitamins and other micro nutrients. So it's a similar profile to beef of.
Of course, no cholesterol and no TMO. So it's a very strong product growth living up to our promise to continue to improve toward the norstar of making an indistinguishable from animal protein as well as offering health advantages to the consumer so excited to get reactions from and so far it's on a very positive.
Alright, thanks for that and I get to follow I know you gave some there was some guidance on around two queue, but just there's gonna be a lot of focus on on profit on gross margins I don't forgetting about absolute EBITDA level, because there's some investment so maybe we'll be could you give us a little bit of perspective on how we should look at the first quarter.
As for.
Maybe a benchmark for gross margins Wood Wood day.
Improve maybe off of that as we move through the year, because you're gonna have more of the the sort of capacity in in market in Europe, and and and in China.
And you're working through some demon so I'm just trying to understand what you're just trying to get a sense for whether or not how we should look at the first quarter gross margins, maybe as a benchmark for the balance of the year. Thank you. So Brian I'll I'll have olive <unk> give give more detail on us, but I wanted to set some context around around margin.
So what we're doing now is we're continuing to expand the business.
For the opportunity ahead and that relates to all of our strategic partners. It relates to the fact that we are in retail for doing very well.
The total points for distribution.
Et cetera, So we're running the business. According to a plan that has not changed.
It's only accelerated yet we're doing in an environment where.
The volume throughput is contracted due to COVID-19 and.
And so you're going to see the impact on margin there, but what's interesting about this as as we continue to expand both infrastructure.
And personnel to to get at some of these scaled driven efficiencies and margin games, there's obviously a temporary movement in the other direction.
That's normal and that's something that we're very comfortable with but I don't think it's something that is representative of the future in terms of where we're going on margin moving and unpack kind of where those costs or whether it's on warehousing or or or fixed overhead on depreciation et cetera, but that's the the general picture of that exists.
Sure right so.
As it relates to our gross margin.
Performance in Q1, right part of the reason why.
We are not offering specific I wouldn't want to get too specific with guidance around gross margins for Q2 is there are still a lot of uncertainty around the foodservice side of our business right and that obviously.
Can have a potentially significant impact on volumes, which is a large driver of the.
Volume leverage that we get through our facilities right and so.
Without getting too specific look there there's some things that impacted our margins in Q1 like the warehousing for instance, we talked about that being impacted by the levels of P protein that we have on hand, we talked about.
Transportation costs being impacted I think some of that will continue into the second quarter of course with the three point O products coming out in the second quarter as well we are looking to support that with some robust marketing and promotional activity and so there's a couple of.
Puts and takes in there.
And like I said, we don't want to get too specific on on on margins, but I think you know.
Looking at the the first quarter and sort of layering on top of those those few things that I mentioned is how you should generally be thinking about it.
Alright, thank will be thank you've been very helpful.
Sure.
Our next question is from the line of profit Moscow with a credit Suisse. Please go ahead.
I. Thank you for the question.
I wanted to know if you can give us a little I hope you can hear me yeah. How can you give us a little more color on the distribution losses in Europe, and how quickly can you regain placement you're going to switch to a new distributor does that take several quarters.
And in <unk>.
Along with that.
When you look at your ramp up from first quarter to second quarter in terms of your sales sales guide how much of that assumes that you you would get a big pickup and food service demand.
Related either to Europe, or or even in the U S. It looked like you you lost some outlets in the U S. Also I think about 2000. So maybe you can tell us what's in that assumption sequentially.
Sure.
Good to hear from you and good questions. So the distribution losses for you or entirely related to.
The switching from a distributor in sales for her over there.
To a new system.
Putting in personnel of our own in Europe, and this is part of a larger program that we have I think it's indicative of around edition for not only the issue, but for China, we're setting up our own operations. These are very large markets, obviously, they're very favorable for our products and value proposition and so what we're doing is switching from the.
Modeled add to kind of fuel these things out and get a sense of how well, we'll do over there to one and we're we're putting in.
Very significant management and facilities.
And our own sales team and so this is just a natural progression kind of maturing of our approaching.
The market.
And so.
I don't view. This at all is something that is enduring it is it'll be a short term reduction in outlets and I think even since the last quarter. Since the quarter ended I think we've added globally about 2400 used thoughts on.
Those have occurred also in Europe don't know if you saw I think you've heard in the script for that.
Wanted to really prestigious award in Germany.
And then in the consumer on.
I think.
Survey 10000 German.
Representative consumers for most innovative brands in the market and I think beyond was within the top five next to Tesla I think we have a very strong.
Brand residents.
Determine consumer so this was simply a transactional.
Judgment as we begin to invest more and more on our own team.
For you.
On the you mentioned something about in the in the U S. Those that adjustment on on our distribution in the U S is really just driven by COVID-19 index and those were.
Independent operators that either have been closed or struggling in one way or the other.
Did you pick up really good.
Partners in the U S had a terrific commentary. This morning, one on I can't name, but hurry very compelling partner. So we will we will continue to see growth into from service.
Once you distribution in the U S.
Globally.
There was a question on ramping up from Q1 to Q too and how we thought about that relative to foodservice I think just take a look at the foodservice contribution over the last I'd say three quarters.
We're not expecting some massive uptick in activity. There. So you can start to for the back out with a retail impact might be and what's so exciting I think for us and it should be for shareholders investors.
Is the.
The numbers that we're committing ourselves to for the second quarter.
Do not reflect.
Any kind of massive onboarding by one of our strategic partners and and the quicker to a restaurant space. So this continues to be very good growth with the.
Both foodservice in retail partners that we have today on the products we had out today.
Okay. So it says the bulk of it then is ramp up at retail does that also include.
New stores that you're getting into at Walmart and target I think there was a press release a few weeks back about that is that in those numbers and is there maybe an inventory build related to that.
Yeah. So you have seen.
I appreciate you pick up on that so we have gotten some really good distribution ones across the first quarter.
Both in terms of getting new products place that existing partners as well as opening up new stores in general see whether it's Walmart Kroger target wegmans et cetera here on the U S.
And then of course.
Cvs one that we had.
But then and even look international.
For you to grow meat growth an hour Hines.
Thanks for writing things like that so.
Overall you see this is good expansion in retail and I think the numbers year over year speak to that a 45 per cent over here in our view us internationally talking behind the fact that internationals up 189% and just kind of getting started seeks I think too should speak to.
Why we're making on the ground investments in that you an interest.
Okay. Thank you.
Yep. Thank.
Okay.
Our next question is from the line of Adam as Samuelson with Goldman Sachs. Please go ahead.
Hi, Thanks have a good afternoon everyone.
Adam.
Alright, So I guess my first question Ethan is thinking about the recent capital right that you did.
$1.1 billion from from the convert.
Right I guess I'm trying to wrap my head around.
What you're going to be using the cash for.
I mean, you've been burning a little bit of cash.
There's still some investment in the business, but the business model per day has been fairly capital light.
In terms of how much of your manufacturing and supply chain you actually bring in house.
And the amount of.
Investment that's implied for the amount of capital you brought in would imply there's a big step change, but how you're structuring your production your supply chain and would just love to dive into that a little bit of if you can find any more color.
Yeah no. Thank you it's very good question and walk through kind of the key buckets for a for a walk through you said context for the overall from <unk>.
Why we did this.
This is truly a moment in time for our industry and for our brand.
It's an opportunity to continue to lead the sector continue to grow and pushed this value proposition out into the world and we want it to be as well capitalized.
As we could within reason goofing et cetera. So.
What this does is it gives us the opportunity to continue to move at a pace that matches the opportunity and so if you look at the relationships, we just signed with Mcdonalds and with with you on brands. If you look at a lot of the names that we've been active with even before COVID-19 and particularly before COVID-19 in the queue ESR space, none of those have gone away on.
Relationships and so I wanted to be in a position where I had the personnel the facilities and.
And the research and development to be the best apartment or they can possibly even as we continue to grow on a retail space. So that was the reason for.
A large part for gaining the capital, but if you look at the very specific standard is as we articulated in a sense of we are continuing to expand our capacity and that's if you look at some of these opportunities even a single Q S. R.
As as a potential impact on us of adding many many many more lines both downstream and upstream.
So we want to continue to have capital available to to respond to their needs were also continue to add new sites over the years into our production.
At work so.
So do we built in China is a state of the art facility, but it it won't suffice to.
The market that we envision there so it will be a building. Another one is a follow on item R law campus and we put a state of the art innovation center and as well as headquarters and that's not only for us, but it's for our customers there'll be able to come in and use our innovation facility and participate in what we're trying to do.
Costs down is enormously important to us would want to spend there to do to drive cost out of our system and that gets back a little bit to this kind of strange, but it is nowhere in today, where we're continuing to expand.
Are rushing capacity and personnel to be in a position to serve our customers deserve consumption and retail.
Which is.
Gardening.
Martin a little bit, but it will come back and pass that quite a bit as throughput starts to increase throughout those facilities. So we want to continue to costs down on build the right facilities and the right locations get local market access things like that twice in us investing Netherlands on divest imaging and we'll just keep doing that volume.
Marketing, we have a story to tell.
We there's still a lot of noise out there about.
The ingredients things like that so we want to get out there and be very very.
Focused on making sure the consumer understands that products.
Are healthy and in.
A way to continue to add some of their own health goals that it could work for doing the Stanford over the next few years is representative of that we're not looking to enweave and amplify that we're looking to get data that allows us to to help the consumer understand just how powerful this tool and be on their own personal help and a talent. We keep building out talent, we keep investing in the best people on the <unk>.
<unk>.
Innovation, if we got here is going to expand dramatically over the next several years.
Asia and then okay.
Putting in innovation groups. So we kind of we're ready to go in the market is ready for us and it's got to get.
Through this COVID-19 period, and you'll see those funds I think very well deployed from our shareholder perspective.
Oh, that's really helpful color and if I could just follow up on something you talked about in terms of costs down and that kind of follows on to Brian's question earlier.
As we think about the capacity that you have in place today, clearly you're running well below your for capacity utilization. If we thought about your kind of unit cost per pound.
Just the Cogs level.
If you were running more like a 1995 per cent capacity utilization.
What would your unit cost per pound beach.
Be today.
And I guess the point there isn't so much for per cent gross margin I'm just trying to think about how much room does that give you to drive price lower to try to broaden out the potential address on the market with consumers.
Yeah, that's a very good question and we certainly do a lot of modeling over different.
Buy them scenarios, that's not something that we can answer.
On this line, but we'd be happy to kind of maybe walk through the.
The overall reasoning in an hour hour thinking about on on a percentage basis.
But we'd be wary of putting a number on there that.
People also.
For right now.
Did you want to add.
No.
I figured I'd try it I appreciate it I'll pass on on [laughter].
Louie you or even more so stinking on [laughter].
Our next question is from 10, a Goldman with J P. Morgan. Please go ahead.
Oh, Hey, everybody. Thank you uhm.
Ethan Thanks for the clarity on the Germany situation that's helpful Uhm on.
On a related note I think your slide deck is indicating that you have around 3000 fewer U S. Foodservice locations now than you did a quarter ago.
That's right Uhm is it mainly because of your customers closing altogether independent operators.
Or is there a business loss for beyond in there in particular.
Yes, it's absolutely COVID-19 related and these are very small independent operators.
I'm sure you've seen this in your community where after a certain point.
Both for having trouble.
For you and to make a go at it but those as I mentioned or picking back up I mean.
2400, as I mentioned right up to a quarter to and from there.
The end of the quarter on today so for.
It's I think just very much of COVID-19 related phenomenon.
You're you're assuming I ever leave my home. So that's not a assumption to make this put on it.
[laughter] right [laughter].
And then I wanted to ask your main competitor at retail their share gains were decelerating for a couple of months there.
And their products price got slashed in March at least what we're seeing a scanner and then their share gains re accelerated so I know you've said not to expect your pricing to be reactive to competitors I totally get that but.
Just seeing the share trends does it make you any less likely to stand your ground here or are you still sort of saying look we're going to produce to our costs and produce and price of price and price of our cost rather than basic.
Mainly on what we're seeing in our business rather than competitors.
Yeah, I know, it's great question and thank you and I believe so strongly in running this business for the long term and not reacting to any short term.
Issues and I think I would actually COVID-19 has been somewhat painful the business in that regard on that.
You need to invest even though the revenues contracted but it's the only way to do things in my view so same thing on pricing.
It's it's.
It's really interesting to see what's going on with competition and you mentioned one of our competitors.
We'll continue to out outgrow the category I think we're up 16% categories of six gaining market share. The most recent market day to actually went up quite a bit.
Two seven I think in April so.
Gaining all these different points for distribution, 46% over last year.
And and yet all this competition is occurring and so.
Kind of things I look at.
Get to your question, but the buyer rates the frequency range that repeat range and household penetration all of those are going on in the right direction environment to highest on the category on plant based on each and so that's a really gratifying number for us.
And yet there is competition on this is massive discount.
Still the number one product.
Last for we data.
Beyond burgers cylinder more product for on the top six there's all this discount.
And so and they just kind of deep if you look at the competitive that you mentioned.
They're just kind of 65% of their sales are done on discount alright. So that's.
Let's say two thirds.
For about a third which is consistent with the category right and so I'm not going to react and get into some sort of discounting for.
With them and what's interesting about our category in our products and just did some comparative data analysis, we looked at.
They are consumer in our consumer and takeaway and things of that nature.
And what's really interesting is.
Is while they're doing a really good job.
<unk> category interest, bringing new people into the category, they're not sourcing a lot of our consumers there's tremendous brand loyalty.
Two beyond and so it's a really small number actually interest the amount of share that they're sourcing from us. So all in all it's pretty good right, they're spending a lot of money marketing a lot.
We're keeping a pretty consistent price point.
And continuing to grow in and distribution and continue to grow and market share. So.
So far so good.
We'll keep looking at.
Thank you for the color.
Yep.
Our next question is from Rob Dickerson Jeffries. Please go ahead.
Alright, great. Thanks, so much.
First question Ethan.
Ethan I, just totally releasing things maybe last week can weeks ago for a lot of releases just incremental distribution of retail in Europe.
Sounds like you know that's healthy and then your commentary today.
Possibly saying kind of more of that for him come in and keeps you may be in Q3 is.
Is more retail driven so I'm just curious like if we think regionally.
Should we be expecting.
A little bit more of a bump, let's say an international off of some increased distribution Europe relative to what we're seeing in the U S. That's for sure.
Thanks.
Yeah, I mean, I think we're going to continue to see some strong growth out of Europe for sure.
There was some statistics that I was looking at the other day, where our international.
This first quarter alone was like two and half of 2020 number I mean pattern for 2020 number in total so.
International is going to be very strong for us and that's why I'm, putting so much money behind Europe, and China and trying to get market share as quickly as I can over there.
So yes, I do I do think you'll see a relative uptick, but we're also getting institution here in the U S.
So it's hard to predict.
What level of relative.
Gage G.
Yeah.
Alright, cool and then I guess just kind of the.
You know standard price on question, you don't realize obviously investing.
You know that for to reduce costs for it is price.
If we think about kind of the cadence of the pricing decline and Ah speaking just to be because I feel like that's kind of what you've spoken do for.
Would you say that.
The the rate of that price decline potentially tracks more closely to the right of that reduction in costs. So therefore, there could be some price reduction this year, but.
I'm thinking for three years right, there could be even more or more of that price reduction would maybe come later as you continue to bring manufacturing in house.
Absolutely right I mean, so so and I don't want to apply that we're not gonna discounts to share man as a summer months come on you'll you'll see us do what any brown would really be will will increase.
Activity there.
But overall approach to price you used to try to do it more locked up and I think you'll see whether it's something as long true initiatives working on around the alignment of our production as you mentioned being a more on house, but also integrated production lines in continuous production lines and then.
Go on from there too.
To local sourcing and some greedy and innovation things like that those do tend to kick on.
Towards the latter part of that three year period. So.
Yeah. My my expectation is you'll see greater step change during that period then.
Okay.
Okay makes sense I guess just lastly.
Obviously appreciated the queue to revenue guide off the color around that and then move.
<unk>. Thank you for all the comments you may just in terms of kind of trying to piece.
The different moving parts of the expense line to together, but yes to sit kind of asthma directly.
Nope I'm, just thinking about EBITDA right in queue to for like normally you do tend to guide EBITDA not guidance EBITDA at this time.
Is there anything on those expense lines that could taste more volatility that just called you to refrain from guidance EBITDA or.
Price later, we just not died EBITDA because.
Optically it doesn't always look great expenses are up even though you are investing for the future. So I'm just trying to kind of gauge.
Any of that variability just in the near term and kind of how old are your spending and that's R&D advertise or what have you.
Alright.
Sure. So I'll, let louie expand on the details, but we are doing it for the former reason but of course enjoy the benefit of the ladder.
[laughter] you got it so.
I mean, just there's a lot of scaling an expansion going on and that is that does.
Like for example, putting China standing up while we couldn't fly over there.
Things of that nature.
It's really hard to provide.
Exact budgets an environment like this with what was being stomp it to opportunity.
Large capital projects things like that so so that's that's the primary reason.
Yeah sure Rob So if you look at our operating expenses right in the change that we've seen from going from.
The first quarter of 2020 to the first quarter of this year, obviously, the increase is fairly substantial but rough.
Roughly half of that is just due to the <unk> to increase in headcount alone right. So we are a growing organization we're adding.
Additional capabilities internationally domestically et cetera, so half of that is just related to to head count.
Another big portion of that is all of this scaleup commercialization activity that we are doing right to be able to get products out the door, whether it's to some of the large qasr's partners that we obviously hope to do business with in the future or whether it's.
Potentially writing products for the retail channel and that particular.
Expense bucket, namely the the scale up there is variability in that range. So we are scaling up.
Some products that have never been commercialized yet and so we definitely wanted to err on the side of caution and not provide.
EBITDA target because we know that we're still there's still a ton of <unk>.
Commercialization activity that needs to be done and that can be relatively variable.
Alright, perfect. Thanks, so much guidance I appreciate it.
Thank you.
Our next question is from the line of Michael late for you with the pay per Sandler. Please go ahead.
Good afternoon. Thank you.
Just wanted to come back to us foodservice just to make sure I can understand this a little bit better because the trajectory over the course of 2020 for the outlet build was pretty positive even really in the worst of COVID-19.
Go on from like a 34 to 39 to 42 and 42000 and now down to 39, I know New York isn't typical of the country, but I mean, it's fun again here and if anything everything is opening or reopening exactly the kind of independent operators. It seems like he would be referring to so.
Just curious if you can really help us understand <unk>.
What happened now that those places where I'll be closing.
My sense is is probably.
Kind of a catch up number in a sense that.
This is the most real time information, we're getting so we will distribute through distributors and these are.
Brought non distributors and so.
I don't think it's March 31st of all of these guys closed down on decided to scanning the menus for things like that that happened over a period of time.
But again as I mentioned, we're gaining distribution back very quickly we do feel this volume it's occurring.
It's still it is still.
The mix of our business continues to to really be.
Disproportionate right over into into retail I think we're 70 525.
Retail too foodservice base, if you look that kind of for the.
Really pre COVID-19, so much stronger and on the foodservice on 50, 50, and even before that it was even higher on on foodservice. So.
It's just a period when we got to <unk>.
Let the starting occur I mean, there's an example, we settle a lot of stadiums institutions and they've got him on a laker game Tonight, and it's 20% capacity you Gotta show all this proof that you've been vaccinated. So it's still a very sticky environment in terms of.
Going out and using the type of venues that beyond <unk>.
<unk> cells into so I don't know I mean, New York may be different but that's kind of the feeling was still about here, but that doesn't concern me that number at all and for that.
This morning, as I mentioned.
I, usually like to get ready for this call, but at two very important customer calls that were new customers from this space. So we feel pretty optimistic.
Okay. That's that's helpful. In just a question on the international looking at some of the same matrix with the outlets on sales. Those sales per outlet are are are around half of what you see in the U S.
Should we expect that gap to narrow or is it is it more you know.
Maybe a little bit of a Burger, which is obviously your main product is just a more culturally relevant occasion in the U S or how do you think about that and is it the nature of those outlets or is it the consumer and should that evolve over time.
Yeah, So I think the first for consumer.
You as so.
I don't Wanna say advanced but.
The consumer has an appetite for.
For these types of products in a way that that's really recognizable on song or challenge has been.
Getting over there quickly enough with enough product. So we're so small in terms of our overall distribution there, but these things like I mentioned in Germany, there so reassuring because.
Again people are saying.
They are very large cpg's.
Europe from globally, they're going to really great issues for beyond moving here, we are on some of their home turf and beating them and beating them with a product that we are still in.
Porting.
So as we get production up there and begin to really invest in our own team. There I'm really excited about we're going to see out of it right now it's simply a function of how small we are.
Relative to what's going on here on the us and that's something that would be we look to correct over the next year.
Okay. That's helpful. Thanks, a lot.
Mmm.
Thank you for our next question is from John Anderson with the volume Blair. Please go ahead.
Hi, good afternoon kind of moving.
Hey, there I have a couple a couple of quick questions Uhm.
Given that you're on the [laughter].
Word launching three point O the new Burger at present I'm wondering if there's.
There anything we can take from the introduction of 2.0.
Which was a big move forward in terms of taste in other some sorry, all aspects and I'm just thinking here are there any learnings around perpetual acceleration of the business that that grow up either through household penetration.
Great opening up new distribution opportunities et cetera.
That's a good question.
Give you real insight on to that I'd have to go back and look at that period, but that's a really insightful questions. So.
I think what it does for US one it is just a better product like so we did extensive CLC, which is central location testing.
It's just really significant population of consumers did it against 80 20 beef did it against.
Our our 2.0 products and did it against competitors and the results were obviously strong enough for us to launch it and what I liked the most about this product.
Is that it gets closer from a century experience to 280, 20, b and there's probably a bit of a more neutral taste to it.
Because the underlying flavor chemistry is just better.
There's a lot of us that were 4000 molecules that make me tastes like need and we have chemistry or they were trying to isolate those molecules on them find them and plants and then put those into the right flavor for.
And they're getting better at doing that and so but to your question. What this allows us to do on with 2.0, let US do is to create another moment to bring the consumer into the brand right. So it gives us something to really market around.
As we head into.
Our most important months of the year.
And bring in new consumers into the into the space. We've had some terrific earn social media recently and we just fantastic.
People that have been willing to post and talk about us not as a Bachelor, but just as a partner to the to the brand from a consumer perspective, but I think with a three point O you'll see us get really active in that area because we want.
A much broader swath.
Swath of consumers too too experienced this product it's better.
Yeah. That's helpful. Thank you also if we think about.
Mhm U in Asia.
Uhm I'm really interested to get your perspective on how the.
To what extent there are differences in those markets relative to the U S and I'm thinking about things like you know <unk>.
Consumer awareness and Receptiveness to clamp based meat.
Uhm is there more or less education, you think required or or more marketing required to prime the pump on awareness on trial.
<unk>, you know more or less competitor.
From the fragmentation and players that would be really interesting to kind of just understand kind of what's your.
You know or.
What in how you're gonna need to play and those two markets relative to the way things developed in the U S.
Yeah. So so good good question. So here so I think we see it so Europe very well developed consumer understanding very high competitive.
Competitive environment also on.
So all of those to much more mature market.
And by the way some of the technology in Europe on one of the reasons I want to do innovation over there is that they've got some pretty good technology somebody universities working on things and stuff.
We'd like to get a hold on.
And so so that I think it's a European market.
In China, it's kind of.
Maybe a little bit different in the sense that.
Wariness is in the general population is not as high now of course, the Asian markets have a long history of using on a plant based meat like products, but this new generation that were part of a plant based meat I would say, there's not as much recognition and a lot of education required one other reasons, we pick the general manager.
Manager that we did for China, which came out of the ominous very high placed executive there, but she had a marketing background.
And I wanted to make sure that we understood the China market.
Well and could help capture the imagination on opportunity there and so.
From a competitive perspective, it's more like startups Cargill is also where they are doing some things, but it's a different environment is not as mature from a from a understanding perspective or a competitive.
So are are spend there is going to be different that it is an issue.
That's really helpful. If I can squeeze one more in.
On the Mcdonalds partnership.
Are there any lines you can draw for us with respect to the approach.
You expect that customer to take to introducing my client and just try not again get a sense for the big Bang versus you know very phase you know.
Who's dictating it is centralized or is it gonna be really determined by the operators and <unk> and how that can ramp for ya.
First of all on superstitious and so I was very worried that we'd have one analyst call, where Mcdonald's wasn't mentioned [laughter]. Thank you for mentioning mcdonalds.
So it's.
It's.
They're they're going to really.
Such an important customer losses important partnered us our relation but then it has been great for a long time, we had to just keep reassuring people that was the case I'm glad that.
They finally allowed us to talk about that publicly and.
What I don't want to speak for them I mean, they're gonna taken approach.
That fits their style of introduction and so I think you'll see some tests go on but it's really up to them in the net.
Nothing good can come from me commenting on on how they want to rule things out.
Okay. It makes it I appreciate your good luck [laughter] good luck on for thank.
Alright. Thank you. Thanks, so much.
And speakers I would like to return to call back to you you may continue on with your presentation, what closing remarks.
Yes, I'd, just like to close it up and listen appreciate everybody's patients.
Obviously been difficult time for a lot of businesses, including beyond meat.
As I said, we have not deterred from if you need to invest in the opportunity that everybody sees them that we have.
A special position as a first mover on.
So like everybody else, we're very much looking forward to COVID-19 being a thing of the past.
And and look forward to rejoining with you guys in the next call and hopefully putting some good results. So look forward to it and thanks again. Thank you.
And that does conclude the conference call for today, we thank you all for your participation and kindly ask that you. Please just getting channel and have a great day.
[music].