Q3 2021 Beyond Meat Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and thank you for standing by welcome to beyond me, an incorporated 2021 and the third quarter conference call. At this time, all participants are I listen only mode. A question and answer session will follow the formal presentation should you require operator assistance during the conference. Please.
Press stars zero to save one operator. Please note this conference is being recorded.
Oh now turn the conference over to your host movie Couture, Vice President have PNA Investor Relations for beyond me [laughter]. Thank you you may begin. Thank you good afternoon and welcome joining me on today's call our eastern Brown found a president and Chief Executive Officer, and it's still hard and Chief Financial Officer and Treasurer.
By now everyone should have access to the company's third quarter earnings press release, an investor presentation.
Today after the market close these documents are available on the Investor Relations section of beyond beats website at www dot beyond meat Dot com.
Before we begin please note that all the information presented on today's call is an audited and during the course of this call management. They make forward looking statements within the meaning of the federal Securities laws.
These statements are based on management current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those describing these forward looking statements.
Forward looking statements and 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 as actual events unfold. Please refer to today's press release, the company's annual report on Form 10-K for the fiscal year ended December 31st 2020 companies Court.
Early report on Form 10-Q for the quarter ended.
Second 2021 to be filed with the S E C and other filings with the S. E. C for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Please also note that on today's call management will refer to adjusted EBITDA adjusted gross profit and adjusted net loss, which are non-GAAP financial measures.
Well, 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 the financial information presented in accordance with GAAP.
Please refer to today's press release or the Investor presentation for a reconciliation of adjusted EBITDA adjusted gross profit and adjusted net loss to their most comparable GAAP measures and with that I would now like to turn the call over to eat them Brown.
Thank you Louise and good afternoon, everyone before discussing or 232021 results in detail I want to provide context for my commentary and clearly differentiate between short term variability on the one hand.
An ongoing strong progress toward a long term vision of becoming Tomorrow's global protein company on the other the broader context my remarks can be summarized in two main points first my comments, our best understanding of an environment that is characterized by rapidly changing and we believe largely transitory dynamics.
We are reminded for example, a quarter ago Q2, 2021, we posted record net revenues of 149 million.
We believe our longterm pieces of strengthening and Undeterred by current instability, we've been making bold investments and our innovation manufacturing operations and sales and marketing capabilities across the U S E U and China, we make these investments not as hopeful thinking, but rather prudent planning against forthcoming launches.
Cheetah growth activities.
My comments today are focused on the entirety of the quarter, how the business performed relative to our expectations. As we began 2021 and are promising path forward.
The headline for the third quarter relative to our expectations at the onset of 2021 is that it was a difficult operating environment highly variable demand, reflecting the queue to retreat and then Q3 reemergence of Covid in the form of the Delta variant.
Stand labor shortages impacting certain customers as well as our own facilities and other high impact supply chain disruptions are among the challenges characterizing the quarter as we headed into memorial day, we like many of the country felt the long shadow of Covid was finally, receiving we.
We saw growth in food service is restaurants and venues reopened to strong consumer demand and posted our aforementioned record quarter and Q2 2021.
Again, looking eagerly to the resumption of activities with our strategic quick serve restaurant partners both in the U S and abroad a.
The key building block and I originally anticipated growth plan for 2021, yeah.
Yeah, there's a summer wore on and the delta bearing too cold, we did not see a sustained recovery.
And as you will recall and foodservice COVID-19 disruptions in consumer behavior, a particularly challenging the segment of customers that we serve.
So when our largest active chain in the U S that does offer drive through we saw a meaningful uptick in velocity and a quarter. The majority of our customers today rely on in store and in venue consumption for sales.
Accordingly, we were disproportionately impacted throughout the quarter as a delta variant danton to consumer activity within the core of our foodservice customer base further within foodservice, we believe the downward pressure exerted by the Delta variant was further exasperated by labor shortage that drove reduced operating hours and menu rationalization.
For our business the extent that moving from test the full or launches with a strategic USR partners as an important contributor to our revenue build the combined contribution of Covid long tail and related labor shortages has had a particularly disruptive that we expect transitory impact on our growth trajectory and short otherwise we plan 2021, we.
Held cautious expectations by the second half of the year, we'd have our footing back in food service and specifically be more active with many of our Qasr's. We saw further delays. Unlike twenty-twenty when foodservice challenges led to a market increase in retail activity as foodservice demand reduced we did not see a corresponding increase in active.
City in retail brand or category level during the third quarter.
We believe that the following broader behaviors and trends may be at play.
This expectation is not intended to be exhaustive and with time, we expect we will gain a fuller understanding of the drivers behind third quarter command levels, one consumers reported fewer less frequent trips to the store to consumers reported being less open to trialling new products three consumers reported less interest in healthy options.
For the cancellation or reduced scope of sampling programs as a delta variance spread limited new consumer exposure to our brand and category five too much lesser extent, then foodservice, they're still relevant labor issues created complexity and possibly impacted demand retailers do delayed shelf resets and less frequent wrists.
Talking.
Six with increased competition over the past two years, we're seeing as expected some impact on our market share however, and looking at the queue to to Q3 skins market share data on a product mix neutral basis. It does not reveal competition to be a significant tribute or to the fore mentioned deceleration finally, when considering them.
And it is worth noting the possible impact of a Q2 2021 revenues, we experienced a significant increase in shipping towards the end of the second quarter driven in part by retailers stocking up for July 4th and the balance of summer grilling season, and foodservice operators anticipating a broader reopening of the economy.
We believe these heavier levels of shipping during the last month of Q too likely negatively impacted a Q3 reorders.
Turning supply chain, we experienced a series of disruptions throughout the quarter.
These include labor shortages in our facilities at a transportation partner at co Packers and a third party logistics providers.
Collectively these labor issues added complexity across operations and impacted our ability to fill certain orders.
Additionally, insignificantly severe weather interrupted water supplies for two weeks at our Pennsylvania production facility as well as destroyed sizable amounts of packaging inventory at a related storage center, though we were able to reallocate certain materials from other locations the loss of packaging materials at a storage facility had a sustained impact on our ability to fill.
Orders as we awaited replenishment of damage inventory.
I do want to take a moment to discuss the general balance of exogenously internal factors that contributed to our results this quarter.
As you know it beyond meat, we are highly focused on driving with urgency continuous improvement in our products.
This cultural Dent is captured in multiple ways, including the language, we use to describe our processes such as the long standing beyond meat rapid relentless innovation program, our internal innovation initiative.
We apply the same lens of continuous improvement to our own organization in this difficult operating environment highlighted areas of opportunity and a maturing company.
As labour challenges severe weather and an explosion at one of our key suppliers each interfered with our operations in Q3, we work to materialize planned redundancy more rapidly across the supply chain.
Further we encounter delays and some of our commercialization efforts certain of which highlighted the need to expedite the consolidation of our scaling activities within a dedicated commercialization facility here in Los Angeles on that is now underway.
I think whether it both literal and figurative storms throughout the quarter that brought into sharper focus areas more rapid development, we are emerging as an even stronger organization.
These disruptions notwithstanding through Q3 2021 remained highly focused on the execution of our long term strategy and.
And accordingly, we are pleased to report that we continue to gain ground across key enablers of our long term growth.
Rodley, we've invested heavily can readying an impressive range of products for our <unk>, our partners put significant resources against expanded capacity for planned launches.
Our efforts are of course, not limited to the U S market.
As in the U S and the EU in China, like we continue to strengthen and grow our capabilities, including sales marketing manufacturing operations and innovation among others as we expand our presence in these important global markets.
Finally, we expect next month to announce an exciting addition to our leadership team in operations when that will bring valuable and directly relevant experience, serving our <unk>, our partners and scaling global food manufacturing operations with this context as background, who will now provide greater detail into a queue. Three results we generated net revenues of 106.
Representing a 13% increase over the third quarter of 2020.
Total retail net revenues were up 5% year over year with continued strength international retail, which increased 168% year over year, partially offset by weaker results in U S retail, which declined to 16% year over year.
Representative the unusual patterns, we are seeing are.
Our third quarter U S. Retail net revenues were lower on a sequential basis, which runs counter to the general seasonality, we were accustomed to seeing in our pre COVID-19 numbers.
Our leadership position in U S. Retail continues to be born out and product sales rankings, where we maintained our number one top selling skew physician across all a plant based meat and continue to one four of the top six best selling skews in the category.
Further we gain distribution with a 23% increase in tvp's versus a year ago.
According to spin data for U S. Mooloo for the 12 weeks ended October 3rd.
As you know increasing tdp's as a positive outcome for our brand over the long run, but tends to exert downward pressure on velocity.
Pacifically, we saw a 21% year over year decline in velocity for the brand in U S. Mooloo for the same period the.
These dynamics notwithstanding our brand velocity remains nearly three times higher than the category average on an absolute basis, which would you believe strengthens our case for further distribution expansion with retailers.
We continue to see consistent progress important metrics, such as household penetration and repeat rates, but household penetration for the category was down slightly on a sequential basis. We know continued advancement in our own penetration, which increased 20 basis points sequentially and 90 basis points a year over year to six 4% According to spins IRI.
Consumer panel data for the 52 weeks ended October 3rd 2021.
With more households, buying our products. We were pleased to see that Ah repeat rates also increased 60 basis points sequentially to 52.6% are.
Our buyer rate decreased 4% sequentially likely impacted by higher promotional activity in Q3, while our purchase frequency was modestly lower quarter over quarter to the tune of negative 3%.
We continue to innovate and the retail space and just recently began the early stages of a national rollout for beyond to contenders. This product derived from fava beans is a clear winner on taste texture and nutrition as delivered 50% less saturated fat and traditional chicken tenders, while containing no gmos antibiotics hormones or cholesterol.
We are pleased to report that right out of the gate beyond chicken tenders won the prestigious 2021 food and beverage or <unk> Award from the National Restaurant Association.
You should expect to see more from us under this platform in the near future as we seek to offer a broad assortment of product offerings that grow our chicken portfolio.
Turning to use foodservice, we maintained our number one brand physician in terms of dollar share. According to NPD data for the three months ended September 2021, despite the intense variability from Q2 Q3 <unk>.
Net revenues decreased 7% year over year, and we're as noted well below our queue to total is I shared a good portion of our U S. Foodservice business about two thirds historically, but even higher now is composed of outlets that were disproportionately impacted by COVID-19, and the emergence of the Delta variant. These include small <unk>.
Restaurants bars, and pubs corporate catering services hotels movie theaters shopping arenas in amusement parks among others.
Internationally, our business again generated strong results with retail sales of 168% year over year, and foodservice sales of 117% year over year collectively reflecting gains in both distribution an average sales per outlet.
I will now provide a brief update on some recent product highlights and key strategic initiatives Mcdonald's initiated limited time offerings of the Mcclam Burger made with beyond meat patties, and three European markets, including Austria, the Netherlands in the UK in.
In addition, as you have likely noted last week Mcdonald's initiated a small limited time operations tested eight restaurants here in the U S. We are excited to work with such an iconic global brand as Mcdonalds and were equally excited to see the overwhelmingly positive media response generated by the early tests in Europe.
At the end of October I was visiting our facilities in the Netherlands and have the opportunity to buy them and plant Burger It was as expected upstanding.
Upon returning to the US the following week I was able to do the same in Los Angeles in both instances I watched interacted with other consumers specialty enjoyed the MIT plant.
Encouragingly these consumers fit the mold of the Flexitarian and will not be going vegetarian or enjoying the MC plant Burger.
In Canada, we introduced beyond meat Nuggets nationwide ASW on a limited time basis marketing another great milestone with them in our earliest <unk> partners. This exciting product offers 18 grams plant based protein per six piece, serving and as always is made from simple plant based ingredients with no gmos antibiotics hormones overkill.
<unk>.
Also in foodservice Pizza hut, most a limited roll out of our latest product innovation beyond pepperoni at roughly 70 locations across five U S markets.
This new product Codevelop, a pizza huts culinary teams truly showcases the strength of our innovation capabilities as we overcame numerous technical challenges to ensure that beyond pepperoni is nearly indistinguishable from pizza hut iconic original pepperoni, even down to it's Christina properties.
This limited offering a pizza hut in the U S comes on the heels the permanent menu launch beyond meat products at Pizza UK in July.
Given pepperoni is consistent ranking as the number one selling pizza topping and the us and elsewhere. We are excited about the potential of this product line and are eager to expand its availability over the coming quarters.
Last certainly not least in the foodservice space, We recently announced the expansion of our test with Panda Express 10 major markets across the U S at 70 locations.
This follows the initial success of beyond the original Orange chicken at select Panda Express locations in Southern California, and New York City.
Which garnered rave consumer and media reviews and sold out in less than two weeks at all so Cal stores, making one of <unk> most successful regional launches to date.
We are proud to be panned his partner of choice to recreate their iconic and most popular menu item.
Let me now provide a brief update on our progress in growing our operations in the EU in China.
We are now capable of performing each aspect of production process in country in the Netherlands, and China from production of our drive lends to extrusion to finished goods assembly.
Moreover, in the Netherlands, and China were operating our highest throughput extruders yet.
For some time now we've been building towards full end to end production to both geographies and reaching this milestone is a major accomplishment for our team I am extremely proud of them and their work as you can imagine scaling complex processes and different economies around the world can be challenging doing so during the last 18 months under COVID-19 conditions comp.
Okay. The work of our employees considerably.
And just one example, due to travel restrictions store using China facility, we required to conduct a significant amount of scaling activities with new staff over video conferencing equipment.
We continue to pursue our global costs down program with the angle of price parity with animal protein and at least one category beef pork or poultry within the next two and a half years today, we are working through a robust pipeline of cost reduction opportunities, including in the areas of raw ingredient procurement savings waste reduction throughput improvement.
Network optimization, including potential in sourcing opportunities warehousing and transportation efficiencies before mentioned local production in our global markets and packaging optimization.
With these efforts already underway and those still to come I feel very confident about reaching up cost parody goal within the committed timeline.
In closing the remains are objected and focus to insulate our long term strategy from short term conditions.
Just as we did not adjust our focus on strategy as a result of record revenues and Q2 of this year continue to execute against our plan despite a difficult third quarter.
As such this remains a period of intense investment in our future.
Here and abroad, where continued to make the innovation commercialization marketing and global production investments necessary for long term growth.
These investments are not founded on hopeful thinking, but rather are the result of planning against key partnerships market development initiatives and other opportunities many of which have been delayed due to COVID-19 in the Delta variant labor shortages in supply chain challenges, including our own and those of customers.
One of the benefits of being a relatively new public company, whose early experienced in the public markets has been forged for the last 18 months is enduring multiple stress tests revealed those strengths and weaknesses and generate accelerated learning.
We are emerging from the pandemic and its attendant challenges far stronger as a result and are continually making progress on a long term growth pillars of taste nutrition and cost as we prepare for 2022 and beyond with that I will now turn it over to fill to walk us through our third quarter financial results and outlook for the balance of the year.
Thank you Ethan and good afternoon, everyone.
Let me provide a broad overview of our third quarter financial results before commenting on our outlook for Q4.
Keep net revenues of $106 million in the third quarter of 2021, representing an increase of 13% compared to the third quarter of 2020 Q3 2021 net revenue fell short up our initial guidance and we've provided a press release on October 22nd outlining the factors, we believe led to a revised revenue guidance.
$106 million, so I will not repeat those factors here.
Both in net revenues, primarily driven by a 143% year over year increase in sales to international customers, partially offsetting the increasing international you asked net revenues decline, 14% in the third quarter of 2021 compared to the third quarter of 2020 with U S retail down 16% year over year and you have to do serve.
This down 7% a year.
Taking a closer look at our distribution channels and retail across the U S and international or volume of product solid increased 8% yearly go with international up 123% in the U S down 9%.
Net revenue per pound for total retail with lower by approximately 2% on a year over year basis, primarily reflecting increased trade discounts in U S.
And foodservice total volume of product sold increased 24% year over year with international up 55% in the U S down 3%.
Net revenue per pound.
For total foodservice without 8% year over year, driven by reducing trade discounts and international compared to the year ago period.
Moving down the P announcer gross profit.
Most profit in the third quarter of 2021 was $23 million or 21.6% of net revenues as compared to $25.5 million.
Or 27%.
As in Q3 of 2020.
In Q3, 2020, adjusted gross profit, which excludes $1.8 million in expenses related to inventory write offs and reserves and product repacking costs attributable to COVID-19 was $27.3 million or 28.9% of net revenues.
We incurred no such costs in Q3, 2021, so our gross margin and adjusted gross margin Q3 2021 are the same at 21.6% the.
The year over year decrease in adjusted gross margin was primarily driven by increased transportation costs inventory write offs warehousing fees depreciation and amortization, partially offset by improved co manufacturer fees.
On a sequential basis decrease in gross profit was driven by increased sales discounts increased inventory write offs increase warehousing transportation costs and depreciation and amortization.
Turning to Opex total operating expenses for approximately $77 million in the third quarter of 2021 as compared to $44 million in the year ago period.
A year over year increase in operating expenses, primarily of slacks growth and overall headcount levels, mainly to support the company's operations innovation in marketing capabilities increased spending in marketing activities hire professional services fees related to recently established consulting agreements higher restructuring expenses.
Primarily reflecting increased legal expenses increased production trial at Tiffany's and higher outbound freight costs included with the company selling expenses.
On a sequential basis the increase in operating expenses, primarily reflects hire professional services fees increased marketing activities higher restructuring fees and increased outbound freight costs.
Net loss in the third quarter of 2021 was 54 $8 million or 87 cents per common share as compared to net loss of $19.3 million or 31 cents per common share and adjusted net loss $17.5 million or 28 cents per common share in the third quarter of 2020.
Adjusted EBITDA over the loss of $36.8 million or minus 34.5% of net revenues in the third quarter of 2021 compared to adjusted EBITDA, a $4.3 million or minus 4.5% of net revenues in Q3 2020.
Turning to our balance sheet and cash flow highlights are cash and cash equivalents balance was approximately $886 million in total debt outstanding was approximately 1.1 billion as of October 2nd 2021.
For the nine months ended October 2nd 2021.
Net cash used in operating activities was $191 million compared to $42.7 million in the year ago period.
Capital expenditures totaled $104.3 million for the nine months ended October 2nd 2021, compared to $38 million for the year ago period.
The increase in capital expenditures was primarily driven by continued investments in production equipment facilities related to capacity expansion.
It's.
Let me now provide some commentary about our near term outlook overall, we continue to operate in challenging and variable macroenvironment affected in part by ongoing uncertainty related to COVID-19, labor issue that both retail and foodservice customers significantly increased transportation costs raw ingredients and packaging inside and global supply chain Chang.
<unk>, which has had a minimal impact on that but thus far but could represent potential headwinds nonetheless.
Combined with the dynamic nature of our category, Richmond, which remains Nathan this backdrop add significant variability to Ah realized and customer demand.
By increasing forecast and complexity as.
As such although outlet does not assume is significant deterioration in the operating environment and today. It does reflect some conservatism, which we believe is appropriate given the challenges that just highlighted.
For the fourth quarter of 2021, we expect net revenues to be in the range of $85 million to $110 million. The following factors worth highlighting are embedded in this guidance.
First we anticipate a moderation in year over year growth across all channels due to the fact that this year are fourthquarter contains five fewer shipping days compared to the fourth quarter of 2020.
Second we expect that fourth quarter results be impacted by knock on effects from the operational challenges me three.
Although we expect to be fully recovered by the end of this month. These issues presented some headwinds early quarter.
Third and both you as an international food service channels ongoing labor challenges as well as general caution based on coverage related uncertainty are also expected to have a dampening effect on the others.
Finally, we expect the moderation sequential growth accelerated orders in the third quarter of 2021 that would otherwise have been expected to materialize in the fourth quarter.
In terms of profitability and decent describes we continue to invest in support of our long term strategy, which includes investment in people and infrastructure.
I'll go with our expectation of accelerating foodservice activity next year, including into Qasr's space, we're maintaining a robust schedule an induction trial activities to prepare for the commercial launch a new product innovation.
Happening in marketing activities to drive awareness and trial with respect to see a steady increase in the pace of costs down initiative implementations some of which require upfront investments.
These activities will continue to exert pressure on our profitability in the near term. However, given the long runway. We continue to see ahead of us in the global plant that sneak category and in order to maintain and expand our leadership position within the sector. We believe these early levels of investment unnecessary and will ultimately maximize value for our shareholders over the long term with that.
That I'll turn the call back over to the operator to open it up for your questions. Thank you.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tell will indicate your lines and the question queue. If it anytime you wish to remove your question from the queue. Please press star two participants using speak your equipment.
Mint and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Brian Spillane with Bank of America.
Hey, good afternoon guys.
Hey, Brian.
I just had I had to I guess two two related questions just on on how we should be thinking about expenditures going forward.
I think there's there's still about.
$800 million of cash on.
On the balance sheet.
Related to the the the the convert you did earlier this year and so it just trying to get a kind of a sense of how quickly.
That money is going to be deployed and again, assuming some of that is infrastructure. Some of that is gonna be hiring people just trying to get a sense of the cadence of that I guess as we begin to look over maybe the next year or two and then maybe just a second related an unexpected and I think we might have talked about this on the last earnings call, but some of the commentary you may.
About just what you were observing with with consumers, especially in U S retail.
Seem to suggest that maybe consumers are.
Not getting the message for lack of a better way to describe it so.
You see a need maybe too not just increase marketing spend but to really maybe sharpen the message a bit so consumers understand the health proposition the tastes proposition of the products.
No great both good good questions and so.
Let me begin with a more general view on the first around the kind of pace of spend and I want to even take a step further back than I did in the in the comments to give my perspective on kind of what this quarter was about and so there are a lot of different.
Disruptions that occurred throughout the quarter, but if you look at where we've been in the second and third quarter of this year.
We had 149 last quarter and one O six this quarter. If you take the average of those two weeks, but the 127 and a half.
At that where our results this quarter.
We'd be up 30% year over year, So I am not excited kind of either way on these results other than to say that there's a lot of lumpiness and timing issues in them.
And so the.
Spend a P. C is not spend against the current activities right. It's really about the future of that is I think around the corner for us and that relates to all these deals that you've heard about over the last 12 months, whether it's the joint venture with Pepsi and the planet partnership and I think they were public.
About putting a product into the market next year in 2022 with that.
Look at the <unk> plant tests here in the U S. And then the larger activities in the Netherlands in Austria in the UK for example, which from everything I've seen in the media with you guys have seen so not speaking from mcdonalds, but just characterizing what you see in the press those have been successful.
And then you look at the activities across our young partnership.
Whether it's KFC in China or pizza out here in the us with the pepperoni test or pizza hut with the ongoing distribution in the U K.
Three different beyond toppings, and then of course, there Taco Bell or this year talk about plans with us. So all of these things are accumulating within our system and requiring us to in a good way to make investments to be able to serve these future opportunities and you go into whether it's Canada in a W or the Panda Express here in the U S. You look it continued.
Roll out of new products in retail and of course internationally, we're making significant investments and as I mentioned in my comments just got back from the U. Both in the <unk> in China, and so all of that or not about this year and these results. During this period, we would characterize and stability, but rather for 2022 and beyond and so I think it's an opportunity for.
To to to continue to lay the core foundation of our future growth and so if you were to look in the years ahead and stuff.
Think about what type of revenue would come in from those opportunities I think this level of spending opex is entirely appropriate for those so I don't know if you guys want to add any further details of that so I guess, the only thing I would add this is Phil.
One thing that we talk about is make sure we maintain flexibility.
And use a mix of car manufacturers in our own manufacturing and so as we look forward. We will continue to look for what best allows us to start our customers will realize the best economics and give us sort of flexibility there so that'll be a factor in this as well.
Potentially with.
Doing some of our own manufacturing versus commands there's potential cost implications.
That are favorable and so we're going to weigh all of those things in addition to supporting our customers in and looking at new products.
The circle back on my comment I mean, if you.
I wouldn't expect to kind of continued acceleration of opex spending.
Sort of per year upon year right. What we're doing is building to a particular.
Last point, though that we see in a pretty near future versus this setting the trend for or percentage of revenue.
Thanks for many years four okay. So fair to say the environment hasn't discouraged you like you're spending what you need to spend to get where you want to get from a revenue perspective over the next year or two.
Yeah, absolutely no it has not discourage us at all I mean.
The the work we're doing the foundation were lying I think is quite some time and then you can just on the marketing message anything that needs to be fairly similar.
Yeah, and I think it's great question.
I think we need to continue to the reason we did the Stanford work and we had great results from that clinical trial was to create more data around the point of the health benefits of our products and we have a five year program that we're doing with the effort to continue to do studies in that regard.
So coming out stronger in 2002 with our health message I think is important and then of course.
I think more and more consumers now are really focused on climate alright, and so.
You've heard me and say in the past that that's something that we market.
Directly around.
But to the extent, we can empower consumers who are feeling pretty helpless about what to do in their own individualized about this.
We're going to talk about that as well in 2022, So I think you'll see our most aggressive marketing to date in terms of.
Focus and spend on those broader attendant benefits.
Of our products.
Alright, thank you.
Yep.
Our next question is from Alexa Howard with Bernstein.
Good evening everyone.
Hey, there.
Okay I thought you said two quite yet.
That's one is around P prices, we've obviously.
<unk> on the gallows priced by over 100%.
Over the last yeah I'm in recent months, it's really want some top how much do you already have contacted I don't.
Contract.
Alrighty I'll catch it.
92.
Excuse me on demand expectation and what would that do to <unk>.
The first question and then the second one is more of a around.
<unk> sighed hearing in North America, particularly in the retail channel.
Thank you started in the presentation, let me repeat right. We're encouraging sequentially do you have numbers around the head of household penetration. You also mentioned was up sequentially and yet the retail fail, but down sequentially quite a bit.
Even add velocity trends and titled distribution point seem to be.
Sequentially on a year I V. A basis, if that makes any sense I'm, just probably basketball that all together.
Figure out what's going on with the demand him whether he'd have stoled somehow in the U S or what category level or white, alright, really more somehow supply related and all the all the challenges you've been facing thank you yeah.
Good question. Thank you.
So I'll take the second one first mentioned it wholesale for for.
The question on Deproteinate, something equivalent nice to answer for.
On it is an interesting thing right. So you're seeing household penetration increase I think we're up at six 4%.
That's about 28 points basis points sequentially in about 90 basis points year over year.
And then.
Rates of more households buying into minutes.
People can go into product environments and grow up around 6%. So feel good about those then you look at kind of broader brand awareness and we have the number one spot now in total brand awareness displacing Morningstar for the first time and then.
In terms of that number of 61% brand awareness, which is compared to an average of less than 30% for other leading is brands. So we're really still doing what we set out to do which is to lead this movement and we're still the number one product in retail as I mentioned for the top six and I'm ordering food service. According to the data so all.
These things are suggests that a quarter like this wouldn't happen and I think that's what's so unusual about this quarter is.
I think in the absence of complete information people try as hard as I tend to come up with various theories and I'm resisting doing that other than to say that there's just unusual consumer behavior that things are hotlines and my comments whether people.
<unk> because of the Delta variant spending less time in the retail markets.
The.
Being less open to trial in the absence of sampling programs that have been so important to us in the past I.
I think all of these factors are coming together some of the trends around what type of who taught people are making.
To create an unusual quarter for us, but there's no indication in my view that coming off of a record quarter revenue in the second quarter to this quarter that there's some fundamental change in the consumer mindset toward our products and I think that the all the activities that I just mentioned going forward with our partnership suggest in fact, the opposite of things or something.
Okay. So my view on the year is to get through the year, where these unusual conditions and and get to go back to a strong resumption of growth, which I feel very confident for 2022.
I think on the supply side, yeah, there were considerable issues on the supply side and we had.
So it's ongoing issue throughout the year around labor, Titanous, which everybody yourself and then we had this severe.
Severe weather in Pennsylvania, which took out.
Production in our facilities for up to two weeks and then ruined packaging. So we had a long tail on that one. So these all these different factors came into play and the reason that we brought the fourth quarter into the type of arrange that we did was just didn't want to go through this fire drill again the only.
The most immediate predictor of the future is kind of what just happened.
And so we want to.
Guard against having to run through another.
Set of challenges so I feel really good about 2022 appeal cautiously optimistic about the balance of the year relative to what we got we gave you guys.
I think it's good to have this quarter behind us.
I'll take the protein questions. So we have fixed price agreements in place I must of RP protein supplies. So don't expect to see impacts from TPI in the near term.
Great. Thank you very much capitalized on protein isolate.
Our next question is from Adam Sandler same with Goldman Sachs.
Yes, good evening everyone.
How're you doing.
Hi, So Ethan I was hoping to maybe think a bit longer term, obviously a lot of noise in the short term and as we think about kind of potential pathway to return to growth clearly international expansion in some of your bigger Q S are kind of foodservice launches are some of the big increments that could.
Be coming over the course of the next 12 to 18 months and I guess as we think about the revenue mix.
<unk> Covid 2019, your businesses basically 50 50.
Retail and food service, you're much more U S centric because you started international but now you've got manufacturing Europe, you have manufacturing in China. Some local production in Canada, how do we think about maybe 23 24. What you would think is a good revenue mix between retail and food service and domestic or international.
Yeah, and a good question so.
I think currently worried about in the U S, 78% retail about 22% foodservice, which is a pretty big departure from where we were pre pandemic.
And I'm certainly running the business in a way that is.
Investing very heavily and foodservice and particularly in strategics open so wouldn't be doing that if I saw a 22% was going to hold.
I do think you're going to see an increase in the food service.
Business within beyond significant increase.
As we get into.
More and more of the speech accounts that we've been working with over the years and if you look at.
Just our performance even in this last quarter something interesting isn't that information, which is at our largest one of our largest sorrows that has a drive through that we're currently in as a permanent item.
Our sales went up quite a bit and this past quarter year over year, and so I think that phenomenon that we talked about where.
Consumers any pulled back in retail due to some of these as I mentioned.
And then as you would expect a bump in food service to occur because of the challenges that kind of mom and pop operations in venues like sporting goods and concert halls universities make it that we're having.
We didn't get the same pick up that you would have seen otherwise and I think that has to do with the distribution mix in food service that we talked about a lot where we're I think now about 81% and independent operators, and then use and things of that nature versus 19% in these larger strategic accounts and so we're just not getting.
That if you look at the trends with consumers today and foodservice, they're using fast food restaurants, primarily would drive throughs and things of that nature.
Eating more fast food during the course of the NAMIC and we weren't picking up on that because of the nature of our distribution so as we get into more and more.
Foodservice accounts that are some of these larger tedious I think you'll see that grow I don't know that we'll get to 50 50.
And stay there, but I think you can expect it to approximate that kind of range 60, 40, 50 50, depending on the on the quarter.
And then use the horses internationalist international so yeah, So U S and international I think the mix now we're about 63% U S 37% international.
And I was really happy with the international growth and I'll tell you something when I was in Europe. So I am the most critical of our products by far in terms of someone who is informed about all the different products on the market.
There is a lot of activity going on and I did a nice store tour with our sales team.
Back to one of our production facilities and.
Cooked up all the different samples from all the different better <unk>.
Compare that against our products and if I had found one that I thought was really good team.
Team here would heard about the products are good but also better and it gives me great Hope for Europe, and you are seeing some really early results coming out of international work in terms of the growth rates.
I think we're up in at 168% internationally.
So.
Really really bullish on who you are taking a lot of investment there. We've got two facilities. There now also bullish on China, both in service and retail I think we're up over 100% and foodservice internationally.
So I would expect international going forward to be a very meaningful part of our business, particularly as we bring along these <unk>.
Not just in the U S and so one of the way to look at it as the activities we've had with mcdonalds.
So as I mentioned in my comments notes in the Netherlands, a terrific Nick plant there.
But if you look at.
Whether it's a test in the UK in Austria.
Or in the Netherlands.
All reports of those from external sources benefits and positive.
Well received.
Pizza hut and.
Sudden UK continues to be.
Do do quite well as well so.
As those type of test pick up.
And launches pick up you'll see more and more international apartments.
Also such essentially I'd like it.
Our national growth, we mentioned, an accelerated order, which.
Would be an order that would be a little.
Unusual versus what would typically see we estimate that at approximately three 6 million.
An international this quarter.
Alright, that's that's really helpful. That's a lot of color I'll I'll pass it on thank you.
[laughter] Alright next.
Question is from <unk> with Oppenheimer.
Good evening. Thanks, Thanks for taking my questions. So I just wanted to touch on the gross margin lines. So first of housekeeping on on two three is there any way to quantify the inventory right off and your adjusted gross margins for 223, and then a a follow up.
So in Q3 2021.
The unusual item, we mentioned it a couple of times was water damage and one of our warehouses that was predominantly packaging that was about 1000 $9 million.
Okay, and I was still in your adjusted gross margin number okay.
Yeah, and then secondly, you didn't dust or fill in the gap gross margin number as well.
Okay, Great and then <unk> for.
For Q4 is there any is there any granularity you can give us in terms of how to think about gross margins is what we saw in Q3, maybe a reflection of how to think about coupons.
Well I think there are some things that were probably a little unusual in.
Q4.
First we mentioned trade discounts.
We don't anticipate trade discounts quite is quite as dramatically as we did this quarter.
The inventory right off we already sort of size that was unusual.
And then the only other thing to say so we would expect improvements from both of those lines barring some other issue.
We did capitalize some of the costs this quarter when we were running.
Sort of less than optimum as we struggled through some of the stuff. So there is some cost on the balance sheet that will play out so that would offset some of these other other factors such as mentioned.
Okay, Great and then I guess my this is my last question. So Ethan we've heard from other players just.
<unk> challenges.
Wrote challenges within a plant based protein category just curious your take on what's really happening out. There is there is there incremental process you can see overall within the categories I just love your thoughts on what's happening out there.
No. Thank you.
I think I think the thing that we're trying to kind of make sense of it and the reason that.
Some and then split the two quarters and we just had a record quarter right. So we just posted 149.
And just tremendous amount of excitement foodservice came back on and that stop and so so much unusual behavior going on with whether it's labor stimulus checks.
Supply chain issues, we've had.
Some of this I think slowing introduction of innovation into the category just with all the different distractions going on the fact that we've invested a lot of renovation monies into.
These large usr's that are forthcoming.
And we typically lead the category in retail and that type of way.
All of that I think is combined to just have it.
Okay.
More dormant.
Q3 that I think people wanted.
So.
I don't think there's any sector issue or any segment issue.
We continue to see strong year over year growth in terms of the overall annual revenue.
And if you look at 2022 and the work we're doing there I think there is tremendous excitement in our company about what's coming.
And so this is a bit of a kind of a pause and.
Had the pandemic and labor issues and supply chain stuff.
Not interfered I think this quarter within a quite quite different.
Okay, great. Thank you.
Mhm.
Our next question is from Peter Sarah with B T I G.
[noise] great. Thank you.
Thanks for taking my question I I wanted to ask about the MC plant in the task you guys are doing with Mcdonalds I know, it's now available in the UK in a couple of other markets and that it recently.
Is there anything you can share on the initial performance that you're seeing there.
And then secondly.
As as being marketed there can you give us a sense on how much of the marketing expense Mcdonald's is picking up and how much maybe you guys maybe contributing thank you.
Yeah, So I can't share or anything and I really want mcdonalds to obviously take the lead on us not to take one.
With good reason so all I can give you is the media reports that are out there, which have all been very positive as well as my own experience as a consumer what's anybody could do asking people at the register and drive through house, how it's going in the results in Los Angeles as you would expect had been amazing.
From the animal information I am getting to some talking to people at the register.
But and then of course, the media coverage has been very positive.
So in terms of marketing, we wouldn't be able to disclose it but the other.
Consideration is Caesar operations tests, so there's not a lot of and I'm not sure all the.
European ones can be characterized this way, but generally the distinction between operations tested and then advertise test and so.
The U S. For example, there's really no advertising right. They want to see just how the back of the house operates with these products and so I think.
The opportunities to get back to your other question for 2022 for Us and a real mandate of our marketing team is.
It'll be the biggest marketing your overhead and part of it will be in supporting not only in 1000 other qasr's as we make the case to the American consumer and consumers globally.
They can eat what they love by going into the stores, they love and enjoying products that are that are.
From beyond meat benefits to them above and beyond what they can otherwise.
Thank you for that very helpful. So it just one last question on the Unmik plant is there any reason to believe.
The theory that make a plan.
Beyond me would have any operational challenges is the product any different at all than a traditional beef Patty in terms of Cook times or you know the ability to get it get it made and I'm in no time, just just wondering where the operational challenges mainland.
Yeah, I haven't heard that that there is any operational challenges within the back of the house.
What I've seen.
Or they seem to be doing really well with it it's a great product on opening one phone has had an opportunity to have it but it just if you want some reassurance about where we're headed you'll get to my plan.
Absolutely delicious.
And we're excited about.
Thank you very much.
Our next question is from banter with Barclays.
Yeah perfect. Thank you very much and good evening actually along the lines.
On the rollout et cetera, Ethan can you share a little bit the cadence how you expect us to further rollout and if within the guidance for the fourth quarter.
The rollout as it's happening in the U K is that contemplate it like a like a step up change I think there was there was in addition to it just a few weeks ago for more stores in the UK. It obviously started with low level, but it's adding up does that part of your guidance that would be my first question.
Yes.
I appreciate it first of all I appreciate it back to you guys are asking questions Donald's because we've been talking about it for years and now I can actually referenced stuff going on in the stores and.
And all I can say again, it's been it's been.
Really need to see this.
All the media reports and very positive, though information I have from going to different stores, it's been very positive, but they have to control everything about.
And the results to the cadence of the expanse, what I will say is that the investment levels are seeing this year not just specific to mcdonalds, but civic to our entire foodservice platform have been significant because of what we expect in 2022.
And in fact some of the.
Additionally, I mentioned to our management team is also.
In terms of what we're looking for in 2022.
Okay, perfect and then just to kind of.
My head around that if we take a look at the performance. The most recent quarter. It really feels like a story of two worlds with the U S being very much impacted and both sides retail and food service, but then on the other side, having the international bits.
Smith that actually performed very well back on track I mean, you've recovered some good stuff here. So what word I mean, what is it in your hand would you can do I mean, putting a lot of like the commentary an explanation outside but what is it what is it.
Your hands would you can do to get the U S somewhat back on track and get the south of declining growth rates because it was we kind of sequential base. It was weak on a year over year basis in the U S just too.
What is it would you can do what are you focusing on what do you need to do in order to to make that work again on the usp's because.
<unk> I'm not worried.
Yeah, no. Thanks, a lot of the international again, adding I think we had like 7000 customers. This.
Across the quarter internationally.
So.
I think of one at this time is all of this noise again like having facility knocked out having.
Labor issues all of these.
Delta variant coming back and kind of as I mentioned in my comments, a moral day things were swimming, we were really excited about where we're headed for the summer and then this new social creep out about the health of returning and all these other issues. So so much this time, let's get some distance from that that's the first thing second is our core items I mean, a terrific items and we're continuing.
Doing too costs down.
Rooms.
We're continuing to look at everything from packaging to how we market those of 2022, So I think you'll see a rekindling of energy around our core items and we're also laying renew innovation alright, so whether it's a chicken controlling out will get fuller distribution there already.
All these things that you've heard about in the last year that have been in the making that we expect to come into fruition in the U S. Whether it's again the planet partnership expansion across East <unk> that I've mentioned.
And then and that is effective giving us the opportunity to really spend the most of them are spent on marketing too.
To educate the consumer about all these different places I can get it in the benefits, whether health or environment et cetera that come from it. So I think let's get some distance from the kind of operational challenges of this environment.
Let's let's let's continue to invest in our core because it is a terrific products and we have great production there.
Let's get the innovation out into the market and let's go tell our story right.
Let the fog clear of the events of the last year go out there and tell a story so I feel.
Enormously confident.
About where we're headed the only reason we gave more tepid guidance on fourth quarter.
Is just because we do want to go through this again.
If you pull up in the floods.
Yeah.
Pandemic in the labor issues.
I wanted to be a little more cautious.
Okay.
Okay, and as you always say, you're the biggest critics of your own product.
And beyond free Pando, it with you talked a lot about it last call to roll out going into summer season, and obviously it seems like there was weakness in there.
Have you can you can you share any direct feedback customer feedback on the perception of the beyond three point, though and what it might need for you to do on innovation is you've just talked about innovation going forward.
Yeah. So I think there's so much noise in retail.
Behavior of this past quarter, it would be hard to draw conclusions from that but if you look at it for example, the awards we've been winning.
References last time.
Magazine, and just got another word yesterday on the Burger.
For calling the nurse group.
Anyway. So so a lot of I think recognition around the continual March we have toward product improvement around product improvement.
So I wouldn't say any one thing that we're looking to change on the Burger.
It gets back to that back in and when I was talking about fat so flavor.
Groma appearance and texture, we're making improvements across all four of those and expect to release.
Better Burger in 2022.
So so <unk>.
Particular element that we're we're focused on more for the others.
Okay perfect. Thank you very much Hollywood here.
Okay.
Our next question is from John Anderson was William Blair.
Oh. Thank you good afternoon, just a couple of quick ones.
I was wondering if you.
You know.
With the foodservice difficulties, largely COVID-19 induced and the push out of some of the rollout and foodservice is it possible that that is having kind of a second derivative effect on retail demand for your product I've always thought of foodservice is maybe a great trial vehicle. In addition.
Asleep to a.
Source of sales itself, and then a way to kind of generate retail sales for at home consumption.
<unk> is that something you thought about her thing could be having an impact on retail demand as well.
Yeah, I mean, absolutely in the sense that.
And a lot of different ways actually but the one in particular is.
As we we brought on some some I think significant talent and a marketing department in the last quarter Bolton shopper marketing side in in general marketing and we have a terrific had a had a brand here and it was for a long time.
This year would not have been the year or two to launch our national marketing campaign, just because we are going to get so much more out of it as we're in these large usr's.
And so waiting until that moment to do it is prudent use of resources and so we've held off from that but as you get into 2022. When you start to see some of these further tests and such come to fruition and longer term deals.
You'll see us make that investment to make sure the consumer knows that they can grab at this fast food place and Miss convenience store.
And in this grocery and so yes, there is a kind of.
Synergy that we're looking to take advantage of.
As we are in both both outlets are both channels more.
No more dominant way.
And then I also think this trend around consumers kind of just being fatigue, alright. They just go into their usual, they're going to they're getting a lot more fast food than they were in the past that because we're not in those locations right now.
That is that is hurt or trial.
And then of course, you go into the retail environment, we're not allowed to sample where samples were very awkward and limited and everything else. It's again, it's a dismal operating environment and the more time, we can get between where we kind of war in the third quarter with all the talent is going on and where we expect to be.
Near future the better.
Okay and.
And then.
You talked about the objective of getting the price parity again within two and a half years and in one of one of your categories.
I'm just wondering what's the most <unk> I mean, what has to happen for you to do that and I mean are you committed to that at it kind of all cost or are they are kind of margin objectives are cost out objectives that you're going to have to achieve in order to kind of.
Reached that level of of.
Price relative to where you sit today.
Yes, I think that the margin is not the area that we're expecting to pull this from and I think seeing us.
Manipulated margin in various ways to be more geared toward they just want to make sure that this particular launch as successful as it can be.
And if we have line of sight too.
And operated model and the production model, where we can restore that 30% plus margin down the road and you'll see us play around margin.
But over.
The long run it's the things that we've talked about it's continuing to drive down costs.
Materials, which there's an inflationary pressure across the board, but because of our new industry. We're also getting the benefit of new entrants in people's scaling and being able to offer.
Cost reductions overtime, so have a very big program here, Phil is leading it with an outside consultant group.
And we're making really good progress I'm not backing away from that I got that too.
Half years to me that.
I think I'm going to be.
We're getting a lot of help too because.
Commodity prices on pieces growing up.
The 20 year average like $2, seven, but but of course right now and in the future we expected to be considerably higher.
So I think we're well on our way, but I got some exciting moment wetland when you can and in fact some of the product promotion next year, you'll see us into that.
Prosperity, so it's going to be I think it'd be interesting.
Great. Thank you.
Mhm.
Our next question is from Ken Goldman with J P. Morgan.
Hi, Thank you uhm.
I know this is a tough question to answer.
But do you have any best guess as to maybe what your annual sales number might've been excluding the supply issues, just trying to get a sense for sort of what it would have been.
If shipments had matched demand so to speak I didn't get I know, we're asking in a general sense cause I know, it's so hard to be precise there.
This is still I can give you what color is available so when we launched when we.
The release on the 22nd of October.
They were really kind of three buckets in there the first was demand.
That was that was the biggest.
When you're looking at what happened versus forecast it's.
And then the second was the kind of operational stuffed with whether it's kind of the key key driver and so.
While it's definitely been a lot of headaches.
I think that that part is smaller than that initial bucket of demand, but that's about as much as we said at this point.
And then into this quarter.
Largely working through the last of the what we feel are the last of the sort of knock on effects.
And so.
Things that definitely are getting cut it back on track at this point so.
Not an enormous impact, but certainly disrupted.
Understood political there thanks very much.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Ethan Brown for closing remarks.
Thank you so as I said.
We.
Really are looking.
Two 2022 with a lot of optimism and the <unk>.
Desmond for making today.
Continue to be focused on that future and not on.
More difficult operating period.
That we're all experiencing so.
He bit as confidence as I have been.
And but we look forward to getting back on the line with you guys.
In a few months here and.
And sharing.
I think we'll be good results in.
Some good commentary on where we're headed so appreciate it everyone stay safe and be in touch soon.
Thank you. This concludes today's conference beyond me. Thanks, you for your participation you may disconnect your lines at this time.
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