Q4 2022 Beyond Meat Inc Earnings Call

Good afternoon, everyone and welcome to the beyond meat 2022 fourth quarter conference call.

All participants will be in a listen only mode should you need assistance, we've seen all conference specialist by pressing the star key followed.

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After todays presentation, there will be an opportunity to ask questions.

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Please also note today's event is being recorded.

At this time I'd like to turn the conference call over to.

Terry what are my Chief legal officer and Secretary.

Please go ahead.

Thank you good afternoon and welcome joining me on today's call are Ethan Brown, founder, President and Chief Executive Officer, and Chief Financial Officer and Treasurer.

By now everyone should have access to the company's fourth quarter and full year 2022 earnings press release.

I hope today I'm sure the market.

This document is available in the Investor Relations section.

Hum.

Yeah.

Before we begin please note that all information presented on today's call.

And during the course of this call management may make forward looking statements.

I mean, the federal Securities laws.

These statements are based on <unk>.

Hi.

Emily.

And involve risks and uncertainties.

Actual results could differ materially.

Correct.

Forward looking.

Sure.

Along with the comments on this call I made only as of today and will not be updated actual.

Yeah.

We refer you to click a press release.

Accompanying quarterly report on Form 10-Q for the quarter ended October 1st 22.

The company report on Form 10-K for the fiscal year ended December 31, 2022 anyhow.

<unk> and other filings with the FTC.

Detailed discussion right.

Actual results.

Yeah for materially from those expressed or implied.

Alright.

Great.

Please also note that on todays call management may make reference to adjusted EBITDA, which are non-GAAP financial measure.

We believe this non-GAAP financial measure provides useful information for investors and you referenced additional information not impossible.

In isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's press release for a reconciliation of adjusted EBITDA.

Comparable GAAP measure.

With that I would like to now turn the call over to <unk>.

Thank you Terry and good afternoon, everyone.

The fourth quarter of 2022, and a challenging year for our business in category, one marked by persistently high inflation and trading down by consumers among proteins slowing economy in key markets and increased competitive activity.

Against this backdrop, we took decisive actions to set our business on a course to achieve cash flow positive operations in the second half of 2023.

The target that we stand behind today.

In order to accomplish this important milestone as I shared in our last quarterly call. We are transitioning our business from an operating model that prioritize growth above all to one that prioritizes cash flow and sustainable long term growth.

And we are executing well against this goal.

While there is still much meaningful work to do.

We are pleased to report net revenues towards the high end of our guidance range, along with 14 percentage points of sequential gross margin improvement from the fourth quarter.

And over $12 million of Opex reduction versus the third quarter.

We are achieving these early wins as we focus on the three pillars of our full force pivot.

As a reminder, these are as follows.

First the implementation of lean value streams across our beef pork and poultry platforms. The laser focus on margin expansion and Opex reduction.

Second.

The emphasis on cash flow accretive inventory management with a near term focus on profit dollars versus maximizing percent margin.

And third it.

Focus on opportunities to support near term growth and consumer trial and adoption, particularly in our core skus appropriately balanced against streamline activities in support of our most valuable long term opportunities.

My comments today, I will share more detail on our progress in respect to each of these pillars.

Turn to the broader moment fixing plant based meat.

And our focus on taste health and planet as we drive product innovation and connect with consumers on the very real benefits of our plant based meats.

We're diving in let me pause here to bring back into focus the magnitude of what we are pursuing.

We believe the transition to plant based meat is an important part of our global response to a rapidly deteriorating climate.

We believe it is fast and sweeping and opportunity.

Any of that presents itself as we seek to course, correct and <unk>.

Stabilize our global climate.

And that's the history of innovation and disruption teaches us.

We can expect that the recent in surrounding our sector reached a crescendo fortunate coming to more reason reflection and.

And expanding acceptance as our branded category achieved taste health and price milestones along the path to mainstream adoption.

To move through this cycle hub.

As a format shift we've pivoted from growth above all what we believe is a sustainable long term growth model and nowhere is this transition more evident than in the centerpiece of our first pillar establishment of lean value stream management of our beef pork and poultry platforms.

Anyone who has implemented a lean transformation does fundamental transition does not occur overnight.

We are no exception.

However, we have confidence that the effort properly done well over time generate outsized gains.

We are demonstrating clear and meaningful early progress.

With margin expansion, we were encouraged by the 14% improvement which reflects among other actions our efforts to rightsize our production networks in source, a greater share of our production volumes and efficiently manage production staffing levels. During this period of subdued volumes.

We restructured certain agreements and successfully reduced our north American external manufacturing footprint from a peak of eight co manufacturers.

2022 down to three today.

This difficult, but much needed work to consolidate our network substantially reduces or eliminates altogether, our exposure to certain underutilization or idle time penalties, allowing.

Allowing us to avoid an estimated $8 million of potential fees from 2023.

We plan to continue this optimization work with our co manufacturing network as well as in sourcing more of a volume as we progress.

Also in support of margin restoration, we are restructuring certain operating activities related to beyond meat jerky intended to drive further gains in the margin profile of this product line.

So we can't get into specifics today.

We look forward to providing further information around these efforts in the near future.

Turning now to operating expenses, we were pleased that in 2022, we reduced our opex from $97 8 million in Q1 to $62 8 million in Q4.

<unk> 36 per cent decrease that put operating expense below a mid sixties target that we provided during the Q3 earnings call.

On a sequential basis, we reduced opex by $12 1 million or approximately 16%.

Selecting early delivery against the $39 million annualized cost savings we communicated in October .

In the near term, we think Q4 is generally representative of.

Our expected level of spending on a quarterly basis. However over the long term beyond 2023, we expect to pursue further efficiencies through our lean program generally.

Greater investments in automation and business process optimization tighter.

Tighter transportation management and sourced to procure processes among others.

Importantly, these investments are either already underway or in the late stages of evaluation.

Additionally, as we exit 2023, we expect to benefit operationally from the ongoing consolidation of our real estate footprint here in the Los Angeles area.

As we transition all of our L. A based employees to our new headquarters facilities.

And to exit some of our other existing leases.

We believe that fast paced innovation, specifically the beyond meat rapid and relentless innovation program is not well served by the dispersed workforce the characterize COVID-19 and much of the last several years.

As we bring more of the employees into our new headquarters and enforce our operating model, which remote work is the exception and not the norm.

We expect to benefit from the immensely valuable energy productivity.

Come from sustained focused in person collaboration and problem solving.

Moving now to our second pillar aggressive management and reduction of our inventory.

We can report that we reduced our inventory balance by $48 million or 17% from Q1 to Q4, allowing us to deliver on our 2022 objective having inventory would be a net generator of cash for the year.

We intend to accelerate this momentum in 2023.

So we're again, we're relying on lean value streams across beef pork and poultry to increase visibility into and focus on optimal inventory levels have recently invested in systems that we believe will substantially improve our ability to manage inventories across our global network of manufacturing sites and warehouses.

Big ticket items include the pace and timing of our committed pea protein deliveries resetting our width and finished goods stock to levels to better align with our anticipated production volumes and demand levels and exploring alternative avenues for inventory items with greater than required current stock levels among others.

Increasing sales velocity.

Especially on our core items is of course, the most effective and cash flow accretive way to work down our inventory levels. In this regard as we shared on our last call.

We have designed certain time bound trials and pricing programs to drive stronger velocities and we're encouraged by early results.

Typically where we have implemented such programs we've been pleased to see not only an acceleration in unit velocity, but importantly, an increase in takeaway dollar growth.

Plus canola oil.

Salt Natura.

Natural flavor.

There has been less than 1% of the following.

Space.

Erlick powder.

Ian powder pomegranate concentrated east extract sunpower less again.

Fruit and vegetable juice color.

As with our other products striated muscle structure of the steak piece itself is accomplished by running plant protein through heating cooling and pressure.

Physical rather than chemical process.

Which utilizes intellectual property, we've developed on equipment than in other sectors of the food industry.

Is used to produce such staples as pastas and cereals.

Moving past, our process and ingredient deck before leaping beyond stake.

I'd like to now turn the Sabah being itself.

I will be traveling next week to the Dakotas to meet with some of the farmers who grow the father beans from which our protein a source.

As I've spoken about many times I have deeply rooted respect for the American farmer <unk>.

Including those whose family farm center on animal agriculture.

Intimately aware of the entrepreneurial journey, there on often across generations difficulty and financial risks associated with their work and the critically important role they play in our culture and economy.

It is my strong and inform belief that the innovation and shift in protein we are pursuing.

Is broadly economic win for American agriculture.

And in our messaging this year I look forward to taking the consumer back to the farm to learn about how the protein for our plant based stake has grown.

The expanded economic benefits that accrue to the farmer and.

And the attendant sustainability gains for soil climate and water.

There is goodness here and along with our growers, we're proud of it.

With that I'll turn it over <unk>, our chief financial Officer and Treasurer.

Walk through our fourth quarter financial results in greater detail as well as our outlook for 2023.

Our fourth quarter results were in line with or ahead of our expectations across the P&L, reflecting the progress our team has demonstrated in executing against our operating plan. We recorded net revenues of $79 9 million in the fourth quarter of 2022, representing a 21% decrease compared to the fourth.

Quarter of 2021.

For the full year 2022, this translates to net revenue of $419 million toward the high end of the guidance range of $400 million to $425 million that we provided at Q3 earnings.

As we have shared on our recent earnings call. Our topline results primarily continue to reflect soft demand in the plant based meat category, particularly within our core sub category of refrigerated.

As Ian mentioned, we believe persistently high inflation slowing economy increased competition and trading down behavior by consumers. Among proteins are all negatively impacting growth for our category and our brands, but we do believe this is transitory.

In aggregate total volumes sold during the fourth quarter of 2022 declined 16, 9% compared to the year ago period, primarily as a result of the macro factors I. Just described while net revenue per pound decreased approximately four 4% year over year.

The decrease in net revenue per pound was primarily attributable to strategic but limited price reductions in the U S and broader list price reductions in the EU increased trade discount and unfavorable changes in foreign exchange rates, partially offset by changes in sales mix.

Turning to gross profit gross profit in the fourth quarter of 2022 was a loss of $2 9 million or minus three 7% of net revenues compared to $14 2 million or 14, 1% of net revenues in the year ago period.

This result reflected a better than expected sequential improvement of just over 14 percentage points versus the prior quarter on.

On a year over year basis, and excluding the impact of jerky. The decrease in gross margin in the fourth quarter was primarily attributable to increased inventory reserves reduced net revenue per pound and higher material and logistics cost per pound, partially offset by reduced manufacturing cost per pound, including depreciation.

With respect to Germany, and in addition to the aforementioned factors, we realize the benefit of $3 6 million, resulting from actions taken to restructure certain contracts and operating activities related to beyond meat jerky.

Ethan mentioned, we will provide further information around the efforts in the near future.

Turning to Opex operating expenses for the fourth quarter of 2022 were $62 8 million down approximately 32% year over year, and 16% quarter over quarter, reflecting our focus on right sizing our expense base.

The year over year decrease in operating expenses was primarily driven by lower non people general and administrative expenses largely attributable to decreased consulting fees.

<unk> production trial activities, lower marketing expenses and reduced people expenses, including stock based compensation.

The sequential decrease in operating expenses was primarily driven by reduced marketing expense lower restructuring costs, which consists mainly of legal fees and reduced people expenses, including stock based compensation.

Moving further down the P&L loss from our unconsolidated joint venture increased from $1 8 million in the year ago period to $8 1 million in the fourth quarter of 2022, primarily reflecting an increase in inventory reserve that TPP.

Overall net loss in the fourth quarter of 2022 was $66 9 million or net loss of $1 <unk> per common share compared to net loss of $80 4 million in the year ago period, our net loss per common share of $1 27.

Now turning to our balance sheet and cash flow highlights.

Our cash and cash equivalents balance, including restricted cash was $322 5 million and total debt outstanding was approximately $1 1 billion as of December 31 2022.

Net cash used in operating activities for the three months ended December 31, 2022, with $51 7 million, a $59 million decrease compared to $110 3 million and net cash used in operating activities in the year ago period.

Within cash flows from investing activities capital expenditures totaled $10 5 million in Q4 of 2022 compared to $31 7 million in the year ago period.

Cash flows from investing activities also included $3 3 million related to investments in our joint venture.

Let me now provide some commentary about our 2023 outlook.

We expect net revenues to be in the range of 375 million to $415 million, representing a decrease of approximately 10% to 1% compared to the full year 2022.

In terms of the distribution of revenues for the year on a percentage basis compared to their respective year ago periods. We projected net sales decline in the mid teens range in the first half of 2023 and net sales growth in the low double digit range in the second half of 2023.

Gross margin is expected to be in the low double digit range for the full year 2023, beginning the year slightly positive and increasing sequentially throughout the year.

Total operating expense is expected to be approximately $250 million for the full year 2023 weighted slightly more heavily towards the front half of the year as we expect to invest disproportionately more behind marketing activities in the first half.

Finally capital expenditures are expected to be in the range of 30% to $35 million for the full year down from $75 million in 2022, and we continue to target the achievement of positive free cash flow defined as cash flow from operation less capital expenditure within the second half of 2023.

As we shared on our last call and as Ethan reiterated earlier, we will also maintain our strong focus on drawing down inventory levels and the key lever to achieving our cash flow positive objective within the second half of the year.

Generally speaking as opposed to focusing on outright growth. Our 2023 outlook reflects a renewed focus on stabilizing our core business.

Advertising only those new product innovations, which we believe will be most accretive to long term growth right sizing our operations and reducing operating expenses in support of near term margin expansion and ultimately better positioning our company for more sustainable long term profitable growth.

While the growth of our category has slowed due in part to macro pressures outside of our control. We continue to believe that the long term opportunity for plant based meat remains substantial.

This perspective is grounded in the fact that each of the key elements of the thesis that supports long term growth in our category are just as relevant today as they were three years ago, if not more so specifically these are concerns related to climate change human health natural resource conservation and animal welfare, which are <unk>.

Industry has acknowledged to be a core solution within the scientific community.

Therefore, although we are projecting a year a flattish to lower revenues in 2023, our optimism about an eventual return to growth in our category remains undiminished and we are taking decisive measures. This year to position ourselves for continued leadership within this category for many years to come with that I'll conclude my remarks.

Ill turn the call back over to the operator to open it up for your questions. Thank you.

Ladies and gentlemen at this time, we'll begin the question and answer session.

To ask a question you May press Star and then one music a touchtone telephone.

Draw your questions you May press star two.

If you are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the numbers to ensure the best sound quality.

Once again that is star and then one to join the question queue.

We will pause momentarily to assemble the roster.

And our first question today comes from Ken Goldman from Jpmorgan. Please go ahead with your question.

Hi, Thanks, so much.

<unk>.

I wanted to ask a little bit about the guidance for two <unk> 23 sales to grow in that low double digit range Ethan.

You mentioned there are some headwinds right now in terms of consumer challenges trading down a little bit maybe some misunderstanding about your products ingredients.

I'm not sure. If you are expecting those to kind of reverse a little bit in the back half I wanted to maybe get a little bit of a better sense of what the key drivers are that maybe underpinned that that outlook for gross to rebound that way. Thank you.

Sure Hey, Ken. Thank you for the question I appreciate it and good to hear from you.

So I think first I want to ground.

The discussion in the context, if you look at the third and fourth quarter of 'twenty. Two those were not massive numbers that we need to lap. So in part we have.

Pretty good starting point for growth in the second half of the year.

That's different from for example that much.

A larger or higher borrowings to pass over in the second quarter.

Of this year relative to the second quarter of last year, but it's not so much dependent on.

Cleaning up the health narrative or.

Getting consumers not to trade down there is more to do with some of the actions that we feel we have more control over.

And that seems like the pricing programs that we've put in place and are testing now.

Where we're seeing very good unit.

<unk> responses.

Some pretty solid.

Revenue.

In that regard those tests are very limited to no. So it's showing up in broader spins data.

The marketing campaigns that we have in place both at the top of the funnel.

In terms of our era game, and then also down lower in the funnel in terms of the ground game.

That will be coming into fruition across the summer we feel good about that we have some line extensions that I am personally excited about as well as renovations. So when we talk about renovation. If you look at our beef pork and poultry platform. As you know, we've always tried to disrupt ourselves and replace our own <unk>.

<unk> on the shelf with better products, when we try to do that on an annual basis and so this year, you'll see some activity from us there that we're quite excited about.

But this gets back to the kind of third pillar of our strategy if I were to.

List goes out the first really is breaking into these lean value streams across beef pork and poultry and driving margin expansion and opex reduction through focused management of each of those platforms and second part the second pillar would be around the.

Aggressive inventory reduction our inventory levels are too high we understand that and we're bringing them down substantially.

Substantially.

Then a third is this focus on near term growth drivers and that's really the programs that I just outlined are what's going to carriers in the second half of this year, So thats domestic.

If you look internationally, we are seeing.

Some distribution gains that we expect across 23 internationally, we've been doing some good work on shelf life extension, which should give us access to some additional markets in Europe .

Doing some new product introductions in Europe .

And of course, we have the foodservice activities.

Hopefully you guys have been able to focus on.

In Europe with some sort of our major strategic partners and then lastly, we have some exchange rate tailwind.

Enjoying so I think those things are primarily what gives us confidence around the second half of the year relative to the baseline that we need to crossover.

Got it no that makes sense and thank you for that I guess, if I can ask a quick follow up to that.

It's great to hear about some of your your test with pros are resulting in some strong unit rebounds, I forget the exact words, you said, but recently we've seen both price investments on your part and volumes reduced and I realize to your point there will be much easier comparisons in the back half of next year I don't want to stick too long in the subject but.

What should we be looking for.

That's different this time versus the last couple of quarters. When you also had some.

Maybe pricing that was down and volumes at the same time, because it sounds like youre requiring volumes to really rebound in the back half of next year again, you mentioned some other reasons why so I just wanted to make.

Parse out with different than what we've seen the last couple of quarters.

Sure I mean, I think the other piece if you.

Taken totality, our comments around the year and you look at.

The first half of the year, and we're saying look that's going to be down. So there is a reason for that right now has to do potentially with distribution.

<unk>.

Across the year, we had very strong orders in the latest part of the second quarter last year as people get ready for the fourth July .

We're not expecting that same level of concentrated buying and so I think that in part automatically gives you some.

Strength coming into the second second half of the year, but on your question around pricing measures. This is not really around trade. So much is it around.

Kind of a strategic look at.

Teasing out what happens when the consumer faces decision to buy animal protein or beyond meat with a price delta that is not as significant as it's been in the past and so we're doing these targeted tests not only.

Sort of more closely around that question versus just a discount but also in <unk>.

Our retail segments that we know the consumer is more likely to respond to our brand than in other segments. So there is a.

Highly focused nature to the pricing tests.

And we're also applying that same discipline and focus around these pricing tests in the foodservice space, where instead of offering kind of a blanket discount we're looking at segments, where the consumer is far more interested in our value proposition and we've talked about this at length, but I'll just cover very briefly.

For folks that are that are older 40, and older. It tends to be really around the health message and the benefits. They can derive from going beyond for folks who are younger let's say still.

Still in school age in their twenties thirties.

They are much more receptive to our climate messaging in the climate benefits that we're able to bring.

To their consumption choices.

So we're coupling our pricing with those types of messages for the right consumer in the right demographics.

Got it thanks Nathan.

Sure.

Okay.

Alright.

Peter.

Good good.

Our next question.

Can you just kind of about the Eagles.

I'll do that.

Follicle.

Okay.

Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Hey, guys. Good afternoon, thanks for taking the question.

Maybe moving just just to start with a clarification point.

The revenue guidance understanding the differences between first and second half.

How much of that is.

The shipping Doctor from from State, obviously, now you're going to be lapping.

Turkey from last year, but how much contribution are you at least embedding from from state product in 2003.

Yes, I think certainly stake is going to be a more of a contributor to our revenue growth. In 2023, then obviously it was in 2022, because we introduce it.

Pretty late in the year last year and so it will be a driver I think.

Throughout the year.

The real driver I think of the difference in terms of.

The revenue cadence that delivery of revenue for 2023.

As related to some of the factors that Ethan talked about right. So.

The near term we are we are lapping a stronger first half of 2022.

And.

The category trends, obviously have been rare.

Relatively soft.

In the last several weeks and months.

Also in the first half of.

Of 2022, obviously, we had a pretty big launch of our jerky product.

And so we do expect that the decline in revenue.

That you see in the first half of the year will be.

Obviously relatively safe, we said mid teens decline and then for all the reasons that Ethan mentioned, we expect.

<unk>.

Sure.

Yes.

Trajectory of the contribution from some of the new products et cetera.

To be much more meaningful in the second half of next year of this year.

Got it that's.

That's helpful. And then maybe just a follow up on Ken's question.

Talking about more from the cash flow and an inventory standpoint.

Understanding the drawing down inventory makes sense.

In harvest mode.

But just given what you are.

Assuming a return to growth in the second half.

Drawdown on inventory.

How do you kind of thread the needle of making sure that you're in stock rates in your fill rates are up to par with what you need for your retail customers.

Service customers.

Going to be the case of running what kind of leaner inventory.

Just would be helpful to get your thoughts there thanks guys.

Yes sure Great question.

So I think it gets back to the organization.

Across these value streams, which gives you a lot.

Clarity.

Two.

For each beef pork and poultry, how you're doing relative to the demand signals, we're getting in system more manageable set of activities I think we've also reduced the.

The number of.

Large customers that were doing.

Disposal of court novel products for.

So it allows us to carry more common set of inventory across cut.

Our customer base.

And then I think it's shifting into some of the new business systems, we're using it gives us much greater visibility across our network helps a lot.

The consolidation.

Our manufacturing footprint as I mentioned I think in my remarks, we're going to be kind of eight different co Packers to peak in 'twenty two to three and then our own internal production process things just get a lot simpler as you start to implement some of these disciplines and.

It's a major emphasis for our company the.

The second pillar in our strategy, which is around reducing inventory the teams doing a great job at it I think they are having fun doing it.

And we're pushing ourselves to.

Over the course of the next year.

Move from this growth at all cost model to one where we really start to shine around.

<unk> best in class inventory management and to get more in line with.

Companies that are managing their inventory according to a lean disciplines. So.

It's not without effort will make some mistakes along the way.

But we are pretty confident that we can serve.

It kind of a resurgence in demand.

More efficient inventory and production system.

Great. Thanks, guys.

Yes.

Our next question comes from Robert Moskow from Credit Suisse. Please go ahead with your question.

Hi, Thanks.

I thought I heard.

Paired remarks, some comments about what you had intended to do with your revolver.

Sure.

In order to provide a source of cash can you be more specific about it.

And can you tell me like does that give you sufficient flexibility that you probably will need <unk>.

During the course of 'twenty, three because you're still burning in the balance sheet is getting smaller.

Hey, Rob this is Ravi I'll take that one so we didn't actually say anything about a revolver in the prepared remarks.

We did at one point have a.

Revolving credit facility, which we.

Terminated when we when we did the convertible bond offering.

I think your question really gets to.

Sort of our overall liquidity position given that we are obviously still.

Consider the business is still consuming quite a bit of cash so look I think.

Everything that we that we discussed in our prepared remarks, and some of what Ethan was just alluding to.

Kind of speaks to the measures that we are taking to really reduce the rate of cash consumption of the business right but.

We recognize that.

Even with some of the I think more.

Some of the onetime benefits that we believe we're going to.

Be able to capture as it relates to inventory reduction.

Beyond that we still have a lot of work to do right. So we're not at this point, we're ready to discuss with any real specificity about whats.

The consumption.

Cash consumption of the business might look like beyond 2023, but it is a focus of ours for long term too.

Transformed this business into one that is that as a net generator of cash but there is there is still a ways to go before we get there and I don't want to speak prematurely.

About what we will not do beyond 2023.

And then to the broader I think this is part of where your question was headed in terms of how we're thinking about the liquidity position.

Our thinking there hasnt really changed from what we've shared on last quarters that we're very focused on it.

We continue to evaluate the various.

Options that are available to us in.

It makes sense for us too.

No.

Do some sort of a raise and put more of a buffer.

On the balance sheet, we will.

Okay, maybe one follow up.

Can you give us a sense as to what the drag on the business was in 2022 from plant jerky, either in cash or in earnings or something.

What the opportunity might be at 23 two.

To reduce that drag maybe that has to do with a contract renegotiation youre talking about.

That's exactly that's exactly right.

EBIT outlet Luby give you the specifics on it but it was.

Not insignificant from a impact on the business than we.

<unk> taken a lot of activity I was very involved in this.

Toward the second half of this year to restructure.

The agreements we have on on production and distribution and things of that nature to make sure that as we move forward, we have more favorable economics around around margin.

Not going to show up necessarily right away, but you can already see some.

Positive movement in that area.

So while I don't think its going to be transformative in Germany entire business you are going to see.

Better economics.

The Turkey business.

And then Rob in terms of the specific numbers. So I don't have that in front of me. We can certainly follow up offline on that and we typically disclosed that in our 10-Q, which will be coming out soon.

But.

So.

So sort of as Ethan mentioned right. We are focused on improving the economics for the jerky business on a go forward basis, but at this point in time, we're just we're not ready to get into the specifics, but we will we will share more information around that in the near future.

Okay. Thank you.

Our next question comes from Jon Andersen from William Blair. Please go ahead with your question.

Thanks for the question good afternoon guys.

But ethan.

Ethan I was wondering if you could comment a little about the category and.

Haven't heard you talk too much recently about household penetration or kind of repeat.

By the consumer and the reason I'm asking is just too.

Trying to get a better understanding for where you think the biggest challenges are at this point in terms of bringing more consumers into the category into your franchise is it is it taste.

Health perceptions is it price.

And what you can do as a category leader going forward too.

To help.

Promote more trial.

More engagement there are 44 parties in this conference including yourself.

Okay I got the question, it's a very good one and it's always something I think about.

Great deal and you hit on the buzzwords that I use all the time.

Externally.

This category will win over time.

On <unk> III.

When around taste.

It will win around a proper understanding of the health benefits that our products provide.

We're not a price you can look at any history of innovation and the last 150 years.

Things move forward with breakthroughs in key product attributes.

<unk>.

Thinking about are driving we're looking at potentially driving electric vehicles someday.

Because of the improvements that were made possible by the lithium ion battery.

Cell phones, the same thing with some of the technology advances et cetera, and so.

I don't read the articles.

Take all.

My entire day to do so.

The efforts for the people who've made to try to call the category or some sort of.

Probably not a productive use of energy.

There are.

Things that we can move forward on a daily basis and Thats what were focused on so all the things you just said improving the taste.

Making sure the consumer understands the health benefits and Thats, our work with Stanford will be a five year program with medical school, there and the results are.

Summarized in my comments, our new project with the American Cancer Society. Some other stuff, we'll be announcing later this year in the medical space.

And even the history of plant based protein is one that.

No one has really bothered to look up and all of this effort to call the category.

If you look at.

The work of the Blue zones, researchers for example, where they talk about the five longest lives.

<unk> in the World one of those is.

Very close to where I'm sitting today.

Loma Linda California.

One of the key attributes of that community is largely plant based.

One part of that.

With some of the earliest meat substitutes that were developed in the 18 nineties by John Harvey Keller.

So there is a tremendous health benefit to be derived from transitioning the protein incentive our plates.

Animal protein to a plant based protein in the plant based meat.

And the data is there we need to look at it we need to keep developing it but any industry that as success that we've had is going to face tremendous pushback and thats. The story throughout all of innovation.

We're facing that now we will get through it we have.

Data on our side, we're developing more data youll see us get much more targeted around health and our discussions with the consumer.

<unk> is a perfect example, thats why I dwelled on it so much in the in the prepared remarks.

Enjoy a delicious pizza steak like that anyone who hasn't tried it you go out and try it if they have any doubt about the category of the brand.

It's got one gram of saturated fat and if you look at like Omaha Steak. For example, an analogous product is six grams I picked up.

Product in the middle.

So as to not.

So by us at all but.

The health benefits of what we're doing are strong and will only get stronger Okay. And then you layer on to that.

As we start to continue to drive down the cost structure and again this isn't showing up today, but you shouldnt expect it too when you have.

Volumes that we have running through our facilities right, but as our volumes increase and we can start.

To take advantage of some of the manufacturing improvements we've made.

And start to run through some of the ingredients that we bought at higher cost and higher price and get to some of the lower cost ingredients that we've been able to negotiate you'll start to see.

More sustained lower cost product and lower pricing. So as we hit those leavers taste and we've got some products coming out. This year. That's why this renovation is pace of renovation. So importantly, we're going to keep driving new products out in the market that taste better every year, we're issuing one of our core platforms. This year will have a product improvement.

Terrific.

So that will bring some more consumers and then you start to.

It beat back some of the drummed up speculation about about health you bring more consumers in network and then ultimately you give them something that they can afford that at the same price all of this hand wringing about the category.

History will show that it was something that was unnecessary.

We're doing our work we're focusing every day on our people in the category.

Talked to other companies in category impossible and others were all just focused on doing our work and getting it done in.

And we will deliver these gains in consumer I think will.

Increasing numbers adopt.

You asked about increasing trial one of the best ways to do that is to offer more competitive pricing. So some of the unit velocities. We're seeing on these pricing tests are exactly designed to do that not only to generate cash from our inventory, but also to welcome more consumers into the category through more favorable pricing.

Yes.

At analysis that downplays, the fact that in <unk>.

Two in 'twenty, one, particularly 'twenty two.

Our products were at times twice, if not more the price of animal protein and here's a consumer that's walking into the supermarket.

<unk> significantly reduced buying power on the Isle itself right because other prices are going up but also their buying power has been dramatically reduced before they even got there at the pump and paying their rent and everything else and so for people to think that we're going to just sail through that with products are literally twice the cost of the next available alternative thats been.

<unk> for <unk>.

<unk> of years, I think as night alright.

So we will get through this period of inflation will get back to being able to communicate with the consumer the truth about our products versus some of the things are being written and Youll see growth again.

Okay. Thank you.

Yes.

And our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Hi, Thank you.

Good afternoon, everyone.

Maybe Claire.

Clarifying question Ethan.

Guidance strict fiscal 'twenty three what is the assumption on volume and selling prices.

As I think about the goal of reducing inventories.

We're especially that problem is concentrated on the raw materials side driving volume would seem to be the biggest more important number there.

Right.

Got it.

Doing so without price reductions gets more challenging if you're trying to improve the value propositions to consumers. So what are you actually assuming for kind of aggregate volume and selling prices.

Revenue guidance you've laid out.

Yes, so I can't give specifics on it.

I think the if you look at that.

<unk> out the three pillars.

Really the core focus of our strategy lean value streams.

Margin expansion and Opex reduction through those systems inventory drawdown and then third the focus on near term growth drivers such as product extensions and renovations and pricing.

So that pricing piece is a big.

Lever for us as you've noted and we will exercise that in certain markets under certain conditions that are time limited.

Because we want to make sure we're understanding the impact right.

But to your point.

The quickest way to drive through this inventory is just too to offer more competitive pricing move through it does.

It does a lot to spread some some.

Positive momentum through our facilities by increasing throughput and lowering.

Leasing overhead absorption and things of that nature. So.

So it's those.

<unk> that I talked about within that third pillar.

Continuing to look at the pricing programs getting these line extensions out there and getting some of the renovations will be coming out of that.

Adam the only other thing that I would add to that is when you look at the change in net revenue per pound that we realized in 2022 versus the previous year part of that was driven by we did take pretty broad price reductions in our international business.

In the EU in particular, because we felt that the price point of our products relative to the competitive set there was.

It was much wider than we needed it to be and so we see we took.

Pretty significant and broad price reduction there. We also had a negative impact of.

FX.

In 2022, and so I would say that even though we are running.

Some of these.

More aggressive pricing programs that we've described.

I wouldn't necessarily be looking at the change from 2021% to 2022 is sort of an indicator of what may be to come into 2023.

That's helpful and then if I take the aggregate revenue gross profit or gross margin Opex capex guidance that you laid out it would seem that.

Adjusting for the noncash items in there for D&A and stock comp in particular that before kind of working capital release.

Cash burn for the company is something on the order of $175 million in 2023.

So I.

I mean is that a correct.

And b, if so what level of working capital release and functional free cash.

Byrne with that would you actually have in 2023 and understanding there is a cadence in sequencing.

You could get to free cash potentially get to free cash flow positive in the second half if you execute the plan, but in aggregate for the year kind of what's the cash burn implied by that.

Operating guidance you laid out.

Yeah, So Adam.

We estimate that you just mentioned over there sounds pretty high.

I think we will be.

Substantially below that for the full year, but we will be we.

We'll be a net.

Consumer of cash for the full year, even though we do have this objective to be cash flow positive within the second half of next year and you.

You called out some of the different components of the buildup to that right. So we gave you I think pretty.

Detailed guidance around revenue gross margin Opex and Capex.

So.

The big lever.

Some of the big levers there that are not included obviously, there is the depreciation and stock comp pieces, but inventory.

Working capital benefit.

You, obviously for us to get to cash flow positive needs to be pretty significant and that's what we're targeting.

Ethan mentioned.

Focus the level of focus that we're placing on inventory reduction and some of the new tools that we've invested in to help us be much more efficient in that regard.

So it is an aggressive target, but we do think.

We have a pathway to get there.

Okay I appreciate that color.

And our next question comes from Michael Lavery from Piper Sandler. Please go ahead with your question.

Thank you and good evening.

Just wanted to touch it and the brand spending.

The key to pricing power or just competitive dynamics and Laura can you repeat that.

We didn't catch the word.

Just the brands the marketing and brand spending.

Thanks Anna.

Thank you.

You've called out in the 2000 22022 results, how some lower marketing spending was.

One of the components of the build to your to your results can you just give a sense of how youre thinking about where that goes in 2023 and how to think about.

Making sure that.

Build the brand equity and trying to make sure that that's not part of the cost cuts.

No that's great question.

I think just in terms of the timing of spend I think youll see us doing.

In the first half of the year.

Emphasize some some marketing spend.

For various launches, we're doing and things of that nature, but I would say that the difference between you had a much broader marketing platform in the past.

Maybe it was less refined in terms of.

Most receptive consumers for our products.

And that made sense for the time.

But as we.

Move forward and again it gets back to this kind of third pillar in our strategy focusing on.

Nearer term wins with consumers that are most receptive to our value proposition. It gives us the ability to market much more efficiently.

Given example, which.

Yes.

Just kind of making up the specifics here, but.

People, who are receiving statin.

They should know about our products and they should understand the relative health benefits of beyond steak versus animal protein steak. So can we spend efficiently in that direction.

Younger people, who are focused on.

Climate and the environment, how do we reach them as they come into the.

Consumer set thats going to be shopping in grocery. So we're doing a lot deeper dives and those type of areas to understand how to maximize each dollar we're spending.

With our <unk> partners.

Some really good activity going on there I think some of the marketing that theyre doing particularly in Europe is really actually brilliant.

It touches on the kind of generational change that's underway here.

And so we're.

We're happy to be co funding that.

And if you look just by the way while I'm on Europe , we didnt really get much.

Questions on that but I want to emphasize.

Some of the transition that's occurring in Europe around the consumer if you look at a country like Germany.

Over the last 10 years, there has been a remarkable reduction.

In animal protein consumption on a per capita basis.

And I think that bodes very well.

For what we'll see here in the United States at some point as people begin to understand better the health and climate benefits of what we're doing and so in our marketing reaching those consumers.

We can do that more efficiently than we have in the past.

And we're looking forward to doing that.

That's helpful color and can I just follow up on the.

Part of the release, where you give the distribution points by channel.

I appreciate the transparency, calling out how it looks excluding Cherokee just because that's such a big jump in the U S. In 2022.

But.

Slipped down just a bit sequentially from Q1 to at least <unk> 34000 versus 35%, it's not a big drop obviously and I'm sure. There's some rounding that maybe it's even less than it looks but.

What's driving that down and with your velocity is lower.

Even if you've got roughly constant distribution points and sales down from 20%. Your philosophy is obviously you're off.

Do you have risk of de listings or could that number get lower.

Yeah from a.

In terms of total distribution points.

Think where we've seen a little bit of loss of.

Just number of doors has been in the sort.

Foodservice channels.

And in international in particular, I think there was a little bit of.

Of a reduction there.

And then sorry can you repeat the second part of your question.

Sure Yes.

Maybe these numbers are or arent.

Accurate, but the international Foodservice you show had ticked up that's also coincidentally 34000, but.

Just looking at the sales trends.

In your conversations with the retail trade do you get the sense of more de listings that could come what how do we measure the risk of how that looks going forward.

We haven't I mean.

No we have that certainly hasnt registered I talk with our sales team every day.

<unk> heard concerns around that.

The only kind of.

Area, there that that ever comes up is in areas of shelf life, where we may not have the right shelf life for a particular ambient case at a particular retailer or something like that but no.

We haven't seen that and if you look at if you can kind of break into the data set for four beyond retail.

There hasnt been obviously some impact in the fresh case, but in the frozen we are seeing pretty good growth.

So.

With retailers I was just with the largest one in the U S.

With outside of the Big box area and are very pleased with our performance and looking for kind of what else can we bring them I think they see the short term nature of this disruption is clearly as we do.

And.

So no I don't see any sort of.

Dramatic correction in that area now.

Okay. Thanks for the color Thats great. Thanks.

Sure.

And our next question comes from Peter Saleh from <unk>. Please go ahead with your question.

Great. Thanks Ethan.

Given the declines in sales in the back end of the year end.

Expected declines in the front end of 'twenty three have you reconsidered your position on private label.

Not really.

I think it's I mean I think about.

It gets to if you go through the three things that I'm always focused on relative to the consumer taste health and price.

Where my mind goes in that areas around price.

That.

What products can I offer.

And aggressively price them.

And maybe we stride our brand a little bit and we create.

Higher cost items, and lower cost items, but no private label. So much what we're doing right now is about efficiency of our production system and so introducing a whole another set of.

Activities would be the wrong idea right now for us I think.

Great and just curious on the <unk>.

And the trials I know you said you've done some some tests.

Just trying to understand how confident you guys are in some of these some of these tests that there.

Actually you're seeing some repeat purchases not just driving some trial with some of these price to us.

Yes, some of them there are small so they may not be showing up as much as <unk>.

Yes, they will.

They've been going on for a while.

So we do have some some data there that suggests that it's not just.

Kind of a onetime scent team will be whether it helps to grow the category. That's the biggest question that im looking to answer that will bring new consumers in.

That before.

So our price is a major major barrier.

There's a lot of distortion.

<unk>.

In the channel.

With.

Very high rates of inflation.

Changing consumer consumption habits, but.

My belief is that that as we continue to get taste right can you get the health message right.

And then reduce that price Berry it will grow the category.

And Peter maybe just to add to that a little bit.

When we looked at our panel data metrics.

For the most recent quarter.

Across buying rate purchase frequency and repeat rates.

These were all up sequentially relative to Q3 so.

So there's nothing that we're seeing yet in the data.

That's <unk>.

<unk> showing any sort of anomaly in terms of.

Repeat rates or things like that.

Yeah.

Great. Thank you very much.

Sure.

And at this time, we will end today's question and answer session I would like to turn the floor back over to management for any closing remarks.

So just to say thanks for the questions today, thanks for joining.

We set a change in direction.

Second half of last year, and I think this quarter you are.

Seeing the initial results of that.

We're sharpening it every quarter I think youll continue to see progress across the management team. We have in place is a really strong one are working well together.

We're really optimistic about where we're going.

Part of the the range that we gave as an effort.

Me too to make sure the team is not focused on chasing.

Gross to the point, where.

Some of these other more important things around it.

Expanding our margin.

Keeping operating expense, where it needs to be and driving through our inventory. Those are all the things that I want us focused on right now and they're doing a great job doing it and I look forward to coming back next quarter and talking more about it. Thanks.

Okay.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining.

May now disconnect your lines.

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Okay.

Good afternoon, everyone and welcome to the beyond meat.

<unk> fourth quarter conference call.

All participants will be in a listen only mode.

Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star and then one on your Touchtone telephone.

Draw your questions you May press star two.

Please also note today's event is being recorded.

At this time I would like to turn the conference call over to you.

<unk> Lindeman, Chief legal officer and Secretary please.

Please go ahead.

Thank you good afternoon and welcome Joe.

Joining me on today's call are Ethan Brown founder President.

I'm sorry.

Sure.

Consumer Chief Financial Officer and Treasurer.

I'll now everyone should have access to the company.

Fourth corner.

2022.

I hope it all I'm showing market credit.

This document is available.

The restaurant excellence.

Button W pattern.

<unk> Dot com.

So far we began.

But all of the information presented on today's call.

And of course that recall.

Great. Thank you.

On the security side.

Okay.

Alright.

And Boeing.

Barbara.

The uncertainty.

Actual results could differ materially.

Correct.

Forward looking statements.

Sure.

Along with the comments on this call.

Paul I will not be upfront.

Actual.

Unfold.

We refer you our.

Press release accompanying quarterly report on Form 10-Q.

For the quarter ended October one 2000.

Thank you.

I don't know burkhart.

One pump.

For the fiscal year ended December 31, 2020.

Great.

Sure.

And the other filings.

Correct.

Correct.

Sure.

Okay fair materially.

That's right.

I'm, sorry, if I can.

Okay.

Please also note that on today's call.

Reference Turkey.

That looks like the non-GAAP financial measure.

While we believe this non-GAAP financial measure.

Sure.

Hi, Amit.

The reference to the concurrently.

Good morning, Glenn.

Isolation, alright substitute for the financial information.

Thanks, John .

Please refer to today's press release for a reconciliation of.

Sure, it's not comparable for sure.

And with that I would like to now turn the call over to income.

Thank you Terry and good afternoon, everyone. The.

The fourth quarter of 2022, and a challenging year for our business and category.

One marked by persistently high inflation and trading down by consumers among proteins.

Slowing economy in key markets and increased competitive activity.

Against this backdrop, we took decisive actions to set our business on a course to achieve cash flow positive operations within the second half of 2023.

A target that we stand behind today.

In order to accomplish this important milestone as I shared in our last quarterly call we.

We are transitioning our business from an operating model that prioritize growth above all to one that prioritizes cash flow and sustainable long term growth.

We are executing well against this goal.

While there is still much meaningful work to do we.

We are pleased to report net revenues towards the high end of our guidance range, along with 14 percentage points of sequential gross margin improvement in the fourth quarter and.

And over $12 million of Opex reduction versus the third quarter.

We are achieving these early wins as we focus on the three pillars of our full force pivot.

As a reminder, these are as follows.

The implementation of lean value streams across our beef pork and poultry platforms with a laser focus on margin expansion and Opex reduction.

Second.

Emphasis on cash flow accretive inventory management with a near term focus on profit dollars versus maximizing percent margin.

And third.

A focus on opportunities to support near term growth and consumer trial and adoption, particularly in our core skus appropriately balanced against streamline activities in support of our most valuable long term opportunities.

My comments today, I will share more detail on our progress respect to each of these pillars.

And then turn to the broader moment facing plant based meat.

And our focus on taste health and planet as we drive product innovation and connect with consumers on the very real benefits of our plant based meats.

Before diving in let me pause here to bring back into focus the magnitude of what we are pursuing.

We believe the transition to plant based meat is an important part of our global response to a rapidly deteriorating climate.

We believe it is at its best and sweeping and opportunity.

Any of that presents itself as we seek to course, correct and stabilize our global climate.

And that's the history of innovation and disruption teaches us.

We can expect that the recent in surrounding our sector reached a crescendo.

Coming to more reason reflection and expanding acceptance as our branded category achieved taste health and price milestones along the path to mainstream adoption.

To move through this cycle however.

As aforementioned we pivoted from growth above all what we believe is a sustainable long term growth model and nowhere is this transition more evident than in the centerpiece of our first pillar establishment of lean value stream management of our beef pork and poultry platforms.

The one who has implemented lean transformation knows.

Fundamental transition does not occur overnight.

We are no exception.

However, we have confidence that the effort properly done will over time generate outsized gains.

We are demonstrating clear and meaningful early progress.

Beginning with margin expansion, we were encouraged by the 14% improvement which reflects among other actions our efforts to right size our production networks in source, a greater share of our production volumes and efficiently manage production staffing levels during a period of subdued volumes.

We restructured certain agreements and successfully reduced our north American external manufacturing footprint from a peak of eight co manufacturers.

In 2022 down to three today.

Difficult, but much needed work to consolidate our network substantially reduces or eliminates altogether, our exposure to certain underutilization idle time penalties allow.

Allowing us to avoid an estimated $8 million of potential fees in 2023.

We plan to continue this optimization work with our co manufacturing network as well as in sourcing more of a volume as we progress.

Also in support of margin restoration, where restructuring certain operating activities related to beyond meat jerky intended to drive further gains in the margin profile of this product line.

Though we can't get into specifics today.

We look forward to providing further information around these efforts in the near future.

Turning now to operating expenses, we were pleased that in 2022, we reduced our opex from $97 8 million in Q1 to $62 8 million in Q4.

36% decrease to put operating expense below a mid sixties target that we provided during the Q3 earnings call.

On a sequential basis, we reduced opex by $12 1 million or approximately 16%.

<unk> early delivery against the $39 million annualized cost savings we communicated in October .

In the near term, we think Q4 is generally representative of our expected level of spending on a quarterly basis. However over the long term beyond 2023, we expect to pursue further efficiencies through our lean program generally.

Greater investments in automation and business process optimization tighter.

Tighter transportation management and source to procure processes among others.

Importantly, these investments are either already underway or in the late stages of evaluation.

Additionally, as we exit 2023, we expect to benefit operationally from the ongoing consolidation of our real estate footprint here in the Los Angeles area.

As we transition all of our la based employees to our new headquarters facilities.

Going to exit some of our other existing leases.

We believe that fast paced innovation, specifically the beyond meat rapid and relentless innovation program is not well served by the disbursed workforce to characterize COVID-19 and much of the last several years.

As we bring more of the employees into our new headquarters and enforce our operating model, which remote work is the exception and not the norm.

We expect to benefit from the immensely valuable energy and productivity that comes from sustained focused in person collaboration and problem solving.

Moving now to our second pillar aggressive management and reduction of our inventory.

We can report that we reduced our inventory balance by $48 million or 17% from Q1 to Q4, allowing us to deliver on our 2022 objective having inventory would be a net generator of cash for the year.

We intend to accelerate this momentum in 2023.

So we're again, we're relying on lean value streams across beef pork and poultry to increase visibility into and focus on optimal inventory levels and have recently invested in systems that we believe will substantially improve our ability to manage inventories across our global network of manufacturing sites and warehouses.

Big ticket items include pace and timing of our committee protein deliveries resetting our width and finished goods stock levels to better align with our anticipated production volumes and demand levels and exploring alternative avenues for inventory items with greater than required current stock levels among others.

Increasing sales velocity.

On our core items is of course, the most effective and cash flow accretive way to work down our inventory levels. In this regard as we shared on our last call.

We have designed certain time bound trials and pricing programs to drive stronger velocities and we're encouraged by early results.

Specifically, where we have implemented such programs, we've been pleased to see not only an acceleration in unit velocity, but importantly, an increase in takeaway dollar growth as well.

Success of these pricing tests and programs reinforce at least two important points about our current and long term value proposition.

First as I have noted previously it seems reasonable to consumers may retreat from protein that can be two X the price, which animal base equivalent during periods of intense inflation and reduced buying power.

The reduction in price given this dynamic would spur increased consumption.

Second the success of these time limited pricing test points centrality of our cost initiatives and.

And our goal of putting in place unit economics that support price parity with animal protein overtime.

I'll now move to our third pillar that has specific actions to encourage near term growth even as we remain committed to our most valuable long term opportunities.

One we continue to focus on restoring growth within our core product offerings and a fresh excellent grocery by working closely with our retailers on targeted promotions, bringing.

Bringing innovation to our core fresh product set and clear messaging around the taste health and planetary benefits of going beyond.

Two we are expanding our brand block in the frozen section include.

Including increasing distribution of our latest award winning products beyond stake as well as bringing new innovation from our multi platform to this part of the store.

Turning to general Foodservice, we are seeing some early wins and a more narrowly focused set of priority segments and look forward to sharing these with you as the year progresses.

On the subject of strategic partners, we are thrilled to highlight the growing success of the new plant platform as illustrated by among other developments edition of the plant and I will gets in Germany as a regular menu item across 1400 locations nationwide along within the plant Burke.

B plant Nuggets are the second plant based protein co developed by beyond meat as part of the MC plant platform and will also be offered as an option and happy meals in Germany.

We are also pleased to share that after a successful launch of the <unk> plant Burger in the UK and Ireland last year double nuke plants with recently introduced cross UK and Ireland restaurants nationwide preliminary time.

In Austria, the Smoky barbecue Burger was recently introduced for a limited time joining me in the plant Berger, who is now a regular menu items.

The plant Burger continues to be offered for a limited time across Portugal, while remaining a regular menu item in the U K, Ireland, Austria and the Netherlands.

Turning to our products our regular menu items at Pizza hut restaurants across Canada, the U K, Singapore, El Salvador, Guatemala, and Sweden.

I'd like to now turn focus to the important topic of the health and nutritional profile of our products.

The drummed up misperception that our products are overly processed and utilized complex ingredients.

Coupled with misguided comparison of our products to hold vegetables, instead of the animal needs. They are intended to replace comes at a cost.

The cost in my view can be measured in human health.

A return to our five year research program, the Stanford University School of Medicine.

<unk> based guidance.

You may recall.

Programs first clinical trial published in the prestigious American Journal of clinical nutrition access.

Access to group of healthy adults alternated between an eight week period consuming animal protein two or more times, a day and an eight week period consuming beyond meat products, two or more times a day.

Here is the important part to focus on.

For the eight week period, when it participants consumed beyond meat.

Researchers found statistically and clinically significant drop in LDL cholesterol, which is commonly referred to as bad cholesterol.

Researchers further found a decline in TMA Io compound found in the gut that is associated with heart disease and certain cancers.

We will continue to support such studies without control over the design of our outcome.

As we've announced we have recently expanded our work in this area through a three year agreement with the American cancer Society to advance research on plant based meat and cancer prevention, while expanding the relevant clinical database.

One of the most recent and exciting embodiment of our commitment to health is beyond stake.

Im very proud of all of those who work so hard to bring beyond stake to life.

It is a shining example of our brand promise to tirelessly innovate towards a north star that not only delights in terms of taste, but also delivers clear nutritional benefits relative to animal protein equivalent.

As I have noted this product had the distinct honor of being named time magazine's best inventions of 2022.

So the headline describing it as quote a healthier stake and a cover mentioned.

Highlighting beyond Stakes delicious taste.

Let's unpack, where the product earned the headline of a healthier stake.

Beyond stake both 21 grams of protein and contains only one gram saturated fat and 170 calories per serving with no cholesterol.

And no added hormones where antibiotics.

This can be contrasted with the serving of a leading brand of animal protein steak strips.

Beyond steak offering 15% more protein, 62% less saturated fat.

And zero cholesterol compared with 50 milligrams for serving.

Beyond Stakes clean ingredient deck is also worthy of focus.

It is as follows.

Water.

Good.

Bob a bean protein.

Stellar press canola oil.

Salt.

Natural flavor.

There has been less than 1% of the following space.

Space.

<unk> powder onion.

Onion powder pomegranate concentrate east extract sunpower lesser Jim fruit.

Fruit and vegetable juice color.

As with our other products the striated muscle structure of the stake piece itself is accomplished by running plant protein through heating cooling and pressure.

<unk> rather than chemical process.

Which utilizes intellectual property, we've developed on equipment than in other sectors of the food industry.

Is used to produce such staples as pastas and cereals.

Moving past, our process and ingredient deck before leaping beyond stake.

I'd like to now turn the Sabah being itself.

I will be traveling next week to the Dakotas to meet with some of the farmers who grow the fava beans from which our protein are sourced.

As I've spoken about many times I have deeply rooted respect for the American farmer <unk>.

Including those whose family farm center on animal agriculture.

Intimately aware of the entrepreneurial journey, there on often across generations difficulty and financial risks associated with their work and the critically important role they play in our culture and economy.

It is my strong and inform belief that the innovation and shift in protein we are pursuing.

Is broadly economic win for American agriculture.

And in our messaging this year I look forward to taking the consumer back to the farm to learn about how the protein for our plant based stake has grown.

The expanded economic benefits that accrue to the farmer and.

And the attendant sustainability gains for soil climate and water.

There is goodness here and along with our growers, we're proud of it.

With that I'll turn it over <unk>, our chief financial Officer and Treasurer.

Walk through our fourth quarter financial results in greater detail as well as our outlook for 2023.

Our fourth quarter results were in line with or ahead of our expectations across the P&L, reflecting the progress our team has demonstrated in executing against our operating plan. We recorded net revenues of $79 9 million in the fourth quarter of 2022, representing a 21% decrease compared to the fourth.

Quarter of 2021.

For the full year 2022, this translates to net revenue of $419 million toward the high end of the guidance range of $400 million to $425 million that we provided at Q3 earnings.

As we have shared on our recent earnings call. Our topline results primarily continue to reflect soft demand in the plant based meat category, particularly within our core sub category of refrigerated and as Ian mentioned, we believe persistently high inflation slowing economy increased competition and trading down behavior by consumers.

Among proteins are all negatively impacting growth for our category and our brands, but we do believe this is transitory.

In aggregate total volumes sold during the fourth quarter of 2022 declined 16, 9% compared to the year ago period, primarily as a result of the macro factors I. Just described while net revenue per pound decreased approximately four 4% year over year.

The decrease in net revenue per pound was primarily attributable to strategic but limited price reductions in the U S and broader list price reductions in the EU increased trade discount and unfavorable changes in foreign exchange rates, partially offset by changes in sales mix.

Turning to gross profit gross profit in the fourth quarter of 2022 was a loss of $2 9 million or minus three 7% of net revenues compared to $14 2 million or 14, 1% of net revenues in the year ago period.

This result reflected a better than expected sequential improvement of just over 14 percentage points versus the prior quarter on.

On a year over year basis, and excluding the impact of jerky. The decrease in gross margin in the fourth quarter was primarily attributable to increased inventory reserves reduced net revenue per pound and higher material and logistics cost per pound, partially offset by reduced manufacturing cost per pound, including depreciation.

With respect to Germany, and in addition to the aforementioned factors, we realize the benefit of $3 6 million, resulting from actions taken to restructure certain contracts and operating activities related to beyond meat jerky.

<unk> mentioned, we will provide further information around the efforts in the near future.

Turning to Opex operating expenses for the fourth quarter of 2022 were $62 8 million down approximately 32% year over year, and 16% quarter over quarter, reflecting our focus on right sizing our expense base.

The year over year decrease in operating expenses was primarily driven by lower non people general and administrative expenses largely attributable to decreased consulting fees.

<unk> production trial activities, lower marketing expenses and reduced people expenses, including stock based compensation.

The sequential decrease in operating expenses was primarily driven by reduced marketing expense.

Restructuring costs, which consists mainly of legal fees and reduced people expenses, including stock based compensation.

Moving further down the P&L loss from our unconsolidated joint venture increased from $1 8 million in the year ago period to $8 1 million in the fourth quarter of 2022, primarily reflecting an increase in inventory reserve that TPP.

Overall net loss in the fourth quarter of 2022 was $66 9 million or net loss of $1 <unk> per common share compared to net loss of $80 4 million in the year ago period, our net loss per common share of $1 27.

Now turning to our balance sheet and cash flow highlights.

Our cash and cash equivalents balance, including restricted cash was $322 5 million and total debt outstanding was approximately $1 1 billion as of December 31 2022.

Net cash used in operating activities for the three months ended December 31, 2022, with $51 7 million.

$9 million decrease compared to $110 3 million and net cash used in operating activities in the year ago period.

Within cash flows from investing activities capital expenditures totaled $10 5 million in Q4 of 2022 compared to $31 7 million in the year ago period.

Cash flows from investing activities also included $3 3 million related to investment in our joint venture.

Let me now provide some commentary about our 2023 outlook.

We expect net revenues to be in the range of 375 million to $415 million, representing a decrease of approximately 10% to 1% compared to the full year 2022.

In terms of the distribution of revenues for the year on a percentage basis compared to their respective year ago period, we projected net sales decline in the mid teens range in the first half of 2023 and net sales growth in the low double digit range.

Second half of 2023.

Gross margin is expected to be in the low double digit range for the full year 2023.

Beginning of the year slightly positive and increasing sequentially throughout the year.

Total operating expense is expected to be approximately $250 million for the full year 2023 weighted slightly more heavily towards months half of the year as we expect to invest disproportionately more behind marketing activities in the first half.

Finally capital expenditures are expected to be in the range of 30% to $35 million for the full year down from $75 million in 2022, and we continue to target the achievement of positive free cash flow defined as cash flow from operation less capital expenditure within the second half of 2023.

As we shared on our last call and as Ethan reiterated earlier, we will also maintain our strong focus on drawing down inventory levels and the key lever to achieving our cash flow positive objective within the second half of the year.

Generally speaking as opposed to focusing on outright growth our 2023 outlook reflect a renewed focus on stabilizing our core business.

Advertising only those new product innovations, which we believe will be most accretive to long term growth right sizing our operations and reducing operating expenses in support of near term margin expansion and ultimately better positioning our company for more sustainable long term profitable growth.

While the growth of our category has slowed due in part to macro pressures outside of our control. We continue to believe that the long term opportunity for plant based meat remains substantial.

This perspective is grounded in the fact that each of the key elements of the thesis that support long term growth in our category are just as relevant today as they were three years ago, if not more so specifically these are concerns related to climate change human health natural resource conservation and animal welfare, which are.

Industry has acknowledged to be a core solution within the scientific community. Therefore.

Therefore, although we are projecting a year a flattish to lower revenues in 2023, our optimism about an eventual return to growth in our category remains undiminished and we are taking decisive measures. This year to position ourselves for continued leadership within this category for many years to come with that I'll conclude my remarks.

I turn the call back over to the operator to open it up for your questions. Thank you.

Ladies and gentlemen at this time, we'll begin the question and answer session to.

To ask a question you May press Star and then one music Touchtone telephone.

Withdraw your question you May press Star two.

If you are using a speaker phone, we do ask that you. Please pick up the handset prior depressing the numbers to ensure the best sound quality.

Once again that is star and then one to join the question queue.

We will pause momentarily to assemble the roster.

And our first question today comes from Ken Goldman from Jpmorgan. Please go ahead with your question.

Hi, Thanks, so much.

<unk>.

I wanted to ask a little bit about the guidance for 223 sales to grow in that low double digit range.

Ethan you mentioned there are some headwinds right now in terms of consumer challenge is trading down a little bit maybe some misunderstanding about your products ingredients.

Sure. If you are expecting those to kind of reverse a little bit in the back half I wanted to maybe get a little bit of a better sense of what the key drivers are that maybe underpinned that that outlook for growth to rebound that way. Thank you.

Yeah sure Hey, Ken. Thank you for the question I appreciate it and good to hear from you.

So I think first I want to ground.

Discussion in the context, if you look at the third and fourth quarter of 'twenty. Two those were not massive numbers that we need to lap. So in part we have a pretty good starting point for growth in the second half of the year. That's different from for example, the much larger or higher borrowings.

Have to pass over in the second quarter.

This year relative to the second quarter of last but it's not so much dependent on.

Cleaning up the health narrative or.

Getting consumers not to trade down there is more to do with some of the actions that we feel we have more control over.

And thats things like the pricing programs that we've put in place and are testing now.

Where we're seeing very good unit.

<unk> responses.

And some pretty solid.

Revenue.

Gains in that regard those tests are very limited to then also showing up in broader spins data.

The marketing campaigns that we have in place both at the top of the funnel.

In terms of our era game, and then also down lower in the funnel towards the ground game.

That will be coming into fruition across the summer we feel good about that we have some line extensions that I am personally excited about as well as renovations. So when we talk about renovation. If you look at our beef pork and poultry platform. As you know, we've always tried to disrupt ourselves and replace our own <unk>.

Alex on the shelf with better products and we try to do that on an annual basis and so this year, you'll see some activity from us there that we're quite excited about.

But this gets back to the kind of third pillar of our strategy if I were to.

List those out the first really is breaking into these lean value streams across beef pork and poultry and driving margin expansion and opex reduction through focused management of each of those platforms and second part the second pillar would be around the.

Aggressive inventory reduction our inventory levels are too high we understand that and we're bringing them down substantially.

Substantially.

Then a third is this focus on near term growth drivers and that's really the programs that I just outlined are what's going to carriers in the second half of this year, So thats domestic.

If you look internationally.

We're seeing some.

Some distribution gains that we expect across 23 internationally, we've been doing some good work on shelf life extension, which should give us access to some additional markets in Europe .

Doing some new product introductions in Europe .

And of course, we have the foodservice activities.

Hopefully you guys have been able to focus on.

In Europe , with some sort of our major strategic partners.

And lastly, we have some exchange rate tailwind.

It won't be enjoying so I think those things are primarily what gives us confidence around the second half of the year relative to the baseline that we need to crossover.

Got it that makes sense and thank you for that I guess, if I can ask a quick follow up to that.

It's great to hear about some of your your test with price are resulting in some strong unit.

Rebounds, I forget the exact words you said.

<unk> seen both price investments on your part and volumes reduced and I realize to your point there will be much easier comparisons in the back half of next year I don't want to stick too long in the subject but.

What should we be looking for.

That's different this time versus the last couple of quarters. When you also had some.

Maybe pricing that was down and volumes at the same time, because it sounds like youre requiring volumes to really rebound in the back half of next year again, you mentioned some other reasons why so I just wanted to make.

Parse out with different than what we've seen the last couple of quarters.

Sure I mean, I think the other piece if you.

Taken totality, our comments around the year and you look at.

The first half of the year, and we're saying look that's going to be down. So there is a reason for that right now has to do potentially with distribution.

<unk>.

Across the year, we had very strong orders in the latest part of the second quarter last year as people get ready for the fourth of July .

We're not expecting that same level of concentrated buying and so I think that in part automatically gives you some strength coming into the second half of the year. So on your question around pricing measures.

Is not really around trade so much this is around.

Kind of a strategic look at.

Teasing out what happens when the consumer faces decision to buy animal protein or beyond meat with a price delta that is not as significant as it's been in the past and so we're doing these targeted tests not only.

Sort of more closely around that question versus just a discount but also in.

Retail segment that we know the consumer is more likely to respond to our brand than in other segments. So there is a.

Highly focused nature to the pricing tests.

And we're also applying that same discipline and focus around these pricing tests in the foodservice space, where instead of offering kind of a blanket discount we're looking at segments, where the consumer is far more interested in our value proposition and we've talked about this at length, but I'll just cover very briefly.

For folks that are that are older 40, and older. It tends to be really around the health message and the benefits. They can derive from going beyond for folks who are younger let's say still.

Still in school age in their twenties thirties.

They are much more receptive to our climate messaging in the climate benefits that we're able to bring.

To their consumption choices.

So we're coupling our pricing with those types of messages for the right consumer in the right demographic.

Got it thanks Nathan.

Sure.

Okay.

Alright.

Peter.

Good good.

Our next question.

Can you just Ken about the Eagles.

I'll do that.

The follow up call.

Okay.

Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Hey, guys. Good afternoon, Thanks for taking my question.

Ill.

Maybe moving just just to start with a clarification point.

The revenue guidance understanding the differences between first and second half, but just how much of that is.

The shipping Doctor from from State, obviously, now you're going to be lapping.

Turkey from last year, but how much contribution are you embedding from from state product in 'twenty three.

Yes, I think certainly stake is going to be a more of a contributor to our revenue growth. In 2023, then obviously it was in 2022, because we introduced it.

Pretty late in the year last year and so it will be a driver I think.

Throughout the year.

The real driver I think of the difference in terms of.

The revenue cadence that delivery of revenue for 2023.

As related to some of the factors that Ethan talked about right. So.

The near term we are we are lapping a stronger first half of 2022.

And.

The category trends, obviously have been rare.

Relatively soft.

In the last several weeks and months.

Also in the first half of.

Of 2022, obviously, we had a pretty big launch of our jerky product.

And so we do expect that the decline in revenue.

That you see in the first half of the year will be.

Obviously relatively safe, we said mid teens decline and then for all the reasons that Ethan mentioned, we expect.

<unk>.

Sure.

Yes.

Trajectory of the contribution from some of the new products et cetera.

To be much more meaningful in the second half of next year of this year.

Got it.

That's helpful. And then maybe just to follow up on Ken's question.

Talking about more from the cash flow and an inventory standpoint.

Understanding the drawing down inventory makes sense.

In harvest mode.

But just given your.

Assuming a return to growth in the second half.

Drawdown on inventory.

How do you kind of thread the needle of making sure that you're in stock rates in your fill rates are up to par with what you need for your retail customers.

We service customers.

Going to be the case of running what kind of leaner inventory.

Just would be helpful to get your thoughts there thanks guys.

Yes sure Great question.

So I think it gets back to the organization.

Across these value streams, which gives you a lot greater.

Greater clarity into.

For each beef pork and poultry, how you're doing relative to the demand signals, we're getting it system more manageable set of activities I think we are all.

<unk> reduced the.

A number of.

Large customers that were doing.

Yeah.

The spoke or novel products for <unk>.

So it allows us to carry more common set of inventory across.

Customer base.

And then I think it's shifting into some of the new business systems, we're using it gives us much greater visibility across our network helps a lot.

The consolidation.

Our manufacturing footprint as I mentioned I think in my remarks, we're going to be kind of eight different co Packers to peak in 'twenty two to three and then our own internal production process things just get a lot simpler as you start to implement some of these disciplines and.

It's a major emphasis for our company the.

The second pillar in our strategy, which is around reducing inventory the teams doing a great job at it I think they are having fun doing it.

We're pushing ourselves to.

Over the course of the next year.

Move from this growth at all cost model to one where we really start to shine around.

First and best in class inventory management and to get more in line with.

Companies that are managing their inventory according to a lean disciplines. So.

It's not without effort will make some mistakes along the way.

But we are pretty confident that we can serve.

It kind of a resurgence in demand.

Much more efficient inventory and production system.

Great. Thanks, guys.

Yes.

Our next question comes from Robert Moskow from Credit Suisse. Please go ahead with your question.

Hi, Thanks.

I thought I heard.

Paired remarks, some comments about what you had intended to do with your revolver.

In order to provide a source of cash can you be more specific about it.

And can you tell me like does that give you sufficient flexibility that you probably will need <unk>.

During the course of 'twenty, three because you're still burning and the balance sheet is getting smaller.

Hey, Rob this is will be I'll take that one so we didn't actually say anything about a revolver in the prepared remarks.

We did at one point have a.

Revolving credit facility, which we.

Terminated when we when we did the convertible bond offering.

I think your question really gets to.

Sort of our overall liquidity position given that we are obviously still.

The business is still consuming quite a bit of cash so look I think.

Everything that we that we discussed in our prepared remarks, and some of what Ethan was just alluding to.

Kind of speaks to the measures that we are taking to really reduce the rate of cash consumption of the business right but.

We recognize that.

Even with some of the I think more.

Some of the onetime benefits that we believe we're going to.

Be able to capture as it relates to inventory reduction.

Beyond that we still have a lot of work to do right. So we're not at this point, we're ready to discuss with.

Any real specificity about whats the.

The consumption of cash.

Consumption of the business might look like beyond 2023, but it is a focus of ours for long term too.

Transformed this business into one that is that as a net generator of cash but there is there is still a ways to go before we get there and I don't want to speak prematurely.

About what we will not do beyond 2023, and then to the broader I think this is part of where your question was headed in terms of.

How are we thinking about the liquidity position, our thinking there hasnt really changed from what we've shared on last quarters.

We're very focused on it.

Continue to evaluate the various.

Options that are available to us in.

It makes sense for us too.

No.

Do some sort of a raise and put more of a buffer.

On the balance sheet, we will.

Okay, maybe one follow up.

Can you give us a sense as to what the drag on the business was in 2022 from plant jerky, either in cash or in earnings or something.

What the opportunity might be at 23 to two.

To reduce that drag.

Maybe that has to do with a contract renegotiation youre talking about.

Yes, that's exactly that's exactly right.

EBIT outlet Luby give you the specifics on it but it was.

Not insignificant.

The impact on the business and.

We've taken a lot of activity I was very involved in this.

Toward the second half of this year to restructure.

The agreements that we have on on production.

Houston and things of that nature to make sure that as we move forward, we have more favorable economics.

On the margin, that's not going to show up necessarily right away, but you can already see some.

Positive movement in that area.

So while I don't think its going to be transformative in Germany entire business you are going to see.

Better economics.

On the direct business.

Yeah, and then Rob in terms of the specific numbers. So I don't have that in front of me. We can certainly follow up offline on that and we typically disclosed that in our 10-Q, which will be coming out soon.

But.

So.

So sort of as Ethan mentioned right. We are focused on improving the economics for the jerky business on a go forward basis, but at this point in time, we're just we're not ready to get into the specifics, but we will we will share more information around that in the near future.

Okay. Thank you.

Our next question comes from Jon Andersen from William Blair. Please go ahead with your question.

Thanks for the question good afternoon guys.

Ethan I was wondering if you could comment a little about the category and.

Yes.

Eddie.

Haven't heard you talk too much recently about household penetration or kind of repeat.

By the consumer and the reason I'm asking is just to try and get a better understanding for.

Where you think the biggest challenges are at this point in terms of bringing more consumers into the category into your franchise is it is it takes the helm perceptions is it price.

What you can do as a category leader going forward too.

To help.

Promote more trial.

Engagement there are 44 parties in this conference including yourself.

Okay I got the question, it's a very good one and it's always something I think about.

A great deal and you hit on the buzzwords that I use all the time, both internally and externally.

This category will win over time on an <unk> III.

It will win around taste.

It will win around a proper understanding of the health benefits that our products provide.

One on price you can look at any history of innovation and the last 150 years.

Things move forward with breakthroughs in key product attributes.

Yeah.

Thinking about are driving we're looking at potentially driving electric vehicles someday.

Because of the improvements that were made possible by the lithium ion battery.

Cell phones, the same thing with some of the technology advances et cetera, and so.

I don't read the articles.

Take all.

My entire day to do so.

The efforts for the people who've made to try to call the category or some sort of.

Probably not a productive use of energy.

There are.

Things that we can move forward on a daily basis and Thats what were focused on so all the things you just said improving the taste.

Making sure the consumer understands the health benefits and Thats, our work with Stanford will be a five year program with medical school, there and the results are.

Summarized in my comments, our new project with the American Cancer Society. Some other stuff, we'll be announcing later this year in the medical space.

And even the history of plant based protein is one that.

No one has really bothered to look up and all of this effort to call the category.

If you look at.

The work of the Blue zones, researchers for example, where they talk about the five longest lives.

<unk> in the World one of those is.

Very close to where I'm sitting today.

Loma Linda California.

One of the key attributes of that community is largely plant based.

One part of that.

With some of the earliest meat substitutes that were developed in the 18 nineties by John Harvey Keller.

So there is a tremendous health benefit to be derived from transitioning the protein incentive our plates.

Animal protein to a plant based protein in a plant based meat.

And the data is there we need to look at it we need to keep developing it but any industry that has success that we've had is going to face tremendous pushback and thats. The story throughout all of innovation.

We're facing that now we will get through it we have.

Data on our side, we're developing more data you will see us get much more targeted around health and our discussions with the consumer.

On the stake is a perfect example, thats why I dwelled on it so much in the in the prepared remarks.

To enjoy a delicious piece of steak like that anyone who hasn't tried it you go out and try it if they have any doubt about the category of the brand.

It's got one grams of saturated fat and if you look at like Omaha Steak. For example, an analogous product is six grams I picked up.

Product in the middle.

So it did not.

So so bias at all but.

The health benefits of what we're doing are strong and will only get stronger Okay. And then you layer on to that.

As we start to continue to drive down the cost structure and again this isn't showing up today, but you shouldnt expect it too when you have.

Volumes that we have running through our facilities right, but as our volumes increase and we can start to take advantage of some of the manufacturing improvements we've made.

And start to run through some of the ingredients that we bought at higher cost and higher price and get to some of the lower cost ingredients that we've been able to negotiate youll start to see it.

More sustained lower cost product and lower pricing. So as we hit those leavers taste and we've got some products coming out. This year. That's why this renovation is pace of renovation. So importantly, we're going to keep driving new products out in the market that taste better every year, they're issuing one of our core platforms. This year will have a product improvement.

Terrific.

So that will bring some more consumers and then you start to.

It beat back some of the drummed up speculation about about health you bring more consumers in network and then ultimately you give them something that they can afford this at the same price all of this hand wringing about the category.

History will show that it was something that was unnecessary.

We're doing our work we're focusing every day on it people in the category.

The other companies in the category impossible and others were all just focused on doing our work and getting it done in.

We will deliver these gains in consumer I think will in increasing numbers adopt.

Asked about increasing trial one of the best ways to do that is to offer more competitive pricing. So some of the unit velocities. We're seeing on these pricing tests are exactly designed to do that not only to generate cash from our inventory, but also to welcome more consumers into the category through more favorable pricing.

And we will do it at analysis that downplays, the fact that in 'twenty, two and 'twenty, one, particularly 'twenty two.

Our products were at times twice, if not more the price of animal protein and here's a consumer that's walking into the supermarket with significantly reduced behind power on the Isle itself right. Because other prices are going up but also their buying power has been dramatically reduced before they even got there at the pump and paying their rent and everything else.

And so for people to think that we're going to just sail through that with products are literally twice the cost of the next available alternative that's been consumed for.

Thousands of years I think as night right. So we will get through this period of inflation, we will get back to being able to communicate with the consumer the truth about our products versus some of the things are being written and Youll see growth again.

Okay. Thanks.

Yes.

And our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Hi, Thank you and good.

Good afternoon, everyone.

Maybe Claire.

Clarifying questions Ethan and the revenue guidance for 2023 what is the assumption on volume and selling prices.

As I think about the goal of reducing inventories.

We're especially that problem is concentrated on the raw materials side driving volume would seem to be the biggest more important lever there.

Yes.

Got it.

Doing so without price reductions gets more challenging if you're trying to improve the value propositions to consumers. So what are you actually assuming for kind of aggregate volume and selling prices.

In your guidance you've laid out.

Yes, so I can't give specifics on it.

I think the.

If you look at that I laid out the three pillars.

Really the core focus of our strategy lean value streams.

Margin expansion and Opex reduction through those systems inventory drawdown and then third the focus on near term growth drivers such as product extensions and renovations and pricing and so that pricing piece is a big.

Labor for us as you've noted and we will exercise that in certain markets under certain conditions that are time limited.

Because we want to make sure we're understanding the impact right.

But.

Your point.

The quickest way to drive through this inventory is just to offer more competitive pricing move through it does it does.

There's a lot to spread some some.

Positive momentum through our facilities by increasing throughput and lowering.

Creasing overhead absorption and things of that nature. So.

It's those levers that I talked about within that third pillar.

Just to look at the pricing programs.

These line extensions out there and getting some of the renovations, which will add to that.

Adam the only other thing that I would add to that is when you look at the change in net revenue per pound.

We realized in 2022 versus the previous year part of that was driven by we did take pretty broad price reductions in our international business.

In the EU in particular, because we felt that the price point of our products relative to the competitive set there was.

It was much wider than we needed it to be and so we see we took.

Pretty significant and broad price reduction there. We also had the negative impact of.

Of FX.

In 2022, and so I would say that even though we are running.

Some of these.

More aggressive pricing programs that we've described.

I wouldn't necessarily be looking at the change from 2021% to 2022 is sort of an indicator of what may be to come into 2023.

That's helpful and then if I take the aggregate revenue gross profit or gross margin Opex capex guidance that you laid out it would seem that.

Adjusting for the noncash items in there for D&A and stock comp in particular that before kind of working capital release, the cash burn for the company is something on the order of $175 million in 2023.

So I.

I mean is that a correct answer.

And b, if so what level of working capital release and functional free cash.

With that would you actually have in 2023 and understanding there is a cadence in sequencing.

You could get to potentially get to free cash flow positive in the second half if you execute the plan, but in aggregate for the year kind of what's the cash burn implied by that.

Operating guidance you laid out.

Yes, so Adam.

We estimate that you just mentioned over there sounds pretty high.

I think we will be.

Substantially below that for the full year, but we will be we.

We'll be a net.

Consumer of cash for the full year, even though we do have this objective to be cash flow positive within the second half of next year and you.

You called out some of the different components of the buildup to that right. So we gave you I think pretty.

Detailed guidance around revenue gross margin Opex and Capex.

So.

The big lever.

Some of the big levers there that are not included obviously, there is the depreciation and stock comp pieces, but inventory.

Working capital benefit.

You, obviously for us to get to cash flow positive needs to be pretty significant and that's what we're targeting.

Ethan mentioned.

Focus the level of focus that we're placing on inventory reduction and some of the new tools that we've invested in to help us be much more efficient in that regard.

So it is an aggressive target, but we do think.

We have a pathway to get there.

Okay I appreciate that color.

And our next question comes from Michael Lavery from Piper Sandler. Please go ahead with your question.

Thank you and good evening.

Just wanted to touch it and the brand spending.

The key to pricing power or just competitive dynamics and Laura can you repeat.

We didn't catch the word.

Just the brands the marketing and brand spending.

Thanks Anna.

I think you've called out in 2000 22022 results, how some lower marketing spending was.

One of the components of the build to your to your results can you just give a sense of how youre thinking about where that goes in 2023 and how to think about just may.

Making sure that.

Build the brand equity and trying to make sure that that's not part of the cost cuts.

No that's a great question.

So I think just in terms of the timing of spend I think youll see us doing.

The first half of the year.

Emphasize some some marketing spend.

For various launches, we're doing and things of that nature, but I would say that the difference between you had a much broader marketing platform in the past.

Maybe it was less refined in terms of.

Most receptive consumers for our products.

And that made sense for the time.

But as we.

Move forward and again it gets back to this kind of third pillar in our strategy focusing on.

Near term wins with consumers that are most receptive to our value proposition. It gives us the ability to market much more efficiently.

Given example, which.

Yes.

Just kind of making up the specifics here, but.

People, who are receiving statin.

They should know about our products and they should understand the relative health benefits beyond steak versus animal protein steak. So can we spend efficiently in that direction.

Younger people, who are focused on.

Climate and the environment, how do we reach them as they come into the.

Consumer set that's going to be shopping in grocery. So we're doing a lot deeper dives and those type of areas to understand how to maximize each dollar we're spending.

With our <unk> partners.

Some really good activity going on there I think some of the marketing that theyre doing particularly in Europe is really actually brilliant.

It touches on the kind of generational change that's underway here.

And so we're.

We're happy to be co funding that.

And if you look just by the way while I'm on Europe , we didnt really get much.

Questions on that but I want to emphasize.

Some of the transition that's occurring in Europe around the consumer if you look at a country like Germany.

Over the last 10 years, there has been a remarkable reduction.

In animal protein consumption on a per capita basis.

And I think that bodes very well.

For what we'll see here in the United States at some point as people begin to understand better the health and climate benefits of what we're doing and so in our marketing reaching those consumers.

We can do that more efficiently than we have in the past.

And we're looking forward to doing that.

That's helpful color and can I just follow up on the.

Part of the release, where you give the distribution points by channel.

I appreciate the transparency, calling out how it looks excluding Cherokee just because that's such a big jump in the U S. In 2022.

But it slipped down just a bit sequentially from Q1 to at least <unk> 34000 versus 35, it's not a big drop obviously.

I'm sure there's some rounding that maybe it's even less than it looks but.

Whats driving that down and with your velocity is lower.

Even if you've got roughly constant distribution points and sales down around 20%. Your philosophy is obviously you're off.

Do you have risk of de listings or could that number get lower.

Yes.

In terms of total distribution points.

I think where we've seen a little bit of a loss of <unk>.

Number of doors has been in the.

Foodservice channels.

And in international in particular, I think there was a little bit of.

Of a reduction there.

And then sorry can you repeat the second part of your question.

Sure Yes.

Maybe these numbers are or arent accurate, but the international Foodservice you show had ticked up that's also coincidentally 34000, but.

Just looking at the sales trends and your conversations with the retail trade do you get the sense of more de listings that could come what how do we measure the risk of how that looks going forward.

We haven't I mean no.

That certainly hasn't registered I talk with our sales team every day.

I haven't heard concerns around that.

The only kind of era.

Area, there that that ever comes up is in areas of shelf life, where we may not have the right shelf life for particular ambient case at a particular retailer or something like that but no. We are.

Haven't seen that and if you look at it if you could kind of break into the data set for four or beyond retail.

There has been obviously some impact in the fresh case, but in the frozen we are seeing pretty good growth.

And so what.

With retailers I was just with the largest one in the U S.

Deal with outside of the Big box area and are very pleased with our performance and looking for kind of what else can we bring up I think they see the short term nature of this disruption is clearly as we do.

And so I don't see any sort of.

Dramatic correction in that area now.

Okay. Thanks for the color Thats great. Thanks.

Sure.

And our next question comes from Peter Saleh from <unk>. Please go ahead with your question.

Great. Thanks Ethan.

Given the declines in sales in the backend of the year end.

The expected declines in the front end of 'twenty three have you reconsidered your position on private label.

Not really.

Yes, I think it's I mean I think about.

It gets to if you go through the three things that I'm always focused on relative to the consumer taste health and price.

Where my mind goes in that areas around price.

That.

What products can I offer.

And aggressively price them.

And maybe we stride our brand a little bit and we create.

Higher cost.

Items and lower cost items, but no private label. So much what we're doing right now is about efficiency of our production system and so introducing a whole another set of.

Activities would be the wrong idea right now for us I think.

Great and just curious on the.

Price in the trials I think you said that you have done some some tests.

Just trying to understand how confident you guys are in some of these in some of these tests that there.

Actually you're seeing some repeat purchases not just driving some trial.

Some of these price to us.

Yes, some of them. They are small so they may not be showing up as much as <unk>.

<unk>.

Yes, they will.

But.

They've been going on for a while and so we do have some some data there that suggests that it's not just.

Kind of a onetime set key will be whether it helps to grow the category. That's the biggest question that I'm looking to answer that will bring new consumers in.

Before.

So our price is a major major barrier and again theres a lot of distortion.

And.

In the channel.

Good.

Very high rates of inflation.

Changing consumer consumption habits, but.

My belief is that that as we continue to get taste right can you get the health message right.

And then reduce that price bury it will grow the category.

And Peter maybe just to add to that a little bit when we looked at our panel data metrics for.

The most recent quarter.

Across buying rate purchase frequency and repeat rates.

Those were all up sequentially relative to Q3 so.

So there is nothing that we're seeing yet and the data that's.

Yes.

<unk> showing any sort of anomaly in terms of.

Repeat rates or things like that.

Yeah.

Great. Thank you very much.

Sure.

And at this time, we will end today's question and answer session I would like to turn the floor back over to management for any closing remarks.

So just to say thanks for the questions today, thanks for joining.

We set a change in direction.

Second half of last year, and I think this quarter you are.

Seeing the initial results of that.

We're sharpening it every quarter I think youll continue to see progress across the management team. We have in place is a really strong one are working well together.

We're really optimistic about where we're going.

Part of the the range that we gave as an effort.

Me too to make sure the team is not focused on tracing.

Gross to the point, where.

Some of these other more important things around it.

Expanding our margin.

Keeping operating expense, where it needs to be and driving through our inventory. Those are all the things that I want us focused on right now and they're doing a great job doing it and I look forward to coming back next quarter and talking more about it. Thanks.

Okay.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining.

May now disconnect your lines.