Q3 2024 Beyond Meat Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Beyond Meet 3rd Quarter 2024 Conference Call. All participants are in listen-only mode. Should you need assistance? Please signal a conference specialist. My pressing star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one on your telephone keypad. And to withdraw your question, please press star then two.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Paul Sheppard, Vice President, FP&A, and Investor Relations. Please go ahead.
Paul Sheppard: Thank you. Hello everyone and thank you for your participation on today's call. Joining me are Ethan Brown, Founder, President and Chief Executive Officer, and Lubbe Kutua, Chief Financial Officer and Treasurer.
Paul Sheppard: By now, everyone should have access to our 3rd Quarter 2024 Earnings Press Release, filed today after market close. This document is available in the Investor Relations section of Beyond Meat's website at www.beyondmeat.com.
Paul Sheppard: Before we begin, please note that all the information presented today is unaudited and that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws.
These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.
Paul Sheppard: Forward-looking statements in our earnings release, along with the comments on this call, are made only as of today and will not be updated as actual events unfold.
Paul Sheppard: you're.
Paul Sheppard: We refer you to today's press release.
Our quarterly report on Form 10-Q for the quarter ended September 28, 2024, to be filed with the SEC, and our annual report on Form 10-K for the fiscal year ended December 31, 2023, along with other filings with the SEC, for a detailed discussion of the risks.
that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.
Paul Sheppard: Please also note that on today's call, management may reference adjusted EBITDA, adjusted loss from operations, and adjusted net loss, which are non-GAAP financial measures.
Paul Sheppard: While we believe these non-GAAP financial measures provide useful information for investors, any reference to this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP.
Paul Sheppard: Please refer to today's press release for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures.
Speaker Change: And with that, I would now like to turn the call over to Ethan Brown.
Ethan Brown: Thank you, Paul, and good afternoon, everyone. The third quarter marks another period of meaningful progress at Beyond Meat.
Paul Sheppard: We returned to growth, continued our gross margin expansion, and reduced operating expenses to their lowest level in four years as we drive the business toward cash flow and profitability objectives.
Paul Sheppard: I'll briefly highlight these results before diving deeper into them as I review performance against our five priorities in 2024.
Paul Sheppard: Net revenues were $81 million for the third quarter of 2024, reflecting a 7.6% increase year-over-year.
Paul Sheppard: Notably, compared to the year-ago period, net revenue per pound rose 15.8%, including a 22.6% increase in our U.S. retail channel net revenue per pound.
Paul Sheppard: and a 10.5% increase in our international retail channel net revenue per pound.
Paul Sheppard: Increases were driven by a full quarter benefit of price increases on certain products in the U.S., combined with substantially reduced trade discounts in both U.S. and international retail.
Paul Sheppard: These factors generate our highest net revenue per pound since the fourth quarter of 2022. And importantly, we saw simultaneous improvements in our year-over-year volume trends in three of our four sales channels.
Paul Sheppard: Encouraging sign regarding price elasticity for our brand.
Paul Sheppard: These pricing and reduced promotional spending measures were joined by continued COGS improvement to strengthen gross margin, which rose to 17.7 percent, compared to negative gross margin of 9.6 percent in the third quarter last year.
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Paul Sheppard: Operating expenses fell to $45.2 million as we realized greater efficiencies throughout the organization.
Paul Sheppard: This marks a $17.2 million reduction year-over-year.
Paul Sheppard: Even as we continue to take measures to further tighten operating expenses, as we've articulated previously, a key goal for 2024 has been to bolster the balance sheet.
Paul Sheppard: We are not backing off this objective and expect to take measures yet this year to increase company cash levels.
Paul Sheppard: I'd like to now turn to our five priorities for 2024.
Paul Sheppard: Our first priority is getting leaner and more efficient.
Paul Sheppard: This effort has enabled us to look at our business in new ways, establishing value streams with the intent of working across business functions to deliver higher value more quickly to our customers and consumers.
Paul Sheppard: Though we have miles to travel, we are seeing proof points.
Paul Sheppard: We generated higher gross profit, incurred lower operating expenses, and posted a narrower adjusted EBITDA loss on both a year-over-year and sequential basis.
Paul Sheppard: Part of our Lean implementation is a narrowing of focus around products, markets, specific consumers, and messages.
Paul Sheppard: Nowhere is this focus more evident than in our emphasis on helping consumers lead healthier lives through great tasting Beyond Meat products.
Paul Sheppard: This brings us to our second priority.
Paul Sheppard: This year's launch of BEYOND4, our fourth generation BEYOND Burger, BEYOND Beef, and BEYOND Inner Sausage.
Paul Sheppard: As you will recall, these core platforms reflect years of research and development that successfully advanced both taste and nutrition.
Paul Sheppard: Resulting in recognition by leading health organizations, with the products being included in the American Diabetes Association's evidence-based nutritional guidelines.
Paul Sheppard: for its Better Choices for Life program, and the American Heart Association's Heart Check Recipe Certification program.
Paul Sheppard: Beyond Four burger and beef products blend protein from yellow peas, brown rice, red lentils, and fava beans with avocado oil to deliver 21 grams of clean protein with just 2 grams of saturated fat.
Paul Sheppard: By comparison, that's 75% less saturated fat than equivalently sized 80-20 beef burger.
Paul Sheppard: We believe that Beyond 4's clear health messaging and premium ingredients are contributing to a return to growth where, for example, we are seeing year-over-year increases in base velocity in certain large retailers of our flagship two-pack burger products.
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Speaker Change: Further, we are expanding consumer choice by diversifying our portfolio in new ways.
Speaker Change: Shortly after our BEYOND 4 launch, we introduced BEYOND Sun Sausage in three delicious and bold flavors.
Speaker Change: This is the first product that is not intended to replicate beef, pork, or poultry, and delivers 12 grams of protein from yellow peas, brown rice, fava beans, and red lentils, with only 1 gram of saturated fat from avocado oil.
Speaker Change: Beyond Sun Sauce has also earned the emblem of the American Heart Association's Heart Check Program.
Speaker Change: and the American Diabetes Association's Better Choices for Life program.
Speaker Change: Recently, we were pleased to showcase 4Media, a product that has been in the works for many years in the Beyond Meat's Rapid and Relentless Innovation Program.
Speaker Change: Our Whole Muscle Steak Line, Beyond Steak Filet.
Speaker Change: Beyond Steak Filet is made with mycelium, a root-like structure found in mushrooms.
Speaker Change: legume protein
Speaker Change: and a limited number of natural ingredients.
Speaker Change: I personally love this product, not only for its texture and savory taste, but its concise and clean ingredient list, coupled with very high levels of protein, contrasted with very low levels of saturated fat.
Speaker Change: More generally, you will increasingly hear Beyond Meat proudly share the process we use to make our delicious plant-based meats.
Speaker Change: The weaponization of the word process, a tactic emphasized in the incumbent industry playbook on how to undermine plant-based meat and preserve the status quo, has grown long in the tooth.
Speaker Change: It is past time we put it to bed.
Speaker Change: We plan to do that by applying generous amounts of sunlight to our own process, educating consumers on how we build meat directly from plants.
Speaker Change: It's a clean process. It's a process that is elegant in its simplicity. And it's a process that produces better outcomes for the human body and Earth.
Speaker Change: I'll take a moment here to explain how we make our currently available steak product, Beyond Steak Tips, a delicious and award-winning product that graced the cover of Time magazine upon launch and is available at retailers nationwide.
Speaker Change: Farmers, including those in the states of North Dakota and Montana, grow fava beans.
Speaker Change: The fava beans are harvested and milled, and the resulting flour is placed in an air chamber, where reflecting different densities and sizes, protein and starch separate.
Speaker Change: Together with phyto-wheat gluten in water, the protein is then run through heating, cooling, and pressure.
Speaker Change: These simple steps of heating, cooling, and pressure shape the proteins into the familiar form of muscle, or meat.
Speaker Change: We then mix in natural flavors, colors from vegetable juice, and oil.
Speaker Change: The result is a high-protein, low-saturated fat product that is clean in process and label, and it has earned recognition from the American Heart Association.
Speaker Change: the American Diabetes Association.
Speaker Change: The Clean Label Project, and has been given good housekeeping seal of nutrition.
Speaker Change: This process is one that should indeed be marketed. It should be celebrated, in fact.
Speaker Change: Simply put, it is a better and simpler process than that of industrial factory farmed meat, and we expect consumers to agree once they know the facts.
Speaker Change: One final update on products.
Speaker Change: Leading up to this relaunch, Panda Express initially reintroduced Beyond the Original Orange Chicken at 300 stores and recently expanded distribution to nearly 600 locations.
Speaker Change: It's a delicious product and one I hope you'll go try if you haven't already.
Speaker Change: Our third priority is to support improved gross margin through our U.S. trade and pricing programs.
Speaker Change: We are making good progress, and the results speak for themselves.
Speaker Change: As I said earlier, between our pricing actions and significant moderation in trade, net revenue per pound in the U.S. retail channel rose 22.6 percent as compared to the year-ago period.
Speaker Change: Moreover, we were pleased to see that in aggregate, unit volume stayed well within our expected elasticity range.
Speaker Change: We are encouraged that the consumer sees value in our products, including in our use of premium ingredients, and that our messaging on taste, health, and clean label is resonating.
Speaker Change: Turning now to our fourth priority, the consolidation of our production network, which has substantially been completed on the manufacturing side, and in recent months we've been rationalizing the warehouse footprint that supported these facilities, exiting five warehouses in the first half of this year.
Speaker Change: We are now seeing the benefits in the form of reduced tolling fees.
Speaker Change: Better Asset Utilization and Inventory Management
Speaker Change: The freeing up of working capital.
Speaker Change: Increased overhead absorption.
Speaker Change: Production and Logistic Efficiencies to Enhance Quality Control
Speaker Change: These initiatives to reduce COGS, which in Q3 of 2024, reached their lowest levels in just over three years.
Speaker Change: represent meaningful steps up the ladder toward restored and sustained higher gross margin.
Speaker Change: Fifth, we are maintaining our investment focus in Europe, and as discussed previously, we're recently able to meet certain shelf-life requirements necessary to expand our retail reach in the EU.
Speaker Change: As a reminder, heretofore, we have been substantially unable to access the retail category in certain attractive EU markets, particularly Germany, where plant-based meats are largely refrigerated at a temperature that precluded our participation.
Speaker Change: Having worked several years to meet shelf-life requirements, we are thrilled to now be in German retailers, Germany being one of the strongest, in my view, plant-based markets in the world.
Speaker Change: With a clear caution that it is very early days, we are seeing encouraging initial sell-through in this important market.
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Speaker Change: Turning now to our food service business in the EU. In France, McDonald's launched a new menu option, Veggie McClamp Nuggets. In more than 1,500 restaurants, bring your nuggets to one of McDonald's top European markets.
Speaker Change: Subs by www.zeoranger.co.uk
Speaker Change: The nuggets are currently planned to be a permanent menu addition, with France joining Austria, Germany, Malta, the Netherlands, Slovenia, the U.K., and Ireland in going beyond at McDonald's.
Speaker Change: Lastly, on behalf of all Beyond Mint employees, we are thankful to be included in Fortune's 2024 Change the World list, a prestigious recognition of the top 52 global companies shaping the future by making a positive social impact.
Speaker Change: As I look back, the third quarter of 2024 serves as a pivotal quarter in our company's history.
Speaker Change: When we went public in 2019, for a short period, it appeared that a disruption of protein markets would proceed unimpeded, and it would cross the chasm from niche to mainstream without a hitch.
Speaker Change: Turbulence, much of it generated by a concerted campaign supported by incumbent animal protein and pharmaceutical industries, destabilized the slipstream within which we traveled and we fell from considerable heights.
Speaker Change: From this challenging vantage point, we face a fundamental choice on how to respond.
Speaker Change: As I've said before, we responded by letting iron sharpen iron.
Speaker Change: We chose to get stronger, including moving our products along the continuum from relative to absolute health benefits, most notably in our Beyond4 platform and its broad endorsements from leading health institutions.
Speaker Change: and we got leaner and more focused.
Speaker Change: Today, we are pleased to report a quarter of solid growth, our highest gross margin and lowest cost of goods sold in three years, and our lowest operating expenses in four years.
Speaker Change: I am more than proud of the team that is delivering these results.
Speaker Change: Each of you is writing history.
Speaker Change: I've done my fair share of looking to history to help me understand the arc and outcome of disruptions.
Speaker Change: From the growth of mechanized ice to the sputtering and then commanding rise of alternative energy technology in electric vehicles.
Speaker Change: And to my team, I tell you that history will not only include you, but will reward you for pioneering that which the consumer and the world alike needs.
Speaker Change: Our journey has not been for the faint of heart, yet our time is ahead of us.
Speaker Change: And we face it wiser, stronger, and ready to compete and win as we drive Beyond Meat forward.
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: With that, I look forward to taking your questions later, and will now turn the call over to Lubbe.
Speaker Change: This athlete celebrates 100 global leaders making transformative contributions to the environment.
Speaker Change: Ethan's inclusion reflects his passion, innovation, and visionary leadership in reducing the environmental footprint of global food systems and championing sustainable diets worldwide. On behalf of everyone here at Beyond Meat, we applaud his unwavering commitment to tackling climate change.
Speaker Change: Now let's get to our Q3 results. Net revenues increased 7.6% to $81 million in the third quarter of 2024, compared to $75.3 million in the year-ago period, representing our first quarter of year-to-year growth since the first quarter of 2022.
Speaker Change: The increase in net revenues was primarily driven by a 15.8% increase in net revenue per pound, partially offset by a 7.1% decrease in volume of products sold.
Speaker Change: The increase in net revenue per pound was primarily driven by lower trade discounts, price increases of certain of our products, and changes in product sales mix, partially offset by unfavorable changes of foreign currency exchange rates.
Speaker Change: We are pleased to see a sequential improvement in our year-over-year volume trends, despite a tougher year-ago comp and a significant increase in net price realization.
Speaker Change: Breaking this down by channel, U.S. retail channel net revenues increased 14.6% to $35 million in the third quarter of 2024, compared to $30.5 million in the year-ago period.
Speaker Change: The increase in net revenue was primarily due to a 22.6% increase in net revenue per pound, partially offset by a 6.6% decrease in volume of products sold, reflecting soft category demand and price elasticity effects.
Speaker Change: The increase in net revenue per pound was primarily driven by lower trade discounts and pricing actions, partially upset by changes in product sales mix.
Speaker Change: U.S. Food Service Channel net revenues increased 15.5% year-over-year to $14.5 million in the third quarter of 2024, primarily due to a 7.9% increase in volume of products sold and a 7% increase in net revenue per pound.
Speaker Change: Volume sold benefited from sales of chicken products to a USQSR customer that did not occur in the year ago period, while the increase in net revenue per pound was primarily driven by pricing actions and changes in product sales mix, partially offset by higher trade discounts.
Speaker Change: International retail channel net revenue increased 17% to $16.6 million in the third quarter of 2024, driven by a 10.5% increase in net revenue per pound and a 6% increase in volume of products sold.
Speaker Change: The increase in net revenue per pound primarily reflected lower trade discounts and changes in product sales mix, partially offset by price changes of certain products and unfavorable changes in foreign currency exchange rates.
Speaker Change: VolumeSol benefited from distribution gains and increased demand for our products in certain geographic regions.
Speaker Change: Lastly, International Food Service Channel net revenues decreased 17.2% to $15 million in the third quarter of 2024.
Speaker Change: primarily due to a 22.1% decrease in volume of products sold.
Speaker Change: largely reflecting decreased sales of burger and chicken products to a large QSR customer in the EU.
Speaker Change: The decrease in volume was partially offset by a 6.2% increase in net revenue per pound driven by lower trade discounts and pricing action, partially offset by changes in product sales mix and unfavorable changes in foreign currency exchange rates.
Speaker Change: Gross profit in the third quarter of 2024 was $14.3 million, a gross margin of 17.7 percent, compared to a loss of $7.3 million, a gross margin of negative 9.6 percent in a year-ago period.
Speaker Change: As Ethan noted, this was our highest quarterly gross margin since the third quarter of 2021 and our lowest COGS per pound since the second quarter of that year.
Speaker Change: In addition to the benefit from net price realization, gross margin in the third quarter of 2024 was also positively impacted by decreased costs per pound, resulting from lower inventory provision, reduced logistics costs, and lower materials costs per pound.
Speaker Change: Overall, our cost of production continues to benefit from our network consolidation measures and more efficient inventory management.
Speaker Change: We are commissioning additional finished goods production capabilities at our facility in Pennsylvania, which we expect will drive further COGS savings in 2025 and beyond.
Speaker Change: Turning to operating expenses.
Speaker Change: Total operating expenses were $45.2 million in the third quarter of 2024, compared to $62.4 million in the year-ago period.
Speaker Change: The decrease in operating expenses was primarily due to reduced general and administrative expenses, including a $2 million insurance recovery benefit, reduced non-production salaries and related costs, and reduced selling expenses.
Speaker Change: As a result, and combined with the year-over-year improvement in gross profit, loss from operations decreased to $30.9 million in the third quarter of 2024, compared to $69.6 million in the year-ago period, an improvement of nearly $40 million year-over-year.
Speaker Change: Below the line, total other income net increased $5.1 million year-over-year, primarily reflecting unrealized foreign currency transaction gains, leading to a net loss of $26.6 million in the third quarter of 2024 compared to $70.5 million in the year-ago period.
Speaker Change: Net loss per common share was $0.41 in the third quarter of 2024, compared to $1.09 in the year-ago period.
Speaker Change: Adjusted EBITDA was a loss of $19.8 million, or negative 24.4% of net revenues in the third quarter of 2024, compared to an adjusted EBITDA loss of $57.5 million, or negative 76.3% of net revenues in the year-go period.
Speaker Change: Turning to our balance sheet and cash flow highlights, our cash and cash equivalents balance, including restricted cash, was $134.9 million, and total outstanding debt was $1.1 billion as of quarter end on September 28, 2024.
Speaker Change: Inventory increased by approximately $5.6 million quarter-over-quarter to $125.2 million, primarily driven by an intentional decision to increase stocking levels of certain finished good items.
Speaker Change: However, our overall inventory levels remain substantially below year-ago amounts.
Speaker Change: Looking at cash usage for the quarter, although total cash consumption increased versus the second quarter of this year, our cash conversion cycle and working capital efficiency reflect substantial improvements from prior years.
Speaker Change: The sequential increase in cash consumption in the third quarter partly reflected large orders from some customers in Q2 ahead of anticipated price increases and promotional periods, which resulted in smaller replenishment orders and cash collections in Q3.
Speaker Change: Overall, net cash used in operating activities was $69.9 million in the nine months ended September 28, 2024, compared to $79.3 million in the year-ago period.
Speaker Change: Capital expenditures totaled $4.5 million in the nine months ended September 28, 2024, compared to $8.6 million in the year-ago period.
Speaker Change: In the nine months ended September 28, 2024, net cash used by investing activities included $4.1 million in proceeds from sales of fixed assets, compared to $2.5 million in the year-ago period.
Speaker Change: Finally, I'll conclude my remarks by commenting on our full year outlook, which we are updating as follows.
Speaker Change: Net revenues for the full year 2024 are expected to be in the range of $320 to $330 million.
Speaker Change: Grossmargin is expected to be in the mid-teams range.
Speaker Change: Operating expenses, excluding the $7.5 million expense relating to the Consumer Class Action Settlement accrued in the first quarter of 2024, are expected to be in the range of $180 to $190 million.
Speaker Change: Lastly, with regard to our balance sheet, we expect to add additional liquidity through our ACM program by the end of the year, and we'll continue to evaluate other alternatives to bolster our balance sheet even further in the new year. And with that, I'll turn the call over to the operator to open it up for your questions. Thank you.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: and please restrict your questions to one question and one follow-up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question is from Peter Sala with BTIG. Please go ahead.
Peter Sala: Great. Thanks for taking the question.
Peter Sala: I did want to ask, maybe on the gross margin,
Peter Sala: Today, the 17.7% rate...
Peter Sala: You know, it was nice to see a pretty nice improvement there on the gross margin. Can you just give us a sense of, you know, if sales stay where they are and, you know, given your projections, do you anticipate you think you can hold this type of gross margin as we head into 2025? Any thoughts on gross margin next year would be really helpful.
Ethan Brown: Sure, this is Ethan and I'll take that. I appreciate you asking.
Peter Sala: taking out material costs and better overhead absorption, things like that. And so I don't think that we would expect to move backwards at all. I think we continue to show progress in the margin, particularly in 25.
Peter Sala: as we have an opportunity to make some smaller investments to increase efficiency in our plants.
Peter Sala: What you've seen us do, right, is take a very large network of co-packers and be able to absorb that into our own footprint with the exception of two additional co-packers.
Peter Sala: And in doing so, that's really what's driven that reduction in COGS. And then, of course, you have on top of that the higher pricing and then significantly reduced trade. So all of those things I expect to hold and only improve in 2025.
Speaker Change: https://www.youtube.com or the link in the description.
Speaker Change: And then just as a quick follow-up on the capital raise, Lubbe, I don't know if there's any more color you can provide in terms of...
Speaker Change: I know you said before year end, so I know here we are a couple months out, but any more color in terms of how you may go about this or how much you think you may need and are you thinking you'll raise enough capital just to get you through 25 and 26 or further, just any other additional color would be helpful. Thanks.
Speaker Change: Yes, sure.
Speaker Change: vehicle that we have in place that will allow us to do that. But we also did talk about and you know we've been discussing this now for the last couple of calls about
Speaker Change: how we're looking to bolster and restructure the balance sheet, right? And so that's probably more of a holistic restructuring of the balance sheet. We've been...
Speaker Change: you know, working towards that, you know, throughout the year, you know.
Speaker Change: Frankly, the discussions have taken a little bit longer than we initially anticipated, and so we now expect that to carry over into 2025, but that's something we're certainly focused on. We're not going to, at this point, get into how much we may be looking to raise before the end of the year, et cetera, but I'll just reiterate that, yes, we do intend to put additional liquidity on the balance sheet before the end of the year, and then we're still looking at a more holistic sort of balance sheet restructuring at some point next year.
Speaker Change: Thank you very much.
Speaker Change: The next question is from Ben Terrare with Barclays. Please go ahead.
Ben Terrare: Yeah, good afternoon. Thanks for taking my question, Ethan, Luby. Sure thing.
Ben Terrare: So
Ben Terrare: So, first question really was, I'd like to follow up a little bit on what we're seeing in like Nielsen IRI and so on data, because it felt like the performance, particularly volume was a little worse in U.S. retail than what you reported.
Ben Terrare: into beyond 4.0 and so on, just to help us understand that one, that would be my first piece of question.
Speaker Change: Sure, sure. So, I mean, I think, first of all...
Ben Terrare: If you look at the composition of the year-over-year growth, I think roughly 16% of that
Ben Terrare: in retail is due to an increase in the net revenue per pound, and that was offset by about a 7% decrease in volume sold, and so overall you have that 15% increase in retail.
Ben Terrare: And I think, you know, then you go to food service and you see a 15.5% increase and then international is up.
Ben Terrare: 70% we had on the National Food Service side some turbulence that we can
Ben Terrare: walk you through. But overall, three of the four segments showing really good growth year-over-year. What's happening in US retail is exactly what you think.
Ben Terrare: alluded to, which is there's a mismatch between, you know, consumption data and sell-in data.
Ben Terrare: and so we are seeing a benefit.
Ben Terrare: of some changes out in retail distribution that allows us to add in revenue that is not necessarily appearing right now in consumption data.
Ben Terrare: Also, some of the recording, whether it spins, etc., isn't picking up all of the volume that we pick up in our retail numbers, and so that accounts for some of the difference, but the main one is what you just articulated in asking your question. There's a difference between...
Ben Terrare: sell-in and and the consumption data and so I think you should see more of a true up in in the fourth quarter but overall I mean I do want to just pause and give a
Ben Terrare: A general view on how well the business did this quarter. If you look at those growth rates, the 15% and
Ben Terrare: In retail, nearly 16% in U.S. food service. International is up 17%. You look at the margin, again, rising to nearly 18% now.
Ben Terrare: The COGS number that we produced was the lowest since 2021, you know, our operating expenses are the lowest in four years and how that's
Ben Terrare: showing an income statement I think is important to look at.
Ben Terrare: which basically cut operating losses more than half once you take into consideration the impact of that gross profit and the reduction in operating expense. Then we're able to reduce net loss by two-thirds as well as adjusted EBITDA loss also by two-thirds.
Ben Terrare: Both the trajectory of that EBITDA loss, as well as the pace, I think is important to recognize.
Ben Terrare: You know, we're now down about a loss of 19.8 on a year-ago basis, we were at 57.5. So you can see a very steep curve moving in the right direction. And so that's why we feel so confident about...
Ben Terrare: our plan to bring the business into profitability. Can't say when, don't want to imply it's going to be anytime soon. But, you know, that is where we're headed and all of these trends you're seeing, the growth, the increase in margin, the reduction in operating expense.
Ben Terrare: and the substantial reductions in net loss and EBITDA loss all moved the business toward where it wanted to be. And so I think I'll just take pause for a minute and congratulate the team on that. That's it in my remarks.
Speaker Change: Perfect. That was very clear and complete. And then just real quick, following up on that food service volume impact that you had in the quarter with that large customer, whoever that might have been on the chicken product. Is that something that carries into the fourth quarter and beyond? Is that more of a structural problem or was this something one time in the quarter we should just
Ben Terrare: Take it as a fact and then move on.
Speaker Change: Sure, so two things going on with chicken and food service, or chicken and QSRs. One is the, you know, nearly doubling the store counts of Panda Express here in the U.S., and then the other is the entry into France, 1,500 new stores and McDonald's with the McPlant Nugget.
Ben Terrare: This is our chicken nugget.
Ben Terrare: And so, you know, those things we obviously view very favorably. There is noise in the Q3 data for International Food Service, and it is driven, as you've identified, by a large QSR. And a couple things are going on there. One is we're seeing...
Ben Terrare: in a particular...
Ben Terrare: economy that's undergoing its own challenges, we are substantially down in that restaurant, in that economy, and so that's one thing that's driving it.
Ben Terrare: The second is more...
Ben Terrare: of a inventory loading timing issue where due to some promotions that were being run by the customer in the second quarter.
Ben Terrare: They took on a lot of inventory and so we're still seeing sell-through of that inventory and so that
Ben Terrare: created a more of a downturn.
Ben Terrare: Those would be the major drivers for that particular customer.
Speaker Change: The next question is from Michael Lavery with Piper Sandler. Please go ahead.
Michael Lavery: Thank you. Good evening.
Speaker Change: sailed down and didn't really get the volume response.
Speaker Change: Here, you've raised it and still have some volume pressure, but sales are up. I guess two parts, one, certainly seems like this is the better approach. Can you just maybe unpack any of what you've learned? But then also as far as, you know, maybe what the...
Speaker Change: Tam in one sense looks like You know lowering the price didn't seem to broaden the audience very well. Is it really a case of having a smaller? target that Can you can take pricing against but that limits maybe how far your volume opportunity goes?
Speaker Change: It appears that way. Is that a fair enough read or are you seeing something else?
Speaker Change: questions.
Speaker Change: I've obviously thought a lot about this because we have gone through some interesting pricing moves and reactions. If I look back on what we called toward price parity, I'm not sure it would have mattered what we were pricing the product at the moment that we did that, given what the macroeconomic
Speaker Change: as well as sort of sector issues were.
Speaker Change: campaigns that were being run against the category.
Speaker Change: incredible competition with all the different players coming in that didn't have great products. There was a very difficult period for the category, so you couldn't really get great data on pricing that didn't have a lot of other
Speaker Change: variables in it that were hard to parse out. I will say this, though, that when we went to to a more premium set of ingredients, you know, avocado oil, red lentils, the brown rice, the fava beans, along with the yellow peas,
Speaker Change: stripped out certain things and offered the consumer BEYOND4, the elasticity we saw was really encouraging. Like if you look at, we did a 22% increase in U.S. retail in pricing.
Speaker Change: which precipitated only 6.6% decline.
Speaker Change: in volume.
Speaker Change: Right? And so, you know, that's a pretty good trade-off. And I think it's important, too, to realize that this is somewhat nuanced. It's not like...
Speaker Change: We drop prices on everything and then raise prices on everything.
Speaker Change: That price parity commitment that I made when we went public, we actually fulfilled it in certain markets and with certain customers. We are selling to certain customers at a price that is, at least I'd say, in range with the animal protein equivalent. And so we'll continue to do that.
Speaker Change: Where it makes sense for us and where we can still earn decent margin And so if you think about that, it's really in the food service sector It's some of our largest customers if we can afford to because of the volume because of the you know, broader relationships, etc
Speaker Change: We can afford to be more aggressive and go toward price parity. So I think the answer that I give to the last part of your question about does this sort of present a niche market where it's only highly affluent people who are buying the product.
Speaker Change: Our portfolio is distributed in a certain way, right? And so we have these much lower cost of goods sold products that we can get into these very large accounts, right? And so we'll continue to pursue that angle. But when we introduce a premium product with premium ingredients where the supply chain is still nascent for us...
Speaker Change: We're going to offer that at a premium price. Over time, you'll see us retire that version, be able to offer more competitive pricing on it, and introduce the next version. So I don't think this is a case of like, yeah, Beyond Meat has just decided to become a niche brand going after affluent customers. It's much more diverse than that, much more nuanced than that in our pricing.
Speaker Change: and Paul Sheppard. Thank you. Thank you.
Speaker Change: That's really helpful. And just to follow up on some of the skew rationalizations you announced which, if I remember right, were really getting underway about a year ago. Is that all pretty well done other than kind of ordinary, excuse me, you know, cleanup and tidying up or should we keep some of that in mind still going forward?
Speaker Change: I think it's exactly what you think about it. There's going to be, you know, trimming here and there and things of that nature. You know, we obviously want to...
Speaker Change: to be maximizing revenue on the smallest number of products that we can. But, you know, there's no immediate plans to do any major discontinuation. In fact, you're seeing us do some, I think, interesting product extensions. And if you look at what we launched,
Speaker Change: Sprouts, what we call the Sun Sausage, very high-end, you know, very clean ingredient list.
Speaker Change: It's one gram of saturated fat that's from avocado oil, a good serving of protein, four different proteins, red lentils, brown rice, yellow peas.
Speaker Change: and fava beans.
Speaker Change: That's doing really well at Sprouts. You know, we were really pleased to see the reaction to that.
Speaker Change: And then, you know, we're going to be expanding distribution on that soon and make an announcement there. So, where it makes sense for us, we are continuing to expand the portfolio, and particularly toward this health narrative that we've really emphasized and has become a defining.
Speaker Change: differentiation for our brand across the category. We will make the tough choices on ingredients and on the overall
Speaker Change: guardrails that we use to make sure that the customer
Speaker Change: feel really great about the products they're having and that, you know, you see more and more where products are having the American Heart Association recipe certification program, having more of the American Diabetes Association, Clean Label Project certifications, things of that nature. So when it makes sense to expand that direction, we'll keep doing it.
Speaker Change: Okay, great. Thanks for watching.
Speaker Change: The next question is from Ken Goldman with JP Morgan. Please go ahead.
Ken Goldman: Hi, thanks and good afternoon.
Ken Goldman: Follow up on Ben's question about the gap between US retail shipments and Nielsen this quarter
Speaker Change: And Ethan, I realize you're saying that some of the outlets we use aren't picking up, you know, all of the volume.
Speaker Change: But is it reasonable for us to kind of model a fairly steep reversal in this part of your business in 4Q?
Speaker Change: And is that, if so, is that the main reason why?
Speaker Change: You know, you're guiding to what looks like kind of...
Speaker Change: Roughly flat-ish.
Speaker Change: sales year-on-year. Again, I understand, you know, the timing of shipments happens and so forth, so it's, I'm really just trying to get a sense for, you know, how how deep of a cut we should give to our volume number in the U.S. retail business for the fourth quarter.
Speaker Change: I was actually thinking it the other way, Ken, in the sense that my expectation is that the consumption numbers will start to catch up a little bit with our shipment numbers because we're adding
Speaker Change: back in some distribution and things of that nature, but there's all this movement going on in the category from like the fresh section to the frozen section and some products are staying and frozen section some are staying in the fresh section, some are going to frozen Some are coming out temporarily as they make that transition, so there's just all this movement, so I'd be cautious about giving you
Speaker Change: Paul Sheppard, Ethan Brown, Paul Sheppard, Ethan Brown, Paul Sheppard, Ethan Brown, Paul
Speaker Change: I don't know if, Libby, you want to add to that or... No, I think that, I think you covered it.
Speaker Change: okay so just to be and thank you for that Ethan just to be clear the messaging is
Speaker Change: consumption should improve. But shipments, I thought you were suggesting, were higher than they, you know, otherwise might have been in the third quarter. So is there a little bit of a lag in the fourth quarter on shipments? Sorry to keep hammering this. I just want to really get a sense for how much, you know, the gap. Because it was a pretty big gap, as Ben pointed out in his question.
Speaker Change: Yeah.
Speaker Change: I think it's that, the way to think about this is the consumption number
Speaker Change: should be more
Speaker Change: should be a better reflection.
Speaker Change: of our shipment numbers. The gap should just be smaller. I'm not saying that there'll be any.
Speaker Change: I don't think you'll see a massive fall off on our shipments. I think what you'll see is you'll see a moderation, or sorry, an improvement in the consumption numbers. But this is all speculation.
Speaker Change: The other thing to keep in mind is that the non-measured channels can be pretty meaningful as well and so that will drive some of the delta that you see there between consumption and shipments.
Speaker Change: Got it. Thank you. And then I wanted to ask also, you know,
Speaker Change: It's a little early, and Ethan, I know you did kind of hint at it, I think.
Speaker Change: for a continued improvement in the gross margin.
Speaker Change: next year, you know, just given some of your pricing actions that you've taken, the mixed benefits, perhaps.
Speaker Change: some of the, you know, limited elasticity. Is it reasonable for us to model total sales growth positive in 2025? Would there be any reason that you can see right now why that wouldn't be the case?
Speaker Change: There's a lot of smiling going on in the room, looking at each other. I mean, you know, you know who I am and how I am. I mean, I'm fully expecting it, but what we're actually going to be saying is, you know, something different that, you know, we'll have to get a lot of sun off soon. So, but I like the way, I like the direction of business, but, you know, it's just way too early for us to model publicly what we think next year is going to look like.
Speaker Change: All I hear is, I'm fully expecting it. Nothing else. All the rest is just white noise. Based on no data. Yeah, exactly. All right, thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from John Baumgartner with Mizzou. Please go ahead.
John Baumgartner: Good afternoon. Thanks for the question.
Speaker Change: Yep.
Speaker Change: First off, Ethan, just a follow-up on your comments to Michael on the elasticity. Are the consumers buying these products at higher prices? Are they mostly existing consumers? I'm just trying to understand the risk that these higher prices and wider gaps in the short term just sort of end up dissuading new consumers and create more work and more delays for you in driving trial and adoption for that for platform.
Ethan Brown: You know, we don't actually have the data as to whether how many are beyond four consumers are repeat versus new, but I tell you, I emphasize this in my comments.
Ethan Brown: The biggest thing that is dissuading the consumer from our products and plant-based meat is a misperception around the health benefits and around the ingredients. Full stop.
Speaker Change: That is the number one issue. And that's the issue that you see us hammering away at again and again and again. And I think as time goes on...
Speaker Change: You'll see more people understand that you'll see more people
Speaker Change: particularly as documentation comes out about how well-orchestrated this was, identify that in fact this was something that the incumbent industry, the meat industry, the pharmaceutical industry that's associated with selling antibiotics, livestock, paid people to market about, right? And that is the biggest thing, you know, whether I said it about when we lowered pricing.
Speaker Change: I'm talking about when we raise pricing.
Speaker Change: That's what it is. And once we get through that hurdle, because the products obviously look, they taste good, people like the way they taste, we do a ton of tests, we know that data.
Speaker Change: We know that they're really good for the human body. We've done the test. I won't bore you guys again with talking about the Stanford study, etc. We have another very exciting ongoing study going on right now, which I expect to have really good results on.
Speaker Change: So, that's the issue. We have not seen anyone sort of tap out based on pricing. People do complain about the prices of our products in general, but that's always been the case. And so, I think this particular model of taking, you know, premium products,
Speaker Change: offering them at the right price so we can create a sustainable business while we do have other products, right, that are selling at a lower cost and a somewhat lower margin for us. That's the right approach and as we gain more and more success you can see us differentiate our products more, go into other you know, QSRs and that nature at a lower price, but still maintain that premium pricing where it matters.
Speaker Change: Okay, thanks for that. And then in terms of the operating expenses, that middle of the P&L, that's been a focus area. You've made a lot of progress there and you've had this sort of range-bound expense for the last, you know, nine months or so. As you consolidate that, how do you think about flexibility for additional efficiencies in OPEX going forward? Are you sort of at the floor now? Are there more efficiencies coming? And then, you know, also should we expect maybe some increase there in 2025 with an uptick in marketing or brand reinvestment?
Speaker Change: So, I don't think you should expect an increase. I, you know, you always...
Speaker Change: Well, I can't give you a definitive answer, but we're certainly looking for ways to do that in 25 And there are some things that are burning off that will help us do that But it's again. I think just like to Ken's question It's it's it's too early, but the the the expectation is there that that can be done and will be done
Speaker Change: Okay. Thank you, Ethan.
Ethan Brown: Thank you. Bye-bye.
Speaker Change: The next question is from Alexia Howard with Bernstein. Please go ahead.
Alexia Howard: Can you talk a little bit about the innovation, how it's been received by consumers, and how it's impacted overall sales?
Alexia Howard: It seems like you report positive second-half sales, and I was wondering if today's results are more a reflection of a strength in this new innovation or a strength in more of the legacy products you all have. And then I'll pass it on.
Speaker Change: Thank you for the question. I absolutely think that it is due to
Speaker Change: A couple things. One, so yes, the BEYOND4 platform, if you look, for example, at the two-pack burger in certain grocers, you do see a pretty sizable
Speaker Change: positioning and certifications and endorsements from, you know, nutritionists, registered dieticians, doctors, national health institutions, things like that.
Speaker Change: Um...
Speaker Change: So I do think that's working. I think it's also one of the reasons that you're seeing that kind of favorable elasticity.
Speaker Change: in retail.
Speaker Change: And I think it's also helping the category. This is something that needed to be done.
Speaker Change: We were faced with a pretty big crisis, which is that products that we were developing and producing for reasons of human health and
Speaker Change: you know, climate, etc. You know, we're denigrated heavily by a competing campaign against a category.
Speaker Change: And we face a choice, as I've talked to us before, you know, do we sort of proclaim our innocence or do we just say, you know, we're gonna make our health proposition even stronger.
Speaker Change: And we really moved the product from the kind of relative health positioning, vis-a-vis meat, you know, 35% less saturated fat, stuff like that, to much more of an absolute.
Speaker Change: offering from a health perspective where it's now 75% less saturated fat but that's saturated fat coming from avocado oil which is widely recognized as you know being kind of a heart healthy oil in the right amounts and so
Speaker Change: It's where we're headed as a brand. It's the right thing to do. Consumers like it. And I think the big thing is people say, oh, well, you're going to...
Speaker Change: You can't
Speaker Change: expect to grow just by making the products even healthier they've got to taste great and to us we sort of just
Speaker Change: I hear that.
Speaker Change: And it's sort of like, yes, and then what? Of course, we're a food company. Our products have to taste great. And so we always test them. Are we improving the taste?
Speaker Change: And if the taste is in any way taking a step backwards as we make the products even healthier, we don't we don't release it and so
Speaker Change: That's why we have this amazing Research and Development Center. That's why we have so many folks that are so talented at taking, you know, molecules and ingredients from plants and creating the sensory experience of muscle or animal protein.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks.
Ethan Brown: I don't think I have any other than just you know let's let's get back together after the next quarter and I think you'll see it will continue to take this extremely seriously driving the business toward profitability and you know hope to be able to report good results next time. Thanks.
Speaker Change: and Paul Sheppard. Thank you.
Speaker Change: and Paul Sheppard. Thank you.