Beyond Meat, Inc. — Q3 2023 Form 10-Q
Business context and period: Beyond Meat develops and sells plant-based meat products through U.S. and international retail and foodservice channels. This unaudited report covers the quarter and nine months ended September 30, 2023; comparisons are with the periods ended October 1, 2022. Unless noted otherwise, amounts are in U.S. dollars.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $75.3 million | $82.5 million | $269.7 million | $339.0 million |
| Gross profit (loss) | $(7.3) million | $(14.8) million | $1.2 million | $(20.8) million |
| Gross margin | (9.6)% | (18.0)% | 0.4% | (6.1)% |
| Operating loss | $(69.6) million | $(89.7) million | $(181.1) million | $(277.1) million |
| Net loss | $(70.5) million | $(101.7) million | $(183.0) million | $(299.3) million |
| Net loss per share | $(1.09) | $(1.60) | $(2.85) | $(4.71) |
| Adjusted EBITDA | $(57.5) million | $(73.8) million | $(144.1) million | $(221.5) million |
- Revenue and channels: Q3 revenue declined 8.7% year over year, as a 11.6% decrease in revenue per pound outweighed 3.5% volume growth. U.S. revenue fell 30.8%, while international revenue rose 58.7%. For the nine months, revenue declined 20.4%; volume fell 11.9% and revenue per pound fell 9.7%. U.S. revenue was down 34.3%; international revenue was up 17.3%.
- Costs and margins: Gross margin improved year over year but remained negative in Q3. Management attributed improvement to lower manufacturing and material costs, lower inventory reserves, and reduced depreciation; lower revenue per pound partly offset the gains. The nine-month gross profit improvement also benefited from lower logistics costs.
- Operating expenses: Nine-month R&D declined 38.5% to $30.3 million and SG&A declined 20.8% to $152.6 million, reflecting lower headcount and reduced marketing, donations, legal, consulting, and other costs. Q3 SG&A fell only 2.3%, and rose to 70.7% of revenue from 66.0% a year earlier.
- Cash flow: Nine-month operating cash use was $79.3 million, versus $270.3 million a year earlier. Investing cash use was $9.3 million, versus $70.7 million; financing cash use was $0.4 million. Cash, cash equivalents and restricted cash totaled $232.8 million at September 30, including $15.3 million restricted. Management said Q3 met its previously stated target of cash-flow-positive operations, but transitory factors contributed and the company did not expect to sustain free-cash-flow-positive operations in Q4.
- Liquidity and debt: Unrestricted cash and cash equivalents were $217.5 million. Current assets were $471.6 million and current liabilities $78.9 million. Convertible senior notes had $1.15 billion principal, were due in 2027, and carried 0% regular interest; their net carrying value was $1.137 billion. The notes’ estimated fair value was $299 million. A $200 million at-the-market equity program was available, with no shares sold through it as of September 30.
- Balance sheet: Inventory was $194.6 million, down from $235.7 million at December 31, 2022. Stockholders’ deficit was $362.9 million, compared with $203.5 million at year-end 2022.
Material changes, outlook and risks
- Management said weak plant-based meat demand, particularly in U.S. retail and foodservice, inflation, consumer trade-down, changing product mix and discounting continued to pressure results. International foodservice growth was led in part by sales to a large EU quick-service restaurant customer.
- Management stated that current cash balances and anticipated operating cash flows should fund foreseeable requirements for at least the next 12 months, but identified substantial uncertainty around demand, cost reductions, cash generation and access to capital. It gave no specific revenue or earnings guidance in the provided filing text.
- In November 2023, the company announced a global operations review, including possible product-line exits, pricing changes, inventory reduction, manufacturing and real-estate optimization, and review of China operations. A November 1 plan reduced the workforce by about 65 employees (approximately 8% of total global staff). Estimated one-time cash charges were $2.0–$2.5 million; management estimated 2024 cash operating expense savings of $9.5–$10.5 million, plus $1.0–$2.0 million in non-cash savings. Savings and execution are uncertain.
- Notable estimate: Effective January 1, 2023, the company extended estimated useful lives for certain equipment to 10 years. This lowered depreciation expense by $4.9 million in Q3 and $16.1 million for the nine months, reducing reported net loss per share by $0.08 and $0.25, respectively. This materially benefited reported margins and losses but did not represent a cash-flow improvement.
- Commitments: The company disclosed $72.9 million of potential fees under a five-year co-manufacturing minimum-volume commitment, subject to possible waivers, and pea-protein purchase commitments of $1.4 million for the remainder of 2023, $10.9 million in 2024 and $17.1 million in 2025. It also had approximately $15.6 million of capital expenditure purchase-order commitments.
- Contingencies: A Canadian co-manufacturer threatened a claim seeking CAD 129.8 million; the company intends to defend it. Other disclosed matters include a securities class action, shareholder derivative claims, consumer suits concerning protein and product-labeling claims, and French proceedings over use of meat-related names and the company logo. The company said it could not estimate possible losses beyond recorded accruals; adverse outcomes could materially affect results or cash flows.
- Other risks include continued category weakness, capacity underutilization, inventory write-downs, competition and discounting, supply-chain disruptions, foreign-exchange exposure, and potential dilution or financing constraints. The company reported effective disclosure controls as of quarter-end and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether revenue trends and volume stabilize, particularly in U.S. retail and foodservice, and whether international foodservice growth is sustainable.
- Whether gross margin improves without relying materially on the useful-life estimate change, and whether cost reductions offset weak demand and lower capacity utilization.
- Actual cash burn, working-capital and inventory progress, the sustainability of Q3 cash-flow-positive operations, and the stated at-least-12-month liquidity outlook.
- Execution, charges and realized savings from the workforce reduction and global operations review, including possible China or product-line exits.
- Potential dilution from the $200 million ATM program and the company’s capacity to address its 2027 notes and other commitments.
- Developments in the CAD 129.8 million threatened claim, securities and consumer litigation, and French product-naming proceedings.