Business context and reporting period
Beyond Meat, Inc. filed this Form 10-K for the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. The company sells plant-based meat products through retail and restaurant/foodservice channels and reported one operating and reportable segment. Its products were available in about 77,000 outlets across more than 65 countries at year-end.
Financial results and position
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | $297.9 million | $87.9 million |
| Gross profit / margin | $99.8 million / 33.5% | $17.6 million / 20.0% |
| Operating loss | $0.5 million | $28.0 million |
| Net loss | $12.4 million | $29.9 million |
| Adjusted EBITDA (non-GAAP) | $25.3 million | $(19.3) million |
| Cash from operating activities | $(47.0) million | $(37.7) million |
| Cash and cash equivalents, year-end | $276.0 million | $54.3 million |
| Total debt, year-end | $30.6 million | $30.4 million |
| Working capital, year-end | $355.9 million | $77.7 million |
Revenue rose 238.8%. Retail revenue grew 185.2% to $144.8 million and restaurant/foodservice revenue grew 312.0% to $153.1 million. Gross margin benefited from higher sales volume, improved production efficiency and a greater mix of fresh products. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, share-based compensation, restructuring and warrant remeasurement.
Fourth-quarter 2019 revenue was $98.5 million versus $31.5 million in fourth-quarter 2018; gross margin was 34.0% versus 25.0%. The company reported a fourth-quarter net loss of $0.5 million, compared with $7.5 million a year earlier; quarterly results included a $0.9 million operating loss.
Operating cash use increased to $47.0 million, reflecting working-capital investment, particularly higher inventory and receivables. Investing cash use was $26.2 million, including $23.8 million of property, plant and equipment purchases. Financing provided $294.9 million, principally from the IPO and secondary offering. The company reported no availability under its revolving and term loan facilities at year-end; $11.0 million of debt was classified as current.
Material changes and unusual items
- Beyond Burger remained the largest product, representing about 64% of 2019 gross revenue, down from 70% in 2018. Beyond Sausage represented about 23%; Beyond Beef and Beyond Beef Crumbles represented about 8% and 5%.
- Fresh-platform gross revenue increased 275.3%; frozen-platform gross revenue increased 11.8%. The company discontinued its frozen chicken strips in first-quarter 2019.
- Cost of goods sold included $6.4 million of excess and obsolete inventory write-offs, versus $0.8 million in 2018. Restructuring expense of $4.9 million primarily related to ongoing legal costs from a former co-manufacturer dispute.
- A $12.5 million warrant-liability remeasurement expense related to the IPO was a significant noncash item. The IPO and company-issued shares in the secondary offering generated approximately $252.4 million and $37.4 million in net proceeds, respectively.
Outlook, risks and contingencies
Management expects continued investment in research and development, manufacturing capacity, supply chain, marketing and international expansion. It expects cost leverage and production efficiencies to support future margin improvement, while stating a goal of achieving price parity with animal protein in at least one product category by 2024. The filing provides no clear numerical revenue or earnings guidance.
COVID-19 was identified as a significant, unquantifiable risk as of the filing date: disruptions could affect ingredient supply, co-manufacturing, logistics, production, restaurant demand and international expansion. The filing says the overall impact could not then be determined.
Key operating exposures include dependence on a limited number of pea-protein suppliers, substantial use of third-party co-manufacturers, distributor concentration, demand and inventory forecasting, competition, seasonal demand, food safety, and possible restrictions on plant-based product labeling. The two largest distributors accounted for 17% and 16% of 2019 gross revenue.
The Don Lee Farms litigation includes claims involving contract termination, alleged trade-secret misuse and alleged misrepresentation; the company disputes the claims and said a reasonably possible loss range was not estimable. A writ judge granted a $628,689 attachment related to alleged unpaid invoices; the trial judge had not ruled on the merits. Related securities and shareholder derivative suits, and a separate text-message advertising class action, were also disclosed. Management said it could not estimate potential losses for the early-stage derivative cases.
After year-end, the company entered a Roquette protein supply agreement through 2022 with aggregate minimum purchases totaling $154.1 million. It stated that cash, operating cash flow and available borrowings were expected to cover anticipated needs for the next 12 months, while also noting that all stated SVB facility availability was drawn.
Most important facts for investors to verify
- Whether revenue growth and gross-margin gains can continue as production capacity scales and competition and promotions increase.
- How operating cash use, inventory growth and capital spending develop relative to demand and the company’s liquidity needs.
- Whether the Roquette minimum purchase commitments and other supplier arrangements match actual demand and reduce supply concentration risk.
- The eventual financial and operational effects of COVID-19 and the outcomes or potential costs of the disclosed litigation.
- The composition and sustainability of reported Adjusted EBITDA, including the substantial exclusions from GAAP net loss.