Beyond Meat, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended April 1, 2023; comparisons are with the three months ended April 2, 2022. The filing is unaudited. Beyond Meat sells plant-based meat products through retail and foodservice channels in the U.S. and internationally.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $92.2 million | $109.5 million |
| Gross profit / margin | $6.2 million / 6.7% | $0.2 million / 0.2% |
| Operating expenses | $63.9 million | $97.8 million |
| Operating loss | $57.7 million | $97.6 million |
| Net loss | $59.0 million | $100.5 million |
| Net loss per share, basic and diluted | $0.92 | $1.58 |
| Adjusted EBITDA (non-GAAP) | $(45.8) million | $(78.9) million |
| Cash used in operating activities | $42.2 million | $165.2 million |
Gross margin improvement reflected lower manufacturing, logistics and materials costs, but also benefited by $5.1 million, or 5.5 percentage points, from a prospective change in estimated equipment useful lives. The estimate change reduced depreciation expense by $5.6 million and reduced reported loss per share by $0.09.
Revenue fell 15.7%, driven by lower volume and revenue per pound. U.S. retail revenue declined 35.3% to $44.2 million; U.S. foodservice fell 5.3% to $14.7 million. International retail declined 11.5% to $14.3 million, while international foodservice rose 99.8% to $19.1 million. Total product volume declined 7.3%. The filing attributes pressure to category softness, macroeconomic conditions, competition, discounting, product mix and foreign exchange.
Financial position and liquidity
- Cash and cash equivalents were $258.6 million at April 1, 2023, down from $309.9 million at December 31, 2022. Restricted cash totaled $15.0 million and was held to secure letters of credit.
- Current assets were $547.1 million and current liabilities were $59.9 million. Inventory was $222.4 million, down from $235.7 million at year-end.
- Convertible notes had $1.15 billion principal outstanding, carried at $1.135 billion net, and mature in 2027. The notes bear 0% regular interest; reported interest expense primarily reflects amortization of issuance costs.
- Operating cash outflow was $42.2 million; investing cash outflow was $6.3 million, including $5.3 million of property and equipment purchases and a $3.3 million TPP investment, partly offset by asset-sale proceeds. Cash, cash equivalents and restricted cash ended at $273.6 million.
- Stockholders’ deficit was $253.1 million. The company reported no dividends.
Material changes and unusual items
- Operating expenses fell 34.7%, reflecting lower headcount, marketing, advertising, consulting, product donation and freight costs. R&D declined 36.8% and SG&A declined 30.9%.
- Q1 2023 included a $0.4 million restructuring credit, mainly from reversing accruals; Q1 2022 included $3.0 million of restructuring expenses related to a former co-manufacturer dispute that was settled in 2022.
- The company recognized a $2.0 million non-refundable TPP upfront fee in Q1 2023 as it recognized the remaining fee balance in full during the Beyond Meat Jerky restructuring. TPP revenue was $5.3 million, versus $10.7 million a year earlier; equity-method losses from TPP increased to $3.2 million from $0.7 million.
- Shares outstanding were 64.2 million at quarter-end, versus 63.8 million at December 31, 2022.
Outlook, risks and contingencies
- Management expects 2023 operating expenses to be below 2022 levels, citing the October 2022 workforce reduction and continued cost optimization. It said existing cash and anticipated operating cash flows should fund foreseeable needs for at least the next 12 months, based on its current plan. The filing does not provide numerical revenue, earnings or cash-flow guidance.
- Management’s strategy emphasizes margin recovery and expense reduction, inventory reduction and cash generation, and focus on nearer-term retail and foodservice growth while supporting selected long-term partners. It expects 2023 seasonality effects to be more muted than in 2021 and 2022.
- Risks include continued weak demand and competition, premium pricing amid inflation, discounting and lower capacity utilization, inventory write-downs, input-cost and supply-chain disruption, and the possibility that cost reductions or cash-flow targets are not achieved. A temperature-controlled warehousing vendor reported a cybersecurity incident in April 2023; its impact on Beyond Meat was not yet known.
- Jerky distribution responsibilities are expected to transition in-house beginning in Q4 2023. The company cautions that this could reduce distribution reach and revenue if the transition or consumer demand disappoints.
- Commitments include $40.2 million of pea-protein purchases for the remainder of 2023, $79.8 million of potential fees tied to minimum co-manufacturing quantities over the contract term, and approximately $26.0 million of capital-expenditure purchase orders. Remaining Campus Headquarters phases carry approximately $118.4 million of base-rent payments over the initial lease term.
- Pending consumer class actions allege misleading protein and ingredient claims; the company says a reasonably possible loss is not estimable and intends to defend the claims. French proceedings challenge product naming and the Caped Steer logo; the naming decree, if upheld and enforced, could require label changes and affect marketing in France. Interbev seeks €200,000 in damages in its commercial-court case.
- The company reported disclosure controls and procedures were effective at quarter-end and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether demand and revenue stabilize, particularly in U.S. retail, and whether international foodservice growth is sustainable.
- How much gross-margin improvement persists excluding the $5.1 million equipment-life estimate benefit, and whether cost savings offset lower volumes and discounting.
- Cash burn, working-capital trends, access to financing and the company’s ability to meet obligations given $1.15 billion of 2027 notes and significant leases and purchase commitments.
- Progress and financial impact of the Jerky distribution transition, TPP losses and other restructuring actions.
- Developments in the consumer class actions, French labeling and trademark proceedings, and the reported vendor cybersecurity incident.