Beyond Meat, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021; comparisons are with the three months ended March 28, 2020. Amounts are in U.S. dollars.
Business context
Beyond Meat sells plant-based meat products through retail and foodservice channels in the United States and internationally. As of April 3, products were available at approximately 118,000 retail and foodservice outlets in more than 80 countries. The quarter reflected sharply different channel trends: retail growth was offset in part by continued pandemic-related weakness in foodservice.
Financial results and liquidity
| Metric | Q1 2021 | Prior-year quarter |
|---|---|---|
| Net revenue | $108.2 million | $97.1 million |
| Gross profit / margin | $32.7 million / 30.2% | $37.7 million / 38.8% |
| Operating income (loss) | $(24.6) million | $1.8 million |
| Net income (loss) | $(27.3) million | $1.8 million |
| Diluted EPS | $(0.43) | $0.03 |
| Adjusted EBITDA | $(10.8) million; (10.0)% of revenue | $13.9 million; 14.3% of revenue |
| Cash from operating activities | $(30.7) million | $(17.2) million |
| Cash used in investing activities | $(23.4) million | $(13.4) million |
Revenue rose 11.4%, but cost of goods sold increased 27.1%. Gross margin contracted 860 basis points, reflecting higher freight and warehousing costs, discounts and lower net price realization, product mix, increased depreciation, and higher fixed overhead. R&D expense increased 157.1% to $15.9 million and SG&A rose 42.6% to $39.0 million, driven largely by higher staffing, share-based compensation and freight.
Retail revenue increased 45.0% to $81.0 million; foodservice revenue fell 34.1% to $27.1 million. U.S. retail revenue grew 27.8%, international retail 189.0%, U.S. foodservice declined 26.0%, and international foodservice declined 44.0%. Total international revenue increased 12.5% to $27.6 million.
Cash and cash equivalents were $1.125 billion at quarter-end, versus $159.1 million at December 31, 2020. Current assets were $1.325 billion and current liabilities $73.1 million. The cash increase was primarily funded by the March convertible-note offering. The company reported $1.150 billion principal of 0% convertible senior notes due 2027, carried at $1.127 billion net of issuance costs; it used $84.0 million for capped calls. The prior $25.0 million revolving-facility borrowing was repaid and the facility terminated. Stockholders’ equity was $264.0 million. Management said cash and expected operating cash flow should fund working capital and anticipated capital needs for the next 12 months.
Material changes and strategic developments
- The $1.15 billion 0% notes mature March 15, 2027, with an initial conversion price of $206 per share. Capped calls, costing $84.0 million, are intended to limit dilution or offset certain conversion-related cash payments, subject to a cap.
- Capital investment continued in manufacturing capacity and international expansion; property, plant and equipment purchases were $23.4 million in the quarter.
- China facility renovations were substantially completed and trial production began in Q1; full-scale production was expected by the end of Q2 2021. The Netherlands facility was expected to begin commercial trial runs in Q2.
- The company formed The PLANeT Partnership, a joint venture with PepsiCo, to develop plant-based snacks and beverages; it recorded $0.4 million of equity-method losses in the quarter.
Outlook, risks and contingencies
The filing provides no specific revenue or earnings guidance. Management expected COVID-19 to continue adversely affecting operations and results through at least the remainder of 2021 and likely into 2022, particularly foodservice demand, margins and cash flows. Management identified retail distribution, sales velocity, innovation, partnerships and expanded production capacity as growth drivers, while expecting continued investment and promotional activity. The company’s stated goal is to reach price parity with animal protein in at least one product category by 2024.
Key operating risks include ongoing foodservice disruption, uncertain retail demand and discounting, supply-chain and manufacturing interruptions, input-cost and pea-protein availability, increased competition, and execution risks in China and Europe. The company had $141.9 million of pea-protein purchase commitments ($83.4 million in the remainder of 2021 and $58.5 million in 2022) and $21.7 million of capital-expenditure purchase commitments due within 12 months. A new 12-year headquarters lease covers approximately 281,110 square feet and entails about $159.3 million of base rent over its term; the lease liability was not yet recognized at quarter-end because the premises had not been made available.
The Don Lee Farms litigation remains significant. In a May 7, 2021 ruling, after quarter-end, the court granted Don Lee Farms’ motions on its breach-of-contract and money-owed claims and on Beyond Meat’s negligent-misrepresentation and conversion claims, while allowing Beyond Meat’s breach-of-contract and fraud claims to proceed. Trial was set for September 27, 2021. The company said a reasonably possible loss range was not estimable. Shareholder derivative litigation also remains pending or stayed, and potential losses were not estimable.
Important facts for investors to verify
- Whether retail growth can offset foodservice weakness, and whether foodservice demand recovers as pandemic restrictions ease.
- Whether gross margin can improve amid higher freight, warehousing, input costs, discounting and production-expansion costs.
- Progress, costs and commercial output from the China and Netherlands facilities, and the economics of the PepsiCo joint venture.
- The terms, potential cash-settlement requirements, conversion dilution and any future reclassification implications of the convertible notes.
- Developments and potential financial exposure in the Don Lee Farms and shareholder litigation, alongside the company’s substantial purchase and headquarters-lease commitments.