BEYOND MEAT, INC. — Q3 2019 Form 10-Q
Reporting period: Quarter ended September 28, 2019; comparisons are with the quarter ended September 29, 2018. Year-to-date figures cover the first nine months of each year. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
Beyond Meat develops and sells plant-based meat products through retail and restaurant/foodservice channels. The company reported products at approximately 58,000 points of distribution, primarily in the United States and Canada, with expanding international sales. Its IPO closed in May 2019, converting preferred stock into common stock; the company also raised additional proceeds through a secondary offering in August.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net revenue | $92.0 million | $26.3 million | $199.4 million | $56.4 million |
| Gross profit | $32.8 million | $5.0 million | $66.3 million | $9.7 million |
| Gross margin | 35.6% | 19.2% | 33.2% | 17.2% |
| Operating income (loss) | $3.6 million | $(8.0) million | $0.4 million | $(20.9) million |
| Net income (loss) | $4.1 million | $(9.3) million | $(12.0) million | $(22.4) million |
| Adjusted EBITDA (non-GAAP) | $11.0 million | $(5.7) million | $15.8 million | $(15.6) million |
Q3 diluted earnings per share were $0.06, versus a loss of $1.45 per share a year earlier. Nine-month loss per share was $0.33, versus $3.68. The nine-month 2019 net loss included $12.5 million of warrant-liability remeasurement expense associated with the IPO; the liability was reclassified to equity upon the IPO and no warrants remained outstanding at quarter-end.
Cash flow and liquidity: Cash and cash equivalents were $312.5 million at September 28, 2019, versus $54.3 million at December 31, 2018. For the first nine months, operating cash use was $18.3 million, investing cash use was $17.2 million, and financing provided $293.7 million, principally from the IPO and secondary offering. Management said cash, operating cash flow and available borrowings were expected to fund working capital and anticipated needs for the next 12 months.
Debt: Total debt outstanding, net of issuance costs, was $30.5 million, including $9.1 million classified as current. The company reported no remaining borrowing availability under its SVB credit facilities. At quarter-end, stated rates were 6.00% on the revolving facility, 9.00% on the term loan and 11.25% on the equipment loan. The company reported compliance with debt covenants.
Other balance-sheet items: Inventory was $60.3 million, up from $30.3 million at year-end 2018; accounts receivable was $34.5 million, up from $12.6 million. Stockholders’ equity was $376.8 million, compared with a deficit of $121.8 million at year-end, reflecting the IPO, preferred-stock conversion and subsequent equity issuance.
Material changes versus the prior comparable period
- Revenue increased 250% in Q3 and 254% for the first nine months. Fresh-platform sales drove most of the growth; frozen-platform revenue grew more slowly, and the frozen chicken strips product line was discontinued in Q1 2019.
- Retail revenue grew 212% in Q3 and restaurant/foodservice revenue grew 312%. Management attributed growth mainly to higher sales volumes, expanded distribution, new customers and stronger demand from existing customers.
- Gross margin expanded substantially, which management attributed to production efficiencies, volume leverage and a greater mix of higher-priced fresh products.
- Operating expenses increased in dollars as the company expanded staffing, marketing, research and development, public-company capabilities and supply-chain operations. As a share of revenue, total operating expenses declined to 31.8% in Q3 from 49.6%.
- International sales excluding Canada represented about 14% of Q3 revenue and 12% of nine-month revenue, up from 4% and 3%, respectively, in the comparable 2018 periods.
Outlook, commentary, risks and contingencies
- No specific revenue or earnings guidance was provided. Management expected continued growth from increased distribution, fresh-product sales, international expansion and added production capacity, while noting that demand may outpace capacity.
- Management expected gross-margin improvement over time through scale, manufacturing efficiencies, ingredient and packaging savings, and supply-chain improvements. It also expected research and development and selling, general and administrative expenses to rise in absolute dollars as the business expands.
- Planned capital expenditures were approximately $12 million for the remainder of 2019 and $40 million in 2020. The company had committed to purchase $68 million of pea protein, including approximately $20 million for the remainder of 2019 and $24 million in each of 2020 and 2021.
- Key operating risks include dependence on a limited number of pea-protein suppliers and distributors, production capacity and co-manufacturers, product and food-safety requirements, competition, consumer demand, and seasonal sales patterns. The Beyond Burger represented approximately 55% of gross revenue for the first nine months of 2019.
- The Don Lee Farms dispute includes contract, trade-secret, fraud and negligent-misrepresentation claims, as well as a co-manufacturer’s cross-claims. Trial was set for May 18, 2020. The company said it could not reasonably estimate a potential loss or range, while stating that it believed resolution would not materially adversely affect its financial position, results or cash flows.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. It also cautioned that its interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether production capacity and supply of pea protein can support continued rapid growth, and how capacity expansion affects margins and capital spending.
- Whether the strong revenue growth persists across retail and foodservice, and whether customer, distributor and Beyond Burger concentration changes.
- How operating cash use, inventory and receivables evolve as sales scale, and whether the stated 12-month liquidity outlook remains appropriate.
- The outcome and potential financial or intellectual-property consequences of the Don Lee Farms litigation, for which the filing provides no estimable loss range.
- How much of reported profitability and non-GAAP Adjusted EBITDA reflects recurring operations versus warrant remeasurement, restructuring and share-based compensation adjustments.