Beyond Meat, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended October 1, 2022; comparisons are to periods ended October 2, 2021. Amounts are in U.S. dollars.
Business context and results
Beyond Meat sells plant-based meat products through retail and foodservice channels. Products were available at approximately 188,000 retail and foodservice outlets in more than 85 countries as of September 2022. In Q3, U.S. and international sales represented 75.4% and 24.6% of revenue, respectively.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $82.5m | $106.4m | $339.0m | $364.0m |
| Gross profit (loss) | ($14.8m) | $23.0m | ($20.8m) | $103.0m |
| Gross margin | (18.0%) | 21.6% | (6.1%) | 28.3% |
| Operating loss | ($89.7m) | ($54.0m) | ($277.1m) | ($97.2m) |
| Net loss | ($101.7m) | ($54.8m) | ($299.3m) | ($101.7m) |
| Net loss per share | ($1.60) | ($0.87) | ($4.71) | ($1.61) |
| Adjusted EBITDA | ($73.8m) | ($36.8m) | ($221.5m) | ($49.8m) |
Financial position, cash flow and debt
- Cash and cash equivalents were $390.2m at October 1, 2022, down from $733.3m at December 31, 2021. Current assets were $696.0m and current liabilities $90.7m.
- Operating cash outflow was $270.3m for the first nine months, versus $191.0m in the prior-year period. Investing cash outflow was $70.7m, including $60.0m of capital expenditures and $10.0m invested in the joint venture. Financing cash flow was $0.4m.
- Convertible notes had $1.15bn principal outstanding, carry a 0% coupon and mature in 2027. Net carrying value was $1.133bn; estimated fair value at quarter-end was approximately $345m. The company had no revolving credit facility outstanding.
- Stockholders’ deficit was $142.0m, compared with equity of $132.5m at year-end 2021. Management said existing cash was expected to fund operations and foreseeable cash requirements for at least the next 12 months, based on its current business plan.
Material changes and management commentary
- Q3 revenue fell 22.5%; pounds sold declined 12.8% and revenue per pound declined approximately 11.2%. Nine-month revenue fell 6.9%, despite a 5.6% increase in pounds sold, as revenue per pound decreased approximately 11.6%.
- International revenue dropped 47.8% in Q3 and 20.9% for the nine-month period. U.S. revenue declined 7.9% in Q3 and 0.4% year to date. Q3 U.S. foodservice revenue increased 5.6%, while other reported channel and geographic comparisons declined.
- Management cited weaker category demand, customer and distributor inventory reductions, price cuts, trade discounts, unfavorable foreign exchange, inflation and product mix. Cost of goods sold rose 16.6% in Q3 and 37.9% year to date, reflecting higher unit costs, manufacturing and logistics costs, and lower production utilization. Q3 included $7.2m of underutilization fees and co-manufacturing termination costs; the nine-month total was $10.1m.
- Beyond Meat Jerky was a significant margin headwind: management estimated it reduced gross profit by approximately $5.8m in Q3 and $22.8m year to date. Sales to liquidation channels also weighed on gross profit.
- The company recognized $8.7m of its share of joint-venture losses in Q3 and $10.8m year to date, compared with $0.6m and $1.2m in the respective prior-year periods. Foreign-currency transaction losses were $3.9m in Q3 and $10.5m year to date.
- Management expected 2023 R&D and SG&A expenses to decrease from 2022 levels as it reduces and optimizes spending. It continues to target price parity with animal protein in at least one product category by the end of 2024; this is a goal, not a guarantee.
Outlook, risks, contingencies and unusual items
- After quarter-end, the board approved a workforce reduction of approximately 200 employees, or 19% of the global workforce. The company estimated approximately $4m of one-time cash charges, mostly in Q4 2022; actual charges and savings may differ. An earlier reduction affecting approximately 4% of employees was expected to yield about $8m in annualized savings, excluding approximately $1m of separation costs.
- Subsequent to quarter-end, the company agreed to contribute another $6.5m to its PepsiCo joint venture, split between Q4 2022 and Q1 2023. It also had $49.4m of pea-protein purchase commitments, $84.7m of potential co-manufacturing fees over a five-year term, and approximately $40.7m of capital-expenditure purchase-order commitments.
- The long-running Don Lee Farms dispute was settled after quarter-end under a confidential agreement; the company said the settlement had no material impact on its financial position or results. Multiple consumer class actions allege misleading protein claims and/or ingredient representations; the company said potential material losses were not estimable. A French trade association’s labeling lawsuit seeks, among other relief, €200,000 in damages and could affect marketing in France if decided adversely.
- Key risks include continued weak plant-based meat demand and competition, premium pricing and inflation, underused production capacity, inventory and supply-chain commitments, execution of cost reductions, international expansion and foreign-exchange exposure, and the company’s substantial debt and cash burn. COVID-19 and macroeconomic conditions remained uncertainties cited by management.
Investor facts to verify
- Whether demand, pounds sold and revenue per pound stabilize, particularly in international markets and U.S. retail.
- Whether gross margins improve as production utilization, product economics and cost-reduction actions develop, including the economics of Beyond Meat Jerky.
- Cash burn, cash runway and the timing of committed capital spending, lease obligations, ingredient purchases and joint-venture funding.
- Actual savings and costs from workforce reductions, and whether management’s 2023 expense expectations and 2024 price-parity goal remain achievable.
- Developments and potential financial or commercial effects of consumer class actions, the French labeling case and other legal matters.