Beyond Meat, Inc. — Form 10-Q Summary
Reporting period: Third quarter ended October 2, 2021; year-to-date figures cover the nine months ended October 2, 2021. Comparisons are to the corresponding 2020 periods. The company sells plant-based meat products through retail and foodservice channels in the U.S. and internationally.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $106.4 million | $94.4 million | $364.0 million | $304.8 million |
| Gross profit | $23.0 million | $25.5 million | $103.0 million | $96.9 million |
| Gross margin | 21.6% | 27.0% | 28.3% | 31.8% |
| Operating loss | $54.0 million | $18.5 million | $97.2 million | $24.8 million |
| Net loss | $54.8 million | $19.3 million | $101.7 million | $27.7 million |
| Adjusted EBITDA (non-GAAP) | $(36.8) million | $(4.3) million | $(49.8) million | $21.3 million |
Cash flow and liquidity: For the first nine months, operating activities used $191.0 million, investing activities used $104.4 million, and financing activities provided $1,022.1 million. Cash and cash equivalents were $886.4 million at October 2, 2021, compared with $159.1 million at December 31, 2020. Management said cash and expected operating cash flows should fund working capital and anticipated capital needs for the next 12 months.
Debt and balance sheet: The company issued $1.15 billion of 0% convertible senior notes due March 2027, with a $206 initial conversion price, and spent $84.0 million on capped calls intended to reduce potential dilution, subject to a cap. Notes’ net carrying amount was $1.129 billion. The prior $25.0 million revolving facility was repaid and terminated. Current assets were $1.153 billion and current liabilities $74.3 million. Inventory rose to $193.5 million from $121.7 million at year-end 2020. Nine-month capital expenditures were $104.3 million.
Material changes and operating trends
- Q3 revenue rose 12.7%, driven by international revenue growth of 142.5%; U.S. revenue declined 13.9%. Nine-month revenue rose 19.4%, with international revenue up 100.0% and U.S. revenue up 0.7%.
- Q3 U.S. retail revenue fell 15.6% and U.S. foodservice fell 7.3%. International retail and foodservice revenue increased 168.2% and 117.1%, respectively. Management attributed U.S. weakness to lower demand and operational challenges, including severe weather; the company reported unfulfilled orders.
- Gross margin contracted as costs rose faster than revenue. Management cited transportation, warehousing, labor, inventory write-offs, depreciation and fixed-cost pressures. Operating expenses increased substantially, particularly R&D and SG&A, reflecting higher headcount, marketing, professional services and shipping costs.
- Q3 foodservice revenue declined 25.2% from Q2 2021 to $32.7 million, primarily due to lower demand. Retail revenue declined 32.2% from Q2 to $52.4 million.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management expected COVID-19 to adversely affect business and financial results through 2021 and likely into 2022. It cited foodservice weakness, labor and supply-chain disruption, inflationary input and logistics costs, and uncertainty from pandemic resurgences and variants.
- Management described potential gross-margin improvements from higher volume and throughput, manufacturing localization, procurement efficiencies, product and process innovation, and cost reductions. The company aims to reach price parity with animal protein in at least one product category by 2024.
- Major commitments included $82.0 million of pea-protein purchases ($29.1 million due in the remainder of 2021 and $52.9 million in 2022) and $65.9 million of capital-expenditure purchase orders due within 12 months. The 12-year headquarters campus lease has approximately $159.3 million of base rent over its term; $49.5 million had been placed in construction escrow, and lease commencement was anticipated in Q4 2021 or Q1 2022.
- The Don Lee Farms litigation remains ongoing; trial was set for May 16, 2022. The court granted the plaintiff summary adjudication on breach-of-contract and money-owed claims, while certain trade-secret and unfair-competition claims against Beyond Meat were dismissed. The company said a potentially material loss range was not estimable.
- A preliminary settlement of certain shareholder derivative actions was subject to court approval and contemplated corporate-governance reforms and plaintiffs’ legal fees and costs, with the amount undetermined.
- Other notable items: restructuring expense was $5.8 million in Q3, mainly legal costs tied to the co-manufacturer dispute; the company recorded $0.6 million of equity-method losses from its PepsiCo joint venture in Q3. Disclosure controls were assessed as effective.
Investor facts to verify
- Whether international growth can offset persistent weakness in U.S. retail and foodservice demand, and whether recent product launches and distribution gains translate into sustained sales.
- Whether gross-margin declines, higher operating expenses and negative adjusted EBITDA persist as input, freight, labor and fixed costs evolve.
- Inventory levels, cash burn and execution of manufacturing expansion, including commercialization and qualification milestones in China and the Netherlands.
- Cash requirements for the campus lease, capital commitments and pea-protein purchases, alongside the company’s ability to maintain liquidity while funding expansion.
- Outcomes and financial consequences of the Don Lee Farms case and derivative-action settlement, including legal costs and any liabilities that remain unestimable.
- Potential dilution and cash obligations under the convertible notes, including conversion, repurchase and fundamental-change provisions.