Beyond Meat, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 30, 2019; comparable period ended March 31, 2018. Unaudited interim financial statements. Beyond Meat sells plant-based meat products through retail, restaurant and foodservice channels.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net revenue | $40.2 million | $12.8 million |
| Gross profit / gross margin | $10.8 million / 26.8% | $2.1 million / 16.1% |
| Operating expenses | $16.1 million | $7.6 million |
| Loss from operations | $(5.3) million | $(5.6) million |
| Net loss | $(6.6) million | $(5.7) million |
| Adjusted EBITDA (non-GAAP) | $(2.1) million | $(4.3) million |
| Cash used in operating activities | $(13.3) million | $(4.9) million |
| Cash used in investing activities | $(5.0) million | $(3.7) million |
Revenue increased 214.7% year over year. Gross margin improved 10.7 percentage points; management attributed the improvement to higher sales volume, production efficiencies and a larger share of higher-priced fresh products. Operating loss narrowed, but net loss widened, principally due to higher interest and other expense, including warrant-liability remeasurement. Basic and diluted loss per share was $0.95, versus $0.98.
At March 30, cash and cash equivalents were $35.4 million, total current assets $92.4 million and current liabilities $21.9 million. Debt outstanding was approximately $30.4 million, including $6.0 million on the revolving facility, $20.0 million in term loans and $5.0 million in equipment financing. The company had no remaining borrowing availability under the SVB facilities and was in compliance with their covenants. Stockholders’ deficit was $127.2 million.
Material changes and business developments
- Fresh-platform revenue rose 304.4% to $38.8 million; frozen-platform revenue declined 5.0% to $4.5 million. The company discontinued its frozen chicken strips product line during the quarter.
- Retail revenue grew 110.8% to $19.6 million, while restaurant and foodservice revenue grew 491.4% to $20.6 million. International sales represented approximately 14% of net revenue, compared with approximately 1% in the prior-year quarter.
- Operating cash outflow increased substantially, with cash uses from working-capital changes and a larger net loss. Capital expenditures were $3.8 million before other investing outflows.
- On May 6, 2019, after quarter-end, the company completed its IPO, selling 11,068,750 shares at $25 per share and receiving approximately $252.5 million in net proceeds. Preferred stock converted into common stock at the IPO closing. These transactions are not reflected in the March 30 balance sheet.
Outlook, risks and contingencies
- No formal revenue or earnings guidance is provided. Management expects continued growth from fresh products, broader retail and foodservice distribution, international expansion and increased production capacity. It expects operating expenses to rise in absolute dollars as the business scales.
- Management anticipated approximately $17 million of 2019 capital expenditures and quarterly depreciation and amortization of approximately $2.1 million. It stated that cash, IPO proceeds, operating cash flows and available borrowing capacity were expected to fund working capital and anticipated needs for at least 12 months; however, the stated borrowing facilities had no availability at quarter-end.
- Demand may outpace production capacity. The company depends on a limited number of pea-protein suppliers and co-manufacturers; it reported $46.1 million of pea-protein purchase commitments. Two distributors each represented approximately 21% of Q1 2019 gross revenue.
- The company continues to litigate claims by former co-manufacturer Don Lee Farms, including trade-secret, contract, fraud and negligent-misrepresentation claims; the company disputes the claims and has asserted counterclaims. A judge allowed the fraud and negligent-misrepresentation claims to proceed on May 30, 2019, and trial was set for May 18, 2020. The company could not reasonably estimate potential liability.
- Other key risks include sustained losses, scaling manufacturing, ingredient availability and prices, food safety and labeling regulation, competition, seasonality, and the company’s ability to sustain growth and improve profitability.
Important facts for investors to verify
- Whether production capacity and supplier arrangements can support demand without impairing product availability or margins.
- Whether operating cash outflows and planned capital expenditures remain manageable following the IPO, and how proceeds are deployed.
- How revenue growth, product mix, promotional discounts and distributor concentration evolve in subsequent quarters.
- Developments and potential financial exposure in the Don Lee Farms litigation, for which the filing provides no clear estimable loss value.
- Whether gross-margin improvement translates into sustainable operating profitability despite rising operating costs, debt service and seasonal fluctuations.