Business context and reporting period
Beyond Meat, Inc. designs and sells plant-based meat products through retail and foodservice channels in the U.S. and internationally. This unaudited Form 10-Q covers the quarter and six months ended July 3, 2021; comparisons are with the periods ended June 27, 2020.
Key financial metrics
Dollar amounts are in millions unless otherwise noted.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net revenue | $149.4 | $113.3 | $257.6 | $210.4 |
| Gross profit | $47.4 | $33.7 | $80.1 | $71.3 |
| Gross margin | 31.7% | 29.7% | 31.1% | 33.9% |
| Operating loss | $(18.6) | $(8.2) | $(43.2) | $(6.4) |
| Net loss | $(19.7) | $(10.2) | $(46.9) | $(8.4) |
| Adjusted EBITDA | $(2.2) | $11.7 | $(13.1) | $25.6 |
Q2 diluted and basic loss per share was $0.31; first-half loss per share was $0.74. Adjusted EBITDA is a non-GAAP measure and should not be considered a substitute for GAAP results.
At July 3, cash and cash equivalents were $1,009.3, versus $159.1 at December 31, 2020. Current assets were $1,264.1 and current liabilities $71.5. First-half operating cash use was $120.4, investing cash use was $51.6, and financing provided $1,022.1. Capital expenditures paid in cash were $51.4.
Long-term convertible senior notes had a net carrying value of $1,127.7, against $1,150.0 principal; the notes bear no regular interest and mature in 2027. The company repaid and terminated its prior revolving credit facility. Stockholders’ equity was $255.5 at quarter-end.
Material changes versus comparable periods
- Q2 revenue rose 31.8%; first-half revenue rose 22.4%. Q2 product volume increased 31.9%, and first-half volume increased 23.7%.
- International revenue grew 187.1% in Q2 and 83.6% in the first half, led by retail expansion and recovery in foodservice. U.S. foodservice also rebounded sharply from COVID-affected comparisons: Q2 revenue rose 269.4%, while U.S. retail revenue fell 14.3% against the prior-year stockpiling surge.
- Q2 gross margin improved year over year partly because prior-year results included $5.9 million of COVID-related repacking costs. Excluding those prior-year costs, management said Q2 gross margin rose to 68.3% of revenue from 65.1%. First-half gross margin declined 280 basis points despite the absence of those prior-year costs, reflecting higher production overhead, freight and depreciation.
- Operating expenses increased substantially: first-half R&D rose 143.6% and SG&A rose 41.6%, mainly with higher headcount, scale-up activity, marketing and freight. Consequently, first-half operating and net losses widened.
- The $1.15 billion notes issuance substantially increased cash and debt. The company spent $84.0 million on capped calls intended to limit dilution or offset certain conversion-related cash payments.
Outlook, commentary, risks and unusual items
- Management said cash and expected operating cash flows should fund working capital and anticipated capital requirements for the next 12 months. This is not a revenue or earnings forecast.
- Management cited production scale, throughput, localized manufacturing, procurement and product/process improvements as potential gross-margin drivers, while noting that investment, discounting, volume deleverage and costs could weigh on margins. Its stated goal is price parity with animal protein in at least one category by 2024.
- COVID-19, including variants, remained a material source of uncertainty. Management warned that business results and cash flows could be adversely affected through 2021 and likely into 2022; foodservice demand, customer launches, supply chains and consumer spending remained exposed.
- Expansion execution is important: China full-scale end-to-end production was expected by year-end 2021, and Netherlands commercial trials for extruded products were expected to finish by the end of Q3 2021. These are expectations, not completed milestones.
- Commitments included $124.1 million of pea-protein purchases ($44.9 million in the remainder of 2021 and $79.2 million in 2022) and $62.3 million of capital purchase orders due within 12 months. The 12-year headquarters lease has approximately $159.3 million of base rent over its term; $26.6 million had been paid into construction escrow, and lease commencement was expected in Q4 2021 or Q1 2022.
- In the Don Lee Farms dispute, the court granted the opposing party summary adjudication on its breach-of-contract and money-owed claims and on Beyond Meat’s negligent-misrepresentation and conversion claims; other claims remained for trial. The company said a reasonably possible material loss range was not estimable. Shareholder derivative litigation also remained, with potential losses not estimable.
- A subsequent event: on July 15, 2021, the company bought a Missouri office/warehouse property for $10.4 million; accounting evaluation was incomplete.
Important facts for investors to verify
- Whether the foodservice recovery persisted and whether U.S. retail demand stabilized after the prior-year stockpiling comparison.
- Whether gross margin improves as production scales, given first-half margin pressure from overhead, freight and depreciation.
- Whether operating cash burn, inventory growth and planned capital spending remain supportable by available liquidity.
- Progress and costs for China, Netherlands and headquarters projects, and fulfillment of pea-protein and equipment commitments.
- Developments and potential financial exposure in the Don Lee Farms and shareholder derivative litigation.
- Convertible-note conversion, repurchase and cash-settlement terms, including possible dilution and the limits of the capped-call protection.