Beyond Meat, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 29, 2019; comparisons are with the periods ended June 30, 2018. Amounts below are in U.S. dollars. The company sells plant-based meat products through retail and restaurant/foodservice channels.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Net revenue | $67.3 million | $17.4 million | $107.5 million | $30.1 million |
| Gross profit / margin | $22.7 million / 33.8% | $2.6 million / 15.0% | $33.5 million / 31.2% | $4.7 million / 15.5% |
| Operating income (loss) | $2.2 million | $(7.3) million | $(3.1) million | $(12.9) million |
| Net loss | $(9.4) million | $(7.4) million | $(16.1) million | $(13.1) million |
| Net loss per share, basic and diluted | $(0.24) | $(1.22) | $(0.69) | $(2.21) |
- Q2 revenue rose 287%; first-half revenue rose 257%. Fresh-platform sales drove growth, with strong increases in both retail and foodservice. Fresh products represented $67.7 million of Q2 gross revenue before discounts; frozen-platform gross revenue was $5.6 million.
- Gross margin improved substantially, which management attributed to higher sales volume, production efficiencies and a greater mix of higher-priced fresh products. Q2 operating income turned positive, but the company remained loss-making for the first half.
- Net loss included a $11.7 million Q2 ($12.5 million first-half) non-cash warrant-liability remeasurement expense associated with the IPO. Adjusted EBITDA, a non-GAAP measure, was $6.9 million in Q2 and $4.7 million in the first half, versus losses of $5.6 million and $9.9 million, respectively, in the prior-year periods.
- Six-month operating cash flow was negative $22.4 million, compared with negative $12.7 million in 2018. Investing cash outflow was $10.9 million; financing cash inflow was $256.0 million, primarily from the IPO. Cash and cash equivalents were $277.0 million at June 29, versus $54.3 million at year-end 2018.
- Total debt carrying value was $30.5 million, including $6.0 million drawn on the revolving facility, $20.0 million under the term loan and $5.0 million on the equipment loan, net of debt issuance costs. The company reported no remaining availability under the SVB facilities and said it was in covenant compliance. Cash substantially exceeded reported debt at period-end.
- Current assets were $361.8 million and current liabilities $40.4 million at June 29. Management stated cash, operating cash flow and available borrowing capacity would be sufficient for at least 12 months, although the filing reports no remaining availability under the SVB facilities.
Material changes and notable events
- The May 2019 IPO raised approximately $252.4 million net. All outstanding convertible preferred shares converted into common stock; common shares outstanding were 60.2 million at June 29. The company began trading on Nasdaq in May.
- Retail revenue rose 192% in Q2 and restaurant/foodservice revenue rose 483%. International sales excluding Canada increased to approximately 12% of Q2 net revenue from 3% a year earlier.
- SG&A rose 120% in Q2 and R&D rose 69%, reflecting higher staffing, public-company and professional costs, freight, commissions, marketing, and product and production investment.
- The company discontinued its frozen chicken strips product line in Q1 2019 as it shifted focus toward fresh products.
- Inventory increased to $42.7 million from $30.3 million at year-end; accounts receivable rose to $34.4 million from $12.6 million. These working-capital increases contributed to operating cash use.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management expects growth from expanded distribution, production capacity, fresh products, innovation and international sales, but cautioned that demand may outpace capacity. It expects operating expenses to rise in absolute dollars, while gross margin may benefit from scaling and efficiency gains.
- Expected capital expenditures were approximately $7 million for the remainder of 2019 and $40 million in 2020. The company had a $28.4 million commitment to purchase pea protein inventory.
- Key risks include dependence on a limited number of pea-protein suppliers and distributors, manufacturing and co-manufacturer capacity, food safety and product quality, competition and changing consumer preferences, promotional activity, seasonality, and regulatory or labeling changes. Two distributors each accounted for roughly 21%–22% of first-half gross revenue.
- A dispute with former co-manufacturer Don Lee Farms includes contract, trade-secret, fraud and negligent-misrepresentation claims; the court allowed the latter claims to proceed. Trial was set for May 18, 2020. The company denies the claims, but stated that a potential loss could not be reasonably estimated; potential damages and injunctive relief are described in the filing.
- Management expects approximately $2.1 million of depreciation and amortization per quarter in 2019 based on existing assets and anticipated capital expenditures. It also noted that demand and production timing, ingredient costs and promotional discounts could cause results to vary.
Important facts for investors to verify
- Whether rapid revenue growth can be sustained while expanding production and improving margins, and whether operating cash use remains manageable.
- Whether the reported 12-month liquidity assessment reconciles with the absence of remaining availability under the SVB credit facilities and planned capital spending.
- Progress on capacity expansion, supply diversification and the $28.4 million pea-protein commitment, including any effect on costs or product availability.
- Developments in the Don Lee Farms litigation, for which the potential loss was not estimable, and any resulting financial or operational exposure.
- Whether distributor concentration, promotional discounts, product mix and the Beyond Burger’s substantial share of gross revenue create material sales or margin volatility.