Beyond Meat, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Beyond Meat fourth quarter 2020 earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Luby, Ketua, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon and welcome. On today's call are Ethan Brown, Founder, President, and Chief Executive Officer, and Mark Nelson, Chief Financial Officer and Treasurer. By now, everyone should have access to our fourth quarter earnings press release and investor presentation filed today after market closed. These documents are available on the investor relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented on today's call is unaudited, and during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. Please refer to today's press release, our annual report on Form 10-K for the fiscal year ended December 31st, 2019. Our subsequently filed quarterly reports on Form 10-Q and our annual report on Form 10-K for the year ended December 31st, 2020 to be filed with the SEC and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management will refer to adjusted EBITDA, adjusted gross profit, adjusted gross margin, and adjusted net income or loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release or investor presentation for reconciliation of adjusted EBITDA, adjusted gross profit, adjusted gross margin, and adjusted net income or loss to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown, Chief Executive Officer of Beyond Meat.

Thank you, Luby, and good afternoon, everyone. When we held our initial public offering a little less than two years ago, we articulated a vision for our business that was neither niche in focus nor limited in ambition. We outlined our goal of taking the core building blocks of meat, amino acids, lipids, trace minerals and vitamins, and water, and organizing them in the familiar architecture of muscle for purposes of providing consumers with a sensory experience that would be, with time, indistinguishable from animal protein. We celebrated and noted the importance of our success with a mainstream consumer whom, as we are today, we were reaching in the meat aisles at the nation's supermarkets, among other venues. We wrote and spoke of a global brand that would be built on the pillars of taste, nutrition, and as we scaled and matured our manufacturing processes and supply chain, affordability based on the strong efficiency advantages of our production model. We argued that if we can match the taste of animal protein, provide a clear case for superior nutrition, and someday offer it at a lower price than animal protein, it would be a rare consumer who rejected the thesis and products. As we began 2020, we shot out of the gate, posting net revenues in Q1 that were 141% above those we saw the previous year. And then the COVID-19 pandemic hit, and like many businesses, we saw precipitous declines in our growth rates, driven largely by significant reductions in food service activities. We chose to keep investing in our business even as short-term challenges persisted, a choice we continue to make today if we remain focused on the long term. We invested heavily in China, where we built a sophisticated production facility in Beijing, and in the Netherlands, where we opened two facilities, one as an independent operation and one owned and operated by our partner, Zandbergen. We grew our operations team and acquired a new production plant in Pennsylvania, and we signed a long-term lease for a brand-new corporate headquarters in Los Angeles, where we were building a state-of-the-art home for our growing research team in their laboratories, collectively referred to as the Manhattan Beach Project. These investments and activities, particularly during this period of COVID-19 revenue disruption, generated losses. They were, however, non-negotiable as we lay the foundation for forward growth. To this end, I'm pleased to share with you today two significant global partnerships, one with McDonald's and the other with Yum! Brands, the parent company of Kentucky Fried Chicken, Pizza Hut, and Taco Bell. both of which are prime examples of what we've been scaling and preparing for. I want to express our immense gratitude for these partnerships and the opportunity to be of service to these industry titans. Both deals truly begin and end with leadership at each organization, and I hope that all who share my optimism for the future and my belief in the positive and determining role that consumers and corporations can play in shaping it will join me in thanking Chris Kantinsky and David Gibbs CEOs at McDonald's and Yum! brands, respectively, for their vision to offer expanded consumer choice on the menu. It is my strong belief that partnerships of this nature with partners of this caliber are required to accelerate our flywheel of availability and scale-driven cost reduction, a dominant theme in our bid for ubiquity among consumers here in the U.S. and abroad. As with all of our existing and highly important strategic partners, we view our role as working on behalf of their franchisees, employees, and shareholders to delight consumers in their venues. Even as we have invested, we will continue to aggressively do so across innovation, commercialization and manufacturing, and marketing to drive success across our partners in food service. Over the coming months, We intend to offer an inaugural investor day to provide greater details around our strategic initiatives, corresponding investments, and global growth plans. While we recognize you undoubtedly have immediate questions, including with regard to the potential implications of our partnerships with McDonald's and Yum! Brands, we are not prepared to elaborate at this time. I want to emphasize that due to the likely phasing of these notable partnerships, any activity is likely to skew toward the latter part of this year And therefore, from a modeling perspective, the potential impact to Beyond Meat in 2021 is likely to be fairly modest. Let me now turn to our full year and Q4 financial results. Despite tremendous disruption to our business from COVID-19, our 2020 net revenues for the year were up 37% relative to 2019. Our ability to grow in 2020 was largely driven by strong retail performance where net revenues were up 108% for the year, offsetting precipitous and sustained COVID-induced weakness in segments of importance to us within food service. Specifically, net revenues as a whole for food service, largely reflecting dormant activity across institutional buyers such as universities, hotels, and stadiums, delays in strategic quick service restaurant trials and launches, and reduced consumption at smaller chains and single operator restaurants were down 31% from the prior year. Pullback in food service volume not only manifested in a lower top line, but gross margins as well, reflecting lower fixed overhead absorption. And we, in fact, compounded this negative absorption effect as we pursued our strategy of increasing internal production capabilities and footprint, independent of short-term conditions. Despite these trends, reduced volume on the one hand and increasing internal production capacity on the other we were still able to complete the year with a 30.1% gross margin, or 32.9% when adjusted for COVID-specific expenses. This dynamic, continued weakness in food service, offset by exceedingly strong retail growth, defined our Q4 results and a composition of $102 million in net revenues for the period. Q4 retail channel sales were up a full 85% year-over-year, which helped mitigate the 54% year-over-year decline in food service. In U.S. retail, our reported net revenues of $62 million for the quarter were up fully 76% year-over-year, representing a sequential acceleration in growth following the destocking behavior we experienced in Q3. In fact, underscoring the unusual consumer behavior we described a quarter ago, our U.S. retail business bucked typical seasonal demand patterns by posting a sequential increase in dollar sales versus Q3 2020. Strength in our U.S. retail business was propelled by robust consumer takeaway in both measured and non-measured channels. According to SPIN's IRI data from U.S. multi-outlet, or MULU, and natural and specialty channel sales for the 12-week period ended December 27, 2020, we continued to hold the number one product position in our category. And sales of Beyond Meat products were up 46% year-over-year, while the plant-based meat category itself was up 29%. This contributed to a 200 basis point year-over-year increase in market share for the Beyond Meat brand. Across Mulu, during the 12-week period ended December 27, 2020, year-over-year increase in our points of distribution drove a 9% decline in our sales velocity, measured in dollars per total distribution points. Note that decreases in sales velocity are quite typical when total distribution points are expanding so significantly. In the fourth quarter, increases in total distribution points were primarily driven by incremental distribution gains at Walmart, as well as our introduction of two new retail SKUs, Beyond Meatballs and and Beyond Breakfast sausage links. Further, looking at what I consider to be a particularly useful set of metrics in measuring the underlying strength of a product, we continue to see great growth across household penetration, buyer rates, purchase frequency, and repeat rates. According to SPIN's IRI consumer panel data for the 52 weeks ended December 27, 2020, our U.S. household penetration increased to 5.3%, representing a 10 basis point increase sequentially nearly a 200 basis point increase versus a year ago. Our buyer rates increased 12% sequentially and approximately 66% versus the prior year. Purchase frequency was up 9% sequentially and 39% versus the prior year. And finally, our repeat rate increased to 55.3% versus 51.9 in Q3 and 43.4 a year ago. That's a lot of numbers, so said differently, despite the challenging macroeconomic backdrop and highly variable consumer buying patterns, more U.S. households continue to buy our products. They're buying them more frequently, and on average, they're spending more per household on our products. Our latest buyer rate was particularly encouraging, given it represents the highest buyer rate in the category, despite Beyond Meat having significantly fewer SKUs than some of its primary competitors. In international retail, we also saw a sequential acceleration of growth from Q3 to Q4. International retail net revenues increased 139% year-over-year, driven mainly by distribution gains in Canada, including in the club stores where we had no presence in the prior year. Turning now to food service in greater detail, what some have called COVID-19's second wave late last year exerted greater pressure on our revenues than we anticipated for the fourth quarter. Though we view these pandemic-related outcomes as transitory, it is nonetheless important to unpack them. As noted, in food service, total net revenues declined 54% year over year. Whereas sales to food service customers represented 59% of our revenue mix in Q4 2019, in the fourth quarter of 2020, food service sales fell to 26% of mix. From a geographic perspective, our U.S. international food service sales declined 43% and 63%, respectively, versus the prior year. Domestically, we saw a progressive deterioration of demand in food service as the quarter unfolded, likely due to the resurgence of COVID-19 infection rates seen late last year. Given our aforementioned exposure to channels that have been disproportionately impacted by COVID-19, including amusement parks, sports arenas, academic institutions, hotels, corporate catering services, and others, we expect recovery in our food service business may lag the broader food service sector. All of this said, as in retail, Beyond Meat remained the number one brand in terms of dollar sales across NPD tracked channels. This is worth repeating. I've outlined a deep and disruptive decline in food service activity due to COVID-19. Nevertheless, we remain the number one brand in terms of dollar sales across NPD-tracked food service activity. As a reminder, NPD covers broad-line distribution to U.S. food service outlets, but generally excludes major quick-serve restaurant chains, which typically utilize direct delivery systems. Within quick-serve restaurant chains in both our U.S. and international regions, overall sales remained well below pre-COVID levels. This downturn is consistent with an emphasis among quick-serve restaurant partners on core menu items during this period of disruption, as well as being reflective of wait-and-see approach to COVID-19 infection trends with regard to further tests, trials, and launches. We are beginning to see some nascent evidence of an emergence of near-term activity within the quick-serve restaurant space, including the national and select trials of Beyond Meat products at Pizza US and Pizza UK, respectively. Additionally, subsequent to the quarter, we also secured additional trials at Starbucks UK and Starbucks Middle East and initiated tests with McDonald's in Sweden and Denmark. However, as we've seen throughout the course of the pandemic, it is extremely difficult to predict trends. More generally, we stayed true to our focus on laying the foundations of future growth and added significant distribution. Beyond Meat is now available in approximately 62,000 global retail outlets and 60,000 global food service outlets, representing increases of 68% and 48% respectively versus the end of 2019. Our products are also now available in over 80 countries outside the U.S., up from 65 a year ago. Before turning to Mark for a financial summary, I'd like to revisit and expand on the underlying pillars that will define our success. For those who follow our brand, our emphasis on the taste, health, and long-term cost structure of our products should be familiar. We allocate substantial focus across the company to advancing this trinity, and as such, in each case, an update is appropriate. First and always first, taste. As has been our commitment, we continue to intensely iterate the quality of our products toward our North Star objective of being indistinguishable from animal protein. As disclosed during our Q3 call, this spring we are launching the newest version of our iconic Beyond Burger platform. This latest Beyond Burger iteration delivers what we view to be strong enhancements in flavor, juiciness, and nutrition. To provide consumers with choice, In a fashion that is similar to the presentation of animal beef, we are offering the Beyond Burger 3.0 in two distinct cuts. In the first instance or cut, we are bringing to market our juiciest patty for our meatiest burger experience to date, even as it still contains 35% less saturated fat than 80-20 beef. Not satisfied, believing that we can continue to advance the nutrition of our platforms and the health of our consumers, we are also launching, in the second instance or cut, a delicious patty that boasts even lower saturated fat, 55% less than 80-20 beef. Both new burgers boast a savory taste profile, have lower overall fat and fewer calories than 80-20 beef, and have B vitamins and minerals comparable to the micronutrient profile of beef. Both burgers have undergone extensive consumer testing with excellent results. The launch of the 3.0 platform will be accompanied by a robust marketing program that emphasizes great taste and health benefits, the latter being an important message given the presence of misinformation and misleading positioning around our process and ingredients. Finally, moving from taste to health to now cost. Over the last year, you've seen us make significant investments in operations capabilities and infrastructure. These investments were and are continuing to be made to prepare for the growth ahead. Yet they are equally important to our cross-town initiative. As you will recall, we set a goal nearly two years ago to be able to underprice animal protein in at least one product within five years. Among the many parts of our business touched by this objective, the development of fully integrated production processes and facilities, as well as the development and use of local supply chains, are critical steps. The former reduces labor and logistics costs, where the latter can favorably influence the cost of ingredients. In the U.S., we've moved with pace to scale up integrated production at our recently acquired production facility in Pennsylvania. You'll see the same strategy at work across the world in Yajing in China, where a new facility is designed with end-to-end capabilities. These investments should not suggest that we will internalize all production, but rather we are pursuing an optimized balance of internal and external resources depending on product and market. For example, we are working very closely with our partners at Zandbergen in the Netherlands at their wholly dedicated and brand new, as of last year, Beyond Meat facility. At the same time, we acquired our own facility in the Netherlands to be able to access local supply chains wherever feasible as we form the core protein that we send to Zandbergen for downstream operations. And of course, this local supply chain access is a key advantage of our Yajing facility in China. Though these expansions have been disruptive and come with considerable capex as well as sizable operational costs as we transition to and scale these new facilities and lines, investments are the right moves at the right time in the context of our longer-term growth strategy. Before closing, I'd like to briefly comment on our new joint venture with PepsiCo, the Planet Partnership. PepsiCo is the preeminent leader in the snacking and beverages space, and we are humbled to join forces with them. While we are not sharing specifics about the scope and timing of the new joint venture's first product launch at this time for competitive reasons, we are thrilled to combine our expertise in plant-based protein with PepsiCo's tremendous breadth of distribution, strength in marketing, and other world-class capabilities. Together, we are committed to providing an expanded portfolio of snack and beverage products designed to advance the health of consumers and the planet alike. We look forward to sharing more with you about this exciting new venture as we get closer to the Planet Partnership's first product launch. In summary, we start 2021 with considerable optimism. I want to reemphasize that we will continue to make bold forward bets on our future growth and that you can expect us to see step-up investment across innovation, commercialization and operations, marketing, international expansion, and cost-down initiatives. We believe this ambitious agenda, precisely at this time, is warranted by the size of the global opportunity and where we stand today relative to it. With that, I'll turn it over to Mark, who will provide a thorough update of our Q4 and 2020 financial results.