Beyond Meat, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Beyond Meat Incorporated 2021 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Luby Katua, Vice President, FP&A Investor Relations for Beyond Meat. Thank you. You may begin.

Thank you. Good afternoon and welcome. Joining me on today's call are Ethan Brown, founder, president, and chief executive officer, and Phil Harden, chief financial officer and treasurer. By now, everyone should have access to the company's third quarter earnings press release and investor presentation filed today after market close. 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, the company's annual report on Form 10-K for the fiscal year ended December 31st, 2020. The company's quarterly report on Form 10-Q for the quarter ended October 2nd, 2021, 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, and adjusted net 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 the investor presentation for a reconciliation of adjusted EBITDA, adjusted gross profit, and adjusted net loss to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown.

Thank you, Luby, and good afternoon, everyone. Before discussing our Q3 2021 results in detail, I want to provide context for my commentary and clearly differentiate between short-term variability on the one hand and ongoing strong progress toward our long-term vision of becoming tomorrow's global protein company on the other. The broader context of my remarks can be summarized in two main points. First, my comments are our best understanding of an environment that is characterized by rapidly changing, and we believe largely transitory, dynamics. We are reminded, for example, that a quarter ago, Q2 2021, we posted record net revenues of $149 million. We believe our long-term thesis is strengthening, and undeterred by current instability, we've been making bold investments in our innovation, manufacturing, operations, and sales and marketing capabilities across the US, EU, and China. We make these investments not as hopeful thinking, but rather prudent planning against forthcoming launches and strategic growth activities. Second, my comments today are focused on the entirety of the quarter, how the business performed relative to our expectations as we began 2021 and our promising path forward. The headline for the third quarter relative to our expectations at the onset of 2021 is that it was a difficult operating environment, highly variable demand reflecting the Q2 retreat and then Q3 reemergence of COVID in the form of the Delta variant, sustained labor shortages impacting certain customers as well as our own facilities, and other high-impact supply chain disruptions are among the challenges characterizing the quarter. As we headed into Memorial Day, we, like many in the country, felt that the long shadow of COVID was finally receding. We saw growth in food service as restaurants and venues reopened to strong consumer demand and posted our aforementioned record quarter in Q2 2021. We began looking eagerly to the resumption of activities with our strategic quick-serve restaurant partners, both in the US and abroad, a key building block in our originally anticipated growth plan for 2021. Yet as the summer wore on and the Delta variant took hold, we did not see a sustained recovery. And as you will recall, in food service, COVID-19 disruptions in consumer behavior are particularly challenging for the segment of customers that we serve. Though in our largest active chain in the U.S. that does offer drive-through, we saw a meaningful uptick in velocity in the quarter, The majority of our customers today rely on in-store and in-venue consumption for sales. Accordingly, we were disproportionately impacted throughout the quarter as the Delta variant dampened consumer activity within the core of our food service customer base. Further, within food service, we believe that the downward pressure exerted by the Delta variant was further exasperated by labor shortages that drove reduced operating hours and menu rationalization. For our business, the extent that moving from test to fuller launches with our strategic QSR partners is an important contributor to our revenue build. The combined contribution of COVID's long tail and related labor shortages has had a particularly disruptive, though we expect transitory, impact on our growth trajectory. In short, though as we plan 2021, we held cautious expectations by the second half of the year we'd have our footing back in food service and specifically be more active with many of our QSRs, we saw further delays. Unlike 2020, when food service challenges led to a marked increase in retail activity, as food service demand reduced, we did not see a corresponding increase in activity in retail at either the brand or category level during the third quarter. We believe that the following broader behaviors and trends may be at play. This expectation is not intended to be exhaustive, and with time, we expect we will gain a fuller understanding of the drivers behind third quarter demand levels. One, consumers reported fewer, less frequent trips to the store. Two, consumers reported being less open to trialing new products. Three, consumers reported less interest in healthy options. Four, the cancellation or reduced scope of our sampling programs as the Delta variant spread limited new consumer exposure to our brand and category. Five, To a much lesser extent than food service, though still relevant, labor issues created complexity and possibly impacted demand at retailers due to delayed shelf resets and less frequent restocking. Six, with increased competition over the past two years, we're seeing, as expected, some impact on our market share. However, in looking at the Q2 to Q3 SINs market share data on a product mix neutral basis, it does not reveal competition to be a significant contributor to the aforementioned deceleration. Finally, when considering demand, it is worth noting the possible impact of our Q2 2021 revenues. We experienced a significant increase in shipping toward the end of the second quarter, driven in part by retailers stocking up for July 4th and the balance of summer grilling season, and food service operators anticipating a broader reopening of the economy. We believe these heavier levels of shipping during the last month of Q2 likely negatively impacted Q3 reorders. Turning supply chain, we experienced a series of disruptions throughout the quarter. These included labor shortages in our facilities at a transportation partner, at co-packers, and at third-party logistics providers. Collectively, these labor issues added complexity across operations and impacted our ability to fill certain orders. Additionally and significantly, Severe weather interrupted water supplies for two weeks at our Pennsylvania production facility, as well as destroyed sizable amounts of packaging inventory at a related storage center. Though we were able to reallocate certain materials from other locations, the loss of packaging materials at our storage facility had a sustained impact on our ability to fill orders as we awaited replenishment of damaged inventory. I do want to take a moment to discuss the general balance of exogenous and internal factors that contributed to our results this quarter. As you know, at Beyond Meat, we are highly focused on driving, with urgency, continuous improvement in our products. This cultural bent is captured in multiple ways, including the language we use to describe our processes, such as the longstanding Beyond Meat Rapid and Relentless Innovation Program, our internal innovation initiative. We apply the same lens of continuous improvement to our own organization, and this difficult operating environment highlighted areas of opportunity in our maturing company. As labor challenges, severe weather, and an explosion at one of our key suppliers each interfered with our operations in Q3, we worked to materialize planned redundancy more rapidly across our supply chain. Further, we encountered delays in some of our commercialization efforts, certain of which highlighted the need to expedite the consolidation of our scaling activities within a dedicated commercialization facility here in Los Angeles, one that is now underway. Having weathered both literal and figurative storms throughout the quarter that brought into sharper focus areas for more rapid development, we are emerging as an even stronger organization. These disruptions notwithstanding, through Q3 2021, we remained highly focused on the execution of our long-term strategy. And accordingly, we are pleased to report that we continue to gain ground across key enablers of our long-term growth. Broadly, we've invested heavily in readying an impressive range of products for our QSR partners, but significant resources against expanded capacity for planned launches. Our efforts are, of course, not limited to the U.S. market. As in the U.S., in the EU and China alike, we continue to strengthen and grow our capabilities, including sales, marketing, manufacturing, operations, and innovation, among others, as we expand our presence in these important global markets. Finally, we expect next month to announce an exciting addition to our leadership team and operations, one that will bring valuable and directly relevant experience in serving our QSR partners and scaling global food manufacturing operations. With this context as background, I will now provide greater detail into our Q3 results. We generated net revenues of $106 million, representing a 13% increase over the third quarter of 2020. Total retail net revenues were up 5% year-over-year, with continued strength in international retail, which increased 168% year-over-year, partially offset by weaker results in U.S. retail, which declined 16% year-over-year. Representative of the unusual patterns we are seeing, our third quarter U.S. retail net revenues were lower on a sequential basis, which runs counter to the general seasonality we were accustomed to seeing in our pre-COVID numbers. Our leadership position in U.S. retail continues to be borne out in product sales rankings, where we maintained our number one top-selling SKU position across all of plant-based meat and continue to own four of the top six best-selling SKUs in the category. Further, we gained distribution with a 23% increase in TDPs versus a year ago, according to spin data for U.S. Mulu, for the 12 weeks ended October 3rd. As you know, increasing TDPs is a positive outcome for our brand over the long run, but tends to exert downward pressure on velocity. Specifically, we saw a 21% year-over-year decline in velocity for the brand in U.S. Mulu for the same period. These dynamics notwithstanding, our brand velocity remains nearly three times higher than the category average on an absolute basis, which we believe strengthens our case for further distribution expansion with retailers. We continue to see consistent progress in important metrics such as household penetration and repeat rates. While household penetration for the category was down slightly on a sequential basis, we note continued advancement in our own penetration, which increased 20 basis points sequentially and 90 basis points year-over-year to 6.4%, according to SPIN's IRI consumer panel data for the 52 weeks ended October 3, 2021. With more households buying our products, we were pleased to see that our repeat rates also increased 60 basis points sequentially to 52.6%. Our buyer rate decreased 4% sequentially, likely impacted by higher promotional activity in Q3, while our purchase frequency was modestly lower quarter over quarter to the tune of negative 0.3%. We continue to innovate in the retail space and just recently began the early stages of a national rollout of Beyond Chicken Tenders. This product, derived from fava beans, is a clear winner on taste, texture, and nutrition, as it delivers 50% less saturated fat than traditional chicken tenders, while containing no GMOs, antibiotics, hormones, or cholesterol. We are pleased to report that right out of the gate, Beyond Chicken Tenders won the prestigious 2021 Food and Beverage, or FABI, Award from the National Restaurant Association. You should expect to see more from us under this platform in the near future, as we seek to offer a broad assortment of product offerings that grow our chicken portfolio. Turning to U.S. Food Service, we maintained our number one brand position in terms of dollar share, according to NPD data, for the three months ended September 2021, despite the intense variability from Q2 to Q3. Net revenues decreased 7% year-over-year and were, as noted, well below our Q2 total. As I shared, a good portion of our U.S. food service business, about two-thirds historically, but even higher now, is composed of outlets that were disproportionately impacted by COVID-19 and the emergence of the Delta variant. These include small independent restaurants, bars and pubs, corporate catering services, hotels, movie theaters, shopping arenas and amusement parks, among others. Internationally, our business again generated strong results with retail sales up 168% year-over-year and food service sales up 117% year-over-year, collectively reflecting gains in both distribution and average sales per outlet. I'll now provide a brief update on some recent product highlights and key strategic initiatives. McDonald's initiated limited-time offerings of the McClant Burger made with Beyond Meat patties in three European markets, including Austria, the Netherlands, and the U.K. In addition, as you've likely noted, last week McDonald's initiated a small, limited-time operations test at eight restaurants here in the U.S., We are excited to work with such an iconic global brand as McDonald's, and we're equally excited to see the overwhelmingly positive media response generated by the early tests in Europe. At the end of October, I was visiting our facilities in the Netherlands and had the opportunity to buy the McPlant Burger. It was, as expected, outstanding. On returning to the U.S. the following week, I was able to do the same in Los Angeles. In both instances, I watched and interacted with other consumers as they enjoyed the McPlant. Encouragingly, these consumers fit the mold of the flexitarian, and while not vegan or vegetarian, we're enjoying the McPlant burger. In Canada, we introduce Beyond Meat Nuggets nationwide at A&W on a limited time basis, marking another great milestone with one of our earliest QSR partners. This exciting product offers 18 grams of plant-based protein per six-piece serving, and as always, is made from simple plant-based ingredients with no GMOs, antibiotics, hormones, or cholesterol. Also in food service, Pizza Hut launched a limited rollout of our latest product innovation, Beyond Pepperoni, at roughly 70 locations across five U.S. markets. This new product, co-developed with Pizza Hut's culinary teams, truly showcases the strength of our innovation capabilities as we overcame numerous technical challenges to ensure that Beyond Pepperoni is nearly indistinguishable from Pizza Hut's iconic original pepperoni, even down to its crispiness properties. This limited offering at Pizza Hut in the U.S. comes on the heel of the permanent menu launch of Beyond Meat products at Pizza Hut UK in July. Given pepperoni's consistent ranking as the number one selling pizza topping in the U.S. and elsewhere, we are excited about the potential of this product line and are eager to expand its availability over the coming quarters. Last, but certainly not least, in the food service space, we recently announced the expansion of our test with Panda Express to 10 major markets across the U.S. at 70 locations. This follows the initial success of Beyond the Original Orange Chicken at select Panda Express locations in Southern California and New York City, which garnered rave consumer and media reviews and sold out in less than two weeks at all SoCal stores, making it one of Panda's most successful regional launches to date. We are proud to be Panda's partner of choice to recreate their iconic and most popular menu item. Let me now provide a brief update on our progress in growing our operations in the EU and China. We are now capable of performing each aspect of our production process in-country in the Netherlands and China, from production of our dry blends to extrusion to finished goods assembly. Moreover, in the Netherlands and China, we are operating our highest throughput extruders yet. For some time now, we've been building toward full end-to-end production in both geographies, and reaching this milestone is a major accomplishment for our team. I'm extremely proud of them and their work. As you can imagine, scaling complex processes in different economies around the world can be challenging. Doing so during the last 18 months under COVID-19 conditions complicated the work of our employees considerably. In just one example, due to travel restrictions to our Yajing China facility, we were required to conduct a significant amount of scaling activities with new staff over video conferencing equipment. We continue to pursue our global cost down program with the end goal of price parity with animal protein in at least one category, beef, pork, or poultry, within the next two and a half years. Today, we are working through a robust pipeline of cost reduction opportunities, including in the areas of raw ingredient procurement savings, waste reduction, throughput improvement, network optimization, including potential insourcing opportunities, warehousing and transportation efficiencies, before-mentioned local production in our global markets, and packaging optimization. With these efforts already underway and those still to come, I feel very confident about reaching our cost parity goal within the committed timeline. In closing, it remains our objective and focus to insulate our long-term strategy from short-term conditions. Just as we did not adjust our focus and strategy as a result of record revenues in Q2 of this year, continue to execute against our plan despite a difficult third quarter. As such, this remains a period of intense investment in our future. Here and abroad, we will continue to make the innovation, commercialization, marketing, and global production investments necessary for long-term growth. These investments are not founded on hopeful thinking, but rather are the result of planning against key partnerships, market development initiatives, and other opportunities, many of which have been delayed due to COVID-19 and the Delta variant, labor shortages, and supply chain challenges, including our own and those of customers. One of the benefits of being a relatively new public company whose early experience in the public markets has been forged by the last 18 months is enduring multiple stress tests that reveal both strengths and weaknesses and generate accelerated learning. We are emerging from the pandemic and its attendant challenges are far stronger as a result and are continually making progress on our long-term growth pillars of taste, nutrition, and cost as we prepare for 2022 and beyond. With that, I'll now turn it over to Phil to walk us through our third quarter financial results and outlook for the balance of the year.