Beyond Meat, Inc.

Good afternoon and welcome to Beyond Meat's fourth quarter earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I'd like to turn the call over to Mr. Luby Katua, VP of FP&A and Investor Relations. Thank you very much, everyone. Please go ahead, sir.

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 fourth quarter earnings press release and investor presentation filed today after market close. These documents are available on the investor relations of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all 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 quarterly report on Form 10Q. The quarter ended October 2, 2021. The company's annual report on Form 10K for the fiscal year ended December 31st, 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 note that on today's call, management may make reference 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, any reference to 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 reconciliation of adjusted EBITDA, adjusted gross profit, and adjusted net loss to their most comparable GAAP measures.

I would now like to turn the call over to Ethan Brown. Thank you, Louie, and good afternoon, everyone. Like many, we saw challenges throughout 2021, including the fourth quarter. Before delving more specifically into our quarterly and full-year 2021 results, I'd like to share a broad view. Since 2018, our last year as a private company, we've grown our business 428% for a three-year CAGR of 74%. Though we posted growth of 37% in 2020, We saw a much more modest increase of 14% in 2021, recording net revenues of approximately $465 million, and a fourth quarter that was roughly flat at $101 million, or negative 1% year over year. A key question is whether this reduced growth rate is an aberration or a harbinger of things to come. As our 2022 guidance suggests, we believe last year's growth rate to be temporary and that growth will build to higher levels this year. Our confidence springs from four general factors, among others. One, we do not expect certain positive consumer trends that appear related to COVID and that did not favor our category to persist. Chief among these trends were diminished focus on health-oriented eating choices, with consumers opting instead for comfort foods, and a reduced openness and ability to trial. As you may recall, in 2021, we prepared to launch our largest in-store sampling program to date, only to scuttle those plans as the Delta variant took hold. Today, after two years with only relatively scarce in-store sampling, in the first half of this year, we expect to resume robust in-store sampling programs for retail items. These effective programs have long been a staple of our field marketing efforts, given our conviction that tasting is believing. Two, throughout COVID, we've been investing heavily in product innovation and scaling with our strategic partners. In many cases, together we have awaited the pandemic's abatement and the resolution of labor and supply chain challenges before further market activity. As with the resumption of our broader sampling program, this period of delay appears to be coming to an end, and several products are in various stages of market entry or expansion. These include the recently concluded Expanded test of Beyond the original orange chicken at Panda Express. Advertised tests occurring in McDonald's in Dallas and San Francisco of the McPlant, featuring a plant-based patty co-developed with Beyond Meat. The core menu placement of McPlant featuring Beyond Meat on McDonald's across the UK. The core menu placement of Beyond Italian sausage crumbles at Pizza Hut locations throughout Canada. and the core menu placement of three Beyond Meat toppings at Pizza Hut delivery locations across the UK, and the recent national limited-time offering of Beyond Fried Chicken at KFC locations nationwide. In retail, in the coming weeks, we plan to launch an exciting and brand-new product line via the Planet Partnership, our joint venture with PepsiCo. Three, as we've discussed, despite the strong and steady progress we're making with our strategic QSR partners, The majority of our food service business, nearly 80% in 2021, has remained concentrated across independent operators, smaller chains, hotels, universities, and others that were most impacted by COVID-related disruptions. In the absence of another variant or unforeseen disruption, we expect to build on our recent momentum in this segment in 2022, furthering our overall food service business growth. Fourth, Over the last two years, we've invested significant resources in our top priority global markets, the EU and China. These investments have yielded a solid footing for growth, are a key part of our efforts to support global QSR partners, and have opened sizable retail and food service opportunities for existing and planned products in these markets. Across 2021, we saw 77% year-over-year growth in our international business, and we expect to see continued positive results in 2022. Finally, before providing a more detailed discussion of Q4 results, it will be helpful to share thoughts on operating expenses to be expected in 2022. As I've said before, it remains our objective to insulate our long-term strategy from short-term conditions. Throughout 2021, when faced with the decision to maximize short-term outcomes or pursue longer-term strategy, we chose the latter and made significant investments in future growth here in the U.S., EU, and China. The long-term bent of our decision-making further burdened, from an OPEX and margin perspective, a quarter that was already impacted by lower volumes. Despite the adverse impact on the quarter, we are highly confident that these investments, in terms of team, infrastructure, product scaling, and more generally setting up strategic partnerships for success, will generate strong returns in the years ahead. With this solid foundation now in place, though we will continue to invest in core parts of our business, we do not plan to grow operating expenses significantly in 2022. For example, We do not anticipate expanding our headcount, save select critical positions, or actively increasing the efficiency of our operations, and have concluded certain consulting contracts, among other measures. If 2021 was a year of investment and scaling, as we plan for the resumption and expansion of market activity, 2022 is the year of execution. With that by way of context, I'll now review our overall business performance in Q4 and full year 2021. In the U.S., results across our retail and food service channels were mixed. For the year, sales to U.S. food service customers increased 26% to a record 76.5 million, rebounding nicely from the COVID-induced lows of 2020. However, growth in U.S. food service was more than offset by a decline in U.S. retail, which decreased 8% year over year. Broadly, we believe the 2021 U.S. retail outcome reflects three main developments. These are slowed category growth, heightened competitive activity, and our own decision to focus on finalizing and scaling innovation for upcoming QSR and strategic partner launches versus bringing more new items, which are generally a source of growth, to retailers in 2021. Let me now offer more detail on these three factors. First, growth in the plant-based meat category decelerated meaningfully in U.S. retail from 45% in 2020 to negative 0.4% in 2021. We believe a number of factors contributed to this, some of which I touched on earlier in my remarks. These include a tough year ago comparison, as the onset of COVID in 2020 spurred unprecedented consumer stockpiling, which did not repeat in 2021. Consumer migration to fast food, particularly those with drive-through, where we were largely absent, and consumer trends around food choice, as well as a reduction in our ability to sample. As I noted, we view these developments to be primarily pandemic-related and indicative of an unstable period in the U.S. and global economy. Accordingly, we expect to be able to drive and realize renewed growth in retail sales, provided the pandemic continues to recede. We expect these gains to occur via expanded distribution, the launch of new products, reinstitution of our in-store sampling, and the implementation of our 2022 marketing program. Our marketing initiative leverages and ties into relevant advertising by some of our larger QSR partners, as well as that of our Planet Partnership joint venture with PepsiCo. This integrated approach, which represents our most comprehensive marketing program to date, will meet the consumer across QSR, convenience, and grocery. Second, competitive activity in U.S. retail intensified in 2021, marked by frequent aggressive discounting and new entrants to the category. We continue to believe that a competitive environment featuring high-quality products and compelling marketing is a positive as it tends to grow the category. Yet in the case of 2021, we experienced intense increased competition during a period when the size of the prize did not expand. In this difficult dynamic, we were quite pleased that we exited the year as we began, the number one brand in the category of refrigerated plant-based meats. Further, our brand awareness, the highest across all plant-based meats, continued to climb despite the number of companies vying for consumer attention. Third, as we looked at U.S.-focused innovation in 2021, we made the decision to prioritize delivering on a number of QSR relationships and preparing a product line for the first launch of our joint venture. As a result, whereas in 2020 we launched several new retail items, including Beyond Breakfast Sausage Patties, Beyond Breakfast Sausage Links, and Beyond Meatballs, in 2021 we brought to retail markets Beyond Burger 3.0, and to a more limited extent, a fall launch of our Beyond Chicken Tenders. Though this allocation of focus may have had short-term implications for our retail growth, We believe it was the right long-term prioritization for our business, particularly given the ongoing reduced ability in 2021 to sample new products in U.S. retailers. Turning to supply chain, our full-year gross margin of 25.2% was lowered by approximately 500 basis points year-over-year. Bill will walk you through in more detail on margin. For now, I'll provide general comments on the nature and endurance of some of the higher costs we faced. This overview can be summarized across three main areas. First, we shifted a significant amount of volume to external co-manufacturers for the following reasons. One, given the level of scaling activities underway to support tests and launches with strategic partners, we made the decision to shift production volume away from our internal facility in Pennsylvania and toward external manufacturers in order to free up line time for commercialization. Though we knew these actions would effectively replace lower-cost internal production with higher external tolling fees, as well as generate additional transportation and logistics costs, this allocation was the right decision given the long-term importance of the supported projects. We believe such tradeoffs should be alleviated once we complete our planned commercialization center here in Los Angeles, a large percentage of which we expect to be operational in the back half of this year. Two, we experienced longer than expected downtime on one of our lines to complete repairs, necessitating greater use of external capacity. And three, we sought to prioritize volume to certain co-manufacturers to maintain network capacity necessary for planned production in 2022. Next, we scaled new products that are at the beginning of their cost-down curve. As with many of our product launches, we introduced Beyond Chicken tenders in the latter half of 2021 for food service and more limited retail sales at a higher cost than what we expect their long-term run rate to be. In these launches, we used higher-cost co-manufacturing partners, experienced lower throughput levels, and other supply chain inefficiencies, all typical of early production runs. We do not expect these higher costs to persist indefinitely, having already achieved improvements in production efficiency for our chicken products, in some cases more than doubling throughput. In similar fashion, as we ramped up for an exciting new and entirely novel to us product launch, which will be announced later this quarter, we encourage several of the same early production inefficiencies I just described for chicken. We expect these higher costs persist for at least the first half of this year, with significant improvements expected by year-end. And lastly, we've experienced a substantial increase in our manufacturing conversion costs recently, most of which we consider transitory. Key explanatory factors include, one, pivoting to external partners drove higher transportation costs as we move inventory across our network in response to the aforementioned factors. Two, As we reallocated certain volumes, we nonetheless absorbed fixed overhead costs at our facility without the corresponding output. Three, like others, we faced broad inflationary challenges related to transportation costs. Four, as we added production capacity in North America, the EU, and China during a period of lower volume, our depreciation costs per unit are steadily increased, although we expect this trend to stabilize and soon reverse with volume growth, especially in our national locations. Importantly, though we expect continued near-term headwinds from some of these considerations, we are confident that none are structural in nature. In most cases, initiatives are already underway to return margins to higher levels, including directing volume back toward internal capacity as we complete our commercialization center, simplifying production networks for our new items, and achieving higher throughput rates, particularly on these newer items. At the same time, despite all the noise in our COGS this quarter, we have reduced material costs, the output of our global cost down program, and a subject I will return to before concluding my remarks. With that broad reflection on 2021 complete, let me now briefly discuss our fourth quarter results. We generated strong growth across three of our four sales channels. However, our results in U.S. retail, where we saw a decline, offset gains from the other three channels. Looking at recent trends in consumer takeaway in U.S. retail, according to SPINS data for the 12-week period and December 26, 2021, sales of Beyond Meat products were down 2.7% year-over-year compared to an increase of 0.4% for the category. For our brand, modest growth in Mulu was more than offset by decline in natural and specialty channels, where we over-indexed relative to category and where category growth has been especially challenged of late. For perspective, total category sales in natural and specialty channels declined 8.6% year-over-year during the 12-week period, compared to a 1.6% increase in Mulu. To be clear, the challenges in natural and specialty extend beyond the plant-based meat category. Expanded offerings of natural and organic foods at conventional grocers have likely contributed to the deceleration in natural and specialty. We plan to reinvigorate our growth in this important channel through product differentiation versus our offerings in conventional grocers, increased in-store sampling, and the introduction of new innovation. Despite a 20% reduction in year-over-year US retail sales for Q4, as measured by our net revenue versus aforementioned consumer takeaway data, we continue to see enduring brand strength across the channel. As noted, Beyond Meat remains the number one brand in the refrigerated plant-based meat category. Moreover, according to SPIN's IRI consumer panel data for the 52 weeks ended December 26, 2021, household penetration for the Beyond Meat brand continues to increase, rising 20 basis points sequentially to 6.6% and 110 basis points on a year-over-year basis. Additionally, our buyer rate, purchase frequency, and repeat rates continue to stack up well against our competition, trailing only two category incumbents, each of whom enjoy the benefit of significantly broader product portfolios than us. In U.S. Mulu, we are encouraged by our continued strength in terms of velocity. We're on an absolute basis for the 12 weeks ended December 26, 2021. Our brand velocity ranked highest among any of the top 20 plant-based meat brands and was 2.6 times greater than the category average. This industry-leading velocity is joined by our brand awareness, where total and unaided brand awareness for the Beyond Meat brand in the U.S. increased to 65% and 34% respectively, each highest among all plant-based meat brands. We believe these and other robust brand metrics provide strong momentum for our retail business as we expand our product offerings and distribution footprint, continue to improve our existing products on shelf, and, over time, lower price points as we unlock savings via our Cost Down program. Turning to U.S. Food Service, as I alluded to earlier, our performance during the year rebounded solidly from the COVID-driven lows of 2020 to record net revenues of $76.5 million. We reached this milestone despite limited activities with our major QSR partners in 2021. In the fourth quarter, net revenues increased 35% year over year, and we began to see the gradual return of trial activity in the QSR space. And according to NPD data, for the three months ended December 2021, we maintained our number one brand position with sales of Beyond Meat products increasing 55% year-over-year in the data set, which you will recall primarily captures sales through broad-line distributors and generally excludes large QSR customers who tend to disdirect. In international, we wrapped up a strong year with retail channel sales up 123% year-over-year and food service channel sales up 40% year-over-year. I'm proud of our progress in Europe, where we more than doubled the size of our business across retail and food service channels in 2021. In the fourth quarter, total international net revenues increased 23% year-over-year with retail sales up 11% year-over-year and food service channel sales up 36% year over year. In international food service, growth was driven primarily by QSRs, which again, is encouraging. We are excited to build on the momentum in our international business in 2022, leveraging the investments in team, infrastructure, and capabilities that we've made in the EU and China. With that review, I will now provide more detail on some of the exciting 2022 strategic initiatives I mentioned earlier and which represented the focus of much of our commercialization and scaling investments across 2021. On January 5th, following a highly successful 250 store test in the UK, McDonald's rolled out its first ever plant-based burger featuring a patty co-developed by Beyond Meat to every restaurant across the UK and Ireland. nearly 1,500 stores. The UK and Ireland launch is being supported by a robust joint marketing program that spans across TV, radio, out-of-home, social, PR, influencer, mobile, and digital elements. In short succession after the McDonald's UK news, KFC launched a nationwide test of Beyond Fried Chicken in over 4,000 U.S. locations on January 10th. The test marked the largest plant-based chicken launch ever in the QSR industry, and we are pleased that the consumer response and feedback in the media has been filled with positive excitement. Being selected to create a plant-based version of one of the most iconic menu items of one of the world's most popular brands is a testament to the strength of our innovation and the recognition of these capabilities by industry giants. Only days later, we followed these two exciting announcements with yet another, Together with Pizza Hut Canada, we announced the debut of Beyond Italian Sausage Crumples, the permanent menu offering nationwide at over 450 locations. The expansion followed a successful trial in Toronto and Edmonton last summer. With the reported rise in flexitarian diets occurring in Canada, we are excited to increase the accessibility of plant-based protein for Canadians everywhere. Separately, as we jointly announced on January 20, McDonald's expanded its U.S. test of the McPlant Burger to approximately 600 participating locations in the San Francisco Bay and Dallas-Fort Worth areas, beginning on February 14. Also on Valentine's Day, A&W launched a limited-time offering, the Jalapeno Lime Beyond Meat Burger, at all of its locations nationwide in Canada. This product represents A&W's first fully plant-based burger build and furthers our strong partnership with one of our earliest QSR partners. Lastly, as I alluded to earlier, we have been working diligently toward the launch of an exciting new product, which we expect to announce in coming weeks. Turning to our ongoing cost down initiative, it's important to not let the aforementioned short-term 2021 processing and logistics noise obscure the progress we're making on material cost reduction, where we successfully run 26 cents per pound from direct materials on a year-over-year basis in Q4. We will continue to drive our global cost down program and remain confident we can achieve our goal of price parity with animal protein within at least one category within the next two and a half years. As we've shared before, we are working through a robust pipeline of cost reduction opportunities, including in the area of raw ingredient procurement savings, waste reduction, throughput improvement, network optimization, warehousing and transportation efficiencies, local sourcing and production in our global markets, and packaging optimization. Finally, before closing, I'd like to highlight two key additions to our global leadership team. In December, we welcomed Doug Ramsey and Bernie Adcock as Chief Operating Officer and Chief Supply Chain Officer, respectively. Both Doug and Bernie join us from Tyson Foods and bring a wealth of experience and proven track records of impressive operational excellence in the protein industry. Through Doug's tenure at Tyson, he held top leadership positions, including Group President at poultry, In this role, he oversaw all domestic poultry business units, driving market share through strategic integrated planning, business acquisitions and integration, lean manufacturing, and cost reduction. He also served as president of the global McDonald's business for Tyson. As with Doug, Bernie arrives with a strong background of highly relevant leadership, including most recently as Tyson's chief supply chain officer helping to scale the company's poultry business through cross-functional strategic oversight and the integration of innovative technologies across the supply chain. Doug and Bernie are already adding tremendous value, and I have full confidence in their abilities to guide our company through the next phases of growth and production cost optimization. With that, I will turn it over to Phil to walk us through our fourth quarter financial results and our outlook for 2022. Thanks, Ethan.