Beyond Meat, Inc.

Good day and welcome to the Beyond Meat Incorporated 2022 First Quarter Conference Call. All participants will be in a listen-only mode. Should 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. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Luby Katua. Please go ahead.

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 first quarter earnings press release filed today after the market closed. This document is available in 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 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 events unfold. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31st, 2021. The company's quarterly report on Form 10-Q for the quarter ended April 2nd, 2022 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 may make reference to adjusted EBITDA, which is a non-GAAP financial measure. While we believe this non-GAAP financial measure provides 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 for a reconciliation of adjusted EBITDA to its most comparable GAAP measure. And with that, I would now like to turn the call over to Ethan Brown.

Thank you, Louis, and good afternoon, everyone. Though we navigated significant cost challenges in the first quarter of 2022, the majority of which relate to scaling or strategic product launches and are temporary in nature, we made strong progress against our long-term growth strategy and saw encouraging signs of resumed growth. First, we engaged in significant activity across our global QSR partnerships. McDonald's conducted market tests in McPlant in the U.S., added the offering to all restaurants across the U.K. and Ireland, and continued trials in Austria. And currently, Yum! Brand's Pizza Hut added Beyond Meat as a permanent menu item across Canada, while KFC conducted a nationwide limited-time offering in the U.S., noting recently that its launch of Beyond Fried Chicken resulted in more media impressions than any other product launch in KFC's history. Two, we launched three SKUs of Beyond Meat Jerky with the Planet Partnership, our joint venture with PepsiCo. Sales of Beyond Meat Jerky since launch have been a resounding success, exceeding our initial expectations. Three, adjusted for jerky, We made continued progress on our cost-down program with regard to material costs per unit, and despite short-term fluctuations, we do not see any fundamental change in our long-term margin targets of 30% plus. Our cost-down program is a fundamental driver of this confidence. Fourth, we advanced the century profiles of our product platforms as part of the Beyond Meat Rapid and Relentless Innovation Program. This defining focus year after year on reaching our North Star of that perfect, indistinguishable build of meat from plants continues to be rewarded with product recognition. During the quarter, our products match several accolades, including, among others, BuzzFeed's number one spot for plant-based chicken tenders, All Recipes Community Choice Awards for Best Plant-Based Meat Brand, VegNews Best New Product Award for Beyond Chicken Tenders, along with Best Plant-Based Burger and Sausage for the Beyond Burger and Beyond Sausage. And finally, Consumer Reports Highest Score for Taste for the Beyond Burger, Beyond Breakfast Sausage Patties, and Beyond Dinner Sausage. We believe that through innovation, we are on a path to deliver against our North Star and unlock a meaningful percentage of the estimated $1.4 trillion worldwide meat market for our brand and appreciate these and other awards as encouragement along the way. Fifth, we saw some important signs of post-pandemic resumption of growth as food service entered Q1 with sluggish results but exited with solid momentum, contributing to March 2022 being among the largest revenue months in our company's history. Today, we are clearly in a period in which certain decisions that we believe best position the company to capture a long-term opportunity can generate adverse short-term results. In each instance, as we take a decision, we align around the path that we believe will build, over the long run, a profitable business of global scale. More specifically, we took the following actions, each of which negatively and temporarily impacted margins. First, we interrupted steady state internal production of base products to support the commercialization of innovative new items with key strategic customers, a decision we discussed in our Q4 call. In the balance of the year, we expect to reallocate internal production infrastructure to higher efficiency operations. Second, we've successfully executed the nationwide launch of Beyond Meat Turkey, the biggest product launch in our company's history in terms of breadth. using an initially higher cost manufacturing network for this new product and market. As I mentioned, we are very pleased with initial sales results, and we are now transitioning production into higher efficiency operations and have a clear line of sight to greatly improve unit economics in the second half of this year. While we do not take lightly the short-term margin impact of these longer-term investments, we are confident that through these actions, we are positioning the company well to capture robust future growth. We now turn to Q1 2022 net revenue results. Overall, we posted net revenue growth of 1.2% in Q1 2022. we saw a solid increase in pounds of products sold, rising 12% year over year, which was partially offset by a 10% decrease in net revenue per pound driven by increased trade discounts, strategic list price reductions in the EU, changes in sales mix, and decreases in the value of the euro relative to the dollar. In U.S. retail, we saw an increase of 7% in net revenue. However, looking at SPIN's takeaway data for the 12-week period ended March 20th, a brand-solid decline of 3.3%, excluding jerky, versus a category increase of 2.8%. We believe this result is driven by four main factors. First, broader softness in the natural and specialty channel continues, and we over-index in this channel relative to category. For context, total category sales in natural and specialty declined 7.5% year-over-year during the 12-week period, compared to a 4% increase in MULU. Second, across bin channels, Mulu plus natural specialty, we saw a shift in consumer purchase from refrigerated to frozen. Refrigerated plant-based meats, where we are heavily represented, were down 3.6% by frozen plant-based meats were up 7.2%. This change from refrigerated to frozen in part reflects increased consumption of plant-based chicken in the frozen section versus plant-based beef in the refrigerated section. Third, we face increased competition in the category. Nonetheless, we are encouraged that Beyond Meat remains the number one brand in refrigerated plant-based meats. Our brand velocity, which was 2.4 times greater than the category average, ranked highest among any of the top 25 plant-based meat brands. And lastly, fourth, we increased our promotional spending, resulting in lower net revenue per unit sold. This increase in discounting in part reflects competitive dynamics in the category. However, the main strategic driver for us with regard to price continues to be our own price parity goals informed by the aforementioned cost down program. Turning to our consumer panel metrics of household penetration, buyer rate, purchase frequency, and repeat rates, I'd like to first call out the beginning in Q1 2022 we have switched data providers from spins to numerator. And as such, the numbers I reference will not be directly comparable to figures I've mentioned in the past. To be clear, though, the year-over-year comparisons that follow are based on the same numerator data set. We are pleased to see that based on these measures, our overall brand health remains strong, even as our user base continues to expand. According to numerator data, through the first quarter of 2022, Household penetration of the Beyond Meat brand stood at 10.3%, an increase of 180 basis points year-over-year, while our repeat rate increased 80 basis points year-over-year to 46.3%. Purchase frequency and buy rate declined by 3% and 13% respectively, likely reflecting later new users given a healthy increase in household penetration, as well as reduced year-over-year pricing in the latter case. Within the U.S. retail sector, we are pleased to secure recent distribution wins. These gains include the launch of Beyond Burger and Beyond Meatballs at approximately 2,000 Rite Aid stores nationwide and the expansion of Beyond Chicken Tenders and over 8,000 new outlets nationwide at retailers including Albertsons, CVS, Select Costco Regions, Jewel Osco, Kroger, ShopRite, Sprouts, Target, Walmart, and Whole Foods markets, among others, bringing our total retail distribution of Beyond Chicken tenders to approximately 15,000 locations. Also in U.S. retail, as noted, a key milestone for us in Q1 was the nationwide launch of Beyond Meat Turkey. This innovative offering, a product of the Beyond Meat Rapid and Relentless Innovation Program, took a tremendous amount of work, countless iterations, and a close collaboration with the Planet Partnership. The intensity and duration of this research development and scaling reflects the guiding principles Beyond Meat. When we bring a new product to market, we aim to either create the category or win the number one position therein. I'm proud of what our team has been able to accomplish together with PepsiCo and the market results thus far. This fantastic on-the-go snack represents Beyond Meat's first shelf-stable offering, thereby opening a new distribution opportunity for our brand. It comes in three delicious flavors, original, hot and spicy, and teriyaki. Nutritionally, Beyond Meat jerky packs 10 grams of protein per serving, contains no cholesterol, GMOs, soy or gluten, and as always, is made with simple plant-based ingredients, including peas and mung beans, among others. Since its national launch in late March, Beyond Meat quickly established itself as the number one selling plant-based jerky brand. has substantially accelerated the growth of the category, in fact, more than tripling the category's sales, and early velocity results are trending ahead of initial expectations. Time to launch. McBeyond Meat Jerky also rose to become number one on Amazon's Hot New Releases page. Further, we expect to significantly increase our distribution of these products from approximately 56,000 stores today to about 80,000 by the end of May. If you've not already tried it, I highly recommend this delicious, lean, and convenient protein snack. Turning now to U.S. Food Service, we saw signs of accelerating momentum late in the quarter, with March posting an 83% sequential increase relative to February and a 42% increase versus the prior year. We believe that the slow start to the quarter was likely related to Omicron, labor shortages, and a late return to school, among other factors. In our international business, our volume of products sold increased 22% year-over-year in Q1 2022, although net revenues were down 7% year-over-year, primarily reflecting strategic price reductions and incentive actions in the EU. We expect to benefit from incremental distribution and velocity of our extended shelf-life burgers in the EU retail channel. It may in late Q2 and are working to bring additional extended shelf life products to EU grocery stores as soon as possible. More broadly, key developments in our international business continue to bolster our optimism for sustained long-term growth. Beginning in Europe with McDonald's, we are pleased with the continued strong performance of McPlant in the UK and Austria, and the case of the latter, the announcement of a nationwide test of a second McPlant build, the McPlant Steakhouse. McPlant Steakhouse features a Beyond Meat co-developed patty served on a sesame seed bun with lettuce, onions, tangy steakhouse sauce, and two slices of cheddar cheese. We're excited to see this product extension, the first of McPlant, which demonstrates a simple way to offer more varied menu options to consumers, seeking to diversify their protein options. In Europe, as in the U.S., I am pleased to share that Beyond Meat products continue to earn distinguished recognition Specifically, the Beyond Burger was named Good Housekeeping's UK's Best Vegan Burger in their annual barbecue taste test, as well as the Best Vegan Burger by which the UK's leading consumer association. In the Netherlands, we were a two-time winner in the Wheels of Retail Awards from DistroFood, Best Overall Innovation for Beyond Mints, and Best Meatball Substitute Brand. The Wheel of Retail Awards has been the most important prize for product introductions in the Dutch supermarket sector for 44 years. In China, in late March, we announced the launch of our flagship store on Pinduoduo, one of the country's largest e-commerce platforms, which boasts hundreds of millions of users nationwide. With our announcement, Beyond Meat became the first global plant-based meat brand to launch a store on Pinduoduo. where we'll feature locally produced Beyond Burger, Beyond Beef, and Beyond Pork products. Our launch on Pinduoduo represents our third such launch on a major Chinese e-commerce platform, following our previous additions on JD.com and Tmall. And in China, as we are preparing to do in the US, we are excited to bring new innovation to market. Reflecting our investment in local management, production, and innovation, We're excited to share the products coming later this year in China were developed with significant direction and execution by our Shanghai and Yajing teams. Before concluding, let me touch briefly on some global macro issues. As widely reported, the recent and ongoing conflict in Ukraine is disrupting key commodity markets. Some of these disruptions have a direct or indirect impact on portions of our supply chain. Whether we don't sell in Russia and have indirectly sold only small quantities through a distributor into the Ukraine, we have seen increased transportation costs due to higher fuel prices and increased pricing and scarcity of supply for a few commodities that we use in relatively small amounts. At this point, we're working through these issues, and the team has managed to avoid any significant disruption to operations. With that, I will turn it over to Phil to walk us through our first quarter financial results in greater detail and our outlook for the balance of the year. Thanks, Ethan.