Beyond Meat, Inc.

good afternoon everyone and welcome to the beyond meet 2022 fourth quarter conference call all participants will be in a listen-only mode should you need assistance please signal 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 and then one on your touchstone telephone to withdraw your questions you may press star and two As you also know, today's event is being recorded. At this time, I'd like to turn the conference call over to Terry Witteman, Chief Legal Officer and Secretary. 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 Ruby Cotulla, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's fourth quarter and full year 2022 earnings press release, filed today after the market closed. This document is available in the Investor Relations section of Beyond Needs website at www.beyondneeds.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 security 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. We refer you to today's press release, the company's quarterly report on Form 10-Q for the quarter ended October 1st, 2022, and the company's annual report on Form 10-K for the fiscal year ended December 31, 2022, to be filed with the SEC and other filings with the SEC for a detailed discussion of the risk 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 GAAS. Please refer to today's press release for a reconciliation of adjusted EBITDA to its most comparable GAAS measure. And with that, I would like to now turn the call over to Ethan Brown.

Thank you, Teri, and good afternoon, everyone. The fourth quarter of 2022 ends a challenging year for our business and category, one marked by persistently high inflation and trading down by consumers among proteins, slowing economy in key markets, and increased competitive activity. Against this backdrop, we took decisive actions to set our business on a course to achieve cash flow positive operations within the second half of 2023, a target that we stand behind today. In order to accomplish this important milestone, as I shared in our last quarterly call, We are transitioning our business from an operating model that prioritizes growth above all to one that prioritizes cash flow and sustainable long-term growth, and we are executing well against this goal. While there is still much meaningful work to do, we are pleased to report net revenues toward the high end of our guidance range, along with 14 percentage points of sequential growth margin improvement in the fourth quarter and over $12 million of OPEX reduction versus the third quarter. We are achieving these early wins as we focus on the three pillars of our full force pivot. As a reminder, these are as follows. First, the implementation of lean value streams across our beef, pork, and poultry platforms with a laser focus on margin expansion and OpEx reduction. Second, an emphasis on cash flow accretive inventory management with a near-term focus on profit dollars versus maximizing percent margin. And third, a focus on opportunities to support near-term growth and consumer trial and adoption, particularly in our core SKUs, appropriately balanced against streamlined activities and support our most valuable long-term opportunities. In my comments today, I will share more detail on our progress with respect to each of these pillars. I will then turn to the broader moment facing plant-based meat and our focus on taste, health, and planet as we drive product innovation and connect with consumers on the very real benefits of our plant-based meats. Before diving in, let me pause here to bring back into focus the magnitude of what we are pursuing. We believe the transition to plant-based meat is an important part of our global response to a rapidly deteriorating climate. We believe it is as vast and sweeping an opportunity as any that presents itself as we seek to course correct and stabilize our global climate. And as the history of innovation and disruption teaches us, we can expect that the recent din surrounding our sector will reach its crescendo before succumbing to more reasoned reflection and expanding acceptance as our branded category achieves taste, health, and price milestones along the path to mainstream adoption. To move through this cycle, however, as aforementioned, we pivoted from growth above all what we believe is a sustainable long-term growth model. And nowhere is this transition more evident than in the centerpiece of our first pillar, the establishment of lean value stream management of our beef, pork, and poultry platforms. As anyone who has implemented a lean transformation knows, fundamental transition does not occur overnight. We are no exception. However, we have confidence that the effort properly done will over time generate outsized gains. we are demonstrating clear and meaningful early progress. Beginning with margin expansion, we were encouraged by the 14% improvement, which reflects, among other actions, our efforts to right-size our production networks, insource a greater share of our production volumes, and efficiently manage production staffing levels during a period of subdued volumes. We restructured certain agreements and successfully reduced our North American external manufacturing footprint from a peak of eight co-manufacturers in 2022 down to three today. This difficult but much needed work to consolidate our networks substantially reduces or eliminates altogether our exposure to certain underutilization or idle time penalties, allowing us to avoid an estimated 8 million of potential fees in 2023. We plan to continue this optimization work with our co-manufacturing network, as well as insourcing more of our volume as we progress. Also in support of margin restoration, we are restructuring certain operating activities related to Beyond Meat Jerky intended to drive further gains in the margin profile of this product line. Though we can't get into specifics today, we look forward to providing further information around these efforts in the near future. Turning now to operating expenses, we were pleased that in 2022 we reduced our OPEX from $97.8 million in Q1 to $62.8 million in Q4, a 36% decrease that put operating expense below our mid-60s target that we provided during the Q3 earnings call. On a sequential basis, we reduced OpEx by $12.1 million, or approximately 16%, reflecting early delivery against the $39 million in annualized cost savings we communicated in October. In the near term, we think Q4 is generally representative of our expected level of spending on a quarterly basis. However, over the long term, beyond 2023, we expect to pursue further efficiencies through our lean program generally, greater investments in automation and business process optimization, tighter transportation management, and source to procure processes, among others. Importantly, these investments are either already underway or in the late stages of evaluation. Additionally, as we exit 2023, we expect to benefit operationally from the ongoing consolidation of our real estate footprint here in the Los Angeles area as we transition all of our LA-based employees to our new headquarters facilities and begin to exit some of our other existing leases. We believe that fast-paced innovation, specifically the Beyond Meat Rapid and Relentless Innovation Program, is not well served by the dispersed workforce that characterized COVID and much of the last several years. As we bring more of the employees into our new headquarters and enforce our operating model in which remote work is the exception and not the norm, we expect to benefit from the immensely valuable energy and productivity that comes from sustained, focused, in-person collaboration and problem solving. Moving now to our second pillar, aggressive management and reduction of our inventory. We can report that we've reduced our inventory balance by 48 million, or 17%, from Q1 to Q4, allowing us to deliver on our 2022 objective of having inventory be a net generator of cash for the year. We intend to accelerate this momentum in 2023. Here again, we are relying on lean value streams across beef, pork, and poultry to increase visibility into and focus on optimal inventory levels, and have recently invested in systems that we believe will substantially improve our ability to manage inventories across our global network of manufacturing sites and warehouses. Big-ticket items include the pace and timing of our committed pea protein deliveries, resetting our WIP and finished goods stock to levels to better align with our anticipated production volumes and demand levels, and exploring alternative avenues for inventory items with greater than required current stock levels, among others. Increasing sales velocity, especially on our core items, is, of course, the most effective and cash flow-accretive way to work down our inventory levels. In this regard, as we shared on our last call, we have designed certain time-bound trials and pricing programs to drive stronger velocities, and we are encouraged by early results. Specifically, where we have implemented such programs, we have been pleased to see not only an acceleration in unit velocity, but importantly, increase in takeaway dollar growth as well. Success of these pricing tests and programs reinforce at least two important points about our current and long-term value proposition. First, as I've noted previously, it seems reasonable that consumers may retreat from protein that can be 2x the price of its animal-based equivalent during periods of intense inflation and reduced buying power, and that a reduction in price given this dynamic would spur increased consumption. Second, the success of these time limited pricing tests points to the centrality of our cost and initiative, and our goal of putting in place unit economics that support price parity of animal protein over time. I'll now move to our third pillar, that is specific actions to encourage near-term growth, even as we remain committed to our most valuable long-term opportunities. We continue to focus on restoring growth in our core product offerings in the fresh section of grocery by working closely with our retailers on target promotions, bringing innovation to our core fresh product set, and clear messaging around the taste, health, and planetary benefits of going beyond. Two, we are expanding our brand block in the frozen section, including increasing distribution of our latest award-winning products beyond stake, as well as bringing new innovation from our Pulte platform to this part of the store. Three, turning to general food service, we are seeing some early wins in a more narrowly focused set of priority segments and look forward to sharing these with you as the year progresses. On the subject of strategic partners, we are thrilled to highlight the growing success of the McClant platform as illustrated by, among other developments, the addition of McPlant nuggets in Germany as a regular menu item across 1400 locations nationwide along with the McPlant Burger. McPlant Nuggets are the second plant-based protein co-developed by Beyond Meat as part of the McPlant platform and will also be offered as an option in Happy Meals in Germany. We are also pleased to share that after successful launch of the McPlant Burger in the UK and Ireland last year, the Double McPlant was recently introduced across UK and Ireland restaurants nationwide for a limited time. In Austria, the Smoky BBQ McPlant Burger was recently introduced for a limited time Joining the McPlant Burger is now a regular menu item. McPlant Burger continues to be offered for a limited time across Portugal, while remaining a regular menu item in the U.K., Ireland, Austria, and the Netherlands. Turning to Yum! are products of regular menu items at Pizza Hut restaurants across Canada, the U.K., Singapore, El Salvador, Guatemala, and Sweden. I'd like to now turn focus to the important topic of the health and nutritional profile of our products. The drummed up misperception that our products are overly processed and utilize complex ingredients, coupled with misguided comparison of our products to whole vegetables instead of the animal meats they are intended to replace, comes at a cost. The cost, in my view, can be measured in human health. I return to our five-year research program with the Stanford University School of Medicine, the Plant-Based Diet Initiative. You may recall the program's first clinical trial, published in the prestigious American Journal of Clinical Nutrition, assessed a group of healthy adults who alternated between an eight-week period consuming animal protein two or more times a day and an eight-week period consuming Beyond Meat products two or more times a day. Now, here is the important part to focus on. For the eight-week period when the participants consumed beyond meat, researchers found a statistically and clinically significant drop in LDL cholesterol, what is commonly referred to as bad cholesterol. Researchers further found a decline in TMAO, a compound found in the gut that is associated with heart disease and certain cancers. We will continue to support such studies without control over design or outcomes. As we've announced, we have recently expanded our work in this area through a three-year agreement with the American Cancer Society to advance research on plant-based meat and cancer prevention while expanding the relevant clinical database. One of the most recent and exciting embodiments of our commitment to health is BeyondStake. I'm very proud of all those who've worked so hard to bring BeyondStake to life. It is a shining example of our brand promise to tirelessly innovate toward a North Star that not only delights in terms of taste, but also delivers clear nutritional benefits relative to animal protein equivalents. As I've noted, this product had the distinct honor of being named Time Magazine's Best Inventions of 2022, with a headline describing it as, quote, a healthier steak and a cover mention highlighting Beyond Steak's delicious taste. Let's unpack why the product earned the headline of a healthier steak. Beyond Steak boasts 21 grams of protein and contains only 1 gram of saturated fat and 170 calories per serving with no cholesterol and no added hormones or antibiotics. This can be contrasted with a serving of a leading brand of animal protein steak strips with Beyond Steak offering 15% more protein, 62% less saturated fat, and zero cholesterol compared with 50 milligrams per serving. Beyond Steak's clean ingredient deck is also worthy of focus. It is as follows. Water. Wheat gluten. Baba bean protein. Speller press canola oil. Salt. Natural flavor. There is then less than 1% of the following, spice, garlic powder, onion powder, pomegranate concentrate, yeast extract, sunflower lecithin, fruit and vegetable juice color. As with our other products, the striated muscle structure of the steak piece itself is accomplished by running plant protein through heating, cooling, and pressure, a physical rather than chemical process which utilizes intellectual property we've developed on equipment that in other sectors of the food industry is used to produce such staples as pastas and cereals. Moving past our process and ingredient deck, before leaving Beyond Steak, I'd like to now turn to the fava bean itself. I will be traveling next week to the Dakotas to meet with some of the farmers who grow the fava beans from which our protein is sourced. As I've spoken about many times, I have deeply rooted respect for the American farmer, including those whose family farms center on animal agriculture. I am intimately aware of the entrepreneurial journey they are on, often across generations, the difficulty and financial risk associated with their work, and the critically important role they play in our culture and economy. It is my strong and informed belief that the innovation and shift in protein we are pursuing is broadly an economic win for American agriculture. And in our messaging this year, I look forward to taking the consumer back to the farm to learn about how the protein for our plant-based steak is grown, the expanded economic benefits that accrue to the farmer, and the attendant sustainability gains for soil, climate, and water. There is goodness here, and along with our growers, we are proud of it. With that, I'll turn it over to Luby, our Chief Financial Officer and Treasurer. to walk through our fourth quarter financial results in greater detail, as well as our outlook for 2023. Thanks, Ethan.

Our fourth quarter results were in line with or ahead of our expectations across the P&L, reflecting the progress our team has demonstrated in executing against our operating plan. We recorded net revenues of $79.9 million in the fourth quarter of 2022, representing a 21% decrease compared to the fourth quarter of 2021. For the full year 2022, this translates to net revenue of 419 million toward the high end of the guidance range of 400 million to 425 million that we provided at Q3 earnings. As we have shared on our recent earnings calls, our top line results primarily continue to reflect soft demand in the plant-based meat category, particularly within our core subcategory of refrigerated meat. And as Ethan mentioned, we believe persistently high inflation, a slowing economy, increased competition, and trading down behavior by consumers among proteins are all negatively impacting growth for our category and our brand, but we do believe this is transitory. In aggregate, total volume sold during the fourth quarter of 2022 declined 16.9% compared to the year-ago period, primarily as a result of the macro factors I just described. while net revenue per pound decreased approximately 4.4% year-over-year. The decrease in net revenue per pound was primarily attributable to strategic but limited price reductions in the U.S. and broader list price reductions in the EU, increased trade discounts, and unfavorable changes in foreign exchange rates partially offset by changes in sales mix. Turning to gross profit, Gross profit in the fourth quarter of 2022 was a loss of $2.9 million or minus 3.7% of net revenues, compared to $14.2 million or 14.1% of net revenues in the year-ago period. This result reflected a better-than-expected sequential improvement of just over 14 percentage points versus the prior quarter. On a year-over-year basis and excluding the impact of jerky, decrease in gross margin in the fourth quarter was primarily attributable to increased inventory reserves, reduced net revenue per pound, and higher materials and logistics costs per pound, partially offset by reduced manufacturing costs per pound, including depreciation. With respect to jerky, and in addition to the aforementioned factors, we realized the benefit of $3.6 million resulting from actions taken to restructure certain contracts and operating activities related to Beyond Meat jerky. As Ethan mentioned, we will provide further information around these efforts in the near future. Turning to OpEx, operating expenses for the fourth quarter of 2022 were $62.8 million, down approximately 32% year-over-year and 16% quarter-over-quarter, reflecting our focus on right-sizing our expense base. The year-over-year decrease in operating expenses was primarily driven by lower non-people general and administrative expenses, largely attributable to decreased consulting fees, reduced production trial activities, lower marketing expenses, and reduced people expenses, including stock-based compensation. The sequential decrease in operating expenses was primarily driven by reduced marketing expense, lower restructuring costs, which consists mainly of legal fees, and reduced people expenses, including stock-based compensation. Moving further down the P&L, loss from our unconsolidated joint venture increased from 1.8 million in the year-ago period to 8.1 million in the fourth quarter of 2022, primarily reflecting an increase in inventory reserves at TPP. Overall net loss in the fourth quarter of 2022 was 66.9 million, or net loss of $1.05 per common share, compared to net loss of $80.4 million in the year-ago period, or net loss per common share of $1.27. Now turning to our balance sheet and cash flow highlights. Our cash and cash equivalence balance, including restricted cash, was $322.5 million, and total debt outstanding was approximately $1.1 billion as of December 31, 2022. Net cash used in operating activities for the three months ended December 31, 2022, was $51.7 million, a $59 million decrease compared to $110.3 million in net cash used in operating activities in the year-ago period. Within cash flows from investing activities, capital expenditures totaled $10.5 million in Q4 of 2022 compared to $31.7 million in the year-ago period. Cash flows from investing activities also included $3.3 million related to investments in our joint venture. Let me now provide some commentary about our 2023 outlook. We expect net revenues to be in the range of $375 million to $415 million, representing a decrease of approximately 10% to 1% compared to the full year 2022. In terms of the distribution of revenues for the year on a percentage basis compared to their respective year-ago periods, we project a net sales decline in the mid-teens range in the first half of 2023 and net sales growth in the low double-digit range in the second half of 2023. Gross margin is expected to be in the low double-digit range for the full year 2023, beginning the year slightly positive and increasing sequentially throughout the year. Total operating expense is expected to be approximately $250 million for the full year 2023, weighted slightly more heavily towards the front half of the year, as we expect to invest disproportionately more behind marketing activities in the first half. Finally, capital expenditures are expected to be in the range of $30 to $35 million for the full year, down from $70.5 million in 2022, and we continue to target the achievement of positive free cash flow defined as cash flow from operations less capital expenditures within the second half of 2023. As we shared on our last call, and as Ethan reiterated earlier, we will also maintain our strong focus on drawing down inventory levels as a key lever to achieving our cash flow positive objective within the second half of the year. Generally speaking, as opposed to focusing on outright growth, our 2023 outlook reflects our renewed focus on stabilizing our core business, prioritizing only those new product innovations which we believe will be most accretive to long-term growth, right-sizing our operations and reducing operating expenses in support of near-term margin expansion, and ultimately, better positioning our company for more sustainable long-term profitable growth. While the growth of our category has slowed due in part to macro pressures outside of our control, we continue to believe that the long-term opportunity for plant-based meat remains substantial. This perspective is grounded in the fact that each of the key elements of the thesis that supports long-term growth in our category are just as relevant today as they were three years ago, if not more so. Specifically, these are concerns related to climate change, human health, natural resource conservation, and animal welfare, for which our industry is acknowledged to be a core solution within the scientific community. Therefore, Although we are projecting a year of flattish to lower revenues in 2023, our optimism about an eventual return to growth in our category remains undiminished, and we are taking decisive measures this year to position ourselves for continued leadership within this category for many years to come. With that, I'll conclude my remarks and turn the call back over to the operator to open it up for your questions. Thank you.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Ken Goldman from JP Morgan. Please go ahead with your question.

Hi, thanks so much. I wanted to ask a little bit about the guidance for 2H23 sales to grow in that low double-digit range. Ethan, you mentioned there are some headwinds right now in terms of consumer challenges, trading down a little bit, maybe some misunderstandings about your product ingredients. I'm not sure if you're expecting those to kind of reverse a little bit in the back half. I wanted to maybe get a little bit of a better sense of what the key drivers are that maybe underpin that outlook for growth to rebound that way. Thank you.

Yeah, sure. Hey, Ken, thank you for the question. I appreciate it and good to hear from you. So I think first I want to ground the discussion in context. If you look at the third and fourth quarter of 22, those were not massive numbers that we need to lap. So in part, we have a pretty good starting point for growth in the second half of the year. That's different from, for example, the much larger or higher bar we have to pass over in the second quarter of this year relative to the second quarter of last. But it's not so much dependent on cleaning up the health narrative or getting consumers not to trade down. It has more to do with some of the actions that we feel we have more control over, and that's things like the pricing programs that we've put in place and are testing now, where we're seeing very good unit velocity responses and some pretty solid revenue gains. In that regard, those tests are very limited, so they're not showing up in broader SPINS data. The marketing campaigns that we have in place both at the top of the funnel in terms of our air game and then also down lower in the funnel in terms of the ground game that will be coming into fruition across the summer we feel good about. Then we have some line extensions that I'm personally excited about as well as renovations. So when we talk about renovation, if you look at our beef, pork, and poultry platform, As you know, we've always tried to disrupt ourselves and replace our own products on the shelf with better products, and we try to do that on an annual basis. And so this year, you'll see some activity from us there that we're quite excited about. But this gets back to the kind of third pillar of our strategy. If I were to list those out, the first really is breaking into these lean value streams across beef, pork, and poultry and driving margin expansion and OpEx reduction through that focused management of each of those platforms. And second part, the second pillar would be around the aggressive inventory reduction. Our inventory levels are too high. We understand that and we're bringing them down substantially. And then the third is this focus on near-term growth drivers. And that's really the programs that I just outlined are what's going to carry us in the second half of this year. That's domestic. If you look internationally, you know, we're seeing some distribution gains that we expect across 23 internationally. We've been doing some good work on shelf life extension, which should give us access to some additional markets in Europe. We're doing some new product introductions in Europe. And, of course, we have the food service activities that hopefully you guys have been able to focus on in Europe with some sort of our major strategic partners. And then lastly, we have some exchange rate tailwinds that we're going to be enjoying. So I think those things are primarily what gives us confidence around the second half of the year relative to the baseline that we need to cross over.

Got it. No, that makes sense, and thank you for that. I guess if I can ask a quick follow-up to that, it's great to hear that, you know, some of your tests with price are resulting in some strong unit rebounds. I forget the exact words you said, but, you know, recently we've seen both price investments on your part and volumes reduced, and I realize, to your point, there will be, you know, much easier comparisons in the back half of next year, and I'm not going to stick too long in this subject, but, you know, what should we be looking for that's different this time, right, versus the last couple quarters when you also had some, you know, maybe pricing that was down and volume down at the same time because it sounds like you're requiring volumes to really rebound in the back half of next year. And, again, you mentioned some other reasons why, too. I just wanted to kind of parse out what's different than what we've seen the last couple quarters.

Sure. I mean, I think the other piece, if you take in totality our comments around the year and you look at, The first half of the year and we're saying look that's going to be down So there's a there's a reason for that right now has to do potentially with distribution across the year we had very strong orders in the Latest part of the second quarter last year as people got ready for the fourth of July We're not expecting that same level of concentrated buying and so I think that in part automatically gives you some strength coming into the second second half of the year and on your question around pricing measures you know this is not really around trade uh so much as this is around uh a kind of strategic look at uh teasing out uh what happens when the consumer uh faces a decision to buy animal protein or or beyond meat with a price delta that is not as significant as it's been in the past right and so we're doing these target tests not only sort of more closely around that question versus just a discount, but also in retail segments that we know the consumer is more likely to respond to our brand than in other segments. So there's a highly focused nature to the pricing tests. And we're also applying that same discipline and focus around these pricing tests in the food service space where instead of offering kind of a blanket discount, We're looking at segments where the consumer is far more interested in our value proposition. And, you know, we've talked about this at length, but I'll just cover it very briefly. You know, for folks that are older, 40 and older, it tends to be really around the health message and the benefits they can derive from going beyond. For folks who are younger, let's say still in school age in their 20s and 30s, they are much more receptive to our climate messaging and the climate benefits that we're able to bring to their consumption choices. And so we're coupling our pricing with those types of messages for the right consumer in the right demographic.

Got it. Thanks, Ethan. Sure.

Our next question comes from Peter.

Go ahead. Go ahead.

Our next question comes from Peter Galbo.

I was going to tease Ken about the Eagles, but I'll do that for the follow-up call. Keep going.

Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Hey, guys. Good afternoon. Thanks for taking the question. Maybe, Luby, just to start as a clarification point, in the revenue guidance, you know, understanding the differences between first and second half, but just how much of that is, you know, the shipping factor from, from state, you know, obviously I know you're going to be lapping jerky from last year, but, but how much contribution are you at least embedding from, from state product in 23?

Yeah, I think certainly stake is going to be more of a contributor to our revenue growth in 2023 than obviously it was in 2022 because we introduced it pretty late in the year last year. And so it will be a driver, I think, throughout the year. The real driver, I think, of the difference in terms of the the revenue cadence, the delivery of revenue for 2023 is related to some of the factors that Ethan talked about. So in the near term, we are lapping a stronger first half of 2022. And the category trends obviously have been relatively soft in the last several weeks and months. We also, in the first half of 2022, obviously, you know, we had a pretty big launch of our jerky product. And so, you know, we do expect that the decline in revenue that you see in the first half of the year will be obviously, you know, relatively steep. We said mid-teens declines. And then, you know, for all of the reasons that Ethan mentioned, we expect the sort of trajectory of the contribution from some of the new products, et cetera, to be much more meaningful in the second half of next year, of this year.

No, that's helpful. And then, Ethan, maybe just to follow up on Ken's question and thinking about more from the cash flow and inventory standpoint, You know, understanding the thronged-down inventory makes sense if you're in harvest mode. But just given, you know, if you're assuming a return to growth in the second half, you've thronged down on inventory, you know, how do you kind of thread the needle of making sure that your in-stock rates and your fill rates are up to par with, you know, what you need for your retail customers and your food service customers if that is going to be the case of running with kind of leaner inventory? Just would be helpful to get your thoughts there. Thanks, guys.

Yeah, sure. That's a great question. So I think it gets back to the organization across these value streams, which gives you a lot greater clarity into, for each beef, pork, and poultry, how you're doing relative to the demand signals you're getting. It's just a more manageable set of activities. I think we've also reduced the number of large customers that we're doing. bespoke or novel products for. So it allows us to carry a more common set of inventory across the customer base. And then I think shifting into some of the new business systems we're using, it gives us much greater visibility across our network, helps a lot. The consolidation of our manufacturing footprint, as I mentioned I think in my remarks, we're going from kind of eight different co-packers at the peak in 22 to 3, and then our own internal production process. Things just get a lot simpler as you start to implement some of these disciplines. And it's a major emphasis for our company, this second pillar in our strategy, which is around reducing inventory. The team's doing a great job at it. I think they're having fun doing it. And we're pushing ourselves to, over the course of the next year, move from this growth at all cost model to one where we really start to shine around best in class inventory management and to get more in line with companies that are managing their inventory according to a lean discipline. So it's not without effort. We'll make some mistakes along the way, but we are pretty confident that we can serve a kind of resurgence in demand with a much more efficient inventory and production system.

Great. Thanks, guys. Our next question comes from Robert Moscow from Credit Suisse. Please go ahead with your question.

Hi. Thanks. I thought I heard in the prepared remarks some comments about what you intended to do with your revolver. in order to provide a source of cash. Can you be more specific about it? And can you tell me, like, does that give you sufficient flexibility that you probably will need during the course of 23 because you're still burning and the balance sheet is getting smaller?

Hey Rob, this is Lupe. I'll take that one. So we didn't actually say anything about a revolver in the prepared remarks. We did at one point have a revolving credit facility which we terminated when we did the convertible bond offering. But I think your question really gets to sort of our overall liquidity position, given that we are obviously still – the business is still consuming quite a bit of cash. So, look, I think – Everything that we discussed in our prepared remarks and some of what Ethan was just alluding to kind of speaks to the measures that we are taking to really reduce the rate of cash consumption of the business. But we recognize that even with some of the one-time benefits that we believe we're going to be able to capture as it relates to inventory reduction, Beyond that, we still have a lot of work to do, right? So we're not at this point ready to discuss with any real specificity about what the consumption, cash consumption of the business might look like beyond 2023. But it is a focus of ours for the long term to transform this business into one that is a net generator of cash. But there's still a ways to go before we get there. And I don't want to speak prematurely about what we will or will not do beyond 2023. And then to the broader, I think this is part of where your question was headed in terms of you know, how are we thinking about the liquidity position? You know, our thinking there hasn't really changed from what we've shared on last quarters, that we're very focused on it. We, you know, continue to evaluate the various options that are available to us. And, you know, if it makes sense for us to, you know, do some sort of a raise and put more of a buffer on the balance sheet, we will.

Okay, maybe one follow-up. Can you give us a sense as to what the drag on the business was in 2022 from plant jerky, either in cash or in earnings or something, and what the opportunity might be in 23 to reduce that drag? Maybe that has to do with the contract renegotiation you're talking about.

Yeah, that's exactly right. You know, I'll let Luby give you the specifics on it, but it was, you know, not insignificant from a, you know, impact on the business. And, you know, we've taken a lot of activity. I was very involved in this, you know, toward the second half of this year to restructure the agreements that we have on production and distribution and things of that nature. to make sure that as we move forward we have more favorable economics around the margin. Now that's not going to show up necessarily right away, but you can already see some positive movement in that area. So while I don't think it's going to be transformative in terms of the entire business, you are going to see better economics on the jerky business.

Yeah, and then, Rob, in terms of the specific numbers, so I don't have that in front of me. We can certainly follow up offline on that. And we typically disclose that in our 10Q, which will be coming out soon. But so also, you know, sort of as Ethan mentioned, right, we are focused on improving the economics for the jerky business. on a go-forward basis, but at this point in time, we're not ready to get into the specifics, but we will share more information around that in the near future.

Okay, thank you. Our next question comes from John Anderson from William Blair. Please go ahead with your question.

Thanks for the question. Good afternoon, guys. Ethan, I was wondering if you could comment a little about the category. I haven't heard you talk too much recently about household penetration or kind of repeat by the consumer. And the reason I'm asking is just to try and get a better understanding for where you think the biggest challenges are at this point in terms of bringing more consumers into the category, into your franchise. Is it taste? Is it the health perceptions? Is it price? And what you can do as a category leader going forward to help, you know, promote more trial, promote more engagement.

There are 44 parties in this conference, including yourself.

Okay, no, I got the question. It's a very good one, and it's always something I think about a great deal. And you hit on the buzzwords that I use all the time, both internally, externally. This category will win over time on three things. It'll win around taste. It'll win around a proper understanding of the health benefits that our products provide. And it'll win on price. If you look at any history of innovation in the last 150 years, things move forward with breakthroughs in key product attributes. You know, we're all thinking about or driving or looking at potentially driving electric vehicles someday because of the improvements that were made possible by the lithium ion battery, right? Cell phones, the same thing with some of the technology advances, et cetera. And so, you know, I don't read the articles. I take my entire day to do so. But the efforts that people have made to try to call the category, I find sort of just probably not a productive use of energy. There are things that we can move forward on a daily basis, and that's what we're focused on. So all the things you just said, improving the taste, making sure the consumer understands the health benefits, and that's our work with Stanford, a five-year program with a medical school there, and the results I summarized in my comments. Our new project with the American Cancer Society. Some other stuff we'll be announcing later this year in the medical space. And even the history of plant-based protein is one that no one has really bothered to look up in all of this effort to call the category. If you look at the work of the Blue Zones researchers, for example, where they talk about the five longest-lived communities in the world, one of those is very close to where I'm sitting today. It's in Loma Linda, California. And one of the key attributes of that community is a largely plant-based diet. One part of that diet were some of the earliest meat substitutes that were developed in the 1890s by John Harvey Kellogg. So there's a tremendous health benefit to be derived from transitioning the protein at the center of our plates from animal protein to a plant-based protein and a plant-based meat. And the data is there. We need to look at it. We need to keep developing it. But, you know, any industry that has success that we've had is going to face tremendous pushback. And that's the story throughout all of innovation. We're facing that now. We'll get through it. We have data on our side. We're developing more data. You'll see us get much more targeted around health in our discussions with the consumer. The steak is a perfect example. That's why I dwelled on it so much in the prepared remarks. You know, to enjoy a delicious piece of steak like that, anyone who hasn't tried it should go out and try it if they have any doubt about the category or the brand. It's got one gram of saturated fat. And if you look at like an Omaha steak, for example, an analogous product has six grams. I picked a product in the middle just to not show bias at all. But the health benefits of what we're doing are strong and will only get stronger. Okay, and then you layer on to that price. as we start to continue to drive down the cost structure. And again, this isn't showing up today, but you shouldn't expect it to when you have volumes that we have running through our facilities, right? But as our volumes increase and we can start to take advantage of some of the manufacturing improvements we've made and start to run through some of the ingredients that we've bought at higher cost and higher price and get to some of the lower cost ingredients that we've been able to negotiate, you'll start to see a more sustained, lower-cost product and then lower pricing. So as we get those levers, taste, and we've got some products coming out this year, that's why this renovation, this pace of renovation is so important to me. We're going to keep driving new products out into the market that taste better every year. We're issuing one of our core platforms this year. We'll have a product improvement. It's terrific. So that'll bring some more consumers in. Then you start to... beat back some of the drummed up speculation about health, you bring more consumers in that way. And then ultimately you give them something that they can afford that's at the same price. All of this hand-wringing about the category, history will show that it was something that was unnecessary. We're doing our work, we're focusing every day on it, people in the category. I talk to other companies in the category and Possible and others. We're all just focused on doing our work and getting it done, and we'll deliver these gains. The consumer, I think, will, in increasing numbers, adopt. You asked about increasing trial. One of the best ways to do that is just to offer more competitive pricing. So some of the unit velocities we're seeing on these pricing tests are exactly designed to do that, not only to generate cash from our inventory, but also to welcome more consumers into the category through more favorable pricing. Yeah, I'm bewildered at analysis that downplays the fact that, you know, in 22 and 21, particularly 22, you know, our products were at times twice, if not more, the price of animal protein. And here's a consumer that's walking into the supermarket with significantly reduced buying power on the aisle itself, right? Because other prices are going up. But also their buying power has been dramatically reduced before they even got there at the pump and, you know, paying their rent and everything else. And so for people to think that we're going to just sail through that with products that are literally twice the cost of the next available alternative that's been consumed for thousands of years, I think is naive. So we'll get through this period of inflation. We'll get back to being able to communicate with the consumer the truth about our products versus some of the things that have been written. And you'll see growth again. Thanks, Ethan.

And our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Yes, thank you. Good afternoon, everyone. Maybe clarifying questions. Ethan, in the revenue guidance for 2023, what is the assumption on volume and selling prices? I guess as I think about the goal of reducing inventories, where especially that problem is concentrated on the raw material side, driving volume would seem to be the biggest, more important lever there, but kind of doing so without price reductions gets more challenging if you're trying to improve the value proposition to the consumer. So what are you actually assuming for kind of aggregate volume and selling prices within the revenue guidance you've laid out?

Yeah, so while I can't give specifics on it, I think that if you look at the – I laid out the three pillars. are really the core focus of our strategy, lean value streams and margin expansion and OpEx reduction through those systems, inventory drawdown, and then third, the focus on near-term growth drivers such as product extensions and renovations and pricing. And so that pricing piece is a big lever for us, as you've noted. And we will exercise that in certain markets under certain conditions that are time-limited because we want to make sure we're understanding the impact right. But to your point, the quickest way to drive through this inventory is just to offer more competitive pricing, move through it. It does a lot to spread some – positive momentum through our facilities by increasing throughput and lowering or increasing overhead absorption and things of that nature. So, it's those levers that I talked about within that third pillar of continuing to look at the pricing programs, getting these line extensions out there and getting some of the renovations out. I don't know if you want to add to that.

Yeah, Adam, the only other thing that I would add to that is, you know, when you look at the change in net revenue per pound that we realized in 2022 versus the previous year, part of that was driven by We did take pretty broad price reductions in our international business, in the EU in particular, because we felt that the price point of our products relative to the competitive set there was much wider than we needed it to be. And so we took pretty significant and broad price reduction there. We also had the negative impact of... of FX in 2022. And so I would say that even though we are running some of these more aggressive pricing programs that we've described, I wouldn't necessarily be looking at the change from 2021 to 2022 as sort of an indicator of what may be to come in 2023.

That's helpful. And then if I take the aggregate revenue, gross profit or gross margin, OpEx, CapEx guidance that you laid out, it would seem that kind of adjusting for the non-cash items in there for DNA and stock comp in particular, that before kind of working capital release, the cash burn for the company is something on the order of $175 million in 2023. So, I mean, is that A, correct? And B, kind of if so, what level of working capital release and functional free cash kind of burn would you actually have in 2023 and understanding there's a cadence and sequencing that you could get to potentially get to free cash or positive in the second half if you execute the plan, but in aggregate for the year, kind of what's the cash burn implied by the operating guidance you laid out?

So, Adam, the estimate that you just mentioned over there sounds pretty high. You know, I think we will be substantially below that for the full year. But, you know, we will be a net consumer of cash for the full year, even though we do have, you know, this objective to be cash flow positive within the second half of next year. And, you know, you... you called out some of the different components of the build-up to that, right? So we gave you, I think, pretty detailed guidance around revenue, gross margin, OpEx, and CapEx. And so the big lever, some of the big levers there that are not included, obviously there's the depreciation and stock comp pieces, But inventory or the working capital benefit, you know, you... obviously for us to get to cash flow positive needs to be pretty significant and that's what we're targeting um and so you know ethan mentioned um the focus the level of focus that we're placing on inventory reduction and some of the new tools that we've invested in to help us be much more efficient in that regard um and so you know it is an aggressive target but but we do think um uh you know we have a pathway to get there

Okay, I appreciate that, Collin.

I'll pass it on back.

And our next question comes from Michael Lavery from Piper Chandler. Please go ahead with your question.

Thank you. Good evening. Just wanted to touch on the brand spending. You know, that's the key to pricing power or just competitive dynamics. Can you repeat the word? We didn't catch the word. Just the brand, the marketing and brand spending. Got it. Thanks. And I think, you know, you've called out in the 2020 results, 2022 results, how some lower marketing spending was one of the components of the build to your results. Can you just give a sense of how you're thinking about where that goes in 2023 and how to think about just, you know, making sure that you build the brand equity and try to make sure that that's not part of the cost cuts?

Yeah, no, that's a great question. So I think just in terms of the timing of spend, I think you'll see us in the first half of the year emphasize some marketing spend for various launches we're doing and things of that nature. But I would say that the difference between, we had a much broader marketing platform in the past that maybe was less refined in terms of the most receptive consumers for our products. And that made sense for the time. But, you know, as we move forward and, again, gets back to this kind of third pillar in the strategy, you know, focusing on near-term wins with consumers that are most receptive to our value proposition, it gives us the ability to market much more efficiently. I mean, I'll give an example, which, you know, just kind of making up the civics here, but you know, people who are receiving statins, right? I mean, they should know about our products and they should understand the relative health benefits of Beyond Steak versus animal protein steak, right? And so can we spend efficiently in that direction? You know, younger people who are focused on climate and the environment, how do we reach them as they come into the environment? consumer set that's going to be shopping and grocery. So we're doing a lot deeper dives in those type of areas to understand how to maximize each dollar we're spending. With our QSR strategic partners, there's some really good activity going on there. I think some of the marketing that they're doing, particularly in Europe, is really actually brilliant. I mean, it touches on the kind of generational change that's underway here. And so we're happy to be co-funding that. And if you look, just by the way, while I'm on Europe, we didn't really get much questions on that, but yeah, I want to emphasize some of the transition that's occurring in Europe around the consumer. If you look at a country like Germany, over the last 10 years, there's been a remarkable reduction in animal protein consumption on a per capita basis. And I think that bodes very well for what we'll see here in the United States at some point as people begin to understand better the health and climate benefits of what we're doing. And so in our marketing, reaching those consumers, we can do that more efficiently than we have in the past, and we're looking forward to doing that.

That's helpful, Kohler. And can I just follow up on the part of the release where you give the distribution points by channel? I appreciate the transparency calling out how it looks excluding jerky just because that's such a big jump in the U.S. in 2022. But it slipped down just a bit sequentially from Q1. to at least 4Q at 34,000 versus 35. It's not a big drop, obviously, and I'm sure there's some rounding that maybe it's even less than it looks, but what's driving that down? And with your velocities lower, you know, even if you've got roughly constant distribution points and sales down around 20%, your velocities obviously are off. Do you have risk of delistings or, you know, could that number get lower?

In terms of total distribution points, you know, I think where we've seen a little bit of loss of just number of doors has been in the sort of food service channels. And, you know, in international, in particular, I think there was a little bit of a reduction there. And then, sorry, can you repeat the second part of your question?

Uh, sure. Yeah. And it's, I mean, maybe these numbers are, aren't, aren't accurate, but the international food service you show, uh, had ticked up. That's also coincidentally 34,000, but, um, just looking at the sales trends and your conversations with the retail trade, did you get the sense of, of more deal listings that could come? What, how do we measure the risk of how that looks going forward?

Yeah, we, we haven't, I mean, no, we haven't. That certainly hasn't registered. I talk with our sales team every day. I haven't heard concerns around that. The only kind of area there that that ever comes up is in areas of shelf life where we may not have the right shelf life for a particular ambient case at a particular retailer or something like that, but no. We haven't seen that. And if you look at, if you kind of break into the data set for beyond in retail, you know, there has been obviously some impact in the fresh case. But in the frozen, right, we are seeing pretty good growth. And so, you know, when I meet with retailers, I was just with the largest one in the U.S. that we deal with outside the big box area. And they're very pleased with our performance and looking for kind of what else can we bring them. I think they see the short-term nature of this disruption as clearly as we do. And so, no, I don't see any sort of dramatic correction in that area, no.

Okay. Thanks for the call. That's great. Thanks. Yeah, sure.

And our next question comes from Peter Soleil from BTIG. Please go ahead with your question.

Great. Thanks. Ethan, given the declines in sales in the back end of the year and the expected declines in the front end of 23, have you reconsidered your position on private label?

Not really. I think it's – I mean, I think about – it gets to – if you go through the three things that I'm always focused on relative to the consumer, taste, health, and price – where my mind goes in that area is around price. What products can I offer and aggressively price them? And maybe we striate our brand a little bit and we create higher cost items and lower cost items, but no private label. So much of what we're doing right now is about efficiency of our production system and so introducing a whole other set of activities would be the wrong idea right now for us, I think.

Great. I'm just curious on the price and the trials. I think you said that you've done some tests. Just trying to understand how confident you guys are in some of these tests that they're actually, you're seeing some repeat purchases and not just driving some trial with some of these price tests?

Yeah. Some of them They're small, so they may not be showing up as much as they will, but they've been going on for a while. And so we do have some data there that suggests that it's not just kind of one-time thing. Key will be whether it helps to grow the category. That's the biggest question that I'm looking to answer. Will it bring new consumers in that before saw price as a major barrier? And again, there's a lot of distortion in the channel with very high rates of inflation, changing consumer consumption habits. But my belief is that as we continue to get the taste right, continue to get the health message right, and then reduce that price barrier, it will grow the category.

Yeah, and Peter, maybe just to add to that a little bit, you know, when we look at our panel data metrics for the most recent quarter across buying rate, purchase frequency, and repeat rates, those were all up sequentially relative to Q3. So there's nothing that we're seeing yet in the data that's necessarily showing any sort of anomaly in terms of repeat rates or things like that.

Great. Thank you very much.

Sure.

And at this time, we will end today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

Just to say thanks for the questions today. Thanks for joining. We set a change in direction the second half of last year, and I think this quarter you're seeing the initial results of that. We're sharpening it every quarter. I think you'll continue to see progress across this. The management team we have in place is a really strong one. We're working well together and feel really optimistic about where we're going. Part of the range that we gave is an effort by me to make sure the team is not focused on chasing losses. growth to the point where some of these other more important things around expanding our margin and keeping operating expense where it needs to be and driving through our inventory. Those are all the things that I want us focused on right now, and they're doing a great job doing it, and I look forward to coming back next quarter talking more about it. Thanks.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your line.