Beyond Meat, Inc.

Hello and welcome to BeyondMeet's 2023 first quarter conference call. All participants will be in 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 your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Paul Shepherd, Vice President, FP&A, and Investor Relations. 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 Luby Couture, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's first quarter 2023 earnings press release filed after the market closed today. 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 today 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 that differ materially from those described in these forward-looking statements. Forward-looking statements in today's earnings release, 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 the earnings release, the company's quarterly report on Form 10Q for the quarter ended April 1st, 2023, that was filed today, and the company's annual report on Form 10-K for the fiscal year ended December 31st, 2022, 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 reference 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, Paul, and good afternoon, everyone. I'm pleased that our first quarter results demonstrate solid progress against our strategy and plan. As you will recall, we outlined three central tenets upon which we'd execute a full force pivot from a growth above all to sustainable growth operating model, one that delivers on our goal of being cash flow positive within the second half of this year, 2023. These pillars are, one, We would apply a laser focus to margin expansion and op-ex reduction with the use of lean value streams across our beef, pork, and poultry platforms. Two, we would place an emphasis on cash flow accretive inventory management with a near-term focus on profit dollars versus maximizing percent margin. And three, we would prioritize opportunities that support near-term growth and consumer trial and adoption appropriately balancing and streamline activities in support of our most valuable long-term opportunities. I will begin the body of my comments by summarizing our Q1 performance in reference to each of these three pillars. One, margin expansion and cost reduction. The company is focused on the deployment of lean management structure and process to drive cost out of our operations. We continue to rationalize our production network, collapsing processes and eliminating steps that generate unnecessary costs while consolidating and optimizing our co-packing resources. Though we have much heavy lifting left to do, we are seeing tangible progress. For example, even as inflation continues to plague supply chains more generally, we reduce COGS per pound by approximately 15% on a year-over-year basis primarily on the back of solid improvement in manufacturing logistic costs, excluding any impact from depreciation. This swift reduction allowed us to cross over into positive gross margin in Q1 2023 from a trough of negative 18% margin as recently as Q3 2022. We will continue to apply intense focus on margin restoration through cost reduction versus raising prices as we pursue our longstanding price parity target with animal protein. At this point, we are achieving these margin gains even as our average price per pound is down 6% on a sequential basis and 9% on a year-over-year basis, reflecting both changes in mix as well as deliberate pricing programs consistent with our path to price parity. More broadly, we are bringing the overall cost of business operations down, taking out approximately 34 million for a total OpEx reduction of 35% year over year. Alongside this reduction in operating expenses, our team continues to focus on sweating existing assets, reducing our need for new investment. The combined impact is total cash use of 48.6 million for the quarter, down from 66.8 million in Q4 of 2022, and a steep 74% reduction on a year-over-year basis. Two, drawdown of high inventory levels to free up cash. As with our network, the business has raw material and with inventory levels in excess of current demand levels. We're working down these inventory levels and generating cash in the process with inventories down 13 million or nearly 6% on a sequential basis. The team continues to implement our plan to draw down inventory across the balance of the year, efficient levels, though as previously noted, the downward curve will not necessarily be linear across the calendar.