Beyond Meat, Inc.

Good day and welcome to the BeyondMe, Inc. 2023 second quarter conference call. All participants will be in a listen only mode. And should you need any 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. Also, please note that this event is being recorded today. I would now like to turn the conference over to Paul Shepherd, Vice President of FP&A and Investor Relations. 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 Luby Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's second quarter 2023 earnings press release filed today after market close. 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 that 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 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 today's press release, the company's annual report on Form 10-K for the fiscal year ended December 31st, 2022, the company's quarterly report on Form 10Q for the quarter ended July 1st, 2023 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 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 will be summary of our Q2 results. Net revenues in the second quarter came in at 102.1 million, which was down 31% year over year and slightly lower than we had forecast. This decline in net revenues reflected deeper headwinds than we previously anticipated, combined with the cycling of one of our largest quarters ever, among other factors. The level and mix of our Q2 net revenues, coupled with certain transitory items, impacted our gross margin, which came in at 2.2%. These outcomes obscure the very strong progress we're making in positioning the business for sustainable operations and growth. We reduced COGS per pound by 14%, or 73 cents year over year, reduced operating expenses by 33%, or 27.5 million year over year, and slash cash consumption down nearly 50%, or 45.5 million year over year, reflecting a business that is making early strides in the implementation journey. Simply put, as we navigate what has proven to be a more prolonged crossover from early adoption to the mainstream than we anticipated, we are operating with increasing levels of efficiency. Before proceeding, I should note that as we continue to drive costs out of our organization and products alike, Our updated and more cautious revenue outlook in the back half of the year will very likely delay our achievement of cash flow positive operations. Nevertheless, I want to stress that we will continue to aggressively internally manage the business toward the achievement of this objective. The net results should be sharply reduced cash consumption for the balance of 2023 as we move with pace to complete our cash flow positive milestones. I will now turn briefly to the three central pillars upon which we are driving the business to future sustainable growth. Respect to the first pillar, that is, the use of value streams across our beef, pork, and poultry platforms to support operating cost, cost reductions, and margin expansion, among other outcomes. We are still in the very early days of our lean implementation journey. However, the continued emphasis across the organization on the horizontal flow of value customers as generating results. Some of the more visible outcomes include progress across COGS, operating expenses, and cash consumption. With regard to the second pillar, the use of inventory reduction as a key lever towards achieving our cash flow positive objective, we continue to make solid progress and in Q2 reduced inventory by 15.2 million or nearly 7% sequentially. Year to date, we have reduced total inventory by nearly 30 million, or roughly 12%, bucking our historical trend, which typically sees a seasonal increase in inventory, first half of the year. As we look to the balance of the year, we will continue to aggressively manage inventory levels with the goal of releasing incremental cash. Turning to our third pillar, which centers on near-term opportunities to restore top-line growth, even as we nurture long-term partnerships, We are focused on five main levers. One, addressing the broader narrative around the category. Two, continuing to release new renovations and innovations that bring us closer to our North Star of being indistinguishable from animal protein. Three, investing in resetting the retail fresh plant-based meat section. Four, implementing pricing learnings for the last 12 months. And five, supporting our largest strategic partners. Though we recognize that there are broader economic headwinds at play, namely inflation and higher interest rates that are squeezing spending power of the consumer, we are also acutely aware that there is ambiguity and confusion around the health benefits of plant-based meats, and that this is weighing on the category's growth. As a brand and category, we have significantly more work to do to reach the consumer on the health benefits of Beyond Meat and plant-based meats, respectively. There is a considerable gap between the strong health credentials of our products and a broader counter-narrative that is now afoot, and this gap appears to have widened. In the two-year period 2020 to 2022, the percentage of U.S. consumers who believe plant-based meats are healthy dropped from 50 to 38 percent, according to the Food Marketing Institute. As was the case during the ascent of plant-based milk, this change in perception is not without encouragement from interest groups, who have succeeded in seeding doubt and fear around the ingredients and process used to create our and other plant-based meats. Nor is it without contribution from well-meaning yet misguided comparisons of our products to kale salads versus the animal-based meats they are intended to replace. It is in this latter framing that we belong and excel, with clear nutritional advantages including no cholesterol, lower levels of saturated fats, the absence of antibiotics, hormones, and other veterinary drugs, the absence of carcinogenic compounds such as heterocyclic amines, and the absence of precursors to TMAO, a compound that researchers have associated with heart disease and certain cancers. We are attacking this misinformation by continuing to build a body of research, such as our work with Stanford School of Medicine, which, as you will recall, showed important declines in LDL or bad cholesterol, and the aforementioned TMAO, after only eight weeks of replacing animal meats with Beyond Meat, and through collaborations such as that with the American Cancer Society, where we are supporting broader studies on plant-based meats and related health outcomes. Our efforts also include third-party engagement, such as the American Heart Association's first-ever certification of a plant-based meat, Beyond Steak, as a heart-healthy food, as well as work with registered dietitians and nutritionists for purposes of educating consumers about the strong health benefits of plant-based meats. Last week, we launched a campaign long in the making called There's Goodness Here that shares and celebrates the farming origins of our ingredients and describes our process for turning plants into plant-based meat. The first installment of the campaign features one of our Fabavine farmers and connects the consumers to the fields where our protein is grown while explaining the clean and simple steps we use to build our plant-based meats. As you can likely tell, we are proud of our process and ingredients and are confident that the more consumers know, the more they will see the goodness in what we do. Goodness for the soil through the nitrogen-fixing nature of legumes that helps keep fields healthy and productive. goodness for the farmer who can use less fertilizer as a result, goodness for the earth given the much lower greenhouse gas, water, land, and energy footprint, and goodness for the consumer who can enjoy the dishes they love while reaping the health benefits of our plant-based meat. In the area of innovation and renovation, a key part of the Beyond Meat Rapid and Relentless Innovation Program is to improve each of our pillars of beef, pork, and poultry over time so that one day they are indistinguishable from their animal protein counterparts. This is a goal that we share with consumers, with 53% of all consumers agreeing that plant-based protein products should taste indistinguishable from meat according to recent data from Intel. The good news is that we continue to make strong strides in this direction, all against a static target. In Q2 alone, we released a series of important iterations within our core platforms of pork and beef. One, we launched what we internally call Sausage 3, the refrigerated plant-based meat section, where Beyond Meat remains the number one selling brand, according to Spins, for the latest 12 weeks, ending 7-16-23. We are pleased with, and point to, early feedback on a renovated dinner sausage product as evidence that despite current headwinds, steadfastly march forward against our promise of enabling consumers to eat what you love while simultaneously having a positive impact on your health, on the climate, environment, and animal welfare. Earlier this summer, the Tasting Table posted a review that captures the results of our latest sausage renovation efforts, which apparently went beyond the indistinguishable goalpost, the title of which reads, The Revamped Beyond bratwurst and hot Italian sausage are shockingly better than pork links. We are pleased it is the number one selling plant-based dinner sausage in retail according to SPIN's data for the latest 12-week period ending 7-16-23 and have rolled this renovation out to food service as well. Two, we are providing consumers with a sneak peek of our latest beef formula in the form of a soft launch of Beyond Stackburger at Kroger and select Albertsons as well as New Seasons in Northern California. Like our renovated dinner sausage, this newest iteration of our burger represents the latest in our flavor and texture advances and is winning early praise. We further took this taste and texture innovation to food service as the Beyond Smashable Burger. Lastly, even as the Beyond Burger is the number one selling plant-based burger across retail, according to spins for the latest 12-week period ending 7-16-23, we are actively working on our next iteration, the Beyond Burger 4, where we are incorporating certain elements of the Beyond Stack and Beyond Smashable Burger. Accordingly, we are watching consumer and customer reactions closely and are excited by early results. In the frozen section, we continue to expand distribution of one of our new innovations, Beyond Steak, which is the number one selling new plant-based meat item at retail, according to SPIN's data for the 12-week period and at 7-16-23. Interestingly, recent data from a regional chain showed that more than 50% of households that bought Beyond Stake were new to the plant-based meat category and that two out of three households repurchased Beyond Stake, reinforcing that this is a product that is resonating with consumers. For our newest renovations and distribution expansions and the balance of our product portfolio across retail, we are increasing our investment in in-store execution, particularly in the U.S., In the turbulence of the last four years, with the pandemic changing consumer behaviors, high inflation, and the entrance and exit of competitive players in the plant-based meat section, a reset and regrounding, particularly in the refrigerated meat case, is overdue. We recognize that the once clearly demarcated plant-based sections of the fresh meat case can be, in certain retailers, far less defined today. In addition to working with retailers on this issue, we are doubling down on field resources to focus on shelf availability and presentation as we bring new renovations to market. As you may recall, a little over four years ago, we set a goal that within five years, we would be able to produce and sell at a cost and price, respectively, that is a parity with animal protein for at least one product in one of three platforms of beef, pork, and poultry. I'm pleased to share that we are indeed doing that now with a meaningful product and food service and expect to be able to report more of the same over the next year. Yet in the last 12 months of pricing exercises, we've learned more about different elasticities across our product lines. These elasticities may support a more varied approach to pricing that will enable us to more aggressively restore margins even as we move toward price parity where it matters most. We are pleased to see the continuation of the McPlant Nugget alongside the McPlant Burger in the German market, as well as the McPlant Burger across the UK, Ireland, Austria, Netherlands, Portugal, and in our most recent introduction, Malta. As the McPlant platform takes hold, it is fun to see countries such as Austria build and promote unique McPlant Burger offerings such as Steakhouse Burger and McPlant Fresh. We believe the success of the plant platform in the EU speaks to consumer and government recognition that plant-based meats are a powerful tool in addressing climate and broader environmental concerns. We are investing in team, innovation, and partnerships in the EU to be able to serve this growing trend. Before closing out, I want to emphasize how at Beyond Meat we view the current category trough and how this perspective informs the strategy and tenor behind our response. Like many innovative disruptions throughout history, what we initially thought was going to be a quicker pace of mainstream adoption has proven to be slower. In my comments today, I emphasize familiar points of focus for us as we navigate the chasm between early adopters and mainstream consumers, continuing to improve products toward our true north, amplifying our health message to counter incumbent industry positioning and noise while educating the consumer And lastly, collapsing the cost structure of our product lines to improve margins and where it matters most, offer products at parity to animal protein. Continue to pursue each of these levers while focusing on increasing operational efficiency, driving COGS reductions, and sharply limiting cash consumption along our path to cash flow positive operations. Though we believe equally in the four social goods behind our brand, human health, climate, Natural resource conservation and animal welfare one cannot help but notice the urgent intensification of climate dialogue across global leadership and societies. With what may be the hottest period on record in the last 120,000 years and the many well covered heat waves storms fires and other extreme weather events across the planet this summer. The abstract notion of climate change is increasingly tangible to the everyday consumer. The greater use of plant-based meat is a powerful tool in our global response, particularly because it targets greenhouse gases, namely nitrous oxide and methane, that are not only highly potent, but also the removal of which can have a more immediate impact on slowing climate change due to their shorter residency in the atmosphere. We believe the transition to a more plant-based food system is not only inevitable, but gaining urgency, that despite current challenges of a nascent category and brand, We are highly confident that Beyond Meat is well positioned to play a leading role. With that, I'll turn it over to Lubbe, our Chief Financial Officer and Treasurer, to walk us through second quarter financial results in greater detail, as well as update our outlook for 2023.

Thanks, Ethan. On the surface, Q2 was a disappointing quarter for us as net revenues and gross profits fell short of our expectations. However, as I will discuss shortly, several factors are indicative of the continued progress we are making in improving the intrinsic operating performance of our business, giving us reason to be optimistic for the long term. These factors include our underlying gross margin performance when adjusted for certain transitory impacts, our ongoing progress on cost containment and operating expense management, our fifth consecutive quarter of inventory reduction, and the steep reduction of our overall cash consumption year over year. Although the operating environment within our sector is proving more challenging than previously anticipated, we believe the foundational work against which we are making good progress will better position our company to capitalize on the opportunity ahead of us. Let me now dive into our Q2 financial results in a bit more detail. Beginning with net revenues, volume of products sold declined by 23.9% year over year, while net revenue per pound decreased 8.6% year over year, resulting in an overall net revenue decline of 30.5% compared to the prior year period. On an absolute basis, the decrease in volume of products sold was primarily driven by the decline in our U.S. retail channel, and to a lesser extent, a decline in U.S. food service, In U.S. retail, the decline in volume primarily reflected weaker than expected demand in the category, cycling of significant jerky selling in the year-ago period, and to a lesser extent, the impact from competition. U.S. food service was similarly impacted by weak overall demand and a difficult year-over-year comparison as Q2 2022 was a particularly strong quarter for U.S. food service driven by restocking of that channel following its reopening post-COVID. With respect to pricing, the roughly 9% year-over-year decrease in net revenue per pound was primarily attributable to changes in product sales mix, and increased trade discounts, partially offset by reduced sales to discount channels, which suppressed price realization on certain items in the year-ago period. As it relates to product sales mix, relative underperformance of our core products, namely burgers, ground beef, and dinner sausage, generally has a negative impact on that price realization for our business. As for trade discounts, special promotional programs intended to attract new users to our category drove a meaningful increase year over year. Although these programs showed initial promise, they did not scale well at retail and ultimately did not bring about the desired increase in new category users. We will be refocusing our promotional spending in view of these learnings from these programs. Moving on to gross margin, our Q2 gross profit was $2.3 million, or gross margin of 2.2% of net revenues. Although this represents over six points of margin improvement versus the year-ago period, including the impact on depreciation expense from the change in our accounting estimate associated with the estimated useful lives of our large manufacturing equipment, It fell short of our previously stated expectation to drive sequential margin improvement throughout the year. Gross profit and gross margin were positively impacted by lower materials costs, lower inventory reserves, and lower logistics costs per pound, partially offset by higher manufacturing costs excluding depreciation, and, as I just discussed, lower net revenues per pound. Total COGS improved by 73 cents per pound year over year, and we are pleased to see our cost down initiatives yielding savings on materials costs and the reduction in logistics costs attests to some of the early results from our network consolidation strategy. Within manufacturing costs, overall success in reducing tolling fees on a year-to-year basis was partially offset by underutilization fees, which we view as transitory, of approximately $800,000 driven by softer demand and some startup delays as we ramped up production lines within a new co-manufacturing site. And COGS in this quarter was negatively impacted by the flow-through of higher-cost inventory produced in the fourth quarter of last year when we curtailed production volume in response to weak demand, resulting in the capitalization of inventory bearing high labor and overhead costs. Turning to operating expenses, we saw a year-over-year reduction of 33%, from $83.5 million in the second quarter of 2022 to $56 million this quarter. The main drivers of this were reduced non-production headcount expenses, primarily as a result of the reduction in force implemented in October 2022, lower legal and consulting fees, decreased production trial expenses, and lower outbound freight costs. This also represented a sequential quarterly reduction of 12%. We are pleased with our team's continued diligence in keeping costs contained, reflecting early success in our ongoing adoption of lean management principles. Moving further down the P&L, in other expense income, we benefited from meaningfully lower realized and unrealized foreign currency losses, as well as higher net interest income year over year. In addition, loss from our unconsolidated joint venture TPP was lower year on year, reflecting very limited economic activity in the JV this quarter as we continue to transition our jerky business to Beyond Meat. Overall net loss was therefore 53.5 million in the second quarter of 2023, or net loss for common share of 83 cents, compared to net loss of 97.1 million or $1.53 per common share in the year-ago period. Adjusted EBITDA was a loss of $40.8 million, or negative 40% of net revenues in the second quarter of 2023, compared to an adjusted EBITDA loss of $68.8 million, or negative 46.8% of net revenues in the year-ago period. Now turning to our balance sheet. Our cash and cash equivalence balance, including current and non-current restricted cash, was $225.9 million, and total debt outstanding was approximately $1.1 billion as of July 1, 2023. Inventory fell to $207.1 million, a reduction of $15.3 million compared to the previous quarter, demonstrating continued progress against our inventory drawdown initiatives. As I mentioned, this represents our fifth consecutive quarter of inventory reduction, and we remain highly focused on driving further reductions in the balance of the year. Turning to cash flows, net cash used in operating activities in the second quarter of 2023 was $46.2 million, or a $24.3 million decrease compared to the year-ago period. Capital expenditures totaled $1.8 million in Q2 of 2023, compared to 20.4 million in the year ago period. And our total cash consumed in Q2 amounted to 47.7 million, or 49% less than the year ago figure of 93.2 million. Taken together, these improvements in COGS, operating expenses, inventory drawdown, and cash consumption demonstrate that we continue to make real strides in managing our business more efficiently. However, where we are experiencing greater than expected pressure is on net revenue growth and its attendant implications for gross margin. We attribute this at least in part to persistent weakness in the category that transcends beyond me. But as Ethan discussed earlier, we continue to pursue several growth strategies to drive better outcomes on our top line. Let me now provide some commentary about our 2023 outlook. As Ethan mentioned, we do anticipate a return to modest year-on-year revenue growth in the second half of 2023 as we cycle notably weak comparisons from a year ago and as we expect to see continued expansion of newer products in the U.S., distribution growth in international markets, and continued progress with key strategic accounts internationally. However, greater-than-expected category headwinds, particularly in the U.S., is resulting in a more cautious outlook for the balance of the year. And as such, we now expect net revenues for the full year to be in the range of 360 million to 380 million, representing a decrease of approximately 14% to 9% compared to 2022. Gross margin is now expected to be in the mid to high single digit range, reflecting both the Q2 outcome as well as the expected impact from reduced revenues. Operating expenses are expected to be approximately $245 million or less, and capital expenditures are now expected to be in the range of $20 million to $25 million. Finally, with respect to the company's previously stated target of achieving cash flow positive operations within the second half of 2023, we now believe this objective is unlikely to be met in light of the current operating environment, which points to greater category headwinds than previously expected. Nonetheless, we remain committed to significantly reducing our rate of cash consumption in the second half of the year as compared to the first half, and we will be prudently managing our cost base in the coming quarters to move towards our ultimate north star of cash flow positive operations. 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.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then 2. On today's call, we ask that you please limit yourself to only one question. You may rejoin the queue if you have additional questions. Now, at this time, we will pause just momentarily to assemble our roster. And our first question here will come from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thank you. Good afternoon, everyone.

Hey there. Hi.

Hi. Maybe just talking about the updated sales outlook and maybe specifically in U.S. retail, you alluded to some challenges in scaling some of the trial and promotion activity in the U.S. How should we think about that moving forward as we think about the need to accelerate kind of volume consumption kind of as a pathway to future growth? Kind of where is the pivot going? from a marketing and product and distribution perspective that's going to enable that.

Sure. Thank you for the question. And I'll maybe start and then hand it over to Lubbe for some additional detail. But first and foremost, I want to stress some of the things that we covered in our prepared remarks. Despite bringing down the forecast somewhat for the balance of the year, We are very excited to be coming out of what we view as a trough in the category and resuming growth in the third and fourth quarter, so I don't want to lose sight of that. You'll also see an improvement in gross margin, we believe, in the third and fourth quarter, particularly as we move further away from higher-cost products that we produced during earlier quarters and can take advantage of some of the lean work we've been doing around cost down on COGS. You also see us continue to make really strong progress on reducing operating expense, I think down 33%, as I mentioned, year over year, and then cash down about 50, near 50. On top of that, you continue to see an improvement in products, and this is a core, I think, part of the answer that I'm going to give you on sort of how we are thinking about continued growth. First and foremost, if you look at whether it's a steak product and all the reviews it's getting and the fact it's the number one new plant-based meat product in the category. Look at the recently renovated dinner sausage, where that also is the number one plant-based sausage in the category. And then you look at our burgers, continues to be the top-selling plant-based burger in and we're shifting into both the new formula and texture that we're releasing in food service as the smash burger we have released and just demoed and are trialing in retail, something called the stack burger, which captures some of those improvements. So continuing to improve the products, continuing to operate the business much more efficiently. I think the last piece is attacking head-on this ambiguity that exists around the health benefits of plant-based meat and particularly beyond meat. They are extremely strong, and this is something that we've attacked through research and through partnerships, whether it's the American Cancer Society work we're doing or the certification from the American Heart Association around our stake, the work with Stanford School of Medicine, all the things I mentioned in my prepared remarks. But we're now taking it a step further and going to be much more aggressive in our marketing around the goodness within our products. And I think if you were... looking at some of our marketing. Recently last week we released There's Goodness Here, which is a campaign focused on celebrating The ingredients we use, the farmers who grow them, and the process that we use to turn the plant material into meat, all these things are part of our health message and our health story. As we look at the second half of the year, that efficiency that keeps continuing throughout the organization, the reduction in cost of our goods, and then the restoration of the message around the entire category, we view those as key to the resumption of growth. We're also looking at some more tangible things as we go off of this forecast, like increased distribution both in the U.S. and in Europe and things of that nature.

Louis? Yeah, Adam, I would just add that, you know, I think just given some of the pressures that we've seen in the broader environment, we are, I think, navigating some challenges that are reducing the overall effectiveness of promotional spending. And it's an impact that transcends The plant-based meat category, I think others more broadly in the industry have reported similar phenomenons going on in the areas that they play in. In relation to your question and how we're thinking about this, we're definitely taking learnings from... We had some targeted promotional programs earlier in this year, which were really intended to bring more consumers into the category. But I think what we're seeing is, for various reasons, some of which Ethan mentioned in his prepared remarks, there are things that are putting a lot of pressure on our category in particular, some of which is related to messaging, which we're starting to, I think, be a little bit more vocal about if you look at our recent campaign that just came out. But certainly, our goal is to be sharper in terms of

you know how we deploy our promotional spending and so we expect to to see some benefits from that in the latter part of this year and as we move forward add a little bit to that I think that one of the key issues is if the category itself is facing some headwinds and so if you look at if I kind of start on more broadly and you look at the overall consumer and some of the diminished outlook the consumer has around their own financial situation. And then you look at what consumers are doing in the protein space, including animal protein, where they're trading down among proteins and also buying less protein. And then you get to our category, where we are high-priced and so not going to do particularly well in that environment. but also now have this kind of ambiguity around health, you can see how potentially pricing is going to be less impactful given that you're not bringing new people into the category because of those macro conditions and then some of the category headwinds. So for us, it's really around restoring the category message and making sure the consumer understands that and has a reason to come into the category. At that point, we think some of the promotional activities will probably be more effective.

There was a lot there, a lot of color. I appreciate it. I'll pass it on. Sure.

And our next question will come from Peter Galbo with Bank of America. Please go ahead.

Hey, guys. Good afternoon. Just maybe a 1A and a 1B on super quick modeling questions. Just, Luby, is there any differential we should think about in terms of the revenues between 3Q and 4Q cadence would be helpful? And then secondly, on the cash burns, It seems like you're saying it should improve in the third and fourth quarters. It's been running about $50 million a quarter over the past 12 months. Just anything you can help us to mention about how much improvement you'd expect there. Thanks very much, guys.

Yeah, just quickly on the cash flow. It's not that we're... walking away from that in any way, shape, or form. It's just with the top line coming down somewhat, we wanted to caution that it was going to be unlikely within the timeframe we specified. That said, you should see a sharp reduction in cash consumption across the balance of the year, and certainly internally continue to drive the business toward achieving that goal, but would rather keep that as an internal goal and give a little more room externally on whether we cross over into cash or positive.

Louie? Yeah. Peter, to your first question around the cadence of revenues in the back half of the year, we're not providing specific guidance by quarter at this time. However, if you look at historically The third quarter being typically a little bit stronger than the fourth quarter just from a seasonal demand perspective. I don't think there would be anything that would deviate significantly from that this year. And then just to your question around cash consumption and how that evolves in the second half relative to the first half. Yeah, I think there's several things, right, that we're looking at. And, you know, first and foremost is, you know, we have to deliver on our revenue projections for the balance of the year. And then, you know, in conjunction with that, we also have to deliver on our gross margin targets, right, to ultimately generate gross profit dollars, right? And then once we do that, you know, we – It's about continuing to contain costs from an OpEx perspective. There's some opportunities that we're looking at from a CapEx perspective where we can potentially defer some CapEx projects that we were anticipating would happen in the back half of this year. There's things related to our inventory reduction efforts, which we're still very focused on. You put all of those things together, and we do expect that the overall level of cash consumption in the back half of this year should be significantly lower than what we saw in the first half. And so those are the primary things, I think, that bridge that gap.

Great, thank you.

Our next question will come from Ken Goldman with JP Morgan. Please go ahead.

Hi, thank you. I wanted to ask about your strategy for R&D spending. It's down, but it's still 9% of your sales this quarter, which is meaningfully more than what we see from a typical packaged food company. And I agree, you're not a typical packaged food company, but You talk about the biggest issue facing the category being maybe a misperception of the health benefits. You've had some recent launches. I hope it's not unfair to say the results are some good, some maybe slightly disappointing. Why not divert some of this R&D spend toward brand building, toward category building? If that's the biggest issue that you're facing, why not really maybe lean into that a little more?

Thanks, Ken. I appreciate the question. And so I think the main response I'd have is that we are certainly emphasizing spend on the category narrative and also reaching out across companies to help us do this. There's a bunch of companies, obviously, in our category, all rising and falling with this narrative. And so bringing together industry coalitions to address this is an important way to handle it. but we are looking at how do we reallocate funding toward marketing to clean up this messaging, because it is just an education issue. I mean, the facts are there. The health benefits of our products are very strong. We see that in the work we do, not only with universities, but in general, just seeing consumers and how their lives can change. So it's a very good question. I won't comment specifically on how much we're gonna allocate toward R&D versus this, I think the emphasis in your question is the right one.

And then just quickly, how are you doing with meat eaters or flexitarians versus pure vegans lately? What are your data telling you about how the vegans are looking at your product or at your category compared to how they used to? Are they being affected by the marketing as well?

I think to a lesser extent. There are the folks that I mentioned that would be susceptible to some of the more, let's say, I don't know, the foodies that would compare us to a salad or something of that nature. We always resist that. Really, our point of relevance is the health benefits relative to animal protein, where those are extremely strong. We continue to see the consuming family be a mix of basic flexitarians, essentially, and that's where we want to be. I think the main issue with the categories is not bringing in enough new consumers. That's the number one issue. It's not necessarily the characteristics of the consumer. It's that overall pie is not growing, and that's what we need to fix together, and we're working on that with other companies.

Great. Thank you. And our next question will come from Robert Moscow with TD Cowen. Please go ahead.

Hi, Ethan. Hi, Luby. You know, I was wondering as you start to look ahead to 2024 and beyond, in your like long-term scenario planning, do you ever consider the possibility of that this business may be a $300 million business instead of, you know, 350 plus? or a $250 million business. Shrinking to win is always a tough strategy, but given what you're up against here in terms of consumer perception and what I'm sure are some very good core consumers who care about the environmental impact of what you're doing, is that a possible strategy and would you consider right-sizing the company in that direction ever?

Yeah. I think disagree pretty rigorously with that future. If you look at where we're operating, if you look at some of the positive trends that we're seeing, including the fact that we're resuming growth quarter over quarter and been through, I think, what is the most difficult period for the business. But take Europe, for example, and look at our strategics over there and the progress we're making Now in Germany, we're selling both burgers and nuggets and doing so with high acceptance among consumers. I think we've got another launch with McDonald's in Malta. You look at, and I don't think I mentioned this in my prepared remarks, but interestingly enough, and I'll let McDonald's comment on their own, outcomes, but a competitor shared that a very large global burger chain that one in five of their signature burgers in Germany is now plant-based. And so if you look at whether it's those trends or universities or just the overall consumption of animal protein in certain European countries, you can see a very, very strong trend in the right direction. Then you come to the U.S., and while older people aren't necessarily wrapping their minds around this, younger people are. And so if you look at how institutions are responding to that, for example, take some of the biggest food providers in the country, Aramark, Sodexo. I think it was Aramark committed to increasing their plant-based menus to 50%. By 2025, I think Sodexo was something like 44% across more than 250 universities in the country. So the trend is really here. There's some distortion in it, like many early disruptions. But as I've mentioned many times, the arc of history is very much on the side of what we're trying to accomplish. And so even if all of these other things don't get cleared up, which they will around health, et cetera, you have a climate crisis, which is now becoming more and more real for the consumer. And there is really no way to get at that without fixing food. And so our job as a company is to continue to get much more efficient, continue to drive cost out of our products, and be here so when folks are ready to make this transition on their terms, we can serve in doing that. But I do not see it going backwards in any shape or form in the direction you just noted.

Yeah, I appreciate the clarity. Thank you.

And our next question will come from Peter Saleh with BTIG. Please go ahead.

Great, thanks. I wanted to ask about the overall category and really what you're seeing. It seems like you're finding some success in some of these international markets, yet your sales in the U.S. continue to be under a significant amount of pressure. So maybe you can help us understand, are there any learnings that you can take from what you're seeing in international markets and apply them to the U.S.? What's happening internationally that's not occurring in the U.S. to drive success? Maybe the trend better. Are the prices lower in international markets like Germany? Or what exactly is the difference that you're seeing better adoption there? Thanks.

That's a great question. So the answer is this, and it's somewhat nuanced, but it's the message and the reason, the why is clear, right? So in Europe, the why is different than it is here in the United States, but it's clear. So consumers are very concerned about climate and the environment in Europe. Government's concerned about it. Institutions are concerned about it. And they see, for the reasons I mentioned in my prior remarks, changing food as a key way to adopt and adapt in the timeframe that we need to. And again, this actually has to do with the nature of the specific emissions coming from different sources of greenhouse gas. And so in the case of animal protein, it's nitrous oxide and methane. And those are very potent sources. but also have a shorter residency in the atmosphere. So to clear them out, right, you can basically buy time and deal with the climate issue in one of the most effective ways. So Europe understands that. The consumer is getting that. Young people are getting that in Europe. And here in the U.S., it's more driven by health. And there's been a decline in the health perception of our category. So I think we noted there's the Food Research Institute or something, the Food Marketing Institute, noted that I think it was 50% of consumers in 2020 thought that plant-based meats were healthy, and now that number's down to 38%. That's a clear outcome of some competitive market against us, and they've done a really good job at it. They've done a very impressive job in changing the consumer perception. We now have to do the heavy work as an industry to fix that. But that's the main difference, right? There's a clear and compelling why in Europe, and there was a clear and compelling why here that has got eroded, that has become eroded, and we need to basically reestablish that, and that's what we're doing.

Can I just follow up on that number, the 50% going to 38% perception? Has that continued to decline in 23? I'm not sure if you know. And what do you think it was going to take to kind of bend the curve there on that figure?

Yeah, I don't know at the time, but my guess is that it's going to start reversing. And the reason that it's going to start reversing is, one, I think it sort of played its course. You know, at some point, there's the people, you know, the medical community and others start to push back and say, wait a minute, guys, this is going too far. This is a very helpful tool. to combat diabetes, heart disease, cancer. That's why you see the American Heart Association stand up and say, wait a minute, we're gonna certify first state ever as a heart-healthy state because this stuff works. Or the Stanford work we're doing, or the work we're doing in the American Cancer Society. At some point, you strip out the noise and you start to see some of the key proof points. I think there's some additional work that's being done outside of our company and in the broader category that also help that. So it could continue to worsen, but I doubt it. I think you'll start to see a rebound.

Thank you.

Our next question will come from Ben Sawyer with Barclays. Please go ahead.

Good afternoon, Ethan. Thanks for calling and some of the clarification. I wanted to dig a little deeper into the food service in the U.S., and it kind of feels like it was like that area where we expected a lot of growth with some of these announcements back in the past, Yum, McDonald's, and so on. But it kind of feels like it's not taking off and sounds like a level of these mid-teens somewhere on a revenue basis. So it doesn't really feel like it's delivering. Well, on the other side, the international piece has done significantly better on food service. So Maybe following on some of these questions around consumer trends, how do these food service channels, why is it so different that the performance of food service international versus food service U.S.? That would be much appreciated.

Sure. I think it gets to the consumer again in each market. So I think if we look at the EU, I think the consumer receptivity and readiness is there. And I think that our strategic partners recognize that, so that's where they're emphasizing. But I don't think it's a binary issue. I think that it's a timing issue. And my strong view is if you're in the U.S., you'll see a resumption of activity among QSRs. In fact, I think that's something that we feel comfortable about. So, you know, it's very much part of the larger trends we've just discussed. You know, there's been a There's prolific growth and excitement around the category. You go through that, and you go through the kind of trough of disillusionment, and then you come back up on the slope of enlightenment, and I think we're kind of in that area where we're coming back out of it. I wanted to get through this quarter. I'm very glad it's over. I'm very glad to be in this quarter and looking forward to the balance of the year because I do think you'll see some of that presumption of growth, not in any way what we had a few years ago, for the balance of the year, but modest growth that shows we're climbing out of this, and that's what I'm really looking forward to.

Thank you. Our next question will come from Michael Lever with Piper Sandler. Please go ahead.

Thank you. Good afternoon. I sort of want to ask almost the opposite of Ken Goldman's question. You know, I think The health discussion is interesting and the study numbers are certainly interesting, but at least in the U.S., consumers overwhelmingly say that their primary consideration is taste. And even price and health benefits or health considerations are far behind. And so how can you continue to develop a better product? I think that's, in so many consumers' minds, kind of the centerpiece. 9% obviously, in fairness to his point, is a lot. But can you give a sense of what may be ahead and how much more quickly product development could advance that might be the difference maker for at least a large percentage of U.S. consumers?

It's a great, great question. And then, Ken, this question is fair, and this is also I think it's the right balance you guys are trying to strike here and the one that we think about all the time. I would refer to that tasting table review of the dinner sausage, where we've always said our North Star should be indistinguishable. But I have heard this from others, that the new sausage, what we call Sausage 3, people enjoy that actually more than the animal protein equivalent. And our efforts were just to get it to be at parity. So I think we are making strong progress there. I think if you look at the steak product, You sear that up, it's absolutely delicious. You know, you have such high levels of protein and, you know, like less than a gram or a gram or so of saturated fat. So there's so many benefits to it. But at any rate, so all of those things matter when the consumer is willing to come in, right? But if there's a kind of cloud over the sector, right, those things matter less. And so price matters less and the improvements making taste matter less. So our number one goal in this area is to lift that cloud and to educate the consumer about the health benefits of the product. Then I think things like taste will really start to matter again. You need to give the consumer, taste is the most important thing in food, right? But you need to give the consumer a motivation beyond that, right? Because animal protein tastes good too, right? So we have to deliver on taste and other attributes, right? And for the U.S. consumer, it's taste and health.

Okay, great. Thanks for the question. By the way, in our next question, I'll just do a shameless plug for a new burger.

You should go out and you should try in food service what is called the Beyond Meat Smash Burger or in retail, try to find the Beyond Stack Burger that has a new flavor formula and a new texture in it, which I think, again, got a review that said something like... eerily reminiscent or something of that nature of animal burger. So we keep making better, not there yet. But again, let's let the air clear on these other issues. And I'll bet you that'll be something that's really pleasing for consumers. Go ahead.

Our next question will come from Rob Dickerson with Jefferies. Please go ahead.

Great. Thanks so much. It's kind of a simple question. I mean, it sounds like kind of back half U.S. retail revenues are expected to grow a little bit. I'm assuming that's clearly volume based and kind of easier compares off the last year's back half. But is there something unique that just kind of drives that volume? Because a lot of the conversation these days is what happens when we have student loan payments are kind of kind of circle back a little bit and maybe the consumer is not so strong and there's not a lot of companies have a lot of conviction in the strength of the consumer. And you're saying, you know, the consumer is still a little tight and we have a premium product at the same time. Yeah. Revenues are going to get better. I don't know if that's just kind of points of distribution or why you have that conviction.

Yeah. So it's a good question. So it's a couple of things. One, it's again, the lower costs we have year over year. Two, it's increased distribution both in retail and in food service and globally. It's continued strength of our strategic partnerships, particularly in Europe, things of that nature. So that's really what's driving it versus any sense that the consumer is going to automatically have a better outlook or something of that nature. It's more those tactical things that we know to be present.

Okay. Okay. Fair enough. And then? You know, I guess kind of late in the queue here, but I'll circle back to Ken's question. There's another question on R&D. I think it was Lavery, kind of R&D versus advertising. And then you talk about new smash burger taste profile. I just feel like, you know, maybe not as much as, you know, as an analyst, but just a consumer that when you kind of change that taste profile, like should we also be expecting an investment community to um, to like see new ads about that, or like you walk into the store and it's going to show why it tastes better, just something for a hook, because I do feel like you are, you know, kind of on a rolling basis, renovating the product, um, but maybe consumers don't know. So that's all. Thanks.

Yeah, that's also a very good question. Um, You know, you should expect that. I think we've been focused right now during a period when a lot of these flowed through on cleaning up this health narrative. So I think a lot of our marketing for the balance of the year is going to hit that theme. But overall, you know, my vision for this is that it would be very much like the release of any new product, you know, three, four, five, six, seven, generate excitement on each of those. So I think right now we have a broader category issue that we have to hammer home. And once we can fix that, then we can spend those dollars in a more tactical way.

Fair enough. Thanks, Ethan.

And our next question will come from Andrew Strelzyk with BMO. Please go ahead.

Thank you, Anthony. Thanks for taking the questions. I had two quick ones. What are you seeing in terms of competitive dynamics across the category? You mentioned your use of trade discounts in the quarter. And as you're seeing the pressures on the category, are you seeing more competitive activity, competitive intensity pick up alongside that? Or how are you expecting that to evolve going forward? That would be the first question. And the second question is just on the margin side. There are a bunch of headwinds that you listed impacting the quarter. which of those do you see sticking around versus moderating through the rest of the year or, you know, within the high-level buckets that you mentioned, where do you see the biggest opportunities for margin expansion? Thanks.

I'll start with the second one on margin. I mean, I think one of the The transitory issues that we don't expect to see again was the flow through of some highly capitalized inventory from last year. I think we did the right thing there where we were slowing production to help us run through inventory for the balance of 23, but it caught us a little bit this quarter. We had some underutilization things and some other stuff that we don't expect to reoccur. at the same level, so we feel pretty good about the balance of the year, about finally some of this really good COGS work showing up. On the broader category and competitive dynamics, I think that's only, there's two ways to look at it. One is, again, let's get the category message right first so we can welcome new people into the category again, and I think doing a lot of continued discounting, whether it's us or a major competitor, we're just trading among consumers. So it's less productive. So I think it's really about restoring the overall category message. But the thing that has happened is there's been a tremendous kind of shake out in the category, which is to our benefit. You know, we're still standing. We feel very strong. We feel our product's getting better. Our costs are actually getting lower. Our operations are getting more efficient. Our strategic partnerships are moving forward. So we have a lot of confidence about our future, even as we're seeing less competitors. We have a good competitor. I mean, you know, Possible's a very good competitor, and they're doing a lot of good things, and that's good for the category. You know, it's very good for the category, so.

Great. Thank you very much.

This concludes our question and answer session. I'd like to turn the conference back over to Ethan Brown for any closing remarks.

No, we appreciate it. Everyone sticking with us through the quarter. We knew this was going to be a tough comp, and it didn't materialize exactly as we wanted to. But I think the good news is we're through to a second half, which we hope will show a return to growth and, you know, the first in what will be, I think, a good climb out of this and look forward to reporting that next quarter.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.