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.