Beyond Meat, Inc.

Good day and welcome upon Meets Incorporated 2023 third quarter conference call. All participants will be in listen-only mode. If you need assistance, please signal conference specials by pressing the star key followed by zero. After the 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 your question, please press star then two. Please note that this event is being recorded. I'd like to turn the conference over to Paul Schepper, 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 third 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 10-Q for the quarter ended September 30, 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 that 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. Having pre-announced select financial results for the third quarter last week, I will briefly review these metrics, provide more color on our performance, and then turn attention to what we are doing to adjust our global operations to fit the current macroeconomic reality and business environment. We expected a modest return to growth in the third quarter of 2023, which did not materialize as category-specific and broader consumer headwinds continued and drove weaker than expected sales volumes, reduced promotional effectiveness, and adverse changes in our product sales mix. Net revenues for the third quarter were $75.3 million, down approximately 9% year-over-year. In turn, lower volumes, coupled with higher levels of discounting and other factors, exerted significant downward pressure on our gross margin relative to our previous expectations, with gross profits swinging to a loss of approximately $7 million. This result obscured continuing progress we're making on COGS reductions, where year over year we reduced cost of goods sold by 18%. Despite these challenging circumstances, we were able to achieve free cash flow positive operations for the quarter. As we indicated when setting this goal one year ago, This outcome reflects a meaningful benefit from working capital as a source of cash, and while encouraging, should not be interpreted to mean that we've turned the corner to sustained free cash flow positive operations. We do, however, believe that it is indicative of the early progress we are making in our objective to reduce cash consumption, even as the company takes additional measures to substantially reduce effects, make changes to pricing architecture, and further prioritize current growth opportunities. I will now dive into our strategy and plan to accelerate our transition to sustainable and ultimately profitable operations. We are pursuing five main actions to improve our cost structure and overall operating performance. One, as previously announced, we are executing a 19% reduction in our global non-production employee base, immediate step in a broader program to improve our cost structure. Two, we are reviewing our pricing strategy with certain channels to support margin expansion. Three, we are continuing to utilize inventory management to reduce working capital. Four, we are intensifying our focus on channels and geographies that are exhibiting revenue growth. And five, in U.S. retail, we are using our portfolio and marketing to directly counter misinformation about our products and category. I will now provide further commentary in each of these five areas. Operating expense reduction. A reduction in force combined with elimination of certain open positions is expected to result in approximately 10.5 to 12.5 million in operating expense savings in 2024 and is an immediate step in a broader cost-cutting initiative to better align our operating expenses with current revenue. While necessary, this is a difficult decision for the business given the tremendous talent, expertise, and passion of our workforce. Our people are what make us special, and letting these team members go is done with a very heavy heart. Though we reduced year-to-date operating expenses by 29%, or $73.9 million year-over-year, to further cut costs as we look to establish our operating expense base for 2024 at a level that better reflects current revenues, We are initiating a review of our global operations focused on narrowing our commercial focus to certain growth opportunities and accelerating activities that prioritize gross margin expansion and cash generation. As part of these efforts, we are evaluating and tend to reduce activities related to certain underperforming geographies, markets, and channels, including a review and potential restructuring of our operations in China. We are further focusing our research and development to near-term product renovations and innovations in a more limited set of breakthrough projects and programs. As I will elaborate on momentarily, we are more narrowly deploying our marketing spend in the U.S. around a primary message of taste and health. More generally, we continue to invest focus and resources around lien management in support of overall expense reduction and margin expansion, including the potential exit of certain product lines and further optimization of our manufacturing capacity and real estate footprint to reduce overall complexity and drive additional cost savings relating to logistics, overhead, tolling, and general production. Pricing Architecture As you know, over the last year we've used pricing in an effort to bring new consumers into the category and to support our inventory reduction and cash generation objectives. While these pricing programs were effective in generating cash and inventory, they did not help us move from early adopters to mainstream consumers. We believe there are likely several reasons for this outcome, among them increased consumer confusion over our value proposition and the remaining price delta between Beyond Meat products and their animal protein equivalent. As we look to 2024, we expect to implement a more nuanced pricing strategy, keeping certain programs and pricing in place while adjusting others in support of gross margin expansion. Inventory management. We intend to continue to manage inventory levels down to generate cash. We've made some progress in this regard as inventory levels have fallen by 21% year over year, yet we have many miles left to travel as we seek to bring inventory in line with lean management principles. Commercial focus on current growth markets and channels. We are encouraged by and are investing in markets and partnerships that are currently exhibiting growth. This includes select markets in Europe and, in particular, certain strategic partners where we are experiencing year-over-year double-digit growth. Fighting back in U.S. retail. We are pursuing a portfolio and marketing approach intended to restore growth in U.S. retail. We are contending with two main headwinds, First, there are broader challenges facing the U.S. consumer, namely higher prices and reduced buying power. We believe that the corresponding consumer action of trading down among proteins, that is, foregoing more expensive cuts of animal meat for cheaper cuts of meat, is similarly impacting our category and brand. We are, despite aforementioned pricing programs and certain exceptions, a higher-priced protein relative to animal protein. Second, as I previously mentioned, we continue to face a serious category perception challenge. As I've long maintained as a brand and category, we will cross the chasm to mainstream on the strength of progress across taste, health, and price, and to a lesser extent here in the U.S., awareness of the planetary benefits of our products. We continue to make organoleptic progress across our portfolio, which the team is racking up recognition and awards as we close this entry gap between our products and their animal protein equivalent. Yet it is, in our view, the health perception of the category that is the most immediate and important variable to address in order to restore growth. We must squarely and forcefully counter the broad misinformation that swirls around our category before we can more effectively use pricing as a tool to bring new users and the mainstream consumer into our category. There is a loud and steady drumbeat of advertisements, op-eds, and social media posts and activities that seek to negatively influence the consumer regarding our products and category. Generally, this always-on attack platform uses one or more of three main rhetorical anchors, fake meat, processed, and full of chemicals. The financial backers of the successful campaign appear to range from more obvious, such as various members of the meat industry, to less obvious, may include members of the pharmaceutical industry, the latter seeking to preserve one of the largest global markets for antibiotics, livestock. As you may know, it's estimated that over 70% of medically important antibiotics are given not to humans, but to livestock. As I shared, this effort to sow doubt and confusion regarding our products has worked. While 50% of US consumers believe that plant-based meats were healthy in 2020, By 2022, this number had declined to 38%, and my guess is that this percentage would be lower today. This well-orchestrated campaign borrows heavily from similar efforts to frustrate tobacco legislation and the tighter regulation of underage consumption of alcohol, and in fact, share some of the same players. We are confident that the strong health benefits available to consumers through the use of our products will ultimately overcome these tactics. This said, we are not passively waiting and instead are taking the following actions. First, we continue to support third-party research regarding the health outcomes available to consumers through our products. This research includes our ongoing work with Stanford University School of Medicine and a growing informal consortium of universities, hospitals, and institutions. We derive significant value from this research in at least two ways. First, we achieve and can share a more precise understanding of the impact of our products on key human health indices, for example, cholesterol levels. Second, we are surrounded by leading medical and nutritional experts who are instrumental in our efforts to over time deliver even greater health benefits in future iterations of our products. Second, we are teaming up with leading associations to validate and help familiarize the consumer with the health benefits of our products. These partnerships and affiliations include, as we've highlighted, the American Heart Association, which has recently expanded the number of Beyond products, earning its rigorous certification as a heart healthy food, as well as our multi-year program with the American Cancer Society to further research on plant-based meat and cancer prevention. In 2024, we expect to announce additional certifications and partnerships that we believe provide important third-party endorsements and or recognition of the health benefits of our products. Third, to make accessible and amplify the positive health outcomes associated with our products, we are teaming up with authentic voices, including ambassadors, medical professionals, and registered dietitian and nutritionists to counter false narratives and educate the consumer on the ingredients and process we use for our plant-based meats. There will be more to come on this front in the coming quarters, and we look forward to updating you on our progress accordingly. In closing, we are disappointed by our third quarter 2023 results and are taking immediate action to pull significant costs out of our operating base as we enter 2024. Simultaneously, we're heightening and narrowing our focus around specific geographies and channels where we are experiencing growth, including in the EU, where we're seeing favorable near-term trends, such as certain segments of US food service. As we head into 2024, We believe we have a solid portfolio and marketing strategy to address category and brand headwinds in U.S. retail, one built around the fundamental benefits available to the consumer through our carefully designed plant-based meats. Though we believe that our achievement of cash flow positive operations for the third quarter is an encouraging directional signal, we are committed to a far more comprehensive and aggressive rebalancing of operating expense to current revenues as we plan for the future. We understand the current results, category challenges, and the intended media coverage can distract what we believe is a far brighter future. We see this future in colleges and universities here in the U.S. and abroad, including those where youth-driven movements are calling for fully plant-based campuses to fight climate change, drawing analogies to university pledges to divest from fossil fuels. We see this future in countries where per capita animal meat consumption is the lowest ever in recorded history, such as in the UK and Germany, and the corresponding progress we are experiencing in McDonald's and the plant platform in these and other EU economies. We see this future in cities such as Amsterdam, where officials are taking tangible steps to increase availability of plant-based meats and dairy in support of their target to have 50% of citizens consuming a plant-based diet by 2030. And in South Korea, where the Minister of Agriculture, Food, and Rural Affairs recently announced a strategic plan to support the growth and consumption of plant-based meats and alternative proteins. And we see this future in the youth-driven petition to have the upcoming UN Climate Summit, COP28, be majority plant-based, and the UN's acknowledgment of the legitimacy and seeming acquiescence to this demand. Finally, we see this future when, together with the medical and nutrition community, we mobilize to push back against incumbent industry propaganda and put in place our strong response yet to this troubling misinformation campaign. In summary, though we did not foresee the current trough in our journey of disruption, we are confident in our ability to successfully fight through it and fulfill our vision of being tomorrow's global protein company of size and significance, a company dedicated to empowering consumers through delicious and satiating products to take meaningful action to address the urgent human health, climate, natural resource, and animal welfare challenges facing our global society. With that, I'll turn it over to Lubbe, our Chief Financial Officer and Treasurer, to walk us through our third quarter financial results in greater detail as well as update our outlook for 2023.