Beyond Meat, Inc.

Welcome to the BeyondMeet 2024 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 the star key then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Paul Shepard, Vice President, FP&A, and Investor Relations. Please go ahead.

Thank you. Hello, everyone, and thank you for your participation on today's call. Joining me are Ethan Brown, Founder, President, and Chief Executive Officer, and Luby Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our first quarter 2024 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 today 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 our 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 our quarterly report on Form 10Q for the quarter ended March 30th, 2024 to be filed with the SEC, and our annual report on Form 10K for the fiscal year ended December 31st, 2023, along with other filings for 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, adjusted last-term operations, and adjusted net loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide 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 these non-GAAP financial measures to their 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'll begin with a brief overview of our Q1 2024 performance, afterwards I'll provide updates on the five priorities I outlined on our previous earnings call and how we are building toward our goal of sustainable operations and return to growth. Total net revenue was above the top end of our $70 to $75 million guidance range at $75.6 million, an 18% decline from Q1 in the previous year. Gross margin was 4.9%, higher than each of the three previous quarters, but a reduction from 6.7% in Q1 2023. While we are pleased to return a positive gross profit and gross margin this to, among other factors, trade discounts running a bit higher than planned, transitional and startup costs related to bringing production in-house as we continue to consolidate our network, and incremental accelerated depreciation of certain fixed asset disposals. As this positive swing in margin occurred prior to the enactment of our price increases, the first trounce of which began rolling out last month, and prior to completion of our network consolidation work, as well as being impacted by the aforementioned We are optimistic regarding margin improvement across the balance of the year. Operating expenses in Q1 were $57.1 million, a $6.8 million reduction year-over-year. This operating expense total includes a $7.5 million accrual for a consumer class action settlement. This reduction in operating expense helped reduce our loss from operations to $53.5 million in Q1 24 compared to $57.7 million in the year-ago period. Adjusted loss from operations was $46 million, reflecting the exclusion of the $7.5 million accrual for the consumer class action settlement. We will continue to drive efficiencies throughout the organization in support of further operating expense reductions throughout 2024. Turning to our balance sheet and cash flow, inventory fell to 122.5 million, down by 7.8 million from Q4 2023, and down by almost 100 million from Q1 2023. And our cash consumption of 32.5 million Q1 2024 was down significantly from 49 million in the same period in 2023. I should note that while inventories fell, the first quarter does represent a period of inventory build as we prepare for higher demand during our peak selling quarters. This build, which included inventories for the Beyond Burger 4 and Beyond Beef 4 launch, meant that we parked more cash in finished goods inventory this quarter than we did in Q4 2023. Coming off of this first quarter of the year and looking across 2024, we will remain focused on driving further reductions in cash consumption. With that brief overview, I will now run more fully through the progress we're making against each of our five priorities for 2024, while Luby will follow in more detail on our overall financial performance in Q1 2024. First, getting leaner. The first quarter of 2024 provides a clear proof point that our operations continue to get leaner and more efficient. We realized a positive gross margin despite a lower revenue base by reducing operating expenses, inventory and cash consumption, relative to the same period in 2023. Our continued emphasis on leaning out our operations also entails tightening our focus with regard to product portfolio, markets, consumer targets, claims, and messaging, which leads me to our second priority, Beyond 4. In February, we unveiled Beyond Burger 4 and Beyond Beef 4, and across April, these products began rolling out in grocery stores nationwide, including Walmart and Kroger. Through this fourth-generation project, which we expect will be fully distributed by Memorial Day, we took a leap forward on a continuous improvement journey, that is, a rapid and relentless innovation program. As you will recall, we iterate our product lines across organoleptic properties in a framework referred to as FAAT for flavor, aroma, appearance, and texture, while driving improvements in nutrition, cost, and other considerations. In the Beyond4 platform, as discussed previously, we place considerable emphasis on unlocking further health gains. To this end, we work intensely with eating medical and nutrition experts as we build this next generation. Together with this network, our team, in my view, delivered a home run, an improved sensory experience with a nutritional build so impressive that it goes to market with a host of important validations. These include becoming the first plant-based meat brand to be recognized by the American Diabetes Association Evidence-Based Nutritional Guidelines for its Better Choices for Life program. Being featured in a collection of heart-healthy recipes certified by the American Heart Association's HeartCheck program, as well as an upcoming American Heart Association and Beyond Meat cookbook. as well as taste, simplicity, and transparency. And finally, becoming the first plant-based meat products to be clean label project certified. As has been the case with other disruptive innovations in history, innovations that are today commonplace everyday items, one of the biggest challenges our brand has faced is orchestrated misinformation regarding our product lines. As Beyond Burger 4 and Beyond Beef 4 approaches full distribution, We will launch our 2024 marketing program, which highlights their strongly validated helpfulness. Built with protein from yellow peas, red lentils, brown rice, and fava beans, together with heart-healthy avocado oil, Beyond Burger 4 and Beyond Beef 4 provides consumers with 21 grams of clean protein with only 2 grams of saturated fat per serving. As the Beyond 4 platform rolls out to more stores, we are pleased dieticians. I won't consume our time today with a lengthy review of what has been a very gratifying initial introduction, but will instead share perhaps one of my favorite headlines thus far. This from Good Housekeeping, which simply states, our registered dieticians can't stop talking about Beyond Meat's newest launch. This headline is particularly important to me as it represents our promise that we build plant-based meats that are not only delicious, but serve an important role in human health. This and other similar reviews are also where they're quantified as roughly 160 million Americans who have some type of cardiovascular disease, the 97 million Americans who are pre-diabetic, or the 38 million Americans who are diabetic, or the 25 million Americans who have high cholesterol. We believe, as do the nutritionists, institutions, and dieticians standing behind Beyond Four, that we offer consumers a delicious yet powerful choice that can help them and their loved ones live healthier lives. The aforementioned 2024 marketing campaign, which we are rolling out imminently, will bring this message to life across a variety of media throughout the summer rolling season and beyond. Moving on from products, I should note that we announced a newly renovated and expanded line of three different Beyond Crumbles, original, feisty, and Italian style. These tasty bite-sized crumbles go from frozen to finished in just a few minutes and provide a delicious and healthy protein option throughout the day. Beyond Crumbles have 12 grams of protein per serving, less than 1 gram of saturated fat, and no cholesterol. These are intended to join Beyond Steak and the Frozen Isle. And as with Beyond Steak, the Beyond Crumble lineup has been certified by the American Heart Association's Heart Check Program and the American Diabetes Association's Better Choices for Life Program. Moving forward, we expect to be introducing yet another delicious product set to this heart-healthy lineup later this year. I'll turn now to our third priority, implementing changes to our US trade and pricing programs beginning in Q2, which we believe will meaningfully impact gross margin. Our overarching goal is to restore margins to previous levels achieved in 2019 and 2020 over time. As we report, we've just passed through the second major tranche and majority of our pricing actions for the year. These measures reflect a series of tiered pricing and fresh product offerings, and the introduction of Beyond Four and its more premium ingredients, among other factors. Fourth, we are nearing completion old. Finally, fifth, we are investing in our European business and related strategic partners. We continue to make progress with our quick service restaurant business in Europe and the UK, even as the quarter's year-over-year numbers were impacted by the lapping of product loading and promotional activities in the year-ago period that did not repeat in Q1 2024, a consumption trend toward value items in a certain geography reflecting broader macroeconomic conditions. Additionally, in Q1, McDonald's expanded availability of the plant burger across the Baltic countries of Latvia, Lithuania, and Estonia. In Europe, more broadly, we launched Beyond Steak for food service in the Netherlands and at retail in Belgium, as well as expanded availability of the Beyond Burger at co-op stores across the UK. Further, we are excited that we will soon be expanding in the EU and other international markets. To conclude, we believe that 2024 is a pivotal year for change and progress for Beyond Meat. We began the year making solid strides along our 2024 strategy and, correspondingly, our path to sustainable operations and a return to growth. We believe that our determination to sharply reduce our operating expenses and cash use, consolidate our production network, implement pricing changes to help restore margins, and launch our most significant renovation to date, Beyond 4, for purposes of reinforcing as well as raising the bar on the health benefits of our plant-based meats amidst sustained misinformation campaigns are beginning to pay off. We expect to continue to harvest benefits from these actions across the balance of the year and beyond. These powerful measures and their early dividends, coupled with our initiative to bolster our balance sheet this year, infuse us with cautious optimism as we look forward. And with that, I'll turn the call over to Lubbe to walk us through our Q1 financial results in greater detail, as well as provide our outlook for 2024.

Thank you, Ethan, and good afternoon, everyone. I'll begin by reviewing our first quarter financial results before providing an update on our 2024 outlook. Net revenues decreased 18% to $75.6 million in the first quarter of 2024, compared to $92.2 million in the year-ago period. The decrease in net revenues was driven by a 16.1% decrease in volume of products sold and, to a lesser extent, a 2.3% decrease in net revenue per pound. Taking a closer look by channel, net revenues in our U.S. retail and food service channels decreased by 16% and 16.2% respectively, primarily due to a decrease in volume of products sold and reflecting continued macroeconomic and category-specific headwinds. Net revenues in our international retail and food service channels decreased by 12% and 28.7% respectively, Softness in our international retail channel mainly reflected the lapping of large initial pipeline orders in Europe for our chicken innovation launches from a year ago, as well as softer demand in the Canadian market for certain of our beef and pork items. The year-over-year decline in our international food service channel primarily reflected the lapping of strong sell-in of burger and chicken items to a large QSR customer in the year-ago period, as well as generally softer demand in the UK. With regard to the UK, recessionary pressures appear to be dampening demand both in our retail and food service channels, although we believe this to be a transitory effect. It's also worth noting that while the EU and Canada remain our two largest markets in the international space by some margin, we do have presences in Mexico, Australia, and certain parts of Asia, among other regions, where we did experience some idiosyncrasies that also impacted our first quarter results, albeit to a lesser extent. Turning to gross profit, gross profit in the first quarter of 2024 was 3.7 million, or gross margin of 4.9%, compared to 6.2 million, or gross margin of 6.7% in the year-ago period. The year-over-year change in gross profit and gross margin reflected higher manufacturing costs, including depreciation, higher materials costs, and reduced net revenue per pound, partially offset by lower inventory reserves and lower logistics costs per pound. Within manufacturing costs, although we realized solid benefits from our network consolidation efforts, we did also see transitional costs such as temporary labor and increased overtime in our own facilities as we brought in substantially higher production volumes in a short period of time. However, we saw encouraging sequential trends within the quarter and expect our meaningful insourcing of production volume to pay dividends in terms of reduced costs and improved quality in the coming periods. Operating expenses were $57.1 million in the first quarter of 2024 compared to $63.9 million in the year-ago period. The decrease in operating expenses was primarily due to reduced non-production headcount expenses lower marketing expenses, and reduced selling expenses, partially offset by an increase in general and administrative expenses. General and administrative expenses included a $7.5 million accrual for a consumer class action settlement associated with certain lawsuits that originated in 2022. Of the aforementioned settlement amounts and subject court approvals, we anticipate making a cash payment of approximately $250,000 in 2024 and the remainder in 2025. Overall, loss from operations was $53.5 million in the first quarter of 2024, compared to $57.7 million in the year-ago period. Adjusted loss from operations, which excludes the aforementioned class action settlement accrual, was $46 million in the first quarter of 2024. Net loss was $54.4 million, or $0.84 per common share, in the first quarter of 2024, compared to net loss of $59 million, or $0.92 per common share in the year-ago period. Adjusted net loss was $46.9 million, or $0.72 per common share in the first quarter of 2024. Adjusted EBITDA was a loss of $32.9 million in the first quarter of 2024 compared to an adjusted EBITDA loss of $45.8 million in the year-ago period. While we still have a lot of work to do, this represents our smallest adjusted EBITDA loss going back to the second quarter of 2021. Turning now to our balance sheet and cash flow highlights, Our cash and cash equivalence balance, including restricted cash, was $173.5 million, and total debt outstanding was $1.1 billion as of March 30, 2024. Net cash used in operating activities was $32.2 million in the quarter ended March 30, 2024, compared to $42.2 million in the year-ago period. Capital expenditures totaled $1.2 million in the quarter ended March 30, 2024, compared to 5.3 million in the year-ago period. Finally, I'll conclude my remarks by commenting on our 2024 full-year outlook, which we are largely reaffirming as follows. Net revenues are expected to be in the range of $350 million to $345 million for the full year. Net revenues for the second quarter of 2024 are expected to be in the range of $85 million to $90 million. Gross margin is expected to be in the mid to high teens range for the full year 2024 and is expected to be higher in the second half of the year relative to the first half. Operating expenses, excluding the $7.5 million consumer class action settlement, are expected to be in the range of $170 million to $190 million, weighted slightly more towards the first half of the year. Lastly, capital expenditures are expected to be in the range of $15 million to $25 million. And with that, I'll 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 are using a speakerphone, please pick up your handset before pressing the G. To withdraw your question, please press star then 2. Your first question comes from Alexia Howard with Bernstein.

Good evening, everyone.

Hi, Alexia. Hey there.

Hi. So I guess my main question is around the confidence that you have in the sales outlook. It feels as though last quarter the pricing was down quite a bit and the volumes improved, and this time Obviously, we've seen a big sequential increase on the pricing side, but the volumes have deteriorated. So as you look out, what gives you the confidence to be able to reiterate the four-year guidance, what improves over the summer during grilling season, and so on? Thank you.

Thank you for the question. So I think we were rolling out toward the end of the first quarter some of the most early shipments of the Beyond 4 product. So those are hitting stores now, and we expect to be in full distribution by Memorial Day. And so a lot of the focus for us as a company has been on that reset. I've spoken about this many times. If you look at what has led to the deceleration of growth in the entire plant-based meat category, We believe it is perception around the health benefits of the products, which were quite strong. If you think about 2020, for example, where survey results suggested they were, I think it was 50% or more of Americans felt that plant-based meat was healthy for them. Whereas in 2022, that number was down at 38%. And my strong belief is that it declined further in subsequent years. And so we wanted to tackle that directly and try to make our products as unassailable on the health side as they are on the climate and environment and animal welfare side of things. And so over this three-year period of working with doctors, nutritionists, and dieticians, we did that, in my view. And this product that is now reaching full distribution later this month has been so well received by the not only medical community, but the nutrition and registered dietitian community, that we have high confidence that it addresses the number one issue in the category. And so if you think about the type of endorsements that I went through on the script there, whether it's the American Heart Association Recipe Program, whether it's the American Diabetes Association, whether it's the Clean Label Project Certification, or good housekeeping, sealed nutrition. All of these things are a signaling mechanism to the consumer that regardless of the misinformation out there, the orchestrated campaigns to suggest it's unhealthy, you can trust that this product has the health benefits that you'd expect it to have. And so that's a very different scenario than the one we were facing a year ago where there was just so much negative noise that was being drummed up about the category. And although we had studies and we had to work with Stanford, we did not have this kind of overarching framework of endorsements and support from nutrition and health and wellness community. And if I could, if you look at some of the earliest reviews of these products, whether it's Good Morning America saying we've raised the bar on nutrition of plant-based meats or it was eat this, not that. We were featured as one of the best new grocery products at 24. Prevention Magazine put us as, you know, the number one product for plant-based meat. Eating Well, I think, had a really great review by a nutritionist or a registered dietitian around how this is a heart-healthy option and particularly relevant to people who are, you know, struggling with cardiovascular issues, which, by the way, is 160 million Americans, as I mentioned in my prepared remarks. Then Women's Health selecting it as their number one, you know, favorite, rather team favorite, you know, plant-based meat. So... It took a lot of time, a lot of discipline, a lot of effort, but we wanted to fix that fundamental perception issue around the category. And so as we roll out in this pivotal year, we've taken all these steps, which I went through in my remarks, whether it was bringing operating expense down, continuing to bring our cost of goods down across the balance of this year, whether it's the price increases we're taking. We are stabilizing the business and then rolling out this very significant product. So We think for that reason that we will see some acceleration across the balance of the year. On the pricing, that did not go into effect until, let me see, April 5th was the first tranche, and then May 5th roughly was the second tranche. So that wouldn't have impacted results in the first quarter.

In that case, may I follow up and ask whether you're seeing any preliminary price elasticity as you've introduced those price increases over the last month?

We have. It's too early to tell. I mean, I think we were pleased with some of what we've seen so far, but it's just too early to tell. But it is that the picture is somewhat clouded, right, because not only are we introducing new pricing, but we're also introducing a new premium product, right? So there's just different value for the consumer. So we'll wait and see, but we're optimistic.

Okay, great. I'll pass it on. Thank you.

Yep.

Your next question comes from Ben Thur with Barclays.

Yeah. Hey, good afternoon, Ethan and Luby. So first of all, just wanted to follow up a little bit on that, like the initiatives as you've laid out in order to just focus on the new products, like a little bit of a premiumization, getting the right price points. So it felt like that in the quarter prices were still on average slightly down. So can you help us understand how we should think about the cadence of the new product flowing into results and how that price point's potentially going to move as you have like this more differentiated approach as to pricing? So how should we think about the cadence here for the coming quarters?

Yes, we won't get a full benefit from that in this quarter, although you will see definitely some benefit from it because it, again, is just reaching full distribution and the pricing went through in those two tranches, if it may fit. So I think you can expect this quarter to see meaningful increase in net revenue per pound in the U.S. And then, of course, we also have some activities elsewhere that are also increasing. I think, going to be accretive to us from a margin perspective globally.

Okay. And then just a quick follow-up as to the performance in international, which used to be the stronger market but felt a little softer this time, just on like a year-over-year basis. Was there anything in particular that you could point us to, what happened in the international markets that drove particularly the volume decline?

Yeah, I think we remain very bullish about Europe and about some of our other international markets, Canada, et cetera. Two main factors, I'll address retail first. We did sell in quite a bit of a new product in the first quarter of 23 in Europe. That's our chicken product, and we're lapping that in Q1 of 24. And then the second, you know, we do have some exposure to both, obviously, the U.K. is a good and healthy market for us from an overall demand perspective, as well as Canada. But in both cases, you see some recessionary factors in place there and some consumer trading around looking more for value at the moment. So those two issues on the retail side, I think, led to some of the lumpiness in that story. I think on the international food service side, somewhat similar in the sense that we were lapping a year ago selling of chicken to one of our largest QSRs as well as some additional burger sales loading. And then in two of the markets I just mentioned, UK and Canada, there's overall slower sales in some of our QSRs, you know, not necessarily related to our category. So those two factors, and I think some of it is particularly on the QSR side really can be explained by timing. We did see a pretty decent level of Orders at the end of the fourth quarter of 23, and we did see some pretty healthy orders coming in as we started the second quarter here. So had those moves, you know, a few weeks one or the other direction, I think we would have been a little bit different story.

Okay, perfect. Thank you very much, Ethan.

The next question comes from Adam Samuelson with Goldman Sachs.

Yes, thank you. Good afternoon, everyone. Hi, Peter.

Hi.

So, Ethan Luby, I was hoping to maybe get a little bit more color on the phasing of pricing and gross margins between the first half and the second half. Just trying to think about full year, getting to the mid to high teens when we're at 4% in the first quarter, or 5% in the first quarter, excuse me, and then revenues first half, second half look to be about equally split dollars-wise based on the second quarter guidance. And so as we think about getting to that mid-to-high teens for the back half, it would seem to imply the back half gross margins are comfortably north of 20%, kind of implied in that outlook. And if that's correct, can you just help us think about the magnitude of kind of pricing uplift that helps push it there versus... the magnitude of unit cost reductions in COGS that would improve the gross margins? It seems like there's anticipated contributions from both.

Thanks. Yeah, thank you. That's a great question, and you're absolutely right. We do see, obviously, some significant benefit from the pricing increase, but I think also, and so much work has gone into this, I do want to pause on it for a minute. The consolidation of our network, and we did this for a number of reasons, in some case quality, in some case cost and things of that nature. But we wanted to begin the year with a lot more of the production under our own roofs. And we were able to do that. There were some significant transitory costs in there from a transitioning perspective, whether it was temporary labor or overtime, some logistics, some startup costs and things of that nature. that did bring the overall margin for the quarter down. But if you look at the overhead absorption we expect to see across the balance of the year as well as the efficiencies of being under one or two roofs and then also reduced logistics and things of that nature, you can begin to see quite a significant spread occurring between the price that we're charging and the cost of our production. So we do feel good about it for the balance of the year. The amount of throughput that's flowing through our facilities right now is pretty impressive relative to where it was. So it's a lot of work, but it's the right thing. And, you know, if you look at these steps we're taking, I think one of the reasons I'm so optimistic about where we're headed is that, you know, business is getting leaner from an operations perspective. You know, if you look, we took $14 million out year over year, you know, once you adjust for the settlement. You know, we continue to bring down costs. the overall size of the network. And we're going to realize very significant, I think, cost savings on a COGS basis for that, raising price. So there you're going to get additional margin. The new products that are coming out address very squarely. You know, we could have just proliferated SKUs. We could have just said, hey, we're going to launch this product and that product. But we wanted to address the fundamental issue going on with the category as a category leader. And I think we've done that. And by the way, that's opening up some new markets for us as we work with the American Heart Association and others to address some of the disease states that are out there. So all of these things, to me, are addressing the fundamental issues around the business and are going to allow us this year to have the type of return to growth, whether it happens 12 months from now, 16 months from now, I can't say, but that we've been anticipating. And so net-net, I feel very good about where the business is, and we're going to continue to make these changes across the balance of the year.

Adam, I'll just add to that. I think it's a good question regarding what the margin trajectory looks like for the balance of the year, just given where we finished in Q1. A couple of things I'll say about Q1, and we mentioned this in the prepared remarks. First off, We have been, we talked about this for the last couple earnings calls, sort of phasing out some of the promotional activities that we were doing that were more on the aggressive side. And what I will say is that we were encouraged to see that sequentially as we progressed through the quarter, our level of trade spend came down pretty nicely. The other thing, and Ethan mentioned this in his prepared remarks, is there was some, we identified some incremental assets in the quarter. We're still really just kind of wrapping up most of the heavy lifting as it relates to our network consolidation efforts. And there were some incremental fixed assets that we identified, and so that drove some higher depreciation costs in Q1. And then lastly, we mentioned this as well, that there was just on the direct labor side, some temporary labor and overtime and things like that that drove up our direct labor costs. Most of those should be substantially less of a drag in the balance of the year. The other thing, too, is as pricing will become – will have the benefit of a full quarter's worth of pricing in the back half, right, we'll start to see some of that benefit in Q2. But then it kicks in in a more meaningful way in the back half. And I'll just remind you that as it relates to price – Not only is there pricing in terms of what we're doing from a list price perspective, but we've also rolled back promotions. And then all of the various efforts that we have going on in terms of the network consolidation, which should drive much better fixed cost absorption. We're seeing logistics cost savings. I think we're really encouraged to see the sequential progress that we saw in the first quarter in terms of our production costs. And so we feel pretty good about our assumptions for the balance of the year. And then you asked the question about the relative magnitude of as it relates to pricing versus cost. I think price for sure is a significant component of it, but we are expecting to see some efficiencies from a cost perspective as well.

Okay, that's all very helpful. I'll pass it on. Thank you. Thanks.

Our next question comes from Ken Goldman with J.P. Morgan.

Hi, thank you. I wanted to follow up on the line of questioning about pricing. a few here right one how are your customers reacting given that you're raising prices as your costs decline and the category is still struggling a little bit I guess the second one is how should we think about your competitors reactions to your raising prices what are you seeing or thinking you're going to see in the market and then the third is what's in your guidance I mean I don't need an exact number but just are you being conservative enough on price elasticity in the markets where you're taking those meaningful increases. So I know that's a lot. I just wanted to kind of dig in a little bit. Thank you.

Sure. So I think on the first question, what are we seeing from customers as we roll this out, it's just too early to tell. I mean, it's just hitting the shelf now. You know, we did have, you know, long discussions with a lot of the main retailers we work with around why we're doing this. And, you know, with limited exception, most were accepting. And, you know, we're doing this at a time when we're also offering a more premium set of products. And so I think that made the discussions a lot easier. From a competitor perspective, you know, we're largely following a lot of price increases, and obviously in retail more generally, but also if you look at our largest competitor, they went through a similar process about a year before us. So I don't – anticipate much in terms of kind of strategic interplay from them. I mean, they are also trying to do what we're trying to do, which is drive their business toward profitability. So I don't think we're going to see a very strong discounting or something of that nature. But I can't promise that. And then on guidance, just what's in it will actually be.

Yeah, we do think that we are being appropriately conservative. We did a significant amount of work with an external consultant as we went through this price increase, and we did various studies, consumer studies, to try to gauge what elasticity might look like. We are... baking into our estimates for the balance of this year an elasticity that's lower than one, but it's, you know, we feel like there's some conservatism baked into that.

Okay, thank you for that. And then I appreciate the help with guidance for 2Q sales. Just thinking about the other factors in terms of, I know there's been questions about the cadence of the gross margin. you know, how do we think about, you know, where would you like it to be generally? I'll just ask it directly for the gross margin in 2Q. And then EBITDA, the streets modeling, I think negative 25 million for adjusted EBITDA. Just how reasonable do you think that is in light of, you know, where you're pointing people to for the top line?

Yeah, in terms of margin, I would say we would expect to see you know a pretty um decent sequential improvement obviously from q1 to q2 you know the q2 does tend to be um our highest uh volume quarter as well just you know as we're entering um grilling season things like that so usually we will see some benefit from just fixed cost absorption but then obviously with the with the price um increases starting to kick in and as i mentioned you know our our trade rate has been coming down, we would expect to see a pretty meaningful sequential improvement. And then in the back half, we also would expect to see, probably you wouldn't see the same step as we would expect to see going from Q1 into Q2, but we would expect there would be some incremental improvement versus Q2 in the back half, just as a result of, you know, the fact that we'll have additional, you know, that we'll have a full quarters benefit of the price increase is the main driver in both quarters in Q3 and Q4.

And then I'm sorry.

The question on EBITDA, could you just remind me? What was the question there?

Yeah, I'm just trying to figure out a way to ask if this, consensus number of negative $25 million is kind of in the ballpark of where you'd like us to be?

Yeah, I don't want to provide specific guidance by quarter for EBITDA, so we'll leave it at that.

If I can ask a quick one, Luby, not to take too much time, but the EBITDA guidance for the year, does that include or exclude the $7.5 million accrual, just to be clear?

We didn't guide to EBITDA, but we did guide to operating expenses, and that excludes the $7.5 million.

Right. That's right. Thank you. I apologize. No problem.

Your next question comes from Michael Lavery with Piper Sandler.

Thank you. Good afternoon.

Hi. Good afternoon.

Just curious if you could update us on sort of the – State of the Union for SKU rationalization and how much of that work is done or midstream versus still to come? And obviously, you've given the revenue guidance that wraps it all together. But how do we think about that as a piece of one of the moving parts for revenues?

Thanks for the question. So obviously, we continue to complete the process of exiting Jerky. In terms of the overall emphasis on SKUs, you'll see us very much lean into the Beyond4 platform this year, including launching a very impactful and significant marketing campaign as we roll into Memorial Day. But in terms of announcing any major SKU reductions or things of that nature, we're not in a position to do that.

Okay, that's helpful. And Just maybe a little bit of a higher level, can you help us understand maybe if your target consumer has changed at all? And I appreciate there's definitely some health and wellness-seeking consumers, but certainly even quite a lot of them prioritize taste. And I'd say historically, when you talked about targeting mainstream consumers, it would seem like That's an even bigger priority, and our survey work always points to that. So I know you called out some doctor and dietician support for Beyond 4, but for the consumer who doesn't pay attention or care, is that just not kind of your audience the way that might have been in the past? Or how do we think about, you know, just the universe of consumers and how to excite them all?

That's a great question. My emphasis on the health side of things is simply because of the misinformation campaign. We would not make these changes at the expense of taste. In fact, the team was able to score higher on sensory tests with the BEYOND4 platform versus BEYOND3. So we do, you know, large testing. It's called CLT, central location testing with consumers. And, you know, don't move forward unless there's some statistically significant benefit that we see. And so we did gain on the sensory side as well as on the health side. And, you know, the reason that I'm so focused on making sure people understand the health benefits is, one, we want to bring back in that very close-in early adopter consumer that maybe has been scared away. Um, and, uh, and so I think these changes are starting to, to do that. And whether it's, you know, the inclusion of more premium ingredients, we have red lentils, fava beans, yellow peas, and brown rice, for example, avocado oil, bringing the saturated fat down to two, just two grams. So, you know, you're sitting down having a barbecue, you've got either an animal protein that is eight and a half grams or so of saturated fat or you have beyond, which has two grams of heart healthy avocado oil and saturated fat. Um, and so, uh, It's not an either-or. We have to satisfy both, and I think that that's the magic of Beyond Meat is we've done that in this case. And in doing that, not only do we bring back some of those consumers that maybe were kind of discouraged from partaking, but we also do open ourselves up to be a real solution for consumers that whether they're – We had Dr. Hossfeld on there talking about how, you know, between the ages of 12 and 14, two-thirds of American youth have early signs of high cholesterol disease or of cholesterol disease, rather. So, you know, whether this is about providing your family and your children with something that's going to benefit them over the long run or it's about addressing any concerns you have about your own health, you know, this is a really important solution for that, which is different than just saying, you know, this tastes just like meat. And so we are going to emphasize that as we move forward. And it opens up, obviously, those much bigger categories that I talked about. And it's necessary because there has been a very sophisticated campaign to suggest that our products aren't healthy. And so we wanted to come back and, as I said before, iron sharpens iron, just become even more clear on the health benefits. I think at some point the opposition to all of this will overstep themselves and overstate their case. You know, because at the end of the day, what they're doing is discouraging people from making a choice that could really help them become healthier, right? And at some point, that cynical approach is going to become apparent. And I think the more doctors, nutritionists, and registered dietitians that come on board in support of what we're trying to do to improve human health, I think the more dangerous that tactic is.

Okay, thanks. I'll pass it on.

My next question comes from Andrew Selvick with BMO.

Hi, this is Daniel on for Andrew Strzok. Thanks for taking my question. Sure. The release mentions ongoing further slowdown in plant-based meat category trends. How do you juxtapose that with keeping the guidance?

What's like the... Yeah, I think this all gets back to, we've been looking at this, trying to crack this nut for three or four years now, right? And what's going to bring back growth to the category? And we've done a ton of consumer research and analysis and just lived through it, right? And so I think these products, whether it's Beyond Steak, which again was the number one new item in retail last year, or that Beyond 4 was rolling out now to really strong accolades from the right communities, or that Beyond Crumble we just launched, we are addressing the fundamental issue with the category. And so we really do believe that that will change the growth trajectory of the category of Beyond Meat. Second, if you look at Europe, right, and while there's some lumpiness in the data there, let's not forget that today McDonald's announced this very significant promotion around their Famous Meals or Famous Order program. And, you know, the quote from the press release on that, to me, says a lot about where this whole category is moving and where Beyond Meat is moving. And so, actually, I think I printed it out. I'm going to share a little bit of it. It was two musicians who, similar to, you know, what they did here in the United States with folks like Travis Scott, etc., And a quote in the McDonald's press release was this. Like most people, McDonald's has been with us all our lives. This is the musician speaking. So it was a childhood dream come true for us when McDonald's asked us if we wanted to create our own menus and burgers. We both want to give up meat more and more often ourselves. So we wanted to create menus that offer a real great alternative, right? So here is McDonald's promoting the Beyond McClendon. It's called the Beyond McClendon, this press release. uh, actively and not only having one bill, but two builds around it, as well as serving, uh, you know, the, the, uh, beyond nuggets, uh, for their, for their chicken McNuggets. So there's a lot of noise around the category. It's very early days. Still, I can point to, you know, at least half a dozen hours to get to probability. So that as this thing turns, we remain the category captain and we're doing that, you know, all the fundamental things we're doing, whether it's leaning out or operating costs, raising our prices to restore margin, reducing our cost of goods sold to restore margin, continue to focus on getting the right products to the right consumers. All of these things position us to continue to lead the category.

That's really helpful. One different question just on what your outlook is on cash flow and what that cadence might look like and kind of what would drive you to raise more cash and like at what levels?

Sure. So I'll answer that in a general sense than turn over to Libby. You know, we continue to bring on an overall, you know, trajectory cash consumption down. You know, this, the first quarter of the year is obviously different for us because we end up, you know, partnering more cash. I mentioned in my comments and inventory and things of that nature. But, you know, quarter per quarter, I think you'll continue to see a nice reduction across the balance of the year. then we are taking steps, as I mentioned, to bolster the balance sheet. And so that should help as well.

Yeah, not really much to add to that. We don't guide to sort of projected cash burn by quarter or anything like that. As Ethan said, all of the measures that we're taking to really improve gross margin, and we also said that our operating expenses are expected to be more front-loaded than back. Like, all of these measures, right, we expect will translate into reduced cash consumption in the latter part of the year. So we would expect the rate of cash consumption in the balance of the year to be lower. But, you know, as Ethan also mentioned and we've said before, we're sort of bolstering our balance sheet is still a top priority for us. So... That's something that we still anticipate we will complete this year.

Great. Thank you. Great. Thank you. Sure.

Your next question comes from Peter Sala with BTIG.

Great. Thanks for taking the question. Ethan, I wanted to ask on the BEYOND4. gave us a list of all the endorsements from the accredited health institutions that back this product. So I'm just curious, how do you really get this word out en masse to really change perception? Is there a way to showcase this at the point of sale or on the packaging or any other way to just think outside the box to get this message out to really enact kind of step change going forward here?

Great question. It's something I talk all the time about internally here. And so from the air game all the way down to what you see in the store, what I want our marketing to be doing is to have each of these emblems present front and center on product literature to the extent that we can on the product packaging. And so you'll see some of that. But whether it's the American Heart Association Recipe Certification Program, whether it's the American diabetes or clean label certification or good housekeeping policy, those should be front and center for the consumer because it is a signaling mechanism that cuts through the noise. We've worked so hard to formulate the products to achieve those. I want everyone to understand that, right? And so we are launching a very significant campaign in terms of the messaging around the healthfulness of the products, and that will be as we roll into Memorial Day. We have a terrific agency working on that with us. They've done some fabulous work, including the Super Bowl ad this year that I think most people would really say is a great piece of work. And so we're going to be launching that, and we expect that to begin to change perception and to beat back some of the false narrative. So I went so hard after this, and it really wasn't something that happened overnight. We had a member of our team here create this ecosystem that And she was able to pull in the right doctors, nutritionists, and folks within this community that got so much support and almost ownership, right, over these changes we're making to the product. So there's a lot of pride from that community in what we'll be able to accomplish here, and they're going to be vocal on our behalf. And you can see it if we make announcements. You can see people tagging in and suggesting, you know, this is great work and things of that nature. So As we move forward, the campaign will be very clear in its messaging around these endorsements. It will be very clear in its messaging around what type of health benefits this can drive. And so we're looking forward to it.

So when you say front and center, are you talking about you can use these or will use these or plan on using these emblems on the actual packaging so that consumers see it down the aisle?

Yes. So some of the packaging has them directly on it. And others will have to signal it through point-of-sale materials and advertisements and things of that nature. Not all of them will be on the pack, but more and more as we go forward, you'll see them on. But, for example, I believe the steak already has the AHA certification on it. ADA is on some of our packaging as well. Clean Label Project is on some of our packaging. So, yeah, I mean, we're going to try to be as overt as possible.

Excellent. Thank you very much.

Yep.

Our next question comes from Robert Nuskow with TD Callen.

I guess two quick questions. Luby, I think on the last call you said that to bolster the balance sheet, you would look at a combination of possibilities, either debt or equity. Is that still the case? And secondly, to Ethan, you know, we've talked a lot about growing the category. Have you done any internal testing in terms of the taste of your product versus your number one competitor? Anecdotally, I've heard, you know, that some prefer the competitor versus yours, but I'm sure you've done a lot of testing on your own. So, you know, how does your product compare with competition and, you know, what are the differences?

I'd be happy to introduce you to a better crowd, Rob.

Oh, okay.

I'm just playing.

I would enjoy a better crowd. It's a little slow around here.

I'm just joking. No, first of all, our competitor does a nice job. They're a good company. I enjoy competing with them. So it's not an adversarial relationship at all. They do a nice job. We, of course, test that. We're very competitive and all that other stuff. And I think what's interesting is that, you know, Ground meat in a patty form without seasoning actually tastes, you know, kind of okay, right? It's not a thing that blows people away. So when we do sensory testing, right, you'd be surprised at how much both products really resemble or at least score at parity with animal protein. And so, you know, we do do a lot of tests relative to our competition. We feel good about the results. We don't move forward if we don't. Let me put it that way.

And then, Rob, on your first question regarding the balance sheet, yeah, nothing has really changed since the last time we were on the call. And so, yes, we would consider all of those options that you mentioned. Great. Thank you. Sure.

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

Thank you. You know, not to be repetitive, but just to be clear, We really do believe that we are at the early stages of a terrific and pivotal year for Beyond Meat. The leaning out of our operating expenses, the stabilization of pricing, the lowering of our cost of goods, and the improvements we're going to see across margin there, addressing the number one issue in the category, coming out with products that are not only winning on sensory but also receiving such accolades from such important institutions around the health benefits. We're doing the things you need to do to get through a period that is challenging and resume growth. So I'm excited. I think the team here is excited. We're looking forward to reporting to the balance of the year, and we'll be in touch. Thanks.