Beyond Meat, Inc. (NASDAQ:BYND) Q4 2023 Earnings Call Transcript
Beyond Meat, Inc. (NASDAQ:BYND) Q4 2023 Earnings Call Transcript February 27, 2024
Beyond Meat, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the Beyond Meat 2023 Fourth Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul Shepherd, Vice President, FP&A, and Investor Relations. Please go ahead.
Paul Shepherd: Thank you. Good afternoon, and welcome. Joining me on today's call are Ethan Brown, Founder, President, and Chief Executive Officer, and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's fourth quarter and full year 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, company's quarterly report on Form 10-Q for the quarter ended September 30, 2023, and to the company's annual report on Form 10-K for the fiscal year ended December 31, 2023, to be filed with the SEC, along with 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.
Ethan Brown: Thank you, Paul, and good afternoon, everyone. I will begin my comments by briefly reviewing the five priorities we anchored our activities around in Q4 2023, and then turn to our five forward priorities for 2024. In both instances, these steps are intended to serve and accelerate our progress towards sustainable operations and return to growth. In Q4 2023, we executed across the following actions: One, we sought to accelerate our transition to a leaner operating structure. As part of these efforts, we established a minimum of $70 million in cuts from our operating budget for 2024. We recorded approximately $95.6 million in non-cash charges, primarily relating to inventory and assets now deemed to be in excess are no longer consistent with our path to profitability and continue to consolidate our production footprint.
Two, in U.S. retail, we put the finishing touches on a multi-year renovation of certain core platforms, including Beyond Burger and Beyond Beef. We believe this renovation further positions the brand to overcome misinformation regarding the nutritional and health profile of our products while providing strong support for certain pricing actions. Three, we conducted extensive pricing analysis and, as discussed momentarily, are now preparing to implement pricing changes to support gross margin expansion. Four, throughout the quarter, we continued to use inventory management to free up working capital. Five, we maintained our investment focus in Europe and served our strategic customers in this important market for plant-based meats, including continued traction at McDonald's across countries such as Austria, Germany, Ireland, the Netherlands, UK, Malta, Portugal, Slovenia, and Switzerland.
Turning to 2024, a pivotal year for Beyond Meat, we are pursuing the following five priorities, several of which simply represent a transition from 2023 planning to 2024 implementation. One, we are beginning 2024 by executing within a leaner operation, consistent with substantially reduced 2024 planned OpEx and cash use. Part and parcel with this leaner operation is our ongoing tightening of focus relating to portfolio, markets, and consumer. We are, as just one example, discontinuing our Beyond Meat Jerky product line, despite its number one position in the plant-based jerky category. These refinements allow focus and resources to be put against our latest product platform renovation, Beyond IV, and other SKUs which you believe have higher profitable growth potential here in the U.S. and are consistent with my intention to focus more resources against key markets and customers in Europe.
Two, we will be rolling out Beyond IV in U.S. retail and view this renovation as an important and potentially transformative moment for our brand and category. Iron sharpens iron and we certainly experienced this ancient metaphor firsthand. Specifically, the current climate of misinformation and efforts by incumbents, including sadly, pharmaceutical interests, to poison the plant-based meat well push us to accelerate gains in the health profile of our product platforms. To be clear, as I've often repeated, likely the point of boredom of listeners, we are proud of the health benefits available through our current products, including, for example, those documented in the SWOT meat study, published in the American Journal of Clinical Nutrition, where participants experienced a meaningful drop in LDL or bad cholesterol, as well as a decline in TMAO, the compound in the gut associated with heart disease, after switching from animal-based meats to Beyond Meats across eight week intervals.
And we are proud of the certifications associated with our existing product lines, such as the American Heart Association's Heart-Check Program Certification of our Beyond Steak and Beyond Beef Crumbles. However, as we have also oft-repeated, we are chasing a perfect build of meat from plants, and this goal encompasses sensory as well as nutritional characteristics. On the latter, our job is to deliver as much of the nutritional benefits of plant-based eating as we can in the familiar and satiating form and taste of meat. Over the years, we've surrounded ourselves with a broad ecosystem of doctors, registered dietitians, and leading health institutions to guide us in this effort. Combination of this extensive input and the talent and expertise of our research and development team is what led to what I believe is a significant breakthrough in the Beyond IV platform.
If you come to our facilities in Los Angeles, you will see that one of the analytical areas that we emphasize is the structure, interplay, and distribution of plant-based proteins and fats. In Beyond IV, the team was able to blend high-quality proteins from fava beans, red lentils, peas, and brown rice together with fats from avocado oil in a way to deliver superior nutrition and sensory outcomes. The nutritionals are clear and compelling, including high levels of plant-based protein, 21 grams specifically, with just 2 grams of saturated fat, which is 75% less saturated fat than a typical 80-20 animal beef patty. Avocado oil has been identified as potentially beneficial across a range of health outcomes, including reducing the risk of various chronic diseases, among them heart disease, as well as potentially helpful with eye and skin health, reflecting its composition of monounsaturated fats, antioxidants, and other plant compounds.
The critics will undoubtedly continue to agitate. A favorite target is sodium levels, and the sleight of hand employed is to compare the Beyond Burger, which is seasoned to an unseasoned ground beef burger. Keeping in mind that the current Beyond Burger contains 17% of the daily recommended value of sodium, which when appropriately compared to seasoned beef burgers, often means less, not more sodium. Nevertheless, Beyond IV achieves a 20% reduction in the amount of sodium, with the sodium content now registering at 14% of daily values. Quick math reveals that even if you were to have seven of the Beyond IV burgers in a single day, this consumption alone would not exceed the daily recommended value of sodium. And here's the thing, we're not done.
As the critics position, talk, post, and lobby, we will keep chasing our own true north, that perfect build of meat from plants, and you can expect even lower sodium levels in subsequent generations. These and other advances in Beyond IV have earned recognition from important members of the health and nutrition community. This includes the American Association's Heart-Check Program Certification of a series of heart-healthy recipes featuring the Beyond IV Beef and Burger, the placement of the American Diabetes Association seal on our Beyond IV Beef and Burger packaging, as both products meet the nutritional guidelines of the American Diabetes Association's Better Choices for Life program, and the clean label project certification of the Beyond IV Beef and Burger.
Moreover, in a survey of registered dietitians at a recent conference, 94% of these dietitians answered that they enjoyed the taste of the new Beyond Burger, viewed it as healthful and would recommend it, while broader consumer testing scored favorably across the taste, juiciness, and texture relative to our existing burger. Three, we are implementing changes to our U.S. trade and pricing programs, effective in early Q2. Though varied across channels and product lines, we expect the overall impact of these pricing changes to meaningfully impact margin across the balance of the year. This change in strategy does not reflect an abandonment of our long-sought price parity goal, which we in fact achieved in certain very specific offerings. Rather, the change reflects three main factors.
One, we clearly need to restore our margins, and this, coupled with the network consolidation I discussed momentarily, are expected to aid greatly toward this end. Two, the broad pricing programs we put in place over the last 18 months simply didn't accomplish the goal of crossing from early adopters into the mainstream. In retrospect, the noise and swirl surrounding the category reached decibels that were perhaps sufficient to ground out pricing and other messages. Three, given the aforementioned margin objectives, as well as the inclusion of certain premium ingredients in the Beyond IV platform, our pricing architecture is putting far more deliberate emphasis on tiered pricing across our product lines. Four, as referenced above, we are nearing the completion of what has been a very difficult, but highly worthwhile consolidation of our production network.
Though we undertook these changes for myriad reasons, depending on the site and partner, we expect this right-sizing to substantially contribute to margin. To give a sense of the magnitude of this restructuring effort, it helps to consider that in the last two years, we've contracted our production network from as many as 13 co-packers in North America to just one today. This consolidation, coupled with an emphasis on internal production, has obvious benefits relating to overhead absorption, as well as logistics and quality control. Five, we are continuing to invest in our European business and related strategic customers. In a recent trip to the UK, I was struck by what I'm personally certain is the future of plant-based meat, that is, a growing ubiquity.
I was able to, within a radius of no more than three blocks, enjoy delicious Beyond Meat offerings at McDonald's UK, Pizza Hut UK, and Starbucks UK. More generally, I routinely enjoy watching with much interest the reaction of visitors at our headquarters in Los Angeles when they taste the McPlant Nugget, which is now available in Germany. Almost universally, it is viewed as indistinguishable from its animal protein equivalent. Similar to the delicious aforementioned products at Pizza Hut UK and Starbucks UK, this outcome reflects years of development and investment that helps separate Beyond Meat. Before moving on from Europe, I should note that across 2024, we look forward to more fulsome entry into the German retail market, given our recent satisfaction of local shelf life requirements.
In closing my comments, I want to properly frame the state of our business. Over the last 12 to 18 months, we spent considerable time, energy, and resources reorienting Beyond Meat's trajectory amidst changing and challenging conditions with an eye towards sustainable operations and return to growth. To reiterate, these major steps include a potential leap forward in the value proposition of our core product lines, a steep reduction in our operating costs and cash use as we continue to implement lean management principles, the contraction of our production network to achieve quality and margin gains, and the implementation of pricing changes also in support of margin expansion. As we look forward, we expect the early results from this extensive spade work, together with specific actions we plan to pursue to bolster our balance sheet to make 2024 an important, promising year for the Beyond Meat story.
With that, I'll turn it over to Lubi, our Chief Financial Officer and Treasurer, to walk us through our fourth quarter and full year 2023 financial results in greater detail, as well as provide our outlook for 2024.
Lubi Kutua: Thank you, Ethan, and good afternoon, everyone. Before diving into the components of our fourth quarter P&L, let me provide some color more broadly on the significant non-cash charges you will have seen in our press release today. You'll recall we announced in November 2023 that we were initiating a review of our global operations spanning five areas: first, the potential exit of select product lines; second, changes to our pricing architecture within certain channels; third, accelerated cash accretive inventory reduction initiatives; fourth, further optimization of our manufacturing capacity and real estate footprint; and lastly, fifth, a review and potential restructuring of our operations in China. We recorded $67.5 million in non-cash charges in cost of goods sold this quarter in connection with our global operations review.
These charges consisted of a few different items, including the provision for certain inventory now deemed to be excess or obsolete, given changes to our strategic priorities as well as more limited internal resources following our November 2023 reduction in force. We also recorded a significant charge representing accelerated depreciation expense on certain fixed assets determined to be non-core to our strategic priorities within the foreseeable horizon, but for which no recovery or sale value could be reasonably expected. Also, in connection with the global operations review, we recorded a non-cash write-off to cost of goods sold associated with a prepaid option to purchase certain raw material ingredients which we no longer expect to exercise.
Within operating expenses, we recorded a non-cash charge of $17.6 million, reflecting the write-down to estimated fair value of certain production and R&D fixed assets, which we now intend to sell. Of note, $16.3 million of the non-cash items recorded in cost of goods sold and $3.6 million of the non-cash items recorded in operating expenses related to Beyond Meat Jerky, which we have made the decision as part of our global operations review to discontinue. Let me now briefly review our fourth quarter financial results before turning to our 2024 outlook. Net revenues decreased 7.8% to $73.7 million in the fourth quarter of 2023 compared to $79.9 million in the year-ago period. The decrease in net revenues was driven by a 14.6% decrease in net revenue per pound, partially offset by an 8% increase in volume of products sold.
The decrease in net revenue per pound was mainly driven by changes in product sales mix and increased trade discounts, partially offset by favorable impact from foreign exchange rates. The increase in volume sold was primarily driven by sales in our international business, where we continue to see solid growth across our retail and food service channels. However, this was partially offset by softness in our U.S. business, where volumes declined in both our retail and food service channels, due mainly to continued category weakness and the lapping of certain business in our food service channel that did not repeat in Q4 '23. Turning to gross profit and gross margin, gross profit in the fourth quarter of 2023 was a loss of $83.9 million compared to a loss of $2.9 million in the year-ago period, which included the negative impact of non-cash charges totaling $78 million taken in the fourth quarter of 2023.
Of the aforementioned amount, $67.5 million was associated with strategic decisions arising from our global operations review, and $10.5 million was due to other special items driven mainly by additional reserves for inventory associated with a large QSR customer and the write-off of a prepaid fee resulting from the termination of a co-manufacturing agreement in Q4 2023. Excluding the aforementioned charges, gross profit and gross margin were also impacted by lower net revenue per pound, partially offset by reduced logistics cost per pound compared to the year-ago period. Operating expenses were $76.9 million in the fourth quarter of 2023 compared to $62.8 million in the year-ago period. The increase in operating expenses included non-cash charges totaling $17.6 million associated with our global operations review, which I described a moment ago.
Excluding these charges, operating expenses also reflected reduced non-production headcount expenses, lower restructuring expenses, reduced scale-up expense and lower selling expenses, partially offset by higher consulting fees compared to the year-ago period. Moving down the P&L, total other income net of $5.7 million was lower by approximately $1.2 million compared to the year-ago period, reflecting decreased realized and unrealized foreign currency gains. Losses related to the company's joint venture with PepsiCo, the Planet Partnership, decreased by approximately $8 million year-over-year, reflecting the reduced scale of our jerky business versus the year-ago period. Overall, net loss in the fourth quarter of 2023 was $155.1 million, or $2.40 per common share, compared to net loss of $66.9 million or $1.05 per common share in the year-ago period.
Net loss in the fourth quarter of 2023 included non-cash charges totaling $95.6 million as previously described. Adjusted EBITDA was a loss of $125.1 million in the fourth quarter of 2023 compared to an adjusted EBITDA loss of $56.5 million in the year-ago period. Turning now to our balance sheet, the company's cash and cash equivalence balance, including restricted cash, was $205.9 million, and total outstanding debt was $1.1 billion as of December 31, 2023. Net cash used in operating activities was $107.8 million in the year ended December 31, 2023 compared to $320.2 million in the year-ago period. Capital expenditures totaled $10.6 million in the year ended December 31, 2023 compared to $70.5 million in the year-ago period. Let me now turn to our full year 2024 outlook.
We expect net revenues to be in the range of $345 million, and net revenues for the first quarter of 2024 are expected to be in the range of approximately $70 million to $75 million. Gross margin is expected to be in the mid- to high-teens and is expected to be higher in the second half of the year relative to the first half, reflecting the timing of anticipated pricing actions and further production insourcing activities. Operating expenses are expected to be in the range of $170 million to $190 million, weighted slightly more towards the first half of the year. And capital expenditures are expected to be in the range of $15 million to $25 million. Finally, in 2024, we plan to bolster our liquidity and potentially restructure our balance sheet.
And with that, I'll conclude my remarks and turn the call over to the operator to open it up for your questions. Thank you.
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