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Edited Transcript of BYND.OQ earnings conference call or presentation 9-Nov-20 9:30pm GMT

·60 min read

Q3 2020 Beyond Meat Inc Earnings Call Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Beyond Meat Inc earnings conference call or presentation Monday, November 9, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ethan Brown Beyond Meat, Inc. - Founder, President, CEO & Director * Lubi Kutua Beyond Meat, Inc. - VP of FP&A & IR * Mark J. Nelson Beyond Meat, Inc. - CFO & Treasurer ================================================================================ Conference Call Participants ================================================================================ * Adam L. Samuelson Goldman Sachs Group, Inc., Research Division - Equity Analyst * Alexia Jane Burland Howard Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst * Benjamin Joseph Kallo Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Benjamin M. Theurer Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director * Bryan Douglass Spillane BofA Merrill Lynch, Research Division - MD of Equity Research * John Joseph Baumgartner Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst * Kenneth B. Goldman JPMorgan Chase & Co, Research Division - Senior Analyst * Michael Scott Lavery Piper Sandler & Co., Research Division - Director & Senior Research Analyst * Robert Bain Moskow Crédit Suisse AG, Research Division - Research Analyst * Rupesh Dhinoj Parikh Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Beyond Meat, Inc. 2020 Third Quarter Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Lubi Kutua, Vice President of Investor Relations. Sir, please begin. -------------------------------------------------------------------------------- Lubi Kutua, Beyond Meat, Inc. - VP of FP&A & IR [2] -------------------------------------------------------------------------------- Thank you. Good afternoon, and welcome. On today's call are Ethan Brown, Founder, President and Chief Executive Officer; and Mark Nelson, Chief Financial Officer and Treasurer. By now, everyone should have access to our third quarter earnings press release and investor presentation filed today after market close. These documents are available on 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 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 the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. Please refer to today's press release, our annual report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 19, 2020; our quarterly report on Form 10-Q for the quarter ended September 26, 2020, 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 will refer to adjusted EBITDA, adjusted gross profit, adjusted gross margin and adjusted net income or loss which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, the presentation of 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, adjusted gross profit, adjusted gross margin and adjusted net income or loss to their most comparable GAAP metrics. And now I would like to turn the call over to Ethan Brown, Chief Executive Officer of Beyond Meat. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Lubi, and good afternoon, everyone. Our Q3 2020 results warrant careful consideration to capture a full and accurate appreciation of our business today. Let me begin by sharing broad observations on the overall impact of the COVID-19 macro environment, and our net revenue results and mix as well as highlight compelling underlying signs of continued momentum and growth. First, in line with the overall food category across retail, we saw a clear and prodigious pattern of consumer panic buying in Q2 and followed by moderation in Q3. Second, the recovery in our Foodservice business has lagged the overall Foodservice sector, given our exposure to certain segments have been disproportionately affected by COVID-19. And third, we continue to contend with COVID-19-related timing delays with large strategic quick-serve restaurants or QSRs. The above notwithstanding, the fundamentals supporting of growth are alive and well, whether it be our increasing U.S. retail market share; household penetration, buyer rates; purchase frequencies and repeat rates; our increasing points of domestic and international distribution; our increasing rate of new product introduction and some promising indications that QSR partners may be emerging from what has been inappropriate to an understandable delay in new launches during the pandemic. In light of what we view as transitory COVID-related factors, contrasted with enduring strengths of our business, we have not blinked in our focus on the exciting long-term growth path ahead of us. As such, we have neither retracted nor delayed our ambitious expansion agenda. Turning specifically to our Q3 performance. We experienced the full brunt and unpredictability of COVID-19's impact for the first time in Q3, producing net revenues of $94 million, a sequential drop from record net revenues of $113 million in Q2. While the effect of COVID-19 in our Foodservice business is offset by the unprecedented surge and retail grocery demand in the second quarter, our third quarter did not enjoy the same level of benefit and was conversely disadvantaged by consumer stock freezers and subsequent moderation in buying following this run-up in grocery spending in the previous quarter. Accordingly, Q3 reflects our second largest quarter of retail sales ever. Our retail revenue growth is less to offset continued and significant COVID-19-related interruptions for our Foodservice revenues, including delays in launches or expansions with strategic partners. To keep all this in perspective, it's important to note that sales of Beyond Meat products were up 63% year-over-year, while the plant-based meat category as a whole was up 41%, contributing to a 270 basis point year-over-year increase in market share for the Beyond Meat brand. According to SPINS data for U.S. multi-outlet for MULO and natural and specialty channel sales, the 12-week period ended October 4, 2020. Further, across the, our sales velocity measured in dollars per total distribution points was 3.5x higher than the category average and increased 15% year-over-year in the latest 12-week period, even as our points of distribution grew 55% year-over-year. To understand the significance of these trends, keep in mind that velocity typically decline as you add distribution points, meaning more stores while also seeing higher revenues per store, is a very encouraging time with regard to our value proposition to consumers. More generally, COVID-19's considerable impact on Q3, retail and Foodservice sales notwithstanding, our year-over-year net revenue growth for the 9 months ended September 26, 2020, stands at 52.9% with our net revenues from retail alone, up 116.5% for the same period versus a year ago. The positive metrics underpinning this growth further bolster a determination to resist short-term attraction or delay, even hits on our insistence on investing in our future during a period of disruption, puts pressure on our P&L. An additional look at SPINS and IRI, consumer panel data provides a clear picture of progress, where our U.S. household penetration increased to 5.2% compared to 4.9% as of June and just 2.7% a year ago, where repeat rates increased to 51.9% in September versus 49.3% in June. And purchase frequency increased 8% from June to September, while our buyer rate increased 13% from June to September. In other words, despite challenging macroeconomic conditions and highly variable buying products, more households are buying our products, they are buying them more frequently and on average, they are spending more per households on our products over time. Recent distribution wins include, but are not limited to: incremental placement of the Beyond Burger and Beyond Breakfast Sausage Patties at Walmart, and additional distribution gains for Beyond Breakfast Sausage Patties at select Kroger, Super Target, Publix and Harris Teeter locations across the nation. Further, we have secured distribution authorization in exciting and new avenue of retail outlets for us. We are pleased to announce today that as of January 2021, the Beyond Burger will be available at 7,000 CVS Pharmacy locations nationwide. And Beyond Meatballs will be available at 5,000 CVS Pharmacy locations across the country. We continue to launch new products to Beyond Meat rapid and relentless innovation program, having brought to retail markets Beyond Meatballs and Beyond Sausage Links in the last 3 months to strong retailer acceptance. Lastly, as I mentioned a moment ago, our sales velocity remained well above category averages at the time when we're seeing an increased focus from our retail customers around shelf space optimization decisions. The ensuing actions are expected to favor brands such as ours that continue to drive overall category growth, further increasing our ability to expand our on-shelf presence, even within our existing retailers today. The deceleration caused by intensified Q2 buying of freezer loading, followed by moderation in Q3, was felt across our retail category. Looking at a time series of rolling 12-week sales for the plant-based new category as a whole, according to SPINS data for U.S. MULO and natural and specialty channels, the category sequential growth rate peaked to 20% during the height of consumers' panic buying and has since decelerated sharply to decline of 3% in the 12-week period ended October 4, 2020, or a 23-point negative swing in sequential growth compared to late Q1 and early Q2. This pattern of Q2 freezer loading followed a Q3 moderation does not appear to be unique to our category as evidenced by similar buying patterns elsewhere within retail grocery space. Turning to international retail. We saw a deceleration from Q2 to Q3 as we did here in the U.S. as similar dynamics played out in several of our most important markets. Nevertheless, as we saw domestically, net revenues in our international retail channel also increased considerably, growing 27% year-over-year in Q3 2020. During Q3, we increased our international retail outlets from approximately 27,000 to roughly 33,000. In Foodservice, as noted, our Q3 results reflect continued COVID-19 disruption. Total net revenues for our Foodservice business declined 41% year-over-year, with our U.S. and international businesses declining 11% and 65%, respectively. As impact our performance in Foodservice, let me first address the broader non-quick-serve restaurant portion of our business. Recall the quick-serve restaurants, or QSR customers, make up roughly 1/3 of our overall Foodservice sales, while the remaining 2/3 consist of sales to a wide variety of customers, including, but not limited to, independent restaurants, smaller regional chains, bars and pubs, lodging venues, casinos, academic institutions, health care facilities, corporate catering services, government institutions, convention centers, movie theaters, sports arenas and other recreation venues. As you can imagine, many of these customers have been disproportionately affected by COVID-19 and have generally experienced a slower rate of recovery relative to the overall Foodservice sector. Although we did see a sequential improvement in overall demand from these customers relative to Q2, their total sales contribution remained well below year-ago levels. With COVID-19 infection rates beginning to pick up again in many parts of the U.S. and abroad, uncertainty around the shape of the recovery in this portion of our business remains elevated. To provide further context, I'd like to focus a bit more on trends within this broader 2/3 of our U.S. Foodservice business as captured in NPD data and then turn to our QSR partners. As a reminder, NPD tracks for online distribution to U.S. Foodservice outlets, which generally excludes major QSRs, which often utilize direct delivery systems. According to NPD data for Q3, sales of Beyond Meat products declined 34.7% on a year-over-year basis compared to a 37.5% decline for the overall category. In other words, we achieved a slight gain in market share of this NPD track channel even as the entire category remains significantly challenged. Although our outperformance relative to the overall NPD category narrowed in the third quarter versus our recent history, we do believe our results are equally impacted by our segment mix, which I alluded to earlier. Unfortunately, several of our highest share segments within NPD tracked channels, including lodging, recreation, full-service restaurants and business and industry, for example, have been the hardest hit by COVID-19. Here, as is the case with our large strategic QSRs, we continue to provide both support and patients as our customers adapt to the changing realities of COVID-19. Turning to remaining 1/3 of our Foodservice business, the large QSRs, we saw sequential improvement from Q2 to Q3 from this portion of our business. However, total sales contribution from these customers also remained well below year-ago levels. The prevailing dynamic defining our work with large QSR customers since the onset of COVID-19 has been a delay in plan to initiate tests or expansions of plant-based meat menu items. Despite the near-term impact on our business, we fully understand and respect the propensity of large customers to maintain menu status quo or streamline offerings during the pandemic. Here again, it is important not to interpret this near-term pandemic induced drop in activity as a weakening in our long-term value proposition in this critically important space. We certainly do not, and despite the potential for another round of sustained stay-at-home orders, we are seeing strong signs that certain large QSRs are planning for menu additions. As always, we cannot promise any launches for a variety of reasons, including an inability to predict the course of COVID-19 and its impact on launch for expansion strategies within the QSR space. Looking abroad to Asia, we are proud to continue our partnership with Yum China, which recently conducted a new test of the Beyond Burger across 210 KFC locations in 6 major Chinese cities for [3D] trial. And as I will discuss in a moment, continue to invest in personnel and production capabilities in China. Throughout our operations, we continue to invest in the business to support current and future growth. First, we recently completed the acquisition of one of our former co-manufacturing facilities in Pennsylvania. The capability to produce a certain portion of our finished goods completely in-house is a key part of our longer-term strategy to reach price parity with that of animal protein. We intend to use our new Pennsylvania facility to not only reduce production costs but to pilot processes and products, including our newly designed continuous production lines and perform initial scale-up trials of new products. With the addition of this wholly-owned production capacity, we're also welcoming some 180 employees to the Beyond Meat family. I should note that we will continue to align ourselves with best-in-class co-packing partners here and abroad and expect the acquisition of our new Pennsylvania facility to only strengthen these relationships as we'll be able to do important product scaling work in-house before transferring certain downstream activities to these partners. Internationally, we continue to invest in production capacity in China and in the EU. As you know, in early September, we announced our signing an agreement with Taicang Economic and Technological Development Zone to sell 2 manufacturing facilities in China including a state-of-the-art [dressing] facility, of which the size, sophistication and sole dedication to plant-based meat, we believe will be unique. This larger facility was preceded by our first production plant, where work is well underway to get it ready for production trials before the end of this year. The second facility is expected to be a significantly larger, purpose-built plant, and once completed, expected to be one of the largest dedicated plant-based meat factories in the world. Similarly, work is well underway at our recently acquired manufacturing facility in the Netherlands, which also remains on track to begin production trial before year-end. And we are continuing to build our strong teams in both regions. Finally, a word of appreciation for all our talented team members working in operations around the globe. These essential employees work tirelessly to meet demand within a difficult operating environment, complete with strict mandates around social distancing, masks and sanitation requirements related to COVID-19. Added to these conditions, the highly variable fulfillment requirements given unusual consumer buying patterns that are present in the COVID-19 economy, and it should become clear why we are so grateful for their work ethic and sacrifice. We continue to make strong progress in research and development, despite the continued impact of COVID-19 on our ability to operate at full-scale as the Manhattan Beach Project, our innovation center here in Los Angeles. Our scientists, engineers and technicians continue to work a 2-ship model that better supports social distancing. I can't emphasize enough how proud I am of the team's productivity despite myriad pandemic-related impositions. In addition to the new retail innovation we recently launched, the team continues to make great progress on our next iteration with Beyond Burger, and I'll have more to share with you about that soon. Moreover, these talented women and men continue to work in deep partnerships with our QSR partners. Until you work a full shift with masks, it's hard to fully grasp the difficulty of performing challenging research and development day after day in these conditions. As with our operations team, my hat's off to them. In keeping with our strategies to make our products as widely accessible as possible, we launched a direct-to-consumer, or DTC e-commerce site in late August. Consumers across the United States can now order a variety of our products with a clickable button, enjoying 2-day shipping on each quarter. We're proud to utilize recyclable shipping boxes and UPS carbon neutral shipping as part of this initiative. While DTC will likely remain a negative portion of our overall sales in the near term, we are nonetheless pleased with the effort as it symbolizes our commitment to meet the consumer wherever they prefer to shop. Overall, with regard to our availability, Beyond Meat is now available in approximately 122,000 retail and Foodservice outlets globally, up approximately 10,000 locations or 9% since the end of June, with the majority of that increase coming from our international retail outlets. The products are now also available in over 80 countries across the U.S., up from over 50 1 year ago. I would like to now comment briefly on our margin performance, which Mark will expand on in greater detail shortly. Our results reflect a combination of ongoing COVID-19 challenges as well as deliberate decisions we made for the benefit of our long-term strategy, despite the understanding that these would negatively impact our profitability metrics in the near term. On a year-over-year basis, our adjusted gross margin of 28.9% in the third quarter of 2020 was down 670 basis points as compared to Q3 2019. Of this variance, over 500 basis points is attributed to price and mix, largely driven by increased trade discounts primarily, but not exclusively in retail. The decision to opportunistically increase our promotional intensity holds strategic importance as we've communicated to you in the past and is aimed at driving increased household penetration for our brand. According to the SPINS/IRI consumer panel data I referenced earlier, these tactical actions appear to be working with our latest U.S. household penetration nearly doubling versus a year ago and increasing roughly 23% just over the last 2 quarters. Our above referencing systems on continuing to serve long-term growth ambitions naturally impacted our P&L during this period of disruption, where our operating margins suffered in the face of lighter net revenues. We believe seizing on the immense global opportunity within plant-based meats over the years to come, we require us a clear focus on long-term strategy and a willingness to make near-term sacrifices in order to establish a much stronger position for our brand over the long run. Finally, and before I turn the call over to Mark, I'll provide some thoughts on the competitive environment. We watch interims carefully and to the level of investment and interest in the category is a generally positive development in the long-term growth of the plant-based meat category. In this environment, a significant spend by new and incumbent players, we are seeing, as mentioned, our velocity increase, our key panel data metrics moving in the right direction, including, as noted, the number of households buying our products, spend per household, the frequency of purchase and repeat rates, all increasing. Strong retailer and consumer interest in our new SKUs and continued the expansion of our points of distribution, both domestically and abroad. Lastly, we continue to see solid growth in the plant-based meat category, above and beyond that of protein. And accordingly, our brand continues to outpace the category growth. With that, I'd like to now turn the call over to Mark Nelson, our Chief Financial Officer, who will walk us through our third quarter financial results in greater detail. -------------------------------------------------------------------------------- Mark J. Nelson, Beyond Meat, Inc. - CFO & Treasurer [4] -------------------------------------------------------------------------------- Thank you, Ethan, and good afternoon, everyone. As Ethan described a moment ago, we experienced a meaningful deceleration in our financial performance during the third quarter, causing our results to fall short of our expectations. However, we believe this was in large part attributable to challenges associated with COVID-19, which we view as a transitory factor. The underlying fundamentals of our business continue to give us confidence about Beyond Meat's future, notwithstanding the fact that near-term volatility will likely remain elevated as the shape and impact of the global pandemic remains uncertain. When you peel back the layers of our Q3 performance, certainly, the 39% year-over-year revenue growth across our retail channel was solid. But as you might expect, demand in our Foodservice channel, while up 78% sequentially from last quarter, remained significantly weaker than the prior year, offsetting most of the growth we saw in the retail channel. Operationally, we reacted admirably to mitigate much of the impact of this demand shift by reducing excess capacity and thereby minimizing inventory charges during this softened demand period. Going forward, our near-term goal is to drive growth within our retail channel while continuing to manage through the difficulties in Foodservice and standing ready to capitalize in that channel as the pandemic subsides and consumers regain confidence in away-from-home consumption habits. With that broader perspective shared, let me now walk you through our third quarter financial results in a bit more detail. Net revenues in the quarter were $94.4 million, up 2.7% compared to the third quarter of last year. In aggregate, growth in net revenues in the third quarter was driven by an 11% increase in volumes sold, partially offset by lower net price per pound due mainly to our continued strategy to drive incremental consumer trial by offering more aggressive pricing and promotional programs. To a lesser extent, net price per pound was also affected by product mix as we sold a far greater amount of large pack items in retail, primarily in the form of our club store pack and the Cookout Classic versus the year ago period. Overall, net price per pound was $5.33 in the third quarter of 2020 as compared to $5.74 and in Q3 2019. Taking a closer look at our distribution channels. Retail net revenues increased 39% year-over-year, while Foodservice net revenues decreased 41% versus the third quarter of 2019. In retail, our volume of products sold increased 46% year-over-year, driven by continued expansion in the number of distribution points, both domestically and abroad, as well as higher sales velocities at existing retail outlets and contribution from new products. As I mentioned, a moment ago, net revenue growth in our retail business was partially offset by price, owing to higher trade discounts as well as changes in product mix. In Foodservice, we continue to experience significantly lower levels of demand relative to a year ago, albeit meaningfully improved on a sequential basis. Our Foodservice net revenues declined 41% year-over-year with non-QSR locations generally faring worse than larger chain QSR customers. As Ethan mentioned, excluding our partnership with large QSR customers, our Foodservice business has broad exposure to certain formats that have been disproportionately affected by the COVID-19 pandemic. Among others, these include independent restaurants, fast casual dining, bars and pubs, lodging academic institutions, movie theaters, sports arenas and convention centers. As you can imagine, and not surprisingly, many of these venues are experiencing a slower rate of recovery than the broader Foodservice sector, which is complicated further by recent upticks in the rate of spread of COVID-19, both domestically and abroad. Sales to our international customers across retail and Foodservice channels, represented 17% of our net revenues during the quarter compared to 32% in the year-ago period. Gross profit during the quarter was $25.5 million or 27% of net revenues compared to $32.8 million or 35.6% of net revenues in the third quarter of 2019. Included in the cost of goods sold during the quarter was $1.8 million of expenses directly attributable to COVID-19, including $1.1 million in inventory write-offs and reserves associated with Foodservice products deemed to be unsalable and $0.7 million in product repackaging costs as we leveraged additional opportunities to repurpose certain Foodservice items for retail channels. Excluding these items, specifically attributable to COVID-19, our adjusted gross profit was $27.3 million or 28.9% of net revenues during the third quarter of 2020. On that basis, as compared to our prior year gross margin of 35.6%, the 670 basis point decrease in adjusted gross margin was primarily driven by lower net price realization as a result of higher trade discounts and product mix, and to a lesser extent, from lower absorption of fixed overhead costs as we scale back production to draw down inventory levels. Operating expenses totaled $44 million or 46.6% of net revenues in the third quarter of 2020 as compared to $29.2 million or 31.8% of net revenues in the year ago period. The year-over-year increase in operating expenses primarily reflects increased headcount to support our long-term growth initiatives; increases in marketing investments; higher share-based compensation expense; investments in international expansion and continued investments in innovation. Net loss during the third quarter of 2020 was $19.3 million or $0.31 per common share as compared to net income of $4.1 million or $0.06 per common diluted share in the third quarter of last year. Adjusted net loss, which excludes $1.8 million in costs attributable to COVID-19, namely inventory write-offs and reserves and product repacking activities discussed previously, was a loss of $17.5 million or $0.28 per common share during the third quarter of 2020. Adjusted EBITDA was a loss of $4.3 million or negative 4.5% of net revenues in the third quarter of 2020 compared to adjusted EBITDA of $11 million or 12% of net revenues in the year-ago period. Now looking at our balance sheet and cash flow highlights. The company's cash and cash equivalent balance was $214.6 million, and the total debt outstanding was $50 million as of September 26, 2020. For the 9 months ended September 26, 2020, net cash used in operating activities was $42.7 million compared to $18.3 million for the prior year period. Capital expenditures totaled $38 million for the 9 months ended September 26, 2020, compared to $9.5 million for the prior year period. The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to domestic and international capacity expansion initiatives. As Ethan mentioned, we recently completed the acquisition of a former co-manufacturing facility in Pennsylvania. Over time, we expect bringing this manufacturing in-house will lower our cost in production, while increasing our supply and U.S. distribution capabilities. As a reminder, this acquisition complements our ongoing capacity expansion projects in Europe and China, all of which collectively advance our long-term strategic goal of closing the price gap of our products relative to animal protein. Finally, with respect to our 2020 outlook, and given the ongoing uncertainty regarding the duration, magnitude and effects of COVID-19 on our business and those of our customers, our 2020 guidance remains suspended at this time. We will continue to periodically reevaluate this position as broader macroeconomic conditions continue to evolve. With that, I'll now turn the call back over to the operator to open it up for your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question or comment comes from the line of Alexia Howard from Bernstein. -------------------------------------------------------------------------------- Alexia Jane Burland Howard, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [2] -------------------------------------------------------------------------------- So I guess my question and follow-up would firstly be I know you're not providing guidance for the fourth quarter, but could you give us some idea about how the retail side of the business and the Foodservice channels are trending as we look out into the fourth quarter? Do you expect a sequential improvement on either side of the business? And also what's happening internationally? So just some sense of how things are trending. And then I guess my second follow-up question would be, given the news about the McDonald's Plant McPlant platform that came out this afternoon. Could you talk a little bit about what your role might be in that platform? And how you expect that to play out over time? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [3] -------------------------------------------------------------------------------- Sure. Sure. Thanks for the question. And just before I delve into the specifics on that, I do want to just recap and reiterate where I think the quarter ended up and why. I think the headline really is that Foodservice remains highly challenged. I think if you look at our Q4 2019 sales into that sector, we were about $58 million net. Then you come to today, we're about $24.4 million net. And so there's clearly something going on around COVID, where folks that were drawing on our products we're not doing so at the same clip as we are into the third quarter. That does not mean that it's not a very healthy and long-term segment for us. And in fact, I'll share reasons why that is, in fact, the case that we'll see some good recovery there, we think. And then second, you look at what happened in retail, that was largely masked in the second quarter by stockpiling that was going on as consumers felt that the stay-at-home orders were going to be a very enduring part of our economy. And so that stockpiling that masks the weaker Foodservice activity in the second quarter simply didn't occur in the third quarter and was, in fact, exacerbated somewhat by the fact that freezers were full across homes throughout the country. And so you then saw the full brunt of this decline in the Foodservice sector. That said, we remain really encouraged around the performance of the brand, particularly in retail and then some of the activities that we'll talk about coming up in Foodservice. But if you look at that household penetration, the buyer rate, the purchase frequency and particularly the repeat rates, those are all things that any brand would be really happy to have. And then you look at the market share. And our market share increased 270 basis points on a year-over-year basis. So we're looking, I think, quite strong in those areas. And then lastly, on the 2 questions on retail and Foodservice, as we head out of the third quarter and into the fourth, are we seeing signs of recovery. We have really shied away and I want to caution against providing any guidance for the fourth quarter. But one thing that I can share is that this has been such a year of unpredictable buying patterns by the consumer, and that has continued into the fourth quarter in the sense that some of the activity we've seen early is much more in keeping with what we would have seen over the summer buying months. So there's been some trading out of consumption given the stockpiling and then the inventory run down as we head into the fourth quarter. But again, I want to be really clear that I don't want that data to be used to create any forecasts for the fourth quarter because it's simply too variable. But we are seeing that where buying is happening in large lumps versus maybe the more even distribution that we've seen in the past. And on the Foodservice side, we are seeing some recovery there. But it's too early to tell. And with COVID continuing to spike up in the country, we can't offer guidance in that category. But you will see us active with some of the large QSR partners that we've talked about in the coming period, provided that COVID doesn't overtake the economy again. So I think overall, we're feeling very optimistic about where we're headed and look forward to sharing some good results. If you look at where this quarter ended up, from the second quarter, we were about, what, 113 net and now about 94, and this is in a period of extreme pandemic so we think we're doing pretty well, and we look forward to continuing to grow. I think the second was around the McPlant question. And as I watch that unfold today, I was reminded of the Mark Twain quote that, "Reports of my death have been greatly exaggerated." Our relationship with McDonald's is good. It's really strong. Our work there on behalf of what they're doing continues. And I really want to defer to our large duty customers of what they want to share about their supplier base what they want to share about their launch plans. I don't want to get ahead and insert ourselves to the point where we're dominating the headlines at their Investor Day. So I respect their decision to refer to the big plant platform in a generic sense. We are working very closely with them on a number of matters. And I think that folks just have to continue to be patient. But I feel, as I said in the past, good about that relationship and good about what we're contributing to the McPlant platform. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Our next question comment comes from the line of Robert Moskow from Crédit Suisse. -------------------------------------------------------------------------------- Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- Ethan, I think you answered my first question by referring to consumer retail activity maybe reaccelerating in the fourth quarter. Does that assure you, I suppose, that consumers have what they have in their own freezers is now normalized and maybe the -- that all that excess inventory from panic buying is now over? And can you also give us some assurances that if the inventory at retail is also kind of normalized, that it's not -- that what we saw in third quarter was not too much inventory at retailers. Do you have any visibility as to what that looks like right now? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [6] -------------------------------------------------------------------------------- Yes. So we're not seeing buying behavior at the customer level -- I mean, customer, I mean the grocer level that would suggest that they're still trying to burn through a lot of inventory. They were pretty quick to react, I think, to the consumer downturn in buying that occurred in the third quarter. So I think they're pretty well calibrated. So yes, I mean, like I said, we had some pretty good returns in the beginning part of this quarter, and I think we just have to wait and see what the rest of the quarter looks like. It's such a variable year. I'd be -- I think I'd like to avoid offering guidance for the quarter, any more specific than that. -------------------------------------------------------------------------------- Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [7] -------------------------------------------------------------------------------- Okay. And just a follow-up on I mean we get Nielsen data lagged. So there's a few weeks I haven't seen, but it doesn't show, at least through October 7, I think, a dramatic pickup. Growth is decelerating a little bit, maybe down to 42%, still strong, but there's no like rebound. Are you saying that as you look towards the end of October that it does go higher? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [8] -------------------------------------------------------------------------------- I think some of what happened is to just to try to give you a little more detail is the end of the third quarter, we did see a lot of buying occur from the retailer base. And then we filled a lot of those orders in the first part of October. So I don't think it's matching directly with the Nielsen data that you're seeing. And so -- but again, we're seeing a pretty strong beginning, whether that will persist throughout the rest of the quarter, we just can't say. -------------------------------------------------------------------------------- Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [9] -------------------------------------------------------------------------------- Okay. And I know if you don't want to comment on what McDonald's' plans are. But I think -- is it fair to say that, in general, you're okay with your product being on the QSR menus, whether or not your brand gets mentioned on the menu or not. Is that -- are you kind of -- I'm sure you'd prefer one or the other, but are you okay if it doesn't show up on the menu? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [10] -------------------------------------------------------------------------------- Right. Yes, I would say not, actually. I think given the consumer resonance with our brand and just the momentum we have with consumers, the brand that we've established, we think it deserves to be up there on the menu. And nearly all of our QSR partners have done that and benefited as a result. And if you look at how the PLT was positioned, it was pretty clear in all sales collateral and signage that it was with the Beyond Meat burger. Now we can't specify or speak for McDonald's as to how we interplay with McPlant Burger. But we clearly think it'd be in everybody's best interest to use our brand, and I would resist efforts to not use it. Thank you for the questions. And just on the issue around the velocities, I mean I'm looking at across our MULO and other data. And we're seeing -- even as we dramatically expand points of distribution, I think, we've grown by about 55% year-over-year. We're still seeing that we're -- our velocity is about 3.5x higher than the category average. On a year-to-year basis, they're up about 15% over the last 12-week period. So there's puts and takes, and there's going to be differences depending on the SKU and whether a particular competitor is going heavy on promotions. But overall, that 15% rise in velocity year-over-year, coupled with a 55% increase in distribution, is pretty hard to do. And so we feel pretty good about that, that even as we expand in our total distribution, you're seeing a higher overall level of velocity. And I think that speaks to some of the underlying strength of the brand around the household data that we shared. I think we're up at now 5.2%, up from 2.7% a year ago on household penetration. But what's also happening there, which I find so alluring and encouraging for our brand as a buyer rate since June, even in this period of crisis, right, is rising. And so you have great economic challenges across the nation and you have this tremendous disruption in retail buying patterns as well as in Foodservice engagement. And yet what are households doing? They're buying more Beyond Meat. So if you look at, I think, our ring in for buyer rate in September was about $36.50. That's up from $32 in June. So from September to June, you're seeing that very large increase in buying across households. And I obviously look at all the scouting reports on animal protein and on our competitors. And those numbers are great on a relative basis. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- (Operator Instructions) Our next question or comment comes from the line of Bryan Spillane from Bank of America. -------------------------------------------------------------------------------- Bryan Douglass Spillane, BofA Merrill Lynch, Research Division - MD of Equity Research [12] -------------------------------------------------------------------------------- So Ethan, I guess my question just as we kind of transition from summer to fall, you spent the summer putting some product into the freezer in addition to having product, burgers in the meat case. And I guess, now that we're past barbecue season, can you just talk a little bit about how or if the merchandising at all changes between -- as we kind of move into the fourth quarter and first quarter and if there's anything we should be thinking about there in terms of retail inventory or does that cause any sort of disruption in terms of revenues as you move as we move through the fourth and first quarter? And then maybe just connected to that seasonality, right? I know demand has been pretty strong, but are we still -- do you still see kind of seasonality around grilling season? Or as household penetration has grown, are you actually seeing it's less seasonal than maybe it had been the last couple of years? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [13] -------------------------------------------------------------------------------- Yes. So I was going to answer your first question with that perspective that our brand does have some seasonality to it, around grilling season. But as we continue to offer new SKUs to the public, I think that will be dampened somewhat. So while we expect to see seasonality exert itself over the course of the fourth quarter, the buying patterns, again, have been so unusual for this year. We can't say with any precision about what that effect will be. It may be some of the buying we didn't see in the third would occur in the fourth and maybe that doesn't happen and the seasonality is fully expressed. But one thing I do want to talk about as we think about the fourth and first quarter is, as I've always said, Beyond Meat is an innovation engine in its core. That's what we do. Our core asset is an understanding of protein and lipids from plants and getting them to behave and the structure of animal protein and they could provide the sensory experience the consumers are so used to. And so I'm very pleased to announce that we're going to be launching our Beyond Burger 3.0, and that I could not be more excited about. We have always maintained that our brand stands not only for the ability to do something great for the globe from an environmental perspective, animal welfare, et cetera, climate, but also for your own body and your own health. And so when people think about Beyond, they should be thinking about tremendous great taste that we're striving every day to be closer and closer to the animal protein equivalent. But also this is going to help me lead a healthier lifestyle, and this is going to help me do something good for the planet. And this burger delivers on those promises. We've done extensive consumer testing on it. It did better than our current version, which is always something we want to do. We want to make our current version obsolete. It did absolutely very well against competition and started to scratch a little bit on some characteristics around 80/20. So something I'm excited to get out and it represents, I think, continued growth for us. And so when that hits, we're not going to say exactly right now, but we'll make an announcement soon, and we think that will have some impact as well as we talk about the fourth and the first quarter. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Our next question or comment comes from the line of Ken Goldman from JPMorgan. -------------------------------------------------------------------------------- Kenneth B. Goldman, JPMorgan Chase & Co, Research Division - Senior Analyst [15] -------------------------------------------------------------------------------- I think you described McDonald's words today a little bit more benignly. And I think some investors might see it. They really said that they were kind of going on their own. And it was my impression based on Beyond's, I guess, quasi-public statement that you didn't like that, right? You kind of said, no, we're collaborating with them. And that was -- I imagine not something you were planning on doing. So to me, I think you're spooking people a little bit, right? You're not telling investors anything substantial about what potentially could be your biggest growth driver. So we're kind of assuming the worse. That you're not producing anything at all, you're just licensing some know-how maybe. I guess, is there anything you can give us to sink our teeth into today that helps us understand your relationship with this customer? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [16] -------------------------------------------------------------------------------- Sure. No, it's a fair, and it's a good question, and as always, you're asking the right one here. Yes. I mean, I -- as I've said, I really want to -- like I value so much these relationships with the customer. And as much as I want to provide assurance to The Street and to all the people that have helped us over the years that things are such -- in such a way, it's really their show. And if I look -- if I have a supposition about why they were more general in their comments today than my own, Ethan Brown's observation, not Beyond Meat or McDonald's, is that this is their day. It's their Investor Day and news of something more broadly would Beyond Meat within the McPlant platform, I think, would have been disruptive to their own desire to stay on message. And so I respect that and understand that. And I really need to leave it to them to make further comments about the -- how we plan to interact with McPlant. I will say this, everything I've said is true that we have developed very long-term relationship with them. We worked very hard on developing the burger that was in the PLT, and it will be in the McPlant. But it's really up to them to say the extent of that where it's going to be, how it's going to be there. But everything that I've been doing and our research team has been doing is marching towards a particular outcome with them, and I feel good about that. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question or comment comes from the line of Rupesh Parikh from Oppenheimer. -------------------------------------------------------------------------------- Rupesh Dhinoj Parikh, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [18] -------------------------------------------------------------------------------- So I wanted to ask a little bit more about your retail distribution. Could you worry at all about over distribution at this point on the retail side? So it was interesting to hear just about your planned CVS launch as well later this year. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [19] -------------------------------------------------------------------------------- Yes. No. What I worry more about and it's just sort of embedded in patients within our company is that we know the consumer wants different and additional SKUs from us. We know they want to have the Beyond option at different eating occasions throughout the day. And so the sense of urgency that we feel about, let's get additional SKUs out there is very real. And so we're scratching the surface of what we could be distributing in these large grocers, whether it's Kroger or Walmart, et cetera. And so there really -- -- our foot is in the door, but that's about it. We have the opportunity to proliferate up to 25, 30 SKUs in these stores. And you'll hear from us in the coming months on some exciting developments in that regard. But our goal has always been, whether it's the referenced McDonald's discussion we just had or some of the other partnerships we've had, is to meet people where they're buying. And CVS has now become a place where people are picking up some household grocery goods. So we want to be there. And we want to do really well there. So having a 7,000 new locations where someone can get a Beyond Burger at CVS, having the 5,000 new locations at CVS, where someone can get the Beyond Meatballs. That's great, and we plan to try to add to that distribution with other products that are appropriate for that channel. So I really do view this as we're just getting started. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question the comment comes from the line of Ben Theurer from Barclays. -------------------------------------------------------------------------------- Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [21] -------------------------------------------------------------------------------- Ethan, Mark, I wanted to dig a little bit into the dynamics on the international market, both retail and Foodservice. So if we look the -- at least the European market, but to a certain degree, the Asian market, at least during what was last quarter, a lot of Foodservice locations were actually not locked down because there was like the first wave of COVID and then everybody able to go out again, and I was expecting there would be a more meaningful uptick here. But we're actually, if we look at it on the Foodservice side, which just marginally better than during the second quarter when the most of the impact from COVID-related restrictions happened on the Foodservice side and, for example, markets like Europe, but also partially in Asia. And in the same line, if we look at retail, it was obviously very strong into the second quarter. But there is a meaningful deceleration on a sequential basis into 3Q. So I was just wondering if you could elaborate a little bit about the dynamics both markets, Foodservice and retail segments, Foodservice and retail on the international side, just to understand a little bit better where we're heading in coming quarters in those markets. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [22] -------------------------------------------------------------------------------- Yes. Sure. So on the Foodservice side, if you look at the distribution of our sales into that channel, as something I talked about in my opening comments and I'll give a little more detail here. We were -- we're sort of 2/3 or so of our exposure is to independents and institutions and places that are just either closed or operating at a much diminished capacity. And then you have the strategic market, which is about 1/3 of our distribution. And those are the ones that are doing quite well with drive-through and have been able to streamline menus and cash flow, et cetera. But we're not participating as much in that part of the Foodservice category. So even internationally, right, we're not participating in that recovery. If you look at some of the tests that we've done in the past that have done well but are not being extended yet due to the kind of uncertainty around COVID, it's a lot of those locations. And so whether it's Pizza Hut in Puerto Rico or KFC in China or Taco Bell in China, there's a testing going on, but I think folks are waiting for a resumption of full economic activity before they start to really add things into the menu. So that's happening in the U.S., and it's happening in the EU as well. And we get that. There's just complexity to the menus already. And when you're trying to stay afloat in a pandemic, holding off on new additions, we think, is understandable. On the retail side, we were pleased to see a 27% increase in international retail sales in the quarter, and it provided that this -- the uptick in COVID globally doesn't shut that back down. We think we're seeing some good recovery there. I don't know if you guys want to add to that. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Our next question or comment comes from the line of Adam Samuelson from Goldman Sachs. -------------------------------------------------------------------------------- Adam L. Samuelson, Goldman Sachs Group, Inc., Research Division - Equity Analyst [24] -------------------------------------------------------------------------------- I guess my question is really just on the cost side. So 2 parts. One, just wanted to get a sense of having that co-packing investment and if I'm reading the Q right, that was $14.5 million. Just trying to get a sense of kind of what that can do to the unit cost and you in-source and not paying that co-packing fee at least for a portion of your production? And then second, on P-protein isolate purchase commitments. It looks like the purchase commitments for the fourth quarter and the purchase commitments into 2021 are substantially in excess of the amount of you consumed, both in third quarter and year-to-date? And just I know there's a shelf life, but I mean, it would imply that revenues are well over doubling, if I'm understanding the math here right. I just want to get some comments on how you look at the ability to consume those purchase trends. -------------------------------------------------------------------------------- Mark J. Nelson, Beyond Meat, Inc. - CFO & Treasurer [25] -------------------------------------------------------------------------------- Sure. Thanks, Adam. So when we look at the internalization of that back end, the forming and mixing and packaging elements of the product. It is a pretty significant piece of our cost. And so we look at internalization through this acquisition is a great way to offset that, bring that cost in-house and then leverage that to achieve better cost profile. It's a very attractive payback for us, both in a period payback, but also in a kind of unit cost perspective. We don't want to identify it specifically, but it's a compelling argument to start looking at internalization of some of this back end, and it's -- we're excited about it. We're really excited to work with 180 new employees and really start to leverage this. So we'll update more as we go. But needless to say, it's one of the bigger pieces of our cost component right now. And so it's a great thing that we can work on to take cost out. On P-protein isolate, we do keep a close eye on that. Our contracts with suppliers of the P-protein isolate, we work with those suppliers and make sure that protein is current. It typically has a 2-year shelf life. So we work to make sure any inventories we have were trading very efficiently. We know we have more as things have slowed down. But as we continue to move forward, we're optimistic that, that will level out and we'll be matching to that inflow and demand. And it's not linear. We take more in earlier in the year to prepare for where we have stronger growth, typically in second and third quarter. So the overlay of the slowdown in demand here in Q3 did cause some growth in that inventory level, but it's something we're comfortable with. We continue to look at and make sure we have current inventory, and it's the right inventory. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Our next question comment comes from the line of John Baumgartner from Wells Fargo. -------------------------------------------------------------------------------- John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [27] -------------------------------------------------------------------------------- I'd like to come back to the consumer stockpiling? And what sort of changed relative to your outlook from August? Because, I guess, presumably, consumption is expandable here given the low starting base. You have the overlap with grilling season and then also the work-from-home, which could also be a tailwind for demand. So it seemed like a pretty solid backdrop. I mean, are you just not seeing consumption intensity progress in line with your expectations? And then I guess, how are you thinking about how quickly dietary habits can shift here in the short-term for that marginal buyer to sustain these growth rates? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. Sure. So as we talked about in the second quarter call, we saw this 195% increase in shipments occur throughout the second quarter relative to 121% increase in our sales according to SPINS/IRI panel data. And at the time, we attributed, which actually turned out to be right, most of that to club and then to some -- also some very late shipments of our Cookout Classic that weren't caught in that consumption data because of the cutoff date. So there was just a tremendous amount of buying that was going on by the consumer in the second quarter. And then if you think about the stay-at-home orders relaxing, and people going back into Foodservice, where people were getting buckets of KFC and other large, strategic quick-serve restaurant offerings, and we weren't really participating in that because of streamlining their menus, our Foodservice was coming more from that other 2/3 institutional, et cetera. And smaller restaurants as well as think about lodging and casinos and recreational centers, stuff like that. So we just didn't participate in that. So the consumption went into another category we weren't really being well represented. And that was what caused, in our view, that the sequential deceleration in retail buying. But you can't get around, in my view, these very strong numbers to make a case, for example, that somehow dietary changes are occurring. That would run in the face of household penetration rising, repeat rates rising, purchase rising. And then of course, every buyer is buying more per household. So all the right trends are here. Again, I think we went from $113 million in net, which is a record quarter for us in the company's history, to $94 million in net during a pandemic and we feel okay about that. It's one of the reasons that I did not do anything to disrupt the investments we're making in long term infrastructure, whether it's in China with a new plant or EU, with our new plant, where we literally bought and put into play our leased and bought in one case. Put in to play new facilities and put new workers on the ground there and new personnel and leadership, et cetera. We're not slowing down because while we don't think the models were adjusted properly because we can't provide guidance, we don't think that this was a massive step backwards by any stretch of the imagination. I mean, it was all still a pretty strong quarter for us relative to what's going on in the world. So I wouldn't point to a dietary change. I think if there is a change in diet, more and more people are coming into this space, particularly young people. If you look at some of the most recent data around generation Z and their enthusiasm for plant-based eating and for the brand, we continue to see enormous upside in consumer behavior. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Our next question or comment comes from the line of Michael Lavery from Piper Sandler. -------------------------------------------------------------------------------- Michael Scott Lavery, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [30] -------------------------------------------------------------------------------- When we look at your outlets internationally and U.S. and sales per outlet. On the Foodservice side, they don't look very different, but on the retail side, it looks like the U.S. is significantly higher. The Canada reclass could throw off some of the comparisons a little bit, but it's maybe even 10x what they are outside the U.S. How should we think about what drives some of that? Is it number of facings? Is it just some consumer preferences or lack of awareness? How does the international piece of retail evolve? And what should we expect there? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [31] -------------------------------------------------------------------------------- Thanks for the question. And this is an area that I look very optimistically toward. It's so early in our -- I think we're in 80 countries now, but that is truly scratching the surface. And so if you think about our sales team here and our broker network and all the relationships we have with whether it's Costco or Kroger or Whole Foods, we're still building those globally. And so I think that is really what is speaking out in those numbers is that we just don't have a mature sales organization globally yet. That is something that you'll see us investing in, and we have been investing in. We just hired some sales team -- we've put together a sales team in China, as an example. And I think I -- for competitive reasons, we won't share the number, but hired some additional staff in the EU. So to me, it gets down to just let's test the market, let's make sure we understand it. Let's make sure we make the right hires in terms of relationships and let's go forward. And that's kind of happening now. And I think you'll see the retail outlets grow substantially. I mean, in the last quarter, though, I think we were -- started 27,000 in retail outlets, and we're now up at 33,000 internationally, so feel pretty good about that. -------------------------------------------------------------------------------- Michael Scott Lavery, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [32] -------------------------------------------------------------------------------- And so if you see the outlet number growing, but the sales not really following that, are there other measures internationally you focus on in terms of how you gauge early or preliminary success? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [33] -------------------------------------------------------------------------------- I mean, one of the reasons that it's not as -- I mean, we were not putting that many new SKUs also into each of those new stores that are coming online. So I think we just got to get the opportunity for us to build out our brand portfolio in those aisles, and you'll start to see those sales rise. But overall, we look at the same metric. That's how our sales grow year-over-year, whether it's domestic or international. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Our next question or comment comes from the line of Bill Kallo (sic) [Ben] from Baird. -------------------------------------------------------------------------------- Benjamin Joseph Kallo, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [35] -------------------------------------------------------------------------------- It's Ben here. I wanted to talk about just your capacity. You talked about $1 billion ending the year. You mentioned the second phase of China. Could you talk about what the second phase does? And then I guess the worry is, obviously, right now is demand and how you flex that capacity going forward based on what you're seeing out there? And then my second question is just on your visibility. Because I think that the stock is telling us that we were all surprised by this. And can you just remind us about your level of visibility going forward and across all channels? -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [36] -------------------------------------------------------------------------------- So could you repeat that last part? I didn't catch the last part of your question. -------------------------------------------------------------------------------- Benjamin Joseph Kallo, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [37] -------------------------------------------------------------------------------- Just your visibility on across channels. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [38] -------------------------------------------------------------------------------- Across channels. Or -- yes. I mean I think... -------------------------------------------------------------------------------- Benjamin Joseph Kallo, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [39] -------------------------------------------------------------------------------- Sorry, across QSR. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [40] -------------------------------------------------------------------------------- Yes. I think it's the same. We're very cautious against -- cautious with regard to offering new guidance. I continue to look, though, at some of the data that we're seeing, both in the Foodservice and retail sector that is positive as well as some of the pending launches that you guys will be hearing about pretty soon. And so it just all gets back to the same central point at what point as an economy, can we say that COVID is under control or behind us. Until that point, I think we can't offer much guidance on either retail or Foodservice. -------------------------------------------------------------------------------- Benjamin Joseph Kallo, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [41] -------------------------------------------------------------------------------- Well, I guess my bigger question was just on your capacity build out. And you talked about $1 billion exiting the year. And then the next China phase, you talked about the EU, the Dutch capacity. But I want to understand what the next phase of China brings you up to in revenue. And I want to understand how much that impacts your margin if you can't fill that capacity. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [42] -------------------------------------------------------------------------------- Right. So we can't give guidance specific to China, but I think you can see the amount of investment we're making there in energy and focus. And on the capacity that we have itself, it's -- a lot of the work we've done to secure, for example, P-protein we feel good about that because of the shelf life of that ingredient, it's not something that we have to consume them right away. But we don't have any reason to pull our more optimistic long-term growth projections. We want to make sure that we have the capacity in place to be able to serve those. And so that's really what the capacity is about, it's not a commitment to the markets that we're going to hit that on any given date. But we are prepared to do it and have the -- both the supply contracts in place as well as the capacity now. So that when the economy does recover from COVID, we're able to resume the higher levels of growth that we've seen in the past. I don't know, Mark, if you want to add to that. -------------------------------------------------------------------------------- Mark J. Nelson, Beyond Meat, Inc. - CFO & Treasurer [43] -------------------------------------------------------------------------------- No, I think that's right. And specifically in China, that's capacity for a new market for us. And so the expectation is that matches as that volume grows in region, but that capacity is there to serve it. So -- and the same with the European facility designed the same way to really match the growth in those regions. So we're not shipping product from the U.S. into Europe or to Asia, but that product is produced in region. And we expect that will be beneficial from a supply chain perspective as well as ultimately get us to better price points for product produced in region. -------------------------------------------------------------------------------- Benjamin Joseph Kallo, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [44] -------------------------------------------------------------------------------- I guess, just on the margin front, though, if you build that capacity out, and you can't sell it. how do we think about how that impacts your margin? -------------------------------------------------------------------------------- Mark J. Nelson, Beyond Meat, Inc. - CFO & Treasurer [45] -------------------------------------------------------------------------------- Well, I mean, certainly, it's -- the plan is to match that capacity with the growth in those regions. So we will continue to drive to make sure that, that capacity is online when we need it. It's still -- we're just working towards a good matching of those 2 as those facilities come up. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [46] -------------------------------------------------------------------------------- Yes. I mean, if you look at some of the activities even during this COVID period, whether it's KFC in China, where we went into 210 restaurants, Starbucks in Taiwan, the Starbucks in Thailand, mentioned in Puerto Rico, Pizza Hut in Belgium -- Puerto Rico, pizza as well. We don't see any reason to not continue on the path that we have put forward around growth. And there's a transitory environment with respect to the pandemic. As I mentioned in my comments, our growth path, I think, is enduring. And so if we have to have higher absorption because we didn't time it exactly right, that's fine. We're not building this business quarter-by-quarter. We're building it for many, many years. And so we'll keep making that investment. And if for some reason, it doesn't time exactly with the way that our growth, we'll be okay with that. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes our Q&A session. I'd like to turn the conference over back over to management for any closing remarks. -------------------------------------------------------------------------------- Ethan Brown, Beyond Meat, Inc. - Founder, President, CEO & Director [48] -------------------------------------------------------------------------------- So I just wanted to thank everybody for calling in and appreciate the great questions. Let's -- as we head in the holiday season, let's all be safe, and we look forward to talking to you again next quarter. Thanks very much. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.