Q4 2023 Beyond Meat Inc Earnings Call

Participants

Paul Shepherd; VP of FP&A and IR; Beyond Meat Inc

Ethan Brown; Founder, President, CEO and Board Member; Beyond Meat Inc

Lubi Kutua; Chief Financial Officer, Treasurer; Beyond Meat Inc

Daniel Gould; Analyst; BMO Capital Markets Corp

Adam Samuelson; Analyst; Goldman Sachs Group Inc

John Baumgartner; Analyst; Mizuho Securities USA Inc

Robert Moskow; Analyst; Cowen Inc

Alexia Howard; Analyst; Sanford C Bernstein & Co LLC

Peter Saleh; Analyst; BTIG LLC

Ben Theurer; Analyst; Barclays Bank PLC

Presentation

Operator

Good afternoon, and welcome to the Beyond Meat 2023 fourth-quarter conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question. You may press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Paul Sheppard, 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 Louis Couture, Chief Financial Officer, and Treasurer. By now, everyone should have access to the company's fourth quarter and full year 2023. Our earnings press release filed today after market close. This document is available in the Investor Relations section of Beyond Meat's website at w. w. w. dot Beyond Meat.com.
Before we begin, please note that all the information presented on today's call is unaudited 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 so 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 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, so 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 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 or no longer consistent with our path to profitability and continued to consolidate our production footprint to US retail, we put the finishing touches on a multiyear 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 for throughout the quarter, we continued to use inventory management to free up working capital five. We maintained our investment focus in Europe and serve our strategic customers in this important market for plant-based meats, including continued traction, 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 of our focus and resources to be put against our latest product platform innovation beyond four and other skews, which we believe have higher profitable growth potential here in the US and are consistent with my intention to focus more resources against key markets and customers in Europe.
Two, we will be rolling out beyond four and US retail and view this renovation as an important and potentially transformative moment for our brand and category iron sharpens iron. And we've certainly experienced this ancient metaphor firsthand, specifically the current climate of misinformation and efforts by incumbents, including sadly, pharmaceutical interest to poison the plant-based meat will push us to accelerate gains in the health profile of our product platforms. To be clear, as I have often repeated likely their points of boredom of listeners. We are proud of the health benefits available through our current products, including for example, those documented in the swap meat study published in the American Journal of Clinical Nutrition, where participants experienced a meaningful drop in LDL or bad cholesterol as well as decline in TMAO. to compound in the gut associated with heart disease for switching from animal-based meats to Beyond Meat's 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 & Beyond Beef crumbles. However, as we've also oft repeated, we are chasing a perfect build of meat from plants, and this goal encompasses Century 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 associating 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 his extensive input and the talent and expertise of our research and development team will lead to what I believe is a significant breakthrough in the beyond four 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 and beyond for the team was able to blend high-quality proteins from PharmAthene's red lentils, peas and brown rice, together with fast from avocado oil in a way to deliver superior nutrition and sensory outcomes. Nutritionals are clear and compelling, including high levels of plant-based protein 21 grams, specifically with just two 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 mono and saturated fats, any accidents and other plant compounds. Critics will undoubtedly continue to agitate. The favorite target is sodium levels and the slight of hand and Floyd is to compare the Beyond Burger, which is seasoned and unseasoned this 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 four, achieved a 20% reduction in the amount of sodium with sodium content now registering at 14% of daily values.
Quick math reveals that even if you were to have seven of the beyond four 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 a critical 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 and beyond four have earned recognition from important members of the Health & Nutrition community. This includes the American Association of Heart Check program certification of a series of heart-healthy recipes featuring the beyond for beef and burger placement of the American Diabetes Association seal on our Beyond for beef and burger packaging as both products meet the nutritional guidelines of the American Diabetes Association, better choices for life programs and the clean label project certification of the beyond for the Schoenberger. 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 as helpful and would recommend it while broader consumer testing scored favorably across the taste do significant texture relative to our existing burger three, we're 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 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 four platform, our pricing architecture is putting far more deliberate emphasis on tiered pricing across our product lines for 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 rightsizing 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 continue 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 box enjoy delicious Beyond Meat offerings at McDonald's, UK, Pizza Hut UK and Starbucks U.K. More generally, I routinely enjoy watching with much interest the reaction of visitors at our headquarters in Los Angeles when they taste the new plant 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, U.K. and Starbucks U.K. This outcome reflects years of development and investment that helps separate Beyond Meat for 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 SpeechWorks, 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 Louie, 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 in the 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 and certain fixed assets determined to be non-core to our strategic priorities within the foreseeable horizon for which no recovery or sale value could be reasonably expected.
Also in connection with the global operations review, we recorded a noncash 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 noncash 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 volumes sold was primarily driven by sales in our international business, where we continue to see solid growth across our retail and foodservice channels. However, this was partially offset by softness in our U.S. business where volumes declined in both our retail and foodservice channels due mainly to continued category weakness and the lapping of certain business in our foodservice channel that did not repeat in Q4 2013.
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 noncash 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, a 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 $1.5 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 equivalents 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 3, 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 to $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 10s 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 in sourcing 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.

Question and Answer Session

Operator

We will now begin the question and answer session to ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Andrew Strelzik with BMO. Please go ahead.

Daniel Gould

Hi.
Thanks for taking my question. This is Daniel Gould on for Andrew.

Ethan Brown

Hi, Daniel.

Daniel Gould

When will the beyond four be rolled out and will that be a phased rollout and is pricing going to be rolled out alongside it?
And what's the magnitude of pricing you plan on taking and kind of what channels and geographies is that platform?

Ethan Brown

Thank you for the question. So we're very excited to have the beyond four come out. It will be shipping next month and probably start to gain broader distribution in April timeframe and into May. And that will be in US retail on pricing there to kind of separate issues on the beyond four, as I mentioned, my remarks was many years in the making and we were able to get it out as we roll into the summer season this year. But it does coincide well with some pricing changes that we have to take. And so they will be largely coincident and it certainly helps that there's some premium ingredients in beyond four and I think an enhanced value proposition in the on-floor to help support that pricing in terms of the magnitude. We should probably talk with retailers first before getting into the specific details on that. But the entire effort is really around making sure that we get back to very healthy margins. And we did a tremendous amount of work on this question around elasticity work with an external firm and looked across our portfolio where we thought pricing had some headroom or room rather for growth and down. And so I think we've made the right decisions here and just look forward to rolling it out there. It is really part if I could just reiterate some of the things that I was saying on our introductory remarks, it's part of an entire effort to really reset the business after that 12, 18 months of effort to reorient what we're doing from a much more growth at all cost focused operating model to one. Now that is highly focused on sustainability, profitability. And so the pricing increase is just one of those things. But if you look at all of the changes that we're making, whether it's a substantial reduction in operating budget, we'll be down significantly from from 2023 if we execute according to our '24 plan as well as a very substantial reduction in cash use. And if you look at the global staff cuts we've made over the last several years because the one that we did in November was not insignificant at about 19%. And so I think we've really rightsized the business to the size of the current opportunity and the growth that we want and critical ahead on pricing, you know, it is a very significant tool in restoring margin. It's not the only one. We're also well underway in terms of production efficiencies that we've been chasing. And if you think about the magnitude of the effort over the last several years to put the business into a footprint that's consistent with the current opportunities. We go into 13 manufacturing locations that are external to our company down to one and bringing a lot of that production in-house to two to two benefit from much higher overhead absorption and some material flow efficiencies, things of that nature, reduce logistic costs, so on and so forth. So it's really part and parcel with an entire effort to reorient the business toward sustainable and then profitable organizations. I think I mentioned in the opening remarks that we're going to discontinuing jerky at the same idea there. And then this last, our goal business review to to take out some of the excess inventory and assets that we have from a write-down perspective and then be able to monetize those less pressure on on us. So all these things, again, we were at one size and needed to get a little bit leaner. I think we've done that now. And so in '24, I very much look forward to a lot of this coming to fruition, and it's reset beginning to really show.

Daniel Gould

That's really helpful.
Thank you to our team.
And just one more for me.
Can you speak to your confidence in the gross margin guide?

Ethan Brown

So I'll give it to Louis, but I think the two main features that I just referenced. One is the pricing change as well as this consolidation of our production network and the increased some more continuing rather COGS reductions that you see throughout the last 12 months on those will, I think, help us significantly.
And then also clearing out of some of the higher reserve levels of capability.

Lubi Kutua

Yes, not a whole lot to add to that. But I think just generally and speaking to sort of our confidence level, we feel pretty good about it, right. And so we did say in the guidance that we provided that we expect our gross margins to be higher in the back half relative to the first half. And that's related to some of the timing around some of these actions or even already discussed the pricing. One thing that we have communicated on prior calls as well is that we are on rolling back to to some degree, right, the level of promotions that we've done. We really did some aggressive promotions in 2023 as a means of trying to draw more consumers into the category. We're taking a little bit of a different approach this year, the in-sourcing of finished goods production is something that I think should not be underestimated. As Ethan said, it really gives us an opportunity to sweat our assets more and benefit from and the fixed the fixed cost absorption as well as the fact is it helps us from a logistics cost perspective as well.
Right?
You can imagine if you have eight or 10 different co-manufacturers in your network, you know, you're transporting ingredients and work-in-process items to multiple locations that starts to have a detrimental effect on your logistics costs. And so all of these these things combined, I think, give us some pretty pretty good confidence that we should be able to achieve the margin targets that were, but we're seeking.

Operator

The next question is from Adam Samuelson with Goldman Sachs. Please go ahead.

Adam Samuelson

Thank you, and good afternoon, everyone.

Ethan Brown

Good afternoon.

Adam Samuelson

So I just wanted a little bit easier. And I want to just make sure I'm thinking about 2024 outlook pieces correctly, frankly, given the revenue outlook you've given, given the gross margin outlook for kind of mid to high 10s on the operating expenses and there's some D&A and stock comp. So it's not all cash, but there's also the CapEx.
It would still look like the cash burn based on the gross margin, less the OpEx, plus the less the less the CapEx add-backs in D&A and stock comp, you would still have a cash burn from operations in 2024 of $100 million plus some and a my missing something in terms of the non non-cash expenses in there.
And because I'm just trying to think about that level of cash burn in 2024 relative to an ending cash balance in '23 of putting $205 million, arguably kind of expecting to burn half or more of your cash balance in 2024 for further liquidity actions?

Ethan Brown

Yes, I can.
I'll answer and then hand it over. I do think we should probably after the call works as you work through this with you one on some of the puts and takes, we're pretty comfortable that it is going to come in at a reasonable number and lower than a than 100, certainly the midpoint, but I believe we can give guidance on that.

Lubi Kutua

Yes.
So Adam, I'm not sure you know what, the what assumptions you're baking in there in terms of, you know, some of the non-cash add-backs. But um, I think the number that you were sort of that you referenced there, roughly $100 million. I think if you just looked at sort of you look at some of the big non-cash items, the depreciation and stock comp from last year and factor that in and then just take our guidance that would put us sort of right at the range that you're you're talking about. Obviously, we expect to do better in certain areas. The other thing that's not and baked into those numbers, right. We did. You know, part of the reason why we have these significant non-cash charges is we are writing down certain fixed assets right to move to estimated fair value so that we can sell them and start to monetize some of those those assets doing the same thing on the inventory side. And so that should come that should provide some benefit to cash as well. And yes, we did talk about that. We're looking to bolster our liquidity. So look, we're doing everything that we need to do to fix sort of the fundamentals of the business so that we are fundamentally a lower cash consumption business, right, with a longer-term goal, obviously, of getting to sustained free cash flow positive. But we're being responsible as well. And this is why one of our objectives for 2024 is to bolster the balance sheet. But like I said, there's other puts and takes that just our guidance alone on its face would not necessarily consider it, but we think will provide a little bit of upside relative to the number that you are estimating.

Adam Samuelson

Okay. That's helpful. And we take that offline.
If I could ask a follow-up. Just on the outlook for revenues, which you have down 8% to roughly flat year over year for 2024 on what are volumes assumed in that at this juncture?
I'm just trying to get a sense of how much price elasticity you really think would come from the higher price increases, the higher prices, particularly in US retail?

Lubi Kutua

Yes.
So we don't we don't necessarily guide to some volume, right? So we gave you the revenue dollar projection, but what I can say is we we looked at price elasticities very deeply as part of this exercise and we're looking at our at our pricing and it is going to vary by channel and region mix, et cetera. But we believe and we feel pretty confident, right that and some in some of the areas where we are looking to take pricing that the elasticity with the changes in price will offset or more than offset the anticipated loss of volume as a result of the price increase. And so I don't want to get to specifics at a too specific on on volume numbers, but I'm generally speaking, right, we would expect the elasticity to be less than one.

Adam Samuelson

Okay.
So just to be clear there, some if you're still having revenue dollars down at the price increases offsetting volume declines, is the revenue declines, the dollar decline a function of exiting product lines or regions or what would be drive what would be underpinning the revenue dollar decline.

Lubi Kutua

Okay. Yes.
So some of that linked.
So there is some exit of product lines, and we talked about Turkey as an example, the other thing is no, the reality is our US retail business, right continues to be challenged. And so there is some assumption in there which we hope will turn out to be conservative. But nonetheless, we've seen a baseline of velocity erosion in the U.S. retail channel. And so we're trying to factor that in, you know, particularly on the downside. So that, you know, those are sort of the the key drivers, I guess some when you look at the lower end of the range, I think that's right.

Ethan Brown

The from the continued kind of favorability in U.S. retail. It's something that as you do your models, as we do our models, right, we didn't want to be too rosy a picture around. I think the general notion here is that we're doing a massive product launch. That's, I think, transformative in terms of what we've done over the last years as probably the most important renovation we've done since that number done that we're also taking price. So the two of those make it very hard to predict with a ton of certainty, any type of growth we just don't know. So we wanted to come in with something that was it reflected kind of current information and hope to change it and probably better.

Adam Samuelson

Okay.
I appreciate all that. Color, I'll pass it on.
Thank you.

Operator

To the next question is from John Baumgartner with Mahoney. Please go ahead.

John Baumgartner

Good afternoon.
Thanks for the question.
From what I wanted to stick with the guidance for next year and specifically the OpEx, I mean, the midpoint you're guiding to it's about like a 25% drop from your recent sort of run rates from the global force reduction announced last quarter, I guess explains a small part of it, but I'm trying to understand the rest of that decline, especially in the context of what I guess, seems to be more reinvestment in marketing and brand-building at this point.

Ethan Brown

So I think I've said this before, but one of the things like say that marketing is that your marketing is a lot easier when it's true and that footprint it really gets to is you got to have a great product and I think Ed would manage it in an even more pointed way, which was a marketing what you do when your products?
No good Enda. And what we have to do right is reengage the consumer into this entire category with products that are really delivering value to them in a way they understand. And so for us, that's really about continuing to improve the taste, which I think we've done would be on for, but also addressing this fundamental issue around health. As I said in my prepared remarks, we really do have a set of products today can deliver fantastic alpha I've seen it in my own life and my family's, I've seen it in your studies we've done with Stanford, which I won't belabor today and in others. But yes, what we wanted to do was take another level. And we wanted to continue this march towards that perfect build.
And I think we've taken a really big step here.
It is not just an iteration. It's something that's more transformative than that. And so to be able to have these products where you're enjoying the associate experience of Newberger or having a bonus or whatever you decide to do it. And yet having a oil that that, for example, many in the fishing community that a community would characterize heart-healthy is something that that is new and it's something that changes the dynamic of the decision. This went from five grams to two grams of saturated fat. And it's not just the composition of sorry, it's not just the the level of the fat in our product mix. The fact that it now comes from a source that I think is very well identified, is delivering benefits, not just because of the low levels because of what's in it. So it's things like policy and Old Navy accidents and other plant compounds that depending on what study you want to look up, our people have attributed to being helpful in the area of cardiovascular disease or dementia or I know the health advisor scan, whatever it is. There's a lot of benefit here. We've also been able to reduce the sodium, which, as I said before, is a red herring, but it's still there and something we have to address. And so at 14% of daily value. Now that's a significant improvement. And then you look at the proteins, whether we're using not just the protein, but by going with Red lentils and followed the Interbrand price increase the protein amount. So you have a product that fundamentally deliver a stronger value proposition and we'll certainly go to market around that. But there's also word of mouth in this community and there's a strong desire, whether it's the health community or the environment community within a welfare community for these products in this category to come back. And so I think we're going to leverage that. And you'll see us work a lot with veterans, dietitians and nutritionists and the medical community as well as with these very large health organizations.
I mentioned American Heart Association, American Diabetes Association. In fact, the American Diabetes, Don Seale will be on the package itself, clean label project and others. So we're going to have to market for sure but we're also going to do it in a way that look, this is a fundamental shift in the value propositions, enhanced increase, and I think people begin to realize that. So this use of grassroots marketing. This use of institutions that are standing behind this, I think will allow us to do it much more efficiently. And so some of the costs we've cut out of the business, I think only helped us to become profitable more quickly versus hurt us from back from a marketing perspective. (multiple speakers)

John Baumgartner

Okay.
Then to follow up on the gross margin guidance for 2024 on the improvement there, how much does that rest on the price increases? I mean I guess it sounds as though you're not building in much operating leverage from new volume growth, the co-man consolidation, I think has been accruing sort of quietly all along with the China anti-dumping duties and the pea protein.
I imagine input costs can't be all that beneficial this year. So it feels like the gross margin expansion in the guide a fair amount of it just boils down to the price increases that are I guess, can you walk through the kind of the relative contribution of magnitude there for the drivers?

Ethan Brown

So I think you'll hear me talk a lot about how proud I am of the research development team here, and I often spend more time on it and you have the operations team and one of the things that I've felt hasn't been fair or not fair, but this has been unfortunate is that they're doing a really good job driving our fundamental cost structure down right, whether it's our facilities in Pennsylvania and Missouri. I mean, these are great operators that are really driving efficiency. And every quarter we have something that comes up. Weather is dislocating from one co-packer and there's some fees or some high reserves coming in from legacy products or partnerships that have kind of disrupted that price and have not allowed them to shine publicly, although I see what they're doing. And so as we steady and kind of bring in the production network, I think some of those savings that we're achieving in our facilities will start to come through a little bit better. And an example of that is just the scenario as we're taking production out of external networks into terminal utilization rates in our facilities are significantly improving overhead absorption and significantly improving. So these are things that I think even though we're going to be using, for example and beyond for some more premium ingredients they kind of offset and then even driven down somewhat over time by the internalization of our production and the continued reduction in in his overall cost. So the guys were listening and gals are listening. Appreciate it, and you guys got to keep it up. We're finally going to be able to show it.

Lubi Kutua

Yes, I would just add, you know, I think it's fair to say that some of the some of the price increases are a significant factor that play into the gross margin expansion that we're targeting for next year. But it's not just that on, as Ian mentioned, right, there's a lot of stuff that's been going on, you know, just across the on the production, our operations organization, et cetera. The other thing in addition to just price increases, we talked about pulling back on trade. So the combined impact of those two things, right, actually has a pretty potentially meaningful impact on overall net revenue per pound. And then you mentioned the internalization rate, the increase in sourcing of our in our finished goods production. And you mentioned that some of that has been pretty much been accruing already. I think that's true, but there still was a lot of noise in our cost of goods in 2023, even as we were internalizing, we're still dealing with some things like underutilization fees and things like that. And I think you know that type of stuff should be significantly reduced in 2024. And so now I think we know we are in a position where we start to benefit in a much more meaningful way from bringing a lot of those production volumes in-house.
And then I mentioned a little bit earlier that there should be benefits as well from just a more streamlined network overall from in terms of logistics costs, when you look at some of these initiatives that were we're targeting now to reduce overall inventory balances that benefits warehousing costs and things like that. Even the reclassification of some of these fixed assets to held for sale, right um, will have a beneficial impact from a depreciation perspective, right? And so you combine all of these things together and that makes us feel pretty optimistic about where gross margins can go this year, but I think we will take it.

Operator

Your next question is from Robert Moskow with CD. Cohen. Please go ahead.

Robert Moskow

I thanks for the question. Even Lubi, it looks like the center of gravity is going to continue to shift to international markets for your business. Can you speak to the profit margin profile of operating internationally? How is it different from domestic. Can you operate it at a respectable margin overseas? Or are there complicating factors that make it more difficult than here?

Ethan Brown

Thanks, Robert, and good to hear from you so when we think international, obviously, I've said a lot about Europe in the past and in some sense, Bill, that's becoming kind of zone operation over there. So it's not necessarily like we're shipping things from here or anything of that nature. They're driving a lot of the same cost reductions. We have a terrific partner there who does summer production. It's really a true partner to us as well as a very good general manager there and team. So I think I don't foresee that being particularly challenged from a cost perspective now and we're still pretty nascent there. So we do have to continue to adjust downward the cost structure, but that's possible and it's something that we'll continue focus on collect some of our retail pricing, for example, is just too high for those markets. And so we need to continue to adjust it. But that comes with time and further localization of our of our network, which is doable now just need to decide to do it. And then on the kind of food service side, we're continuing to drive cost out of those products and improve margins. And I think you'll start to see that come through in 2024.

Lubi Kutua

But yes, not a lot.
I would add to that, Rob. But I think fundamentally, if you look at our international business relative to U.S., it does skew more towards foodservice and we have some we've built a pretty meaningful business now some of the large QSR customers in international and so as you can imagine, the margin profile for that business would look somewhat different for us than on the retail side. But I guess the short answer to your question about, you know, some do we have respectable margins in international? I would say, yes, right. But As Ethan mentioned, there's still a number of things and initiatives that we're pursuing to come to to bring about even further improvement in margin international business.

Ethan Brown

And it is striking that you and it is directly responsive, but it just gives us opportunity. It is it is striking to see the difference there in terms of uptake of the category and products. That thing I mentioned in my prepared remarks is significant within a several block radius in London, you're going to McDonald's getting Beyond Burger, you go into a Starbucks getting Beyond Sausage pizza and getting the pepperoni it some it's still these trends tend to to be stronger in Europe and then come over here. And that's certainly our hope that we'll get through the verticalization of these protein choices here in the US and just get back to, hey, let's do something that's good for our health care environment.

Robert Moskow

What we said, and they're very impressed that you're going to McDonald's and Burger King in London when you visit there. So keep up the good fight, but starting yet. But you also mentioned that pricing is too high for some of your products in the market. I think you've said that before. Can you be more specific as to why that is it? Is it more commoditized of the category in Europe or but how do I think about that?

Ethan Brown

You know it a little bit give the details on it, but I was talking about retail, and I'm just we're still when you think about Beyond Meat 29 here in the United States, like we're still kind of getting going there in terms of the overall production process and things of that nature, but clearly further along than we were at that point, but maybe you can give some some detail.

Lubi Kutua

Yes, Rob, I think come and one of the differences when you look at the retail landscape in the EU versus the U.S., is they have a much larger private label presence, right? And so I think the penetration of private label in the EU is about double from here in the U.S. And so there are there are some there is a much broader, I guess, portfolio of items that compete in our category. That's at a much lower price. And the consumer in the EU does seem to be a little bit more predisposed towards private label than maybe the average US consumer. We two years ago, we took some steps to close the price gap of our products relative to the broader competitive set in the EU, but certainly certain product categories where we still remain at a pretty healthy premium. And I think over time, the goal would still be to tried to and compress that gap somewhat?
Not necessarily. I don't know that there is a need to come down to the level of private label in the region, for example. But there are areas where we think that the price gap is still some cheaper wider than where it needs to be. But that's something that will occur over time. I mean, I don't I don't think it's something that we're immediately looking to to address and so on. That's a that's just some some general fundamental differences. I think between the trade in the EU versus the U.S.

Robert Moskow

Okay. Thank you.

Ethan Brown

Thanks, Rob.

Lubi Kutua

Thanks, Rob.

Operator

The next question is from Alexia Howard with Bernstein. Please go ahead.

Alexia Howard

Thank you. Good evening, everyone.

Ethan Brown

Good evening Alexia.

Alexia Howard

Let's just get back to the dynamic in the US and how how do you go about recruiting lapsed consumers? If people were somehow disappointed in previous products, what propels them back into this and especially if the price gaps to animal meat products are expanding because of the price increases you're planning to take? And then specifically, I guess linked to that is marketing spend expected to be up or down in 2024.

Ethan Brown

So on the question of bringing people back into the category, some the biggest deterrent it has in this health question right. And you've heard me talk about it before that there is a it's not without interest and support from the industry and that needs to really be looked at as well I mean, it is it's not just the animal protein players and their lobbyists, but it's actually the pharmaceutical part members of the pharmaceutical industry, which I find to be kind of disturbing actually. And so we had to write the message and we can do that by yelling from the rooftops about the benefits of our existing products or we can just trying to make them even more healthier and unassailable at some point. So that's what we've done. I think beyond forward, we'll continue to do it. You can expect future iterations to continue to drive improvements and then assist and linking up with associations and national institutions. That data really can validate what we're talking about and they help develop these products. That's the fascinating part about this work is we didn't just do this in a conference room on our own. We were out in the community talking to doctors and nutritionists. And each of these institutions. Our Head of Communications did an amazing job of pulling together an ecosystem of doctors and nutritionists and different national health organizations as well as universities. And we listened and we work very closely with them. And I can go back to individual conversations with individual doctors that relate to specific inputs that we use. And so I do think that there's an opportunity here for Com, organic style of marketing that relies on the power of social media that relies on the fundamental truth of the products to bring people back in. And this wasn't just a health upgrade. And this was something that for years we've been focusing on creating much more of a neutral beef taste. As I've mentioned many times, there's over 4,000 molecules that make me taste like meat and our job is to use the scientific expertise we have here to match those with analogous or the same molecules in place and then find out what the main drivers are and incorporate this into our products. And I think the team has done an amazing job with this product doing that. So you get a benefit and help you get a benefit in taste and you get the word out. And we've been very successful over the last decade in using people in a position of influence within society to carry that message because they believe in it. And when the message is this powerful, when you have the opportunity to help people really improve the cardiovascular health to really improve of the risk outcomes that they face in their day-to-day life.
From a health perspective, there are folks in addition of influence that want to talk about that and so you're going to see us go back to that playbook and a very big way to get this message out and whether it's ambassadors and influencers, whether it's some of the institutions when you're trying to do some, there's good people recognize it, and there's a lot of truth to it.
You tend to get help.
And I think we're going to get some help from our friends on this one.

Alexia Howard

And when will it be out on shelf? Is it a national launch in the first half of the year?

Ethan Brown

Well, if that's a personal question, I can send you some equipment put into it.

Alexia Howard

And if we can find, I think economically it really is singularly focused on just coming back to the marketing spend on, is that going to be up or down this year overall? Just and then I'll pass it on.

Lubi Kutua

But yes, Alexia, we do expect in aggregate our marketing spend to be down, as you can imagine, if you look at our guidance, our OpEx guidance and you know the what that implies in terms of a year-over-year decline, we are taking a pretty broad cuts across the organization. But I think when you start to dig down into specific areas of the business, specific departments, I mean what really matters is how that spend is going to be directed in, you know. So Eaton, I've touched on this, but it's really the mix of the marketing spend. And, you know, really taking a targeted approach being very deliberate about where we want to spend those marketing dollars. And so in aggregate, yes, it will be lower, but --

Ethan Brown

I would comment on pricing here that you're right, that in certain areas, there will be a bit more of a delta between and we're putting ourselves, but in others, they will not be. And so this is not a kind of a crude application of a price increase. We have some very important partnerships and relationships, whatever pending on the product line, there won't be much change. And so the content, including an retailer that you'll see some products where there's really not not that much change. But in the aggregate, based on the elasticity studies we did, we get a nice bump in terms of margin while still offering the consumer value for those that want.

Alexia Howard

Great. Thank you very much. I'll pass it on to.

Operator

The next question is from Peter Saleh with BTIG. Please go ahead.

Peter Saleh

Great.
Thanks for taking the question on. Sounds like you guys have done a lot of work on pricing and the level of pricing. It sounds like it's a pretty meaningful change in your strategy. So I'm just curious, is this are you thinking about this as a one-time price hike to kind of get you in order here? Or is this just a real meaningful change in strategy where you're thinking, you know, this will be a hike this year or maybe two hikes this year and more price hikes as we go forward just trying to understand how this strategy is really evolving on pricing? And then can you just elaborate a little bit on your tiered pricing comments? Is this tiered by by distribution channel by product? Are some prices coming down or are all prices going up? Just trying to understand those comments.

Ethan Brown

Thanks.
Yes, I don't think it's a change in the long-term strategy meaning that if you if you think about and this is something I find endlessly fascinating, but we'll dive into too much of it. It just the incredible efficiency you have when you take a set of amino acids from plants versus waiting for that and animal to process and developed and bacteria and Internet-related the protein, all that stuff is just more efficient and so there will be a day when this dramatically underprice animal protein, but that's not today. We did achieve price parity with certain products in certain markets here recently. But in my view, and that was not a certainly a global statement at all in terms of the products that we still have a big delta for most of our products.
But I will say that the pricing measures we took, I don't know the minimum shipments.
I think there's so much noise in the category so much noise about the category so much on agitation outside the category with people saying negative things about the category, scaring consumers away that pricing just wasn't as effective a tool. And my view is that we probably end up selling a lot of our products to the same consumer, a reduced price. So we learned that and moved away from it. But I do think there's a real opportunity to continue to offer outstanding innovation and year after year that does have a more premium price on it. While you continue to offer some of the rest of your portfolio at lower price and so I do think you'll see that from us. And so when we talk about tiered part of that, is that type of dynamic. I think the other is with particular customers and channels. So if you think about very large strategic customers, they're selling to take billions of orders a day. And that type of customer price sensitivity is so important and so we'll continue to drive those type of products to parity as quickly as we can. I hope it helps.

Peter Saleh

Yes.
No, that's very helpful. And then just lastly, on my end given all the changes you guys are making do, but this to have a material impact on the number of doors that you're in in 2024?

Ethan Brown

Yes, I think it's too early to tell. And I meant to say it's uncertain to predict that. And I think it's just too early to tell.

Lubi Kutua

Yes.
I mean from the peer, the one thing that I'd call out in terms the distribution outlet is we are we said we are discontinuing the jerky product. And as you know, there were some if there was a pretty significant distribution presence related to that product. It got us into certain channels like convenience, for example, where you look at the rest of our portfolio, it doesn't really play there. And so certainly on the US retail side, if you include the right the impact of jerky, that those numbers should come down. But apart from that, I think we're pretty well distributed across U.S. retail. So I wouldn't expect too much movement in those numbers. I think we would expect over time to continue to grow our presence across U.S. Foodservice and then it still feels like pretty early days for us in international, quite honestly. And so I think there's there's room for further distribution expansion in international markets in the EU and other areas and even same on the International Foodservice foodservices.

Peter Saleh

Great.
Thank you very much.

Lubi Kutua

Sure.

Operator

The next question is from Ben Theurer with Barclays. Please go ahead.

Ben Theurer

Yes, thank you very much and I'll keep it short. So thanks for.
Thanks for squeezing me to follow up a little bit on on on some of the dynamics in foodservice and kind of the success international versus and the declining trends in the US and also wanted to bring this back to some of the partnerships for the year. Have you flowed out with young brands with McDonald's and so on. So I know you've and you've talked a lot about the Madoff case over in the UK, but what are you seeing particularly with those foodservice players in the U.S. as it relates to your product and the rollout of does that and any color you can share on that, that would be much appreciated.

Ethan Brown

Yes, I thank you very much for the questions Spirit one you guys have done in the past. I really need to let those partners comment on their view on the category versus just a supplier to them so I want to be careful on that front. And I think that they look to the type of success we're having in Europe and then make decisions based on what they're going to bring here. But I will say the climate here has been so on since we're politicized earlier and clouded with this misinformation and things of that nature that we really had to straighten that out first from a get the right information out there, make sure the consumer understands the value proposition and I think the rest will follow from there.
I mean, if I could just on this be before that we're rolling out on what we're trying to do here is create a question in the consumer's mind as to why wouldn't you do this right. And of course, if it's too pricey, that's an answer, but we don't think it will be prohibitive as pricing and the health benefits are. So clearly, there have the support from the medical and nutrition communities there and pieces there. So that obviously environmental benefits and I will answer your question, but the the ability to resolve the main issue that people have in their hands about with clients through a change in how we get protein to center of the plate is absolutely phenomenal. And if you talk to people who studied this issue, whether it's the gentleman at yields in the video we did for beyond four or folks at NYU Medical, I guess one of them who study this and the use of land and biomass to bring carbon back out of the atmosphere and cooler climate and to reduce methane emissions, associate livestock, et cetera. So on and so forth, it's an incredible opportunity until we're going to make sure that consumers understand that when we're talking about healing their body and helping them to achieve better health outcomes were also able to do that on on the planetary side. And at some point, it becomes such a powerful value plus the consumer does come back and we need to take it away from the politics and you take it away from us versus them. Farmers should be very much involved in this and making the great living doing it, not only growing our crops, but potentially receiving funds from the government to two to sequester carbon. And it's a real path forward for our country and the globe. So I think we've said to get people excited about that concept again, and the rest of the industry will follow in terms of restaurants and things of that nature, but feel for us to apply a lot of focus on that this year is probably not the right area, but let's continue to be successful with them in Europe. And let's see what unfolds here in the US in the future.

Operator

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

Ethan Brown

But thank you. I would encourage folks to visit and put it in a press release with the video that we put together around beyond for again, to get a sense of the health benefits and to get a sense of the global environmental benefits from both of them are very strong. I think both will bring the consumer back to this discussion and tasting is believing we're trying by type from a brand and as folks taste this new iteration, I think it will be done. We'll be quite pleased with it. So we're cautious in our optimism. We've actually had some tough years, but dumb but by making these changes and creating a sustainable baseline from which we can grow, we're going to create some room for ourselves to execute and get back on track for growth Thanks, everybody.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.