Yahoo Finance Beyond Meat, Inc. (NASDAQ:BYND) Q1 2024 Earnings Call Transcript
Beyond Meat, Inc. (NASDAQ:BYND) Q1 2024 Earnings Call Transcript May 8, 2024
Beyond Meat, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Beyond Meat 2024 First Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paul Shepherd, Vice President, FP&A, and Investor Relations. Please go ahead.
Paul Shepherd : Thank you. Hello everyone, and thank you for your participation on today's call. Joining me are Ethan Brown, Founder, President and Chief Executive Officer, and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our first quarter 2024 earnings press release filed today after market close. This document is available in the investor relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented today is unaudited and that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.
Forward-looking statements in our earnings release, along with the comments on this call are made only as of today and will not be updated as actual events unfold. We refer you to today's press release, our Quarterly Report on Form 10-Q for the quarter ended March 30, 2024 to be filed with the SEC, and our Annual Report on Form 10-K for the fiscal year ended December 31st, 2023, along with other filings for the SEC for a detailed discussion of the risks that could cause actual results that differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management may reference adjusted EBITDA, adjusted loss from operations, and adjusted net loss, which are non-GAAP financial measures.
While we believe these non-GAAP financial measures provide useful information for investors, any reference to this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release through a reconciliation of these non-GAAP financial measures. For their most comparable GAAP measures. 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'll begin with a brief overview of our Q1 2024 performance afterwards I'll provide updates on the five priorities I outlined on our previous earnings call and how we are building toward our goal of sustainable operations and return to growth. Total net revenue is above the top end of our $70 million to $75 million guidance range at $75.6 million, an 18% decline from Q1 in the previous year. Gross margin was 4.9% higher than each of the three previous quarters, but a reduction from 6.7% in Q1 2023. While we are pleased to return to positive gross profit and gross margin this quarter, this fell short of our expectations due to among other factors, trade discounts running a bit higher than planned, transitional and startup costs related to bringing production in-house as we continue to consolidate our network, an incremental, accelerated appreciation of certain fixed asset disposals.
As this positive swing in margin occurred prior to the enactment of our price increases, the first trance of which began rolling out last month and prior to completion of our network consolidation work, as well as being impacted by the aforementioned accelerated appreciation, we are optimistic regarding margin improvement across the balance of the year. Operating expenses in Q1 were $57.1 million, a $6.8 million reduction year-over-year. This operating expense total includes a $7.5 million accrual for consumer class action settlements, which without operating expenses would have been $49.6 million, a reduction of $14.3 million year-over-year. This reduction in operating expense helped reduce our loss from operations to $53.5 million in Q1 ’24 compared to $57.7 million in the year-ago period.
Adjusted loss from operations was $46 million, reflecting the exclusion of the $7.5 million accrual for the consumer class action settlements. We will continue to drive efficiencies throughout the organization in support of further operating expense reductions throughout 2024. Turning to our balance sheet and cash flow, inventory fell to $122.5 million, down by $7.8 million from Q4 2023, and down by almost $100 million from Q1 2023. And our cash consumption of $32.5 million Q1 2024 was down significantly from $49 million in the same period in 2023. I should note that while inventories fell, the first quarter does represent a period of inventory build as we prepared for higher demand during our peak selling quarters. This build, which included inventories for the Beyond Burger IV and Beyond Beef IV launch, meant that we parked more cash and finished goods inventory this quarter than we did in Q4 2023.
Coming off of this first quarter of the year and looking across 2024, we will remain focused on driving further reductions in cash consumption. With that brief overview, I will now run more fully through the progress we're making against each of our five priorities for 2024, while Lubi will follow with more detail on our overall financial performance in Q1 2024. First, getting leaner. The first quarter of 2024 provides a clear proof-point that our operations continue to get leaner and more efficient. We realized a positive gross margin despite a lower revenue base for reducing operating expenses, inventory and cash consumption relative to the same period in 2023. Our continued emphasis on leaning out to our operations also entails tightening our focus with regard to product portfolio, markets, consumer targets, claims and messaging, which leads me to our second priority, Beyond IV.
In February, we unveiled Beyond Burger 4 and Beyond Beef IV, and across April, these products began rolling out in grocery stores nationwide, including Walmart and Kroger. Through this fourth-generation project, which we expect will be fully distributed by Memorial Day, we took a leap forward on a continuous improvement journey that is a rapid and relentless innovation program. As you will recall, we iterate our product lines across one of the [indiscernible] properties in a framework referred to as FAAT for flavor, aroma, appearance, and texture, while driving improvements in nutrition, cost, and other considerations. In the Beyond IV platform, as discussed previously, we placed considerable emphasis on unlocking further health gains. To this end, we work intensely with leading medical and nutrition experts as we build this next generation.
Together with this network, our team in my view, delivered a home-run and improved sensory experience with a nutritional build, so impressive that it goes to market with a host of important validations. These include becoming the first plant-based meat brand to be recognized by the American Diabetes Association evidence-based nutritional guidelines for better choices for life program. Being featured in a collection of hard healthy recipes certified by the American Heart Association's Heart-Check program, as well as an upcoming American Heart Association and Beyond Meat cookbook. Earning good housekeeping coveted nutritionist, approved envelope, which assesses food products based on specific nutritional criteria as well as taste, simplicity and transparency.
And finally, becoming the first plant-based meat products to be clean label project certified. As has been the case with other disruptive innovations in history, innovations that are today commonplace everyday items. One of the biggest challenges our brand has faced is orchestrated misinformation regarding our product lines. As Beyond Burger IV and Beyond Beef IV approaches full distribution, we will launch our 2024 marketing program, which highlights their strongly validated helpfulness, built with protein from yellow peas, red lentils, brown rice and fava beans, together with heart healthy avocado oil, Beyond Burger IV and Beyond Beef IV provides consumers with 21 grams of clean protein with only two grams of saturated fat per serving. As the Beyond IV platform rolls out to more stores, we are pleased with the positive though still anecdotal feedback is receiving from consumers as well as members of the health and wellness community, including nutritious and dietitians.
And won't consume our time today with a lengthy review of what has been a very gratifying initial introduction, but we'll instead share perhaps one of my favorite headlines thus far. This is from good housekeeping, which simply states; our registered dietitians can't stop talking about Beyond Meat's newest launch. This headline is particularly important to me as it represents our promise that we build plant-based meats that are not only delicious, but serve an important role in human health. This and other similar reviews are also important because they help create strong relevance for large swaths of consumers, whether quantified as roughly 160 million Americans who have some type of cardiovascular disease, with 97 million Americans were prediabetic or the 38 million Americans who are diabetic or the 25 million Americans who have high cholesterol.
We believe as do the nutritionists, institutions and dietitians standing behind Beyond IV, that we offer consumers a delicious yet powerful choice that can help them and their loved ones with healthier lives. The aforementioned 2024 marketing campaign, which we are rolling out imminently, will bring this message to life across a variety of media throughout the summer rolling season and beyond. Moving on for products. I should note that we announced a newly renovated and expanded line of three different Beyond Crumbles, original, feisty and Italian style. These tasty bite size crumbles go from frozen to finish in just a few minutes and provide a delicious and healthy protein options throughout the day. Beyond Crumbles have 12 grams of protein per serving, less than one gram of saturated fat and no cholesterol.
These are intended to join Beyond Steak in the frozen aisle and as with Beyond Steak, the Beyond Crumble lineup has been certified by the American Heart Associates Heart-Check program and the American Diabetes Association's Better Choices for Life program. Moving forward, we expect to be introducing yet another delicious product set to this heart healthy lineup later this year. I'll turn now to our third priority, implementing changes to our US trade and pricing programs beginning in Q2 which we believe will meaningfully impact gross margin. Our overarching goal is to restore margins to previous levels achieved in 2019 and 2020 over time. As we report, we just passed through the second major tranche and majority of our pricing actions for the year.
These measures reflect a series of tiered pricing changes following a thorough analysis regarding elasticities in our frozen and fresh product offerings and the introduction of Beyond IV and it's more premium ingredients, among other factors. Fourth, we are nearing completion of the difficult task of consolidating our production network. Lower decision regarding a degree of consolidation reflects a myriad factors depending on the co-manufacturing partner. We expect this comprehensive action to substantially contribute to margin as we emphasize the [term] (ph) production and benefit from better asset utilization overhead absorption, production and logistics efficiencies while also providing for better management of logistics and quality control.
Finally, fifth, we are investing in our European business and related strategic partners. We continue to make progress with our quick service restaurant business in Europe and the UK, even as the quarter's year-over-year numbers were impacted by the lapping of product loading and promotional activities in the year ago period that did not repeat in Q1 2024, a consumption trend toward value items in a certain geography, reflecting broader macroeconomic conditions. Looking forward, just today, McDonald's Germany kicked-off it's famous meals promotional campaigns at all restaurants across Germany. The campaign features two celebrity favorite meals built around plant burgers and plant nuggets, exclusively. Additionally, in Q1, McDonald's expanded availability of the plant burger across the Baltic countries of Latvia, Lithuania and Estonia.
In Europe, more broadly, we launched Beyond Steak for foodservice in the Netherlands and a retail in Belgium as well as expanded availability of the Beyond Burger at Co-op stores across the UK. Further, we are excited that we will soon be expanding our presence of retail in Germany given our recent satisfaction of local shelf life requirements and see continued opportunity for further distribution expansion in the EU and other international markets. To conclude, we believe that 2024 is a pivotal year for change in progress for Beyond Meat. We began the year making solid strides along our 2024 strategy and correspondingly, our path to sustainable operations and a return to growth. We believe that our determination to sharply reduce our operating expenses and cash use, consolidate our production network, implement pricing changes to help restore margins and launch from most significant renovation to date Beyond IV for purposes of reinforcing, as well as raising the bar on the health benefits of our plant-based needs, amidst sustained misinformation campaigns are beginning to pay off.
We expect to continue to harvest benefits from these actions across the balance of the year and beyond. These powerful measures and their early dividends, coupled with our initiative to bolster our balance sheet this year, infuse us with cautious optimism as we look forward. And with that, I'll turn the call over to Lubi to walk us through our Q1 financial results in greater detail as well as provide our outlook for 2024.
Lubi Kutua: Thank you, Ethan, and good afternoon, everyone. I'll begin by reviewing our first quarter financial results before providing an update on our 2024 outlook. Net revenues decreased 18% to $75.6 million in the first quarter of 2024 compared to $92.2 million in the year ago period. The decrease in net revenues was driven by a 16.1% decrease in volume of products sold and to a lesser extent a 2.3% decrease in net revenue per pound. Taking a closer look by channel. Net revenues in our US retail and foodservice channels decreased by 16% and 16.2%, respectively, primarily due to a decrease in volume of products sold and reflecting continued macroeconomic and category-specific headwinds. Net revenues in our international retail and foodservice channels decreased by 12% and 28.7%, respectively.
Softness in our international retail channel mainly reflected the lapping of large initial pipeline orders in Europe for our chicken innovation launches from a year ago, as well as softer demand in the Canadian market for certain of our beef and pork items. The year-over-year decline in our international food service channel primarily reflected the lapping of strong sell-in of burger and chicken items to a large QSR customer in the year ago period, as well as generally softer demand in the UK. With regard to the UK, recessionary pressures appear to be dampening demand, both in our retail and food service channels, although we believe this could be a transitory effect. It's also worth noting that while the EU and Canada remain our two largest markets in the international space by some margin, we do have presences in Mexico, Australia and certain parts of Asia, among other regions where we did experience some idiosyncrasies that also impacted our first quarter results, albeit to a lesser extent.
Turning to gross profit. Gross profit in the first quarter of 2024 was $3.7 million or gross margin of 4.9% compared to $6.2 million or gross margin of 6.7% in the year ago period. The year-over-year change in gross profit and gross margin reflected higher manufacturing costs, including depreciation, higher materials costs and reduced net revenue per pound, partially offset by lower inventory reserves and lower logistics cost per pound. Within manufacturing costs although we realized solid benefits from our network consolidation efforts, we did also see transitional costs such as temporary labor and increase over time in our own facilities, as we brought in substantially higher production volumes in a short period of time. However we saw encouraging sequential trends within the quarter and expect our meaningful in-sourcing of production volume to pay dividends in terms of reduced costs and improve quality in the coming periods.
Operating expenses were $57.1 million in the first quarter of 2024 compared to $63.9 million in the year ago period. The decrease in operating expenses was primarily due to reduced non-production head count expenses, lower marketing expenses and reduced selling expenses partially offset by an increase in general and administrative expenses. General and administrative expenses included a $7.5 million accrual for a consumer class action settlement associated with certain lawsuits that originated in 2022. Of the aforementioned settlement amounts and subject to court approvals, we anticipate making a cash payment of approximately $250,000 in 2024 and the remainder in 2025. Overall, loss from operations was $53.5 million in the first quarter of 2024 compared to $57.7 million in the year ago period.
Adjusted loss from operations which excludes the aforementioned class action settlement accrual was $46 million in the first quarter of 2024. The Net loss was $54.4 million or $0.84 per common share in the first quarter of 2024 compared to a net loss of $59 million or $0.92 per common share in the year ago period. Adjusted net loss was $46.9 million or $0.72 per common share in the first quarter of 2024. Adjusted EBITDA was a loss of $32.9 million in the first quarter of 2024 compared to an adjusted EBITDA loss of $45.8 million in the year ago period. While we still have a lot of work to do this represents our smallest adjusted EBITDA loss, going back to the second quarter of 2021. Turning now to our balance sheet and cash flow highlights. Our cash and cash equivalents balance, including restricted cash was $173.5 million, and total debt outstanding was $1.1 billion as of March 30, 2024.
Net cash used in operating activities was $32.2 million in the quarter ended March 30, 2024, compared to $42.2 million in the year ago period. Capital expenditures totaled $1.2 million in the quarter ended March 30, 2024, compared to $5.3 million in the year ago period. Finally, I'll conclude my remarks by commenting on our 2024 full year outlook. Which we are largely reaffirming as follows. Net revenues are expected to be in the range of $350 million to $345 million for the full year. Net revenues for the second quarter of 2024 expected to be in the range of $85 million to $90 million. Gross margin is expected to be in the mid-to-high teens range for the full year 2024 and is expected to be higher in the second half of the year relative to the first half.
Operating expenses excluding the $7.5 million consumer class action settlement are expected to be in the range of $170 million to $190 million weighted slightly more towards the first half of the year; lastly capital expenditures are expected to be in the range of $15 million to $25 million. And with that, I'll turn the call back over to the operator to open it up for your questions. Thank you.
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