Ladies and gentlemen, thank you for standing by, and welcome to the Beyond Meat Second Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference maybe recorded. [Operator Instructions] I would now like to introduce over to your speaker today, Lubi Kutua, VP of Investor Relations. You may begin.

Thank you. Good afternoon, and welcome to Beyond Meat’s second quarter 2020 earnings conference call and webcast. 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 the company’s second 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. Please refer to today’s press release, the company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 19, 2020, the company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 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 note that on today’s call management will refer to adjusted EBITDA, adjusted gross profit, and adjusted net income or loss, which are non-GAAP financial measure. While the company believes this non-GAAP financial measure provides 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, and adjusted net income or loss to their most comparable measure, prepared in accordance with GAAP. And now I'd like to turn the call over to Ethan Brown, Chief Executive Officer of Beyond Meat.

Thank you, Lubi, and good afternoon, everyone. I'm pleased to discuss our second quarter financial results with you today as we achieved record net revenues of $113 million, our first ever quarter in excess of $100 million despite a challenging macroeconomic environment brought on by the global coronavirus pandemic. I am proud of our management team's ability to pivot so as to remain on our steep growth trajectory. Much of this activity involved quickly reorienting the business from a COVID-19 impacted food sector to retail grocery. Recall at the beginning of the year, the split between our retail and foodservice business was approximately 50/50. And as we report today, the balance was 88 retail, 12 foodservice in the second quarter of 2020. Adapting to such a dramatic change in mix over a short period of time was no small feat. Led by the shift in consumer behavior toward retail, the team repurposed assets and repacked and rerouted inventory to this sector. As a result, we were able to demonstrate extraordinary year-over-year gains even as foodservice demand rapidly deteriorated. Across our U.S. and international markets, retail net revenues increased 192% year-over-year, driven by expansion in total distribution points, higher sales velocity at existing outlets, and new product introductions. In the U.S., our expansion in the club stores, including most recently Sam's Club and BJ's Wholesale, added to existing retail tailwinds. Further, we continued our expansion in the convenience store channel, where our breakfast sausage product recently became available in 650 Wawa locations and we'll expand into Wawa's remaining 220 stores as of next week. And as velocities grow across our grocery channel, we continue to gain important new distribution. For example, in September, Walmart will be expanding its distribution of Beyond Burger to more than 2,400 stores, while bringing our breakfast…

Thank you, Ethan and good afternoon everyone. We are extremely pleased with our second quarter financial results as we achieved record net revenues and solid underlying performance despite a difficult operating environment due to the COVID-19 pandemic. Even as we made meaningful tactical adjustments in response to the sudden shift in consumer behavior, we continue to push forward with our aggressive agenda to drive long-term growth and international expansion. I'd like to echo Ethan's acknowledgment of the hard work and relentless focus exhibited by each of our team members throughout the organization. We are grateful for their extraordinary efforts during this period of high uncertainty, without which our exceptional second quarter results would not have been possible. Now, turning to our financial performance. As Ethan indicated, net revenues in the quarter were $113.3 million, up 69% compared to the second quarter of last year. Growth in net revenues for the second for the second quarter of 2020 was primarily driven by an increase in volumes sold, partially offset by lower net price per pound as we implemented our strategy to offer more aggressive pricing and promotional programs amid temporary dislocations in the animal protein market. In aggregate, although our Q2 net price per pound of $5.69 was down only 3% year-over-year and 2% sequentially, this number was heavily influenced by the significant mix shift from foodservice towards retail sales channels that we experienced. As a reminder, our retail products generally have a higher net selling price per pound versus our foodservice products. Growth in volumes sold was driven by continued expansion in the number of distribution points, both domestically and abroad, as we grew our total global outlets from 94,000 at the end of Q1 to 112, 000 in Q2 or a 19% increase as well as higher sales velocities…

Thank you, Mark. In closing, we are very proud of our results for the second quarter of 2020. And while we acknowledge the road ahead may present additional challenges and uncertainty due to the COVID-19 pandemic, we hope that we have conveyed the deep sense of optimism that pervades Beyond Meat. We are just scratching the surface of what we continue to view as an immense global opportunity. And I have every confidence in our team's ability to adapt to challenges and continue to push forward with our aggressive growth agenda. At this point, I'd like to turn the call over to the operator for your questions.

Thank you. [Operator Instructions] And our first question comes from Ken Goldman from JPMorgan. Your line is open. Please check that your line is not on mute sir. And we will move to a secondary line, Mr. Goldman again your line is open.

Here we go. Can you hear me now?

Yes, we can. Hi, Ken. How are you doing>

Good. How are you? I'm not sure what happened there. Usually, it's my fault, but not this time. Your growth in the U.S., Ethan, it was a lot better than what scanner data might have suggested. Are there any maybe shipment timing issues we should be aware of that either boosted or affected your shipments during the quarter? Just thinking about how we should model the third quarter a little bit?

Yeah. So we did have this tremendous growth in U.S. retail activity. And the thing that was most stunning to me was around this shift that the team was able to accomplish from roughly a 50/50 foodservice to retail distribution in the beginning of the year to this 88% retail, 12% foodservice and to move all the lines and the products over that way. Some of the things that really did help to drive this extraordinary result for the second quarter that may not be fully captured in data as Costco, for example. We've done tremendously well in that platform. I can't share their internal data, but it's something that we are very proud of here in terms of where we rank in terms of total frozen goods at Costco. So, it's elements like that, that aren't always captured in the data. But overall, it's this extremely strong set of trends that we continue to face. Across retail today, we're the number one selling refrigerated plant-based meat over the 12-week period ended 6/14, and we're seeing a 195% increase in domestic retail sales. That's really driven around increased velocity as well with 88% increase in retail velocity. And that's -- we're still in that really sweet spot that is so enviable in terms of where a brand wants to be. Household penetration, this really surprised me, it grew 40% from January through to June to reach about 5% of U.S. households. But even as more households were coming into the brand, on average, each household is also buying more, right? So, you get that -- those two trends coming together, you get an increase in frequency. We have about a 23% increase in purchase frequency as well. So, all of that drives this tremendous growth we saw and the increase in market share. I think it was about 550 basis points. So, overall, I felt very good about the performance in retail and the ability to pivot into that. I think the numbers represent that.

So, that's all helpful. But let me circle back to the question, which is, is inventory at retail as far, as you know, at the levels that you want it to be or is there a potential for shipments to maybe trail consumption a little bit in the third quarter?

No, I don't see that. I don't see that at all. I mean I think we're very comfortable where they. And again, I look to the uptake that we're seeing in Costco and in some of these Sam's and BJ's, et cetera, that are driving a lot of growth. So, no, we feel pretty comfortable where we are.

Okay. I’ll let it go there. Thanks so much.

Sure.

Thank you. Our next question comes from Robert Moskow from Credit Suisse. Your line is open.

Hi thank you. The retail sales growth was phenomenal. It was better than I thought it would be. But the foodservice decline was also bigger than I expected, down 60%. Most of the restaurant chains that are reporting numbers are reporting better results than that. And in particular, the QSRs are reporting better results and maybe even better exit rates. So, I guess, I'm a little surprised to see it kind of lagging the restaurant sector. And I wanted to know, are you seeing anything within those chains that those chains that indicates that maybe consumers are just buying their old favorites during this timeframe. They're going to trusted products. Is trial a little bit lower than normal just because of the pandemic? And then when do we think we can get it back to normal again?

Sure. So no, very, very good set of questions. And so our story in foodservice is really around the split in our customers between QSRs and then the smaller independents. And so as you'd expect, the larger QSRs, some of them are doing quite well, particularly those with drive-thru. But it's the smaller regional chains that don't have drive-thru or the mom-and-pops that are struggling so much. And if you look at our overall distribution, our mix of large strategics to others is really about 30% strategic and then about 70% smaller accounts. And so that was in the fourth quarter of 2019. So, we had a lot of exposure to those smaller accounts. Now, as that sector has become more destabilized, we have -- the shift has occurred, where we're now about 42% strategic and about 58% smaller accounts. So that revenue change that's occurring is predominantly being driven by that decline in the smaller account business that we've done so well in. Independent accounts fell about 60%, while strategics declined for us about roughly 40%. So it's a dynamic that is particularly hard hitting for small business owners, and we certainly are experiencing that as they struggle to keep their stores open under these closer conditions. So we do expect, and we're seeing some decent signs, that we have reason to be hopeful in terms of general uptick month-over-month in foodservice. But it's too early to tell when there'll be a full resumption of sales in the category.

I guess the follow-up there, Ethan is, are your sales at these customers weaker than their overall sales, like are you keeping track?

No. Yeah. No. And in fact, we do have some data just around the plant-based sector. So we actually, in this -- in the NPD data, which is the broadline data set, which includes large quick-serve restaurants and generally deals with the cash and carry and smaller accounts, our sales are actually up in that smaller category, 35% year-over-year versus, I think, it's about a 20%, 23% decline in the overall category. So no, we're not seeing that we are facing a disproportionate level of deterioration relative to other products in those restaurants. It has to do with restaurants being open or closed because of the conditions that they're under.

Okay. Thank you.

Thank you. Our next question comes from Ben Theurer from Barclays. Your line is open.

Hey, good afternoon Ethan and Mark. Thank you very much for taking my question. I wanted to shift a little gears into the international market actually. If you could talk a little bit about the dynamic there, similar along the lines within your exposure on foodservice, and if you could share maybe a little bit of the breakdown large box versus the smaller independent QSRs, if that's similar as it is in the U.S.? And then on the international retail piece, which clearly gained contraction during the quarter, but if you could elaborate a little bit on the more recent strategic initiatives and maybe new outlets you've been winning within retail on the international side?

Sure, sure. So all very good questions. Let me just tackle one around international foodservice. So the breakout there is really about roughly 30%, 35% strategics and then -- and the balance being these other smaller accounts. So again, similar distribution to what I just talked about. But we are very optimistic about the growth of both retail and foodservice internationally. And that optimism is stemming from some considerable proof points. We've done well with Starbucks in China. They have over 3,000 stores there in good, good campaign what they call, the good, good campaign. And they're promoting our products now as permanent items, not as an LTO. So we feel really good about that. And we're always looking at pricing in these international markets. As you know, we've set a goal to have production up and running in China by the end of the year. And we do plan to accomplish that and with that be able to bring lower pricing into that market. We got a great test with KFC, Pizza Hut, and Taco Bell in China. So, I was extremely pleased to see that. And I think we can expect some more activity there, although I can't make any promises or provide details. We're also beginning to work with local Chinese QSRs, which is a new set of business for us and something that we're going to, I think, continue to see growth around. And I know that people are familiar with our work with Sinodis, which is a distributor that we use in China and that makes our product accessible to casual dining and to hotels, et cetera. So, as well as extending into retail such as Metro and Citi Super and Costco, et cetera, in China. So very, very significant growth and activity for us…

No, you actually captured all of it, including my follow-on, so I'll leave it here, and thanks very much and congrats on the results.

Okay, Okay, great. Thank you very much. Appreciate it.

Thank you. Our next question comes from Alexia Howard from Bernstein. Your line is open.

Good evening, everyone. Hi, there. So, can you hear me up there.

Hi, there. How are you?

Good.

How are you doing?

Perfect. I am good. So can I ask about the share trends in -- particularly on the fresh side, obviously, you've had a major competitor come into the market. And as I look at the share trend coming down and the sales growth slowing, I guess my question is, I know you can't give us guidance for the third quarter, but how -- can you give us any pointers about how we should think about that in the third quarter as that dynamic plays out? Obviously, there's still rapid growth elsewhere as we've seen in the gap between measured channel data on what you reported this time, but I'm just wondering whether there's any sort of heads up that we need to be we need to be aware of as those share trends balance out? Thank you.

Sure. No, thank you. So just on the main point, I mean we continue to grow faster than the category by a large measure, continue to lead the category in terms of the top four selling items in grocery. So I think we feel really good about that. In this economy in general and free enterprise economy, would be incredibly unusual to not have competitors come in at $1.5 trillion opportunity. So like I think I've said over the last several quarters and before, we have no surprise at this. And we continue to compete extremely well as the numbers that I've shared indicate. So I think if someone were to try to build the case that Beyond is somehow suffering as well as competition, the numbers just don't support it in any shape or form. We see no overall decline in Beyond Meat sales across the chains or maybe an exception one or two small chains. But overall, extremely strong, continued growth, continued increases across both new and natural channels and all retailers. And I think this really speaks to the strength of our brand. It's a very competitive environment. We have large incumbents coming in. We have upstarts as well that are making noise in the media and coming into the market, but we continue to outperform and lead the sector in growth and grow, as I mentioned, more quickly than the sector. So competition is a natural part of being in business, and we feel really good about how we're doing against competitors surrounding the market. I think the numbers bear that out.

Great. Thank you very much. In the interest of time, I’ll hop on. Thank you.

Thank you so much

Thank you. Our next question comes from Rupesh Parikh from Oppenheimer. Your line is open.

Good afternoon, and thanks for taking my questions. I had two related questions on the U.S. retail segment. So in the club channel, as you look at Costco, BJ's, Sam's Club, do those outlets plan to keep your product year round? And then also, as you look at the Cookout Classic, I think you debuted as some of the discounters, is that more -- it sounds like that's more temporary. So is that more just a Q2 benefit? Or do you see that benefit in future quarters as well?

Yes. So as you know, Costco will move things in and out, but we have no, in any way, indication from them. I just had a good call with their CEO other day that they're not anything, but just absolutely thrilled with our performance. So I had to guess, and this is not anything that I've been told, but if I'd to guess, you'll see more of Beyond and Costco rather than less, Sam's, BJ's, et cetera, we just -- we're doing extremely well in those formats. On the value packs, that is something that I personally am very proud of and care a lot about, it’s part of this five-year goal that we set about 18, 19 months ago to be able to under price animal protein in at least one category. And I think we're well on our way to that and hopefully be able to do it in more than one category in terms of beef, pork, and poultry. And something really interesting happened, right, over this quarter. So, we saw an opportunity with beef prices being much higher than they typically have been in recent years. And we have a product in the two pack that is about 2x that of beef prices. Within a single quarter, we'll be able to bring that price delta down to 20% premium, right? And this is -- think how small our company is. We're talking about we just registered our first quarter of over $100 million in sales. And again, we're getting help from the beef industry because of the higher prices, but more than 20% of the cost of conventional beef patties. So, you can see -- I think, very clearly that we're going to be able to underprice animal protein within that three and a half year window that we set for ourselves. And the value pack speaks to that Now, we've sold probably about 70,000 cases of that product in great distribution, Walmart, Target, Kroger, Harris Teeter, Publix, Wegmans, et cetera, Stop & Shop. But we weren't able to get that to the market until about the last two or three weeks of the quarter. But even so, that led to about a 16 points of our year-over-year domestic retail growth. So, it's a very promising start. I wouldn't say it's a short-term item. I mean, it is -- that particular item is a limited time offer, but that idea is one that will have long-standing year Beyond Meat. We will make this product accessible to people at the price points that they can afford, and the Cookout Classic pack is a step in that direction. So, very pleased with its initial introduction and its initial sales and expect to see it continue to grow.

Great. Thank you.

Thank you. Our next question comes from Michael Lavery from Piper Sandler. Your line is open.

Good afternoon. Thank you. If you look at the international sales and just see what looks like a sharper deceleration in foodservice than in the U.S., and it's a little hard to know the number of outlets just with Canada shifting, I think, into the international segment from how you've shown the totals before, but is there -- if we look at the number of outlets, it looks like a sharp acceleration of maybe 300%, but on the declines, obviously, on the sales. Clearly, there's some pressure from closures and COVID, but I guess, is there a different dynamic we should expect in terms of sales per store? And then also maybe some of those authorized but haven't shipped in product yet.

So, this is on the international front or in general?

On international. I mean, I guess, anywhere in particular, but -- I mean, anywhere in general, but in particular, it looks like on international, the outlet growth is far ahead of what you are seeing on the sales side. And I just want to understand how to reconcile that?

Yes. Yes, absolutely. So, we did have that disproportionate foodservice to retail distribution internationally. And obviously, COVID has dramatically impacted the foodservice sector. So, I would say that really is a driving factor behind that. That said, we've really been able to make up some ground on the retail side internationally, and that was our focus as the foodservice sector started to decline. But it really did -- it comes down to that. We had a very disproportionate percentage of our sales going into foodservice internationally as we started international growth. We expect that to normalize a little bit as we continue to pick up retail and as the international foodservice sector comes back into a healthy mix. I think the mix now is about 43% foodservice, 57% retail, roughly. But that reflects a pretty significant decline. In 2019, we're about 84% foodservice. So those numbers, I think, tell the story.

I guess, I just want to maybe look at it – maybe ask the same thing a little bit differently. The -- I think it says 47,000 outlets, retail and foodservice internationally. 1Q, obviously, may have had a little bit of tail end of the quarter pressure on foodservice from COVID. All the way back to a year, the numbers are so small. It's a little bit tricky. But if you look at the 3Q to 2Q progression, that number, international outlets is up almost 300%, but the sales declined in foodservice around 40%, where on the U.S. side, it's more like 14%. A little bit of a weird sequential comparison, not from the previous quarter, but I guess I'm just trying to make sure I understand the outlet number correctly. Are a lot of those ones that maybe have been authorized, like, say, Starbucks China or something where you're not -- it's going to be a phasing launch that are not having those sales yet? Is that part of how to reconcile that gap?

Yes. Yeah, it's two things. One is the general instability in the foodservice sector. And then two, a lot of these wins are extremely new, right? They're nascent. So you'll start to see them materialize. So the Starbucks is a terrific example. I doubt those are -- that's registering much right now, but it's at 3,000 stores then it will.

Okay. That's helpful. And just a quick follow-up on the frozen value launch. Have you found any change from consumer perception? Having had the refrigerated launch initially, does this -- does it confuse the consumer any? Do you have any sense of how that response has gone? It sounds like the sales are really good. Is it incremental consumers? Is it the same one who knows it from the refrigerated case? Do you have a read on any of that?

Yeah, it's too early for us to tell, but we haven't seen any significant decline at all. In fact, our 2 Pack sales continue to increase in general. So it doesn't seem to be harming those. I think we tried -- at one point, we're going to put it in a sleeve, put the product in a sleeve to mimic the exact appearance that frozen beef patties have in the frozen meat section. And so I think it's our hope that consumers will think about the two products in the same way they would think about fresh beef patties and frozen patties. So we can get back to maybe the next quarter if there's any observations around particular consumer trends, but we're very much hoping to mimic the same sense that you get from the fresh beef versus frozen.

Okay, perfect. Thank you very much.

Thank you. And we'll take our last caller from Bryan Spillane from Bank of America. Your line is open.

Hey, good afternoon everyone.

Hey, Bryan. Hi there.

Ethan, just a question, I guess, in the U.S. as we're thinking about just the dynamic between retail and foodservice, I guess two -- just two questions related to it. One is in parts of the country, just where you've seen restaurants reopening has that at all had any impact on retail growth? And then second, I guess, this was a pretty -- this is obviously very unanticipated, right, in terms of the pivot to retail. And look, I guess my question is just how incremental can this be over time, right? Now, you've got a much bigger retail business than you had anticipated a year ago. As foodservice begins to come back, do you expect that these retail gains are going to be sort of sticky? And essentially, you've accelerated the retail growth while you're still building the foodservice business. So, you may end up being further ahead on your curve than you originally thought?

Look, it's a great question and set up for an answer that I think is very sincere, which is absolutely. I think that you're seeing a maturing of our brand, not in the sense of slowing down, but in the positive sense in that we're starting to get recognition within mainstream consumers in America. An example yesterday that ad that we released, I think, is extremely well-received -- has been very well received, the household penetration numbers, the increasing buying rates per household. All these things I don't think are temporary. And so what we know is that we're going to be back in foodservice. We'll be back in, I think, in a big way when it gets back up and started again. And I don't expect that we'll give back all of the retail. So, yes, I'm very optimistic that we'll be able to continue the growth in retail that this has allowed. It's been an enormous trial program for us, and that was one of the reasons that I wanted to get the two -- the value pack out. We had an opportunity for consumers to go to the store, to seek out our products and enjoy them. And when you do try them, you tend to like them as our repeat rates suggest. And so -- and we're not stopping here. We have eight items in retail. The incumbent that in the meat set, which we don't pay that much attention to, but this is an example, has 23 SKUs, right? So, there's a huge opportunity to proliferate across the category, and you look at the meat industry and the diversity there of cuts and products. So, we have a lot of room to grow in the existing doors that we're in. And then you take just…

Thanks, Ethan.

Thank you. And that does conclude our question-and-answer session for today's conference. And I I'd like to turn the conference back over to Ethan Brown for any closing remarks.

Just wanted to thank folks for calling in, and I think the main message is to be safe and take care of one another. It's a difficult period. And it's time to just be a little extra careful with everybody. And let's just try to get through this. I'm very hopeful that we're going to emerge from this stronger as an economy and country and looking forward to that, and wishing you all well as we continue to manage the pandemic. Take care. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.