Beyond Meat, Inc. (BYND) Q2 2021 Earnings Report, Transcript and Summary

Welcome to the Beyond Meat, Inc. 2021 Second Quarter Conference Call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Lubi Kutua, Vice President of FP&A and Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome. Joining me on today's are Ethan Brown, Founder, President, and Chief Executive Officer and Phil Hardin, 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 of the information presented on today's call is unaudited. And during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Forward-looking statements in the earnings release that we issued today, along with the comments on this call are made only as of today and will not be updated as actual events unfold. Please refer to today's press release, the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, the company's quarterly report on Form 10-Q for the quarter ended July 3, 2021, to be filed with the SEC and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management will refer to adjusted EBITDA and adjusted gross profit and adjusted net loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release or the investor presentation for a reconciliation of adjusted EBITDA, adjusted gross profits and adjusted net loss to the most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown.

Thank you, Lubi and good afternoon, everyone. Before diving into our second quarter business highlights, let me begin by welcoming our new Chief Financial Officer Phil Hardin to his first Beyond Meat earnings call. Phil officially joined Beyond Meat a little over three weeks ago and is already proving himself to be a valuable addition to our team. Phil brings with him a wealth of finance leadership experience from one of the world's largest e-commerce and technology companies, which not so long ago, set out on an ambitious journey to transform the way consumers shop. In many ways, our objectives or justice ambitious as is a requirement that we maintain a long-term focus while making investments today for tomorrow's growth. And we are fortunate to leverage Phil's deep experience as we embark on this next leg of Beyond Meat story. I'm personally very pleased to have Phil with us and hope you will join me in welcoming him. For Q2 2021 results, we generate record net revenues of $149 million, which came in toward the top of our guidance range for the quarter and represented a 32% increase year-over-year. I am proud of this result, as we excited with our previous best ever quarter in terms of sales, one where the defining feature was COVID induce stockpiling, and stay-at-home orders, proliferated across the U.S. and globe. In foodservice, net revenues were up 218% year-over-year, and 61% sequentially, driven by re-openings within the sector. Here in the U.S., foodservice net revenues were up 269% year-over-year, while internationally, we saw an increase of 172%. We continue to hold the number one brand position in terms of dollar share according to NPD data for Q2 2021. Sales of Beyond Meat products were up 95% year-over-year in the quarter in NPD track channels in line with the overall category during the same period. This year-over-year increase, reflects solid gains and signs of recovery among independent operators, including restaurants, bars, and pubs, lodging venues, and small regional QSR chains among other segments. We continue to expect year-over-year growth within our foodservice business in the near term, albeit at a more moderate rate as we laugh tougher year ago comp and expect pipeline restocking to subside. In addition, general near-term concerns around rising COVID-19 infection rates could also have a dampening effect on foodservice demand. We did see a significant reduction in distribution at Dunkin Brands as they rationalized their menu. We remain engaged with Dunkin around future innovation and collaborations and our distribution throughout their Western U.S. stores. I should note that our Breakfast Sausage Pattie continues to do extremely well in other U.S. venues, such as Peet's and Philz Coffee among others. In International foodservice, the 172% increase in net revenue was driven mainly by broad reopening of economic activity in several markets and we expect solid year-over-year growth in this portion of our business in the near-term, barring a significant recurrence of COVID-19 related dynamics. Finally, broadly as it relates to foodservice, we're looking forward with excitement to activity with our large strategic QSRs. As before, I should note that we supply at the request of these partners, and the timing of plan test and launches could shift based on various considerations, including a resurgence of COVID-19, or other events. Shifting to retail, we saw a year-over-year increase in net revenues of 6%. This moderate increase includes a decline in U.S. retail revenues of 14% as we cycled Q2 2020s record retail revenues, which as you will recall were fueled by consumer stockpiling at the onset of the pandemic. This comparison notwithstanding our key brand metrics of household penetration, buyer rates, purchase frequency and repeat rates remain robust. We saw continued advancement in our household penetration, which increased 80 basis points sequentially, and 120 basis points on a year-over-year basis to 6.2%. According to SPINS IRI Consumer Panel Data for the 52 week period ended June 27 2021 and on a year-over-year basis, our buyer rate increased 12%, purchase frequency was up 9% and our repeat rate increased to 5% versus a year-ago to 51%. In addition to these strong brand metrics, Beyond Meat's unaided brand awareness in the U.S., increased to its highest level 26% according to July 2021 survey data, and remains the highest such level among all major plant based meat brands by a healthy margin. We continue to hold the number one product position, and four of the top six products in our category according to SPINS data for U.S. multi-outlet and natural and specialty towns for the 12 week period ended June 13, 2021. Total distribution points for the Beyond Meat brand or TDPs increased 55% year-over-year, driven by growth in total outlets, as well as the introduction of new products, including Beyond Meatballs and Beyond Breakfast Sausage Links according to SPINS data from MULO and natural specialty channels for the same period. This solid increase in TDPs which really bodes well for the long-term growth prospects of our brand does however exert near-term downward pressure on velocity measured in dollars per TDP to the tune of 35% year-over-year. Overall looking consumer takeaway across MULO during the same 12 week period, and reflecting the cycling of Q2 2020 stockpiling, sales of the omni products were down 4% year-over-year, slightly outperforming the category which was down 4.4% and contributing to a 10 basis point year-over-year increase in market share for the brand. In international retail, we maintained our strong sales growth momentum with net revenues up 198% year-over-year, as we continue to drive increased distribution, both in terms of footprint and average items per outlet. This growth occurred across a backdrop with similar to the U.S. globally the industry was down as it cycled Q2 2020's stockpiling. We believe our progress internationally will accelerate and broaden as we implement investments, including the continued scaling of our EU and China operations that will enable capacity expansion, cost optimization and increased consumer engagement. During the quarter, we launched Beyond Meatballs in Europe for the first time beginning with major retailers in the Netherlands and Switzerland, marking the fourth Beyond Meat retail product offering available in Europe today. We also launched Meatballs in Australia for the first time, as well as secure distribution of our burger at Woolworths, one of Australia's largest retailers, further demonstrating our commitment to expanding the availability and breadth of our product offerings across all of our key geographic regions. Overall, our distribution footprint in international retail saw strong growth of approximately 5,000 stores, or a 21% increase sequentially driven mainly by expansion in Canada, Germany, Australia, Austria and the U.K. Let me now provide a brief update on some recent product highlights and key strategic initiatives. As you recall, at the end of the first quarter, we announced the launch of the latest iteration of our Beyond Burger the 3.0. Early feedback on the new burger has been very positive, with the product even earning People Magazine's Best Plant Based Burger Award and being featured as such on Good Morning America just over a month ago. It remains too early to draw any definitive conclusions about the incrementality of Beyond Burger 3.0 versus 2.0. However, we expected similar to the transition from 1.0 to 2.0. This new and improved burger will welcome more consumers to our brand. As I alluded to, in my remarks about the sequential up tick of our household penetration, we may already be benefiting from the switch. As you know, we believe the tasting is believing and to that end, we have recently launched our biggest product sampling campaign ever in partnership with key retail customers. We'll also be activating further sampling opportunities with our food trucks in various cities across the U.S. Just as noteworthy, we recently launched Beyond Chicken Tenders marking return under our poultry platform. As with Beyond Burger 3.0, Beyond Chicken Tenders are gaining strong recognition. For example, the product won a prestigious 2021 FABI Award by the National Restaurant Association right out of the gate. Apart from the great taste, Beyond Chicken Tenders boast 40% less saturated fat and a leading foodservice chicken tender, 14 grams of protein per serving, have no cholesterol, and of course are made with no GMOs, antibiotics or hormones. Beyond Chicken Tenders are currently available at more than 400 restaurants nationwide, and we intend to expand distribution throughout the balance of the year. Separately under our Poultry platform, we announced a limited time offerings that two fantastic partners, namely Panda Express here in the U.S. and A&W in Canada. In Panda Express, we co-developed the delicious plant based take on Panda signature Orange Chicken dish, dubbed beyond the original orange chicken. The offering which became available at 13 locations in Southern California, New York is a plant based version of Panda's most popular menu item and has been met with enthusiastic consumer response making Beyond The Original Orange Chicken one of Panda's most successful regional launches to-date. And then another new product from our poultry platform at, at A&W we launched Beyond Meat Nuggets nationwide across Canada. Beyond Meat and A&W first partnered in 2018 to introduce the Beyond Burger to Canadian consumers and we're thrilled to be bringing more innovation to market with this important partner. While these LTOs and limited distribution rollouts are just the beginning of our reentry into poultry, we're truly humbled by the overwhelmingly positive feedback our Beyond Chicken products are generating and we're expanding our production capabilities under this product platform as quickly as possible. I'd like to now turn to our progress in China, in the EU. First in China, we continue to ramp-up volume at our manufacturing facility in Jiaxing where we commenced commercial production of finished goods in early April. We're currently validating our extrusion capacity, which will enable full end-to-end production capabilities in China. We look forward to driving growth in this key market as we scale our Jiaxing operations, so as to enable locally produced Beyond Meat products that are tailored to the Chinese palette are available at a competitive price and are made from locally sourced inputs. Our Q2 commercial highlights from China include the launch of the Plant-Based Spicy Beef Wrap at KFC China in over 2,600 stores, in 28 cities on a limited time basis, as well as the launch of our new e commerce platform on JD.com, China's largest online and overall retailer. This new presence on JD.com unlocks distribution in roughly 300 cities throughout China, and provides an unrivaled nationwide fulfillment network with same or next day delivery to a population of over 1 billion people. Our JD.com launch marks the first time our Beyond Pork product is widely accessible to consumers across China and we anticipate adding more Beyond Meat products to platform in the future. Turning to Europe, we have completed the construction phase of our new facility in the Netherlands. We continue to produce proprietary dry blends there and are in final stages of validating our highest throughput lines yet. These tests are expected to be completed over the coming weeks and we'll be transferring learnings from these higher volume lines toward production sites in the U.S. and China as part of our global costs down effort. Commercial highlights in the EU includes several key retail distribution wins across Germany, the Netherlands and Switzerland among others. In addition, in July, following successful trial, last November Pizza Hut, UK added Beyond Meat as a permanent menu item at all delivery hut locations across the UK. Before closing my remarks, I'd like to revisit the three pillars of our long-term growth taste, health and cost. As I've noted, it is my belief that will be a rare consumer who rejects a product that is truly indistinguishable from healthier than and below the price of its animal protein equivalent. We were making sizeable investments today to realize this outcome. These investments, which are occurring across the U.S., EU and China, are vitally important to accessing the full potential of our total addressable market and establishing Beyond Meat as the global protein company of tomorrow. We are investing in all sensory aspects of our platforms and products, including flavor, aroma, appearance, and texture, or fat for short with the goal collapsing the differences between our products and our animal protein equivalents. These investments generate near-term wins such as the Beyond Burger 3.0 and our award winning Beyond Chicken Tenders among others while enabling through the application of state-of-the-art equipment and best-in-class scientific and engineering talent, future products in the U.S., E U and China alongside our other markets that bring us closer and closer to that true north of an indistinguishable build. And to bring these advances to the consumer, we're investing at a healthy pace in the commercialization of products and platforms for our QSR partners and for retail markets. We continue to invest in the nutrition of our products as well as educating the consumer around the health benefits of going beyond. Our work with Stanford School of Medicine, the five-year program designed to generate clinically and statistically significant data relating to the health impacts of different protein choices, including our products is an important part of this initiative. And finally, as I referenced earlier in my remarks, we are actively investing in our global cost down program. Most notably today, we are putting in place infrastructure and equipment to drive scale and efficiency gains, and in the case of EU and China access local supply chains. Though, I am pleased with our Q2 results, particularly the recovery in foodservice and expansion international retail as we enjoyed some respite from COVID, it is our progress against these long-term growth pillars of taste, health, and cost that continues to hold our focus. With that, I will turn it over to Phil to walk us through our second quarter financial results in a bit more detail.

Thank you, Ethan for the warm welcome and good afternoon, everyone. Let me begin by saying that I'm excited to join the Beyond Meat team at this moment in the company's history. Although there is plenty of hard work ahead of us. I believe that Beyond Meat is uniquely positioned to fulfill its long-term mission of changing the way we deliver protein to the center of consumer's plate, benefiting human health, our global climate and animal welfare. As the team is fond of saying internally, tasting is believing. And after having the privilege of sampling some of our innovation teams newest prototypes, I'm convinced that we have an opportunity to capture the appetites of meat-eaters around the globe. Capitalizing on this opportunity will require long-term focus and investment in our global innovation and production capabilities, our marketing efforts, IT infrastructure and human capital. I view my role as helping the company to do that in a structured and fiscally responsible way, bringing operational discipline and analytical rigor and ensuring that we simultaneously address the needs of our growing global organization by being disciplined stewards of our shareholders' capital. I'm excited to embark on this journey and I look forward to getting to know each of you better along the way. With that, let me now dive into our second quarter financial results. As a reminder, Q2 2021 ended on July 3rd, which is later than in previous year such as Q2 2020, which ended on June 27th. The later Q2 calendar captured more of the high sales volume days leading up to the July 4th holiday in the U.S. In prior years, these days would have been included in Q3. We achieved net revenues of $149.4 million in the second quarter of 2021, representing an increase of 31.8%, compared to the second quarter of 2020. Growth in net revenues was primarily driven by 218% year-over-year increase in sales to foodservice customers, reflecting further recovery from COVID-19, which significantly depressed demand levels in the foodservice channel a year ago. Total retail net revenues increased 6% in the second quarter of 2021, compared to the year ago period, primarily due to increased sales among international customers, partially offset by lower U.S. retail channel sales, compared to the year ago period. In the U.S. our continued growth in total distribution and later calendar was not enough to offset the easier year-over-year comp resulting from consumer stockpiling behavior in Q2 2020. Across all channels, net revenue per pounds was $5.69 in the second quarter of 2021, which was flat on a year-over-year basis. Taking a closer look at our distribution channels and retail across the U.S. and international, our volume of product sold increased 9% year-over-year driven by international. Net revenue per pound for total retail was lower by approximately 3% year-over-year, primarily reflecting increased trade discounts in the U.S. partially offset by product mix shift. In foodservice, total volume of product sold increased 172% year-over-year, while net revenue per pound was up approximately 17% year-over-year. The strong growth in volume primarily reflects broad reopening of economic activity, but then the U.S., and then certain international markets and a loosening of operating capacity restrictions across foodservice channels. As we look to Q3 2021, we expect our rate of volume growth in foodservice channels to moderate in Q3, relative to Q2. This expectation is driven by a tougher year-over-year comp what we suspect was a tailwind in Q2 attributable to pipeline refill, and some recent loss of distribution in our foodservice business. In addition, we believe it's prudent to call out that due to recent increases in COVID-19 infection rates stemming from the Delta variant, we're seeing some early signs of a return to a more cautionary stance across certain parts of the foodservice sector. Moving down the P&L to gross profit. Gross profit during Q2 2021 is $47.4 million or 31.7% of net revenues as compared to $33.7 million or 29.7% of net revenues in Q2 of 2020. In Q2 2020 adjusted gross profits, which excludes $5.9 million of cost associated with product repacking activities driven by the onset of COVID-19 was $39.6 million or 34.9% of net revenue. We incurred no such costs in Q2 2021. So our gross margin and adjusted gross margin for Q2 2021 are the same at 31.7%. The year-over-year decrease in adjusted gross margin was primarily driven by higher fixed overhead cost per unit, higher transportation costs and higher depreciation and amortization expense, which reduced gross margin by approximately 170 basis points, 160 basis points and 100 basis points respectively. With regard to fixed overhead and depreciation expenses, these increases are not unexpected and are being driven by our capacity expansion initiatives ahead of our anticipated future growth. Although such initiatives do put pressure on our margins in the near term, we maintain that in light of what we view as our long-term opportunity and considering the caliber and scale of retail and foodservice partners we seek to grow with these strategic decisions are required. Turning to OpEx. Total operating expenses were approximately $66 million, the 44.2% of net revenues in the second quarter of 2021, as compared to $41.8 million or 36.9% of net revenues in the year ago period. The year-over-year increase in operating expenses, primarily reflects growth in overall head count level to support our innovation, operations and marketing capabilities, as well as our international expansion increased marketing expenses, higher production trial activity, and increased outbound freight costs, which are included in selling expenses. Net loss from the second quarter of 2021 was $19.7 million or $0.31 per common share as compared to net loss of $10.2 million or $0.16 per common share. Adjusted EBITDA was a loss of $2.2 million or negative 1.5% of net revenues in the second quarter of 2021, compared to adjusted EBITDA of $11.7 million or 10.3% of net revenue in Q2 2020. Turning to our balance sheet and cash flow highlights. Our cash and cash equivalents balance was approximately $1 billion and total debt outstanding was approximately $1.1 billion as of July 03, 2021. For the six months ended July 03, 2021, net cash used in operating activities was $120.4 million, compared to $44.3 million in a year ago period. Capital expenditures totaled $51.4 million to six months in the July 3rd, 2021, compared to $26.0 million for the year-ago period, the increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to capacity expansion initiatives in the U.S., China and the EU. Finally, let me provide some commentary about our near-term outlook. As I alluded to earlier, there continues to be uncertainty, particularly in foodservice channels related to the COVID-19 infection rates and the Delta variant, as well as reimplementation of safety measures in certain jurisdictions, and potential impact on customer demand levels. Although we generally expect to see continued year-over-year growth in our foodservice business for the balance of the year, albeit at a more moderate pace than what we saw in Q2 for reasons I outlined earlier. This outlook assumes reasonable containment of COVID-19 infection rates both in the U.S. and in certain international regions. Keeping with the more limited guidance reinstituted last quarter, for the third quarter of 2021, we expect net revenues to be in the range of $120 million to $140 million, representing a year-over-year increase of 27% to 48%, compared to the third quarter of 2020. Embedded in this guidance are a number of factors that are affecting our typical seasonality between our second and third quarters. These include first an anticipated sequential moderation of foodservice shipments following some pipeline restocking activity, particularly in June, second relative to a year-ago, we had five fewer shipping days in Q3 ahead of the July 4 holiday, which is obviously one of our key promotional periods during summer growing season. Third, we've had some loss of distribution in our foodservice channels in both our U.S. and international businesses and some foodservice venues are finding it difficult to operate at full capacity, also due to near-term labor challenges. And lastly fourth, we believe some added caution is warranted given the recent uptick in COVID-19 infection rates due to the Delta variant and increased uncertainty associated with that, although not yet at a level that is causing major concern, we have seen a few early signs of customers reinstituting more restrictive measures and signaling a more cautionary disposition. In terms of profitability, as Ethan stated, we're continuing to invest in support of our long-term growth strategy, which includes investing in capacity, including internationally, investing in additional talent and organizational capabilities, investing in marketing spend and we're maintaining a robust schedule of production trial activities in preparation for new product innovations, we hope to commercialize in the near future. With that, I'll turn the call back over to the operator to open it up for your questions. Thank you.

[Operator Instructions] And our first question is from the line of Robert Moskow with Credit Suisse. Please go ahead.

Hi, thanks for the question. I want to know if you could give a little more clarity on what you mean by some customers signaling more cautionary dispositions and cautionary measures. Does that also mean that they might be delaying test programs in the QSR channel and pushing those out a little bit later?

Yes. Thank you, Rob for the question and good to connect. So I think what we're seeing on the foodservice side are two things going on. And one is, there is a labor shortage that has impacted at least one of our launches and was postponed until the first part of next year. And then second, we are seeing this general conservatism, if you think about some of the particularly independent operators and folks like that that came out of what we thought was the sort of final phase of COVID, they stock up on product and then there is this delta variant that comes in, which requires them to be a little bit less confident about their outlook. So they are being more conservative in orders of what we're seeing and those two effects the impact of labor and then the continued bit of cloudiness about the Delta variant, I think, is creating a little bit of a drag on foodservice at the moment. And so for us, the main characteristic of the third quarter and our guidance is simply lack of visibility. And so that's how we wanted to be offering this new range.

Yes. Okay that makes sense. And the second part of my question, International Retail, like I really don't know how to forecast it, it's actually a lot higher than I thought it would be. Is this a new run rate at $28 million per quarter, because it looks at a lot higher than it was last year, it is a lot higher than it was first quarter. And so how would you describe the real run rate for that segment?

Yes, I mean I personally am really excited about International Retail. I mean the growth we saw was strong. I think we're up 198% year-over-year, added about 5,000 stores in Germany, Switzerland, Australia, etc. I think there is a similar sense of lack of visibility in International Retail as I just spoke about in the sense that we're seeing things like demos and promotions, particularly in Europe, pushed out or canceled because of the uncertainty around the Delta variant and hopefully that's a very temporary thing and that's obviously optimistic view on it than one that we hold, but wanted to be again a little bit conservative because of that. So, I wouldn't suggest that's going to be the case in Q3 in terms of a run rate, but I do think overall long-term, very, very promising for us.

Okay. So you think it's possible that some of these retailers might have pulled forward inventory or conducting a lot of activity in 2Q and maybe we're going to be a little more cautious until Delta passes. Is that fair?

I think that caution is probably right, yes. We are not sure about the earlier behavior, but certainly the caution. Yes.

Okay, all right, thanks, I'll pass along.

Yes, thank you.

And our next question is from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good evening, everyone.

Hi Alexia.

Hi, there. And so, can I ask about the market share trends, because they have obviously deteriorated somewhat as we all noted in the Nielsen data, but I guess my first question is what proportion of your US retail business is actually captured by what we see in Nielsen or IRI versus what you're seeing in SPINS and other non-measured channels like Costco. So just want to get a sense about how much we are missing that you guys are getting. And then, secondly, obviously with the share trends deteriorating, we know we're lacking a big ramp-up in distribution from a key competitor that happened last summer. Do you anticipate the share trends might start to stabilize at any point and what would drive that?

Yes, so good question. I'll answer the first part of that and then turn it over to Lubi on the second or Phil. So, if you look at - so we had this kind of peak of activity in retail in the second quarter of 2020 as consumers are stockpiling. And then you take a step back from that and begin to look at our share trends from, let's say November to now, we have had a very steady upward trajectory on that. So, I think we are 21.1% or something like that percent now. And so eight consecutive four-week periods of increase. So, I feel pretty good about where we're headed on market share and we obviously do a lot of analysis around the impact of competition on the brand and we are actually doing quite well in that regard. We're finding that our brand has maintained the vast majority of our buyers and the buyers as I've noted in the comments earlier in terms of household penetration buyer rates frequency rates, etc., they are buying more on a per household basis. And so, overall, those trends are strong and then if you look at, we obviously give some share up to competitors, but we're gaining more from the balance of competitors, and so on a net basis, that's why you see that increase occurring. So, overall, it's hard to compare against that Q2 2020 comp, but if you look at the trends, once that normalize, we continue to gain market share.

Hi, Alexia this is Lubi. So, on the second part of your question, in terms of how much is the Scanner data representative of our US retail sales. So, we subscribe to the SPINS IRI data, and I know on the street, you guys are probably looking at either IRI or Nielsen. What I can say is for the dataset that we subscribe to, it's probably representative of around 70% or so of our US retail business. The large pieces that are not captured in there that make up that 30% would obviously be certain club stores and then to a lesser extent, there are some things like certain natural/specialty stores and a much lesser extent things like our DTC, direct-to-consumer, which rolls up into retail as well, but I would say roughly 70% or so is representative of our US retail sales.

Okay, thank you very much. I'll pass it on.

Yes, Alexia, if you do see, one of the things that I found actually encouraging about our market share activity is the sheer amount of money that is being spent marketing around this category and by competitors. And yet we still have this eight week or eight consecutive four-week periods where our market share is increasing and we still hold the number one position and we still hold four of the top six products in retail. So, overall, I think in a competitive environment where there's a lot of marketing going on, we're benefiting from the impact of that marketing in a sense, it's bringing more consumers to the market. As long as our repeat rates keep going up, we're obviously going to benefit from that as more consumers come in and try it and stick with our brand. So, it's a competitive space, but one what we're doing pretty well.

Thank you very much.

Yes.

And our next question is from the line of Adam Samuelson with Goldman Sachs. Please go ahead.

Hi guys. Thanks. Good evening, everyone. Hi. So, I guess my first question is thinking about the production side and the cost environment and appreciating if there is a lot of moving parts in terms of your unit costs at the moment, but hoping you can maybe just help us think about the inflationary environment you might be seeing in terms of freight, logistics, packaging, raw materials, fixed cost leverage, and how those are playing out and on the fixed cost point just how do we think about layering in some of the new production capacity in China and Europe both in the second quarter and into the back half of the year?

Hi, this is Phil. I'll take that one. So, as we said in our remarks, the primary drivers of our gross margin deterioration - adjusted gross margin deterioration were really around fixed overhead, transportation and depreciation and amortization and so as we've said in the remarks really the fixed capacity piece, we're expecting, we are well aware of and we are seeing some increases in, as you pointed out, transportation. Transportation is driven by two factors. The first is what is the raw cost of the truck and the second is, how are you running your network? And so both of those contributed. On the ingredient side, the materials didn't actually provide a major impact on our gross margin. We are seeing some increases of prices but there are other factors that drive the total costs in the gross margin calculation and so they're kind of - this quarter were offsetting. So that's where we are on those. In terms of the fixed cost leverage obviously we're investing to generate more capacity. We are in the process of bringing on capacity in both China and Europe, and so we will start. We are already incurring some cost there and we'll start incurring some more as more equipment comes online, but it also gives us the ability to manufacture close to our customers to create products in the local countries, which we're very excited about. And so we're eager to make those investments and grow those new markets internationally.

And if I could just follow-up on that and it ties into kind of Rob's question earlier. I mean, having the local production capacity, do you think that unlocks some more significant both Retail and foodservice opportunities in those regions and any framing on how quickly that is and I'm just trying to sense of having - what that does to your sales potential over the course of the next six to 12 months? Or is it going to be a bit - not as significant of a ramp?

I think it's incredibly important in the international market for us to get this and then production fully up and scaled. And so we had - we made the announcement about being under operation at our Jiaxing facility and now taking that to another level where we can actually be doing the full process there instead of just finished goods and the entire reason that we're investing so much right now in both the EU and in China is to get to that local production to access local supply chains as well as to begin to tailor our products to the local palates. So, we've almost been able to be successful in international markets without having the right pricing in place and with having products that, while good, were not tailored to those particular markets. So, I view the work we're doing today in Jiaxing and Shanghai and in the Netherlands as step one could change that will allow us to offer products at a much more competitive price that are tailored to the local consumer using local supply chains and it's not just the access to local supply chain, we've also taken the opportunity as we're building a newer production to build much higher efficiency lines. So you'll have those two benefits coming together in those locations that allow us to offer a lower cost structure and then lower pricing to the consumer is absolutely essential. If you look at where we are, for example on menu in China, it's way too expensive and it's the strength of our brand and the quality of our products that allow us to play at that level, but as I've always said, our goal is to be able to ultimately underprice animal protein, getting access to local protein supply chain in China as an example is a really important piece as well as in the EU. So, overall, yes, it's going to be a pretty big benefit to us in terms of when we'll start to see that come on, I can probably give you more color on our next call on that because it's very much in motion right now.

Okay, that's all really helpful. I'll pass it on. Thanks.

Thank you.

And our next question comes from the line of Bryan Spillane with Bank of America. Please go ahead with your question.

Hi, good afternoon, everyone.

Hi, there.

Hi, I have two questions. One is just a follow-up Ethan to Alexia's question or your comment to - or response to Alexia's question. You mentioned that with the competitor spending money in marketing, I guess in the US, it's actually helping stimulate the category. So I guess, it kind of raises the question. Is it make you think more about maybe spending more in marketing and advertising? As a category leader, it's kind of like when Coke spends, they drive the soft drink category. If you were to spend more, would it actually drive the category and I have a follow-up.

Did our marketing team get a hold of you? It's a plaintiff question. Yes and you know my - with that with marketing, I mean, I think it's incredibly important. We love to - I mean our story is so strong in the sense that when people start using our product, they do see the impact. They see it in their health and they see it in the kind of impact they can have and this is a care about in the course of taste and so it's easy to market this product and we need to then think about how do we amplify those messages. And so all the work we're doing with ambassadors and athletes and things like that is really important, but when is the right time to really start doing that at a national stage, doing the national ads on TV and other pieces and we haven't yet taken that step. You've seen billboards out there, you've seen a ton of social media, you see some limited TV buys, but there is another step-up that we can take and we're very close to that. It has to do with gaining distribution in some of our larger quick serve restaurant partners and things of that as well as just getting COVID completely behind us. But yes, you will see us spend more marketing and we've got a great story to tell and so we're going to go out there and do it.

Okay, great. That makes sense. And then just as a follow-up. We've gotten this - we've had this question a few times over the course of the year and it relates to just getting the price or the cost of the product down to parity with animal protein. And so I guess, just a couple of questions around that. One is, just is that both true for Retail and foodservice, so, like your landed cost in the foodservice operators as well as what the consumer sees on the shelf and retail. And then I guess the second part of that is just assuming that's still the ambition, does the cost down program when it's completed sort of get you to the point where you can be at price parity and still achieve kind of the mid-30s gross margin objectives that you've had over - or aspiration that you've had over a long period of time.

Yes, no, great question. So, I think on the first one, what we publicly committed to is to within now three years or the less to be able to underprice animal protein in at least one category. And I think we're on our way to that for sure and that will materialize in both the Retail and foodservice space or maybe some fun things, actually later this year, potentially in Retail, just kind of doing some messaging and some marketing around that. But it's going to be different for each platforms, so poultry is harder, it is a much harder target, but this is probably the one you'll see us do it in first. And on the margin itself, I will probably let Lubi and Phil answer that, but I think, in general, it's a little bit too early to tell, just because there's so many factors, but this program is well underway now and it's actually exciting. We've got a ton of folks in here working on it. It has to do with these large efficiency lines and gains and throughput as well as negotiating through our supply chain as well as some new reformulation, some local supply et cetera. So, it's a big effort here. It's one I think that is really necessary to unlock the TAM here and give us the type of growth in the out years that we expect. And again it gets back to these three flywheels or levers of get the taste, so it's indistinguishable, get the sensory experience in entirety whether it's the appearance, the aroma, the texture, get that all right. Second, make sure the consumer understands this is healthier for them. So that's all the work we're doing simply better than third has talked about, get this cost down, and I think it becomes a rare consumer that readdress it after you to accomplish those three goals.

All right, thank you.

Thank you.

And our next question comes from the line of Ken Goldman from JPMorgan. Please go ahead.

Hi, thanks. I just wanted to do quick clarification. If 3Q '21 has five fewer shipping days leading up to July 4, than it did a year ago. I haven't checked the date on this yet, but is the implication that 2Q '21 had five more shipping days leading up to July 4. And, if that's the case, how much did that help retail sales in the quarter or maybe I'm misunderstanding that whole thing.

Yes, this is Phil. I'll take that one. So first of all, it's more about the timing of when the quarter fell. So it's not a different number of days overall, but obviously the lead up to the fourth is a pretty heavy grilling and heavy promotional period and so it's just heavier volume that fell into Q2 this year versus prior years. So it's not an actual number of days in Q2, it would be difference in the number of days in Q1 option is that…

No, I just…

In terms of the size, very rough way to look at it. Sorry. A very rough way to look at it is just if we looked at Q2 this year if the calendar had been kind of the same as last year, a very rough number would be about $6 million in the Q2 period as a result of that shift in the timing. So, you're sort of trading off early spring days for a mid-summer days.

Thank you, that's very clear. And then my follow-up is, you mentioned foodservice distribution losses outside the U.S. I didn't get the sense where that would be? But can you just tell us a little bit on what those were and maybe give us a sense of their size and their impact?

Yes, hey Ken, it's Ethan. I hope you are doing well. So, I think if you think about the overall distribution for the company, we gained distribution over the quarter from about 118,000 to 119,000. In the international space, those losses were primarily due to independent operators who didn't make it through COVID, sort of washed out during the process versus being dropped from menu or things of that nature. So it was not a big number and that was from what we understand the cost.

Thanks Ethan.

Yes. Anything else?

That's it. Thanks.

Ken, you usually have some sort of zinger here. All right, thank you.

And our next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.

Great, thanks so much. Just had one question. On hosting QSR partnerships. I'm sorry, I got on the call a little late but hopefully within that. I think you had said some point previously Ethan that maybe some of those new partnerships, you've recently signed, can start to see some product come through maybe towards the end of this year of a probably more of a '22 in go-forward event. So I'm just curious kind of broadly speaking if there is any update on timing of those products? And I'm assuming if we just take McDonald's, for an example, they've kind of rollout of their plant and kind of how you're thinking about that in terms of kind of ramp this year in the Internet?

Sure. No. Thanks for the question. So not to be unfair to McDonald's and speak for them, I want to step back from them specifically. And if you look at the universe of QSRs that we're working with that are large and global in nature, I do think, then of course this plant do change because of that - we'll talk for a number different reasons COVID, labor, et cetera. I think you will see some activity this year that is test in nature and things like that or market analysis and test and things like that, and then you're right the general uptick will be in 2022 from what we're seeing, but provided plans don't change or something exciting, that's coming actually, in the very near term to new innovation from us that's rolling out one of our big partners. So, I'm excited about what I'm seeing in terms of the sign in the QSR space, but I don't think it's going to contribute from those large partners to significant volume in the second half of the year.

Okay, fair enough. And then maybe if I could just squeeze one quick one in. In terms of the new Chicken product, kind of tightening acquisition done, the broader U.S. rollout that we see in retail, again, is that something, we should be starting to see some kind of energy or is that more of that et cetera?

Yes, I think that's been a really good launch for us. The poultry platform in general and so we launched with the Chicken Tenders in broadly in foodservice. And then did the Panda Express, which was a great project sold out right away, almost I think within a week or so for the four-week plan. And then with A&W the Nuggets that we just launched, they are nationwide in Canada. And so that's just the beginning on that platform. You're going to see more activity from our poultry platform in terms of number of customers and activity in the balance of the year. I don't know if we're going to sign a revenue target or number to that publicly, but it is something that we're scaling up now.

All right, super. Thank you so much.

Thank you.

And our next question comes from the line of Rupesh Parikh with Oppenheimer. Please go ahead.

Good afternoon and thanks for taking my question. So I wanted to go back to just a loss of I guess some of your Dunkin' distribution. I was wondering if you could provide some more color in terms of what drove that loss of distribution. And then if you have any learnings going forward I guess on the QSR side?

Sure so that - so the Dunkin' relationship, I think first of all, important to note that it's still strong with respect to the western states and we're in all the western stores and really enjoying the relationship. There was a change in management there and they've every right and appropriately decided to do a review of the menu and make changes and we were part of that. If you look back at our history of QSR launches, we are, from time to time going to cycle off menus. And so if you look, for example, a couple of years ago, Tim Hortons did the same thing. And back then, I don't think is pertained any issues with our traction in foodservice. And I really expect the same in this case. I think you'll see us continue to add QSR distribution of the largest QSRs at a very healthy pace, provided we don't see a sustained resurgence in COVID. Again it gets back to this most recent few weeks, so I've mentioned A&W and Panda Express et cetera but Pizza Hut for example in the U.K. just added this as a permanent menu item tie and sauce with beef and pork crumble. The announcement I referenced is coming soon. So a lot of things going on when you look at that very product itself and how it's doing a Peet's and Caribou and Philz. I anticipated this question obviously and in reviewing the data from those stores, I came across a quote they shared with us from one of these outlets Peet's and Caribou and Philz, where they're talking about, basically the three times lift in sales from the original forecast when they launched it back in March. It's which held on steady since the launch and the product at this particular store is number two item behind the bacon cheddar product bringing in more Gen Z consumers and driving new customers to the business. That's exactly what we want to hear from our QSR partners and is that very product, that Breakfast Sausage product that's doing it. So I think you'll see us continue to do things with Dunkin'. That's my expectation. And just part of the kind of cycling on and off that occurs in the sector.

Great. And then maybe just one follow-up question. Just give it some of the COVID uncertainty out there. If you look at your R&D spending and really SG&A in the back half of the year, should we expect that you guys will still remain aggressive? Or is there a potential premium to cut back in terms of how aggressive you are on the spending side?

I'm sorry, I didn't hear the first part of the question.

Yes so, just with COVID uncertainty out there. I was just curious like how aggressive do you guys plan to still be on the R&D and the SG&A side in the back half of the year?

So I think it gets back to, do we believe that anything is fundamentally changed in terms of the long-term trajectory of the business or total addressable market et cetera. And in fact the case keeps getting stronger for investment with the brand and what we're doing. And so if you look at the OpEx increase we've had recently, a lot of that OpEx is going into the areas we want which are people costs in terms of adding new talent, a lot of it in innovation, a lot of it in commercialization of products. And so we're going to keep doing that, because again as we view throughout the pandemic, these issues are somewhat transitory and we don't think have an impact on long-term health of the business. So I think we'll continue to make those investments.

Okay, great. Thank you.

Yes, thank you.

And our next question comes from the line of Benjamin Theurer with Barclays. Please go ahead.

Thanks, and good evening. Just two quick ones. So first of all, you clearly accelerated a lot of capital expenditure and you've talked a lot about the investments you're doing over in Europe, over in Asia, basically at a run rate roughly doubled where we were last year. So if we think about the back half and into 2022 and with the ambition you have to further deliver product locally produced, how shall we - how should we think about your CapEx program in the next couple of quarters. Just to understand a little bit as well, how cash flow is going to look like considering the heavy investments you're currently undergoing? Thank you.

Hey. Sure, Ben, this is Lubi. I'll take that question. So, yes, so you mentioned it right that if you look at the rate of spend that we've had so far through the year in the first half, we're running at roughly double I say - I would say that you should expect a similar type of growth in CapEx in the back half of this year. And in terms of what CapEx looks like next year, we're not providing any sort of guidance around that, but I think we've said - what we've said generally that, look over the next couple of years, this is going to be a pretty capital-intensive business, because we are - we see this opportunity ahead of us and we're investing to try to capture our fair share of that, right. And so when you think about some of the things that we have going on, right. So there is obviously sort of capacity expansion is always sort of a constant that we're spending against right. We have this new headquarters in LA that's going to house our new state-of-the-art innovation center that's coming up. We are currently looking, I think we mentioned this previously at having a fully dedicated pilot production facility somewhere close in this area. So we will be spending towards that. And then the - this cost down program that we've mentioned right. We are really taking a very wide lens and looking at all potential options right. And so, some of those initiatives that we are looking at from a cost down perspective may require some additional capital spending. So we'll give you guys, an update on where we expect to be for 2022 when we are guiding for 2022. But we've said generally look at the next couple of years are going to be pretty capital intensive, but clearly, we wouldn't be doing this if we didn't think that this is required to capture a significant chunk of the opportunity that we see ahead of us.

Okay and then my second question is about your distribution channels and the brand awareness slide you're showing. So it really looks like that with the exception of International Retail, there was a sequential deceleration that we saw fewer outlets and international foodservice as well as in the U.S. foodservice. But we also saw fewer outlets in U.S. Retail. Could you elaborate a little bit about what's going on in those segments? I understood, the retail piece that you talked about Germany, Australia, Austria, U.K., so that's clear where the uptick is coming from, but what's been happening in U.S. Retail and in foodservice both international as well as domestic?

Hey, Ben. I'll take that one as well. So if you look at the retail total growth indoors, right. I think what we've said is that in terms of a growth rate from the total number of doors that we're in the U.S., you should expect to see that decelerate, because we are so well distributed in the U.S. today, right. So we are pretty much in all of the major retailers here in the U.S. So the real opportunity from a distribution perspective in the U.S. centers more around the continuing to increase our product offerings per store, as opposed to continuing to grow that number of doors, right. On the U.S. foodservice piece right. So we talked about Dunkin' for instance right. That was obviously part of the driver there. The international retail we are seeing continued growth in some of the markets that Ethan mentioned in his prepared remarks, Germany, Switzerland, Austria, Australia for example. So I think you'll continue to see pretty robust growth there and then what we saw in international foodservice right. I think we lost a 1,000 total doors roughly in this quarter on a sequential basis right. I think part of that is just reflective of the lingering impact of COVID - of COVID-19 right, where we had a primarily some of these small independent operators. A lot of them were in Canada where we lost some of that distribution. But we think, look the long-term art of the distribution rollout in international foodservice is still - still looks very attractive. So we would expect to see growth there over the long-term.

I think to Lubi's point if you look at the total distribution points in the U.S., we did see this 55% year-over-year increase and that's not just adding number of stores, but obviously being able to introduce new products into existing stores. And when you walk down the aisle retail, you do see just a few of Beyond Meat products in any given store. And so the opportunity to innovate across all three of our platforms, beef, pork and poultry and dramatically increase those total distribution points is significant for Beyond Meat and that's really our focus on the retail side.

Okay, perfect. Ethan. Thank you very much.

Thank you.

And our next question comes from the line of Michael Lavery from Piper Sandler. Please go ahead.

Thank you. Good afternoon.

Hey Mike.

You call out the 70% increase in your manufacturing capacity, but you're certainly also looking at near-term run rate from sales that not that close to that level. Is the right way to think about bridging that gap the price cuts that you anticipate, the capacity facilitating so that you would have the volume bump and some sales lift but not in the magnitude of 70% range. How to think about on used capacity basically?

No, it's a good question. So I think it is a combination of these efficiencies we're going to be driving through increased throughput and all the other cost down programs that we're pursuing. But to also to think about the number of partnerships we have in place and the amount of preparing we're doing for those partnerships. And then what I just said about U.S. retail should be layered on top of that in terms of different form factors. And so you see a steady improvement in the COGS structure as we implement this cost down program on our existing product lines, the ability to offer those to consumers at a lower price, and then you layer on the strategic launches with our partners, and then the new innovation coming across those three platforms and that's how you bridge that.

Okay, that's helpful. And just a follow-up on the U.S. foodservice outlet. You've got the 34,000 you're calling out this quarter now. I guess just how current or accurate is that and maybe specifically thinking is there - is all the Dunkin update reflected there already or is there at some trickle to come. Just trying to help - can you help us understand have in mind for 3Q and beyond?

I think similar to what I was saying earlier about, I think you're going to see activity in the balance of the year from some of our QSR partners, very large. But in terms of meaningful additions of stores, that's something we probably can't comment on without - anyway projects will come on one way or the other.

But I guess just specifically what you know has already happened in the last quarter or I guess even this month is reflected in that 34,000?

Yes, it is. Yes.

Okay, great, thanks a lot.

And our last question comes from the line of Ryan Bell with Consumer Edge Research. Please go ahead.

Hi, everyone. I know we can get reasonably good sense of your share within U.S. track channel, obviously a lot harder for us to get a read on the competitive positioning within foodservice just overall. Maybe a difficult question to answer, but would you be able to give us - as to where you stand just from a broad share perspective for meat alternative products in foodservice relative to some of your competitors?

Yes, I mean so the good news on both the retail and foodservice side of our business. We hold the number one position in terms of the product and then on the retail side and brand on the foodservice side. And that's to NPD data, which is the broadline distribution not direct delivery. And so doing really well there. And it's both up and down the street business, we're not the larger chains or regional chains. But the independent operators, we're doing well there, we've seen good growth there, and then of course the regional and national and global QSRs. So even the partnerships if you look at that it's a good way to assess. I mean the partners we have with McDonald's, with Yum, with KFC, Pizza Hut and Taco Bell banners. We're really well positioned in the foodservice space. Lubi, if you want to add to that.

The only other thing that I would add to that Ryan is that, it's very difficult right to get an accurate picture of the entire foodservice space because to Ethan's point the data that we're looking at and we're referencing and we're sharing with you guys is NPD data, which for the most part excludes the largest QSRs right. Those are typically your direct delivery type of customers. And so it's very hard to get the entire view, but as Ethan said, at least from the data that we do see, which is the NPD data, which is primarily broadline distribution, we have the number one market share position there and so we feel really good about our positioning and then obviously, we're going to continue to pursue growth with some of the large strategic QSR partners out there, which would not be captured in that number.

Okay. So it's fair to say that from what you can see in that data that you feel that you're gaining share.

We've certainly gained share within the NPD tracked channels. And we continue to hold the number one share there or so.

Great, thank you. And one last one from me is sort of a bigger picture question. When you're thinking about the broader household penetration and purchase frequency, your products relative to traditional meat analogs, how far along that journey are you in terms of the comparison of looking at like the weekly and monthly household penetration repeat rate and just the general utilization. I know that we're seeing gains overall when you're looking at an annual basis. You sort of see it in different time frames, but I would assume that you guys are still quite far off from where traditional meat products are and that provides a strong runway for incremental growth there.

Yes, sure. This I can take that. So, yes, look, I think there is still a pretty wide gap between the entire category plant based meat and animal protein. And so to your point, right. I think what that means to us is that there is a significant opportunity right, to continue to grow this business. So we are not looking at our household penetration on a weekly basis, but certainly when we get updates, we are pleased to see that it continues to tick up. And in fact, the sequential increase that we saw in this quarter was quite a step-up versus the last couple of quarters. And so we're really pleased with the way that the overall growth in the business is trending. But there is still a huge, huge market out there right, when you start to compare us to animal protein. So we obviously want to try to capture as much of that opportunity as we can over the long-term.

Thank you.

Sure.

And we have no other questions in the queue at this time.

Great. So I'll just offer a few remarks before we sign off here. First and foremost as we're talking about with the company and we're very hopeful that everybody will get vaccinated. So we can all get back to business, get back to school and put this thing behind us. We're certainly encouraging that in a significant way here at the company. This last quarter, Q2 was our largest revenue quarter ever, so record revenue and by quite a margin. So we're really excited about that. Keep commercializing these new products and the launches that I mentioned were just very important and exciting milestones for our company, continuing to maintain the top four of the six items in the category in retail and have that number one position. And then continue to advance these global partnerships and put an infrastructure in place in the EU and in China to be able to be of service. So, so many exciting things happening and we did want to offer this more conservative look at Q3 just because there is so much ambiguity in terms of these broader market conditions and we look forward to coming back and talking to you guys again in a few months, and hopefully having a lot more clarity on where the general economy is. So thanks very much.

Thank you.

That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a great day.