ITEM I. FINANCIAL STATEMENTS
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BEYOND MEAT, INC. AND SUBSIDIARIES | |
Condensed Consolidated Balance Sheets | |
(In thousands, except share and per share data) | |
(unaudited) | |
| October 1, 2022 | | December 31, 2021 | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | $ | 390,176 | | | $ | 733,294 | | |
Accounts receivable, net | 34,949 | | | 43,806 | | |
Inventory | 246,987 | | | 241,870 | | |
Prepaid expenses and other current assets | 23,868 | | | 33,078 | | |
| | | | |
Total current assets | $ | 695,980 | | | $ | 1,052,048 | | |
Property, plant, and equipment, net | 262,595 | | | 226,489 | | |
Operating lease right-of-use assets | 88,335 | | | 26,815 | | |
Prepaid lease costs, non-current | 80,533 | | | 59,188 | | |
Other non-current assets, net | 6,670 | | | 6,836 | | |
Investment in unconsolidated joint venture | 7,174 | | | 8,023 | | |
Total assets | $ | 1,141,287 | | | $ | 1,379,399 | | |
Liabilities and Stockholders’ (Deficit) Equity: | | | | |
Current liabilities: | | | | |
Accounts payable | $ | 68,676 | | | $ | 69,040 | | |
Wages payable | 2,348 | | | 155 | | |
Accrued bonus | 148 | | | 128 | | |
Current portion of operating lease liabilities | 4,585 | | | 4,458 | | |
Accrued expenses and other current liabilities | 14,693 | | | 20,226 | | |
| | | | |
| | | | |
Short-term finance lease liabilities | 226 | | | 182 | | |
| | | | |
Total current liabilities | $ | 90,676 | | | $ | 94,189 | | |
Long-term liabilities: | | | | |
| | | | |
Convertible senior notes, net | $ | 1,132,624 | | | $ | 1,129,674 | | |
| | | | |
Operating lease liabilities, net of current portion | 56,484 | | | 22,599 | | |
Finance lease obligations and other long-term liabilities | 3,547 | | | 442 | | |
Total long-term liabilities | $ | 1,192,655 | | | $ | 1,152,715 | | |
Commitments and Contingencies (Note 10) | | | | |
(continued on the next page) | |
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BEYOND MEAT, INC. AND SUBSIDIARIES | |
Condensed Consolidated Balance Sheets | |
(In thousands, except share and per share data) | |
(unaudited) | |
| October 1, 2022 | | December 31, 2021 | |
Stockholders’ (deficit) equity: | | | | |
Preferred stock, par value $0.0001 per share—500,000 shares authorized, none issued and outstanding | $ | — | | | $ | — | | |
Common stock, par value $0.0001 per share—500,000,000 shares authorized; 63,735,625 and 63,400,899 shares issued and outstanding at October 1, 2022 and December 31, 2021, respectively | 6 | | | 6 | | |
Additional paid-in capital | 539,399 | | | 510,014 | | |
Accumulated deficit | (676,242) | | | (376,972) | | |
Accumulated other comprehensive loss | (5,207) | | | (553) | | |
Total stockholders’ (deficit) equity | $ | (142,044) | | | $ | 132,495 | | |
Total liabilities and stockholders’ (deficit) equity | $ | 1,141,287 | | | $ | 1,379,399 | | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Net revenues | | $ | 82,500 | | | $ | 106,432 | | | $ | 338,995 | | | $ | 364,022 | |
Cost of goods sold | | 97,340 | | | 83,456 | | | 359,807 | | | 260,986 | |
Gross (loss) profit | | (14,840) | | | 22,976 | | | (20,812) | | | 103,036 | |
| | | | | | | | |
Research and development expenses | | 13,413 | | | 14,862 | | | 49,293 | | | 44,610 | |
Selling, general and administrative expenses | | 54,495 | | | 56,362 | | | 192,624 | | | 143,602 | |
Restructuring expenses | | 6,993 | | | 5,750 | | | 14,321 | | | 12,068 | |
Total operating expenses | | 74,901 | | | 76,974 | | | 256,238 | | | 200,280 | |
Loss from operations | | (89,741) | | | (53,998) | | | (277,050) | | | (97,244) | |
| | | | | | | | |
Other (expense) income, net | | | | | | | | |
Interest expense | | (1,040) | | | (1,005) | | | (3,173) | | | (2,656) | |
| | | | | | | | |
Other, net | | (2,151) | | | 759 | | | (8,177) | | | (631) | |
Total other expense, net | | (3,191) | | | (246) | | | (11,350) | | | (3,287) | |
| | | | | | | | |
Loss before taxes | | (92,932) | | | (54,244) | | | (288,400) | | | (100,531) | |
Income tax (benefit) expense | | — | | | (23) | | | 21 | | | 27 | |
Equity in losses of unconsolidated joint venture | | 8,746 | | | 595 | | | 10,849 | | | 1,176 | |
Net loss | | $ | (101,678) | | | $ | (54,816) | | | $ | (299,270) | | | $ | (101,734) | |
Net loss per share available to common stockholders—basic and diluted | | $ | (1.60) | | | $ | (0.87) | | | $ | (4.71) | | | $ | (1.61) | |
Weighted average common shares outstanding—basic and diluted | | 63,694,592 | | | 63,280,122 | | | 63,579,763 | | | 63,111,703 | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Net loss | | $ | (101,678) | | | $ | (54,816) | | | $ | (299,270) | | | $ | (101,734) | |
Other comprehensive loss, net of tax: | | | | | | | | |
Foreign currency translation loss, net of tax | | (1,672) | | | (1,040) | | | (4,654) | | | (1,738) | |
Comprehensive loss, net of tax | | $ | (103,350) | | | $ | (55,856) | | | $ | (303,924) | | | $ | (103,472) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands, except share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total |
| | Shares | | Amount | |
Balance at December 31, 2020 | | 62,820,351 | | | $ | 6 | | | $ | 560,210 | | | $ | (194,867) | | | $ | 1,748 | | | $ | 367,097 | |
Net loss | | — | | | — | | | — | | | (27,266) | | | — | | | (27,266) | |
Issuance of common stock under equity incentive plans, net | | 188,183 | | | — | | | 2,048 | | | — | | | — | | | 2,048 | |
Purchase of capped calls related to convertible senior notes | | — | | | — | | | (83,950) | | | — | | | — | | | (83,950) | |
Share-based compensation for equity classified awards | | — | | | — | | | 7,376 | | | — | | | — | | | 7,376 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (1,258) | | | (1,258) | |
Balance at April 3, 2021 | | 63,008,534 | | | $ | 6 | | | $ | 485,684 | | | $ | (222,133) | | | $ | 490 | | | $ | 264,047 | |
Net loss | | — | | | — | | | — | | | (19,652) | | | — | | | (19,652) | |
Issuance of common stock under equity incentive plans, net | | 234,964 | | | — | | | 2,663 | | | — | | | — | | | 2,663 | |
Share-based compensation for equity classified awards | | — | | | — | | | 7,863 | | | — | | | — | | | 7,863 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 560 | | | 560 | |
Balance at July 3, 2021 | | 63,243,498 | | | $ | 6 | | | $ | 496,210 | | | $ | (241,785) | | | $ | 1,050 | | | $ | 255,481 | |
Net loss | | — | | | — | | | — | | | (54,816) | | | — | | | (54,816) | |
Issuance of common stock under equity incentive plans, net | | 82,811 | | | — | | | 94 | | | — | | | — | | | 94 | |
Share-based compensation for equity classified awards | | — | | | — | | | 7,386 | | | — | | | — | | | 7,386 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (1,040) | | | (1,040) | |
Balance at October 2, 2021 | | 63,326,309 | | | $ | 6 | | | $ | 503,690 | | | $ | (296,601) | | | $ | 10 | | | $ | 207,105 | |
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands, except share data)
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| | | | | | Shares | | Amount | | | |
Balance at December 31, 2021 | | | | | | 63,400,899 | | | $ | 6 | | | $ | 510,014 | | | $ | (376,972) | | | $ | (553) | | | $ | 132,495 | |
Net loss | | | | | | — | | | — | | | — | | | (100,458) | | | — | | | (100,458) | |
Issuance of common stock under equity incentive plans, net | | | | | | 124,500 | | | — | | | 375 | | | — | | | — | | | 375 | |
Share-based compensation for equity classified awards | | | | | | — | | | — | | | 9,292 | | | — | | | — | | | 9,292 | |
Foreign currency translation adjustment | | | | | | — | | | — | | | — | | | — | | | (723) | | | (723) | |
Balance at April 2, 2022 | | | | | | 63,525,399 | | | $ | 6 | | | $ | 519,681 | | | $ | (477,430) | | | $ | (1,276) | | | $ | 40,981 | |
Net loss | | | | | | — | | | — | | | — | | | (97,134) | | | — | | | (97,134) | |
Issuance of common stock under equity incentive plans, net | | | | | | 117,970 | | | — | | | 165 | | | — | | | — | | | 165 | |
Share-based compensation for equity classified awards | | | | | | — | | | — | | | 10,306 | | | — | | | — | | | 10,306 | |
Foreign currency translation adjustment | | | | | | — | | | — | | | — | | | — | | | (2,259) | | | (2,259) | |
Balance at July 2, 2022 | | | | | | 63,643,369 | | | $ | 6 | | | $ | 530,152 | | | $ | (574,564) | | | $ | (3,535) | | | $ | (47,941) | |
Net loss | | | | | | — | | | — | | | — | | | (101,678) | | | — | | | (101,678) | |
Issuance of common stock under equity incentive plans, net | | | | | | 92,256 | | | — | | | (3) | | | — | | | — | | | (3) | |
Share-based compensation for equity classified awards | | | | | | — | | | — | | | 9,250 | | | — | | | — | | | 9,250 | |
Foreign currency translation adjustment | | | | | | — | | | — | | | — | | | — | | | (1,672) | | | (1,672) | |
Balance at October 1, 2022 | | | | | | 63,735,625 | | | $ | 6 | | | $ | 539,399 | | | $ | (676,242) | | | $ | (5,207) | | | $ | (142,044) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BEYOND MEAT, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(In thousands) |
(unaudited) |
| | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (299,270) | | | $ | (101,734) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | | 23,255 | | | 14,910 | |
Non-cash lease expense | | 3,389 | | | 2,351 | |
Share-based compensation expense | | 28,848 | | | 21,624 | |
| | | | |
Loss on sale of fixed assets | | 946 | | | 199 | |
Amortization of debt issuance costs | | 2,951 | | | 2,338 | |
Loss on extinguishment of debt | | — | | | 1,037 | |
Equity in losses of unconsolidated joint venture | | 10,849 | | | 1,176 | |
| | | | |
Unrealized losses on foreign currency transactions | | 11,160 | | | — | |
Net change in operating assets and liabilities: | | | | |
Accounts receivable | | 7,703 | | | (13,495) | |
Inventories | | (12,411) | | | (73,557) | |
Prepaid expenses and other assets | | 7,802 | | | (13,249) | |
Accounts payable | | (2,922) | | | 965 | |
Accrued expenses and other current liabilities | | (3,429) | | | 18,176 | |
Prepaid lease costs, non-current | | (49,063) | | | (49,456) | |
Operating lease liabilities | | (3,177) | | | (2,332) | |
Long-term liabilities | | 3,022 | | | — | |
Net cash used in operating activities | | $ | (270,347) | | | $ | (191,047) | |
| | | | |
Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | | $ | (59,952) | | | $ | (104,301) | |
| | | | |
| | | | |
| | | | |
Payment of security deposits | | (752) | | | (132) | |
Payments for investment in joint venture | | $ | (10,000) | | | $ | — | |
Net cash used in investing activities | | $ | (70,704) | | | $ | (104,433) | |
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Cash flows from financing activities: | | | | |
| | | | |
| | | | |
| | | | |
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| | | | |
Proceeds from issuance of convertible senior notes | | $ | — | | | $ | 1,150,000 | |
Purchase of capped calls related to convertible senior notes | | — | | | (83,950) | |
| | | | |
Debt issuance costs | | — | | | (23,605) | |
| | | | |
Repayment of revolving credit facility | | — | | | (25,000) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Principal payments under finance lease obligations | | (152) | | | (130) | |
| | | | |
(continued on the next page) |
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BEYOND MEAT, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(In thousands) |
(unaudited) |
| | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 |
Proceeds from exercise of stock options | | 1,610 | | | 7,554 | |
Payments of minimum withholding taxes on net share settlement of equity awards | | (1,073) | | | (2,749) | |
| | | | |
| | | | |
| | | | |
Net cash provided by financing activities | | $ | 385 | | | $ | 1,022,120 | |
Net (decrease) increase in cash and cash equivalents | | $ | (340,666) | | | $ | 726,640 | |
Effect of exchange rate changes on cash | | (2,452) | | | 675 | |
Cash and cash equivalents at the beginning of the period | | 733,294 | | | 159,127 | |
Cash and cash equivalents at the end of the period | | $ | 390,176 | | | $ | 886,442 | |
|
Supplemental disclosures of cash flow information: | | | | |
Cash paid during the period for: | | | | |
Interest | | $ | 3 | | | $ | 323 | |
Taxes | | $ | 21 | | | $ | 24 | |
Non-cash investing and financing activities: | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Non-cash additions to property, plant and equipment | | $ | 9,639 | | | $ | 2,653 | |
| | | | |
| | | | |
Non-cash additions to financing leases | | $ | 280 | | | $ | 580 | |
Operating lease right-of-use assets obtained in exchange for lease liabilities | | $ | 37,134 | | | $ | 14,269 | |
Reclassification of prepaid lease costs to operating lease right-of-use assets | | $ | 27,718 | | | $ | — | |
Reclassification of other current liability to additional paid-in capital in connection with the share-settled obligation | | $ | — | | | $ | 2,535 | |
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(concluded) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Introduction
The Company
Beyond Meat, Inc., a Delaware corporation (including its subsidiaries unless the context otherwise requires, the “Company”), is a leading plant-based meat company offering a portfolio of revolutionary plant-based meats. The Company builds meat directly from plants, an innovation that enables consumers to experience the taste, texture and other sensory attributes of popular animal-based meat products while enjoying the nutritional and environmental benefits of eating the Company’s plant-based meat products. The Company’s brand commitment, “Eat What You Love,” represents a strong belief that there is a better way to feed our future and that the positive choices we all make, no matter how small, can have a great impact on our personal health and the health of our planet. By shifting from animal-based meat to plant-based protein, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare.
As of October 1, 2022, approximately 85% of the Company’s assets were located in the United States.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The global spread and unprecedented impact of COVID-19 continues to create significant volatility, uncertainty and economic disruption. The Company’s operations and its financial results including net revenues, gross profit, gross margin and operating expenses were negatively impacted by COVID-19 in 2020, 2021 and the first nine months of 2022. The extent of COVID-19’s effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), the impact of variants of the virus that causes COVID-19, the wide distribution and public acceptance of COVID-19 vaccines, labor needs at the Company as well as in the supply chain and at customers, compliance with government or employer COVID-19 vaccine mandates and the resulting impact on available labor, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business, results of operations, financial condition or liquidity. While the ultimate health and economic impact of COVID-19 continues to be highly uncertain, the Company expects that the adverse impact of COVID-19 on its business and results of operations, including its net revenues, gross profit, gross margin, earnings and cash flows, will continue in the remainder of 2022. Future events and effects related to the COVID-19 pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.
Note 2. Summary of Significant Accounting Policies
A detailed description of the Company's significant accounting policies can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 2, 2022 (the “2021 10-K”). There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2021 10-K, except as noted below.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the 2021 10-K. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated.
Management’s Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates made by the Company include trade promotion accruals; useful lives of property, plant and equipment; valuation of deferred tax assets; valuation of inventory; incremental borrowing rate used to determine operating lease right-of-use assets and operating lease liabilities; assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting right-of-use assets and lease liabilities; the valuation of the fair value of stock options used to determine share-based compensation expense; and loss contingency accruals in connection with claims, lawsuits and administrative proceedings. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.
Foreign Currency
Foreign currency translation loss, net of tax, reported as cumulative translation adjustment through “Other comprehensive loss” was $(1.7) million and $(1.0) million for the three months ended October 1, 2022 and October 2, 2021, respectively.
Foreign currency translation loss, net of tax, reported as cumulative translation adjustment through “Other comprehensive loss” was $(4.7) million and $(1.7) million for the nine months ended October 1, 2022 and October 2, 2021, respectively.
Realized and unrealized foreign currency transaction losses included in “Other, net” were $(3.9) million and $(10.5) million in the three and nine months ended October 1, 2022, respectively. Realized and unrealized foreign currency transaction losses included in “Other, net” were $(0.2) million and $(0.4) million in the three and nine months ended October 2, 2021, respectively.
Fair Value of Financial Instruments
The Company had no financial instruments measured at fair value on a recurring basis as of October 1, 2022 and December 31, 2021.
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2 or Level 3 for the three and nine months ended October 1, 2022.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Revenue Recognition
At the end of each accounting period, the Company recognizes a contra asset to accounts receivable for estimated sales discounts that have been incurred but not paid which totaled $4.6 million and $3.6 million as of October 1, 2022 and December 31, 2021, respectively. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
Presentation of Net Revenues by Channel
The following table presents the Company’s net revenues by channel:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Net revenues: | | | | | | | | |
U.S.: | | | | | | | | |
Retail | | $ | 46,177 | | | $ | 52,361 | | | $ | 193,298 | | | $ | 193,382 | |
Foodservice | | 15,994 | | | 15,139 | | | 54,876 | | | 55,842 | |
U.S. net revenues | | 62,171 | | | 67,500 | | | 248,174 | | | 249,224 | |
International: | | | | | | | | |
Retail | | 10,195 | | | 21,391 | | | 50,024 | | | 67,134 | |
Foodservice | | 10,134 | | | 17,541 | | | 40,797 | | | 47,664 | |
International net revenues | | 20,329 | | | 38,932 | | | 90,821 | | | 114,798 | |
Net revenues | | $ | 82,500 | | | $ | 106,432 | | | $ | 338,995 | | | $ | 364,022 | |
One customer accounted for approximately 11% of the Company’s gross revenues in the three months ended October 1, 2022 and two distributors accounted for approximately 13% and 11%, respectively, of the Company’s gross revenues in the three months ended October 2, 2021. One distributor accounted for approximately 11% of the Company’s gross revenues in the nine months ended October 1, 2022 and two distributors accounted for approximately 12% and 11%, respectively, of the Company’s gross revenues in the nine months ended October 2, 2021. No other distributor or customer accounted for more than 10% of the Company’s gross revenues in the three and nine months ended October 1, 2022 and October 2, 2021.
Investment in Joint Venture
The Company uses the equity method of accounting to record transactions associated with its joint venture when the Company shares in joint control of the investee. Investment in joint venture is not consolidated but is recorded in “Investment in unconsolidated joint venture” in the Company’s condensed consolidated balance sheets. The Company recognizes its portion of the investee’s results in “Equity in losses of unconsolidated joint venture” in its condensed consolidated statements of operations. The Company eliminates its proportionate interest in any intra-entity profits or losses in the inventory of the investee at the end of the reporting period and recognizes its portion of the profit and losses when realized by the investee.
Shipping and Handling Costs
Outbound shipping and handling costs included in selling, general and administrative (“SG&A”) expenses in the three months ended October 1, 2022 and October 2, 2021 were $3.3 million and $5.9 million, respectively. Outbound shipping and handling costs included in SG&A expenses in the nine months ended October 1, 2022 and October 2, 2021 were $13.5 million and $14.0 million, respectively.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Recently Adopted Accounting Pronouncements
None.
Note 3. Restructuring
In May 2017, management approved a plan to terminate the Company’s exclusive supply agreement (the “Agreement”) with one of its co-manufacturers, due to non-performance under the Agreement and on May 23, 2017, the Company notified the co-manufacturer of its decision to terminate the Agreement. In the three months ended October 1, 2022 and October 2, 2021, the Company recorded $7.0 million and $5.8 million, respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. In the nine months ended October 1, 2022 and October 2, 2021, the Company recorded $14.3 million and $12.1 million, respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. As of October 1, 2022 and December 31, 2021, the Company had $4.1 million and $2.7 million, respectively, in accrued and unpaid restructuring expenses. Subsequent to the quarter ended October 1, 2022, on October 18, 2022, the parties to this dispute entered into a confidential written settlement agreement and mutual release in connection with this matter. See Note 10 for further information. Note 4. Leases
Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification 842. The Company has operating leases for its corporate offices, including its Manhattan Beach Project Innovation Center, its manufacturing facilities, commercialization center, warehouses and vehicles, and to a lesser extent, certain equipment and finance leases. Such leases generally have original lease terms between two and 16 years, and often include one or more options to renew. Some leases also include early termination options, which can be exercised under specific conditions. The Company includes options to extend the lease term if the options are reasonably certain of being exercised. The Company does not have residual value guarantees or material restrictive covenants associated with its leases.
On January 14, 2021, the Company entered into the Campus Lease, a 12-year lease with two 5-year renewal options to house its corporate headquarters, lab and innovation space (the “Premises”) in El Segundo, California. Although the Company is involved in the design of the tenant improvements of the Premises, the Company does not have title or possession of the assets during construction. In addition, the Company does not have the ability to control the leased Premises until each phase of the tenant improvements is complete. The Company contributed $49.1 million and $59.2 million in payments towards the construction of the Premises in the nine months ended October 1, 2022 and the year ended December 31, 2021, respectively. These payments are initially recorded in “Prepaid lease costs, non-current” in the Company’s condensed consolidated balance sheets and will ultimately be reclassified as a component of a right-of-use asset upon lease commencement for each phase of the lease. On September 15, 2022, the tenant improvements associated with Phase 1-A were completed, and the underlying asset was delivered to the Company. As such, the Company has recognized a $64.1 million right-of-use asset, which includes the reclassification of $27.7 million of the construction payments previously included in “Prepaid lease costs, non-current,” and a $36.6 million lease liability for Phase 1-A of the Campus Lease in its condensed consolidated balance sheet as of October 1, 2022. Therefore, Phase 1-A of the Campus Lease is included in the tables below.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Lease costs for operating and finance leases were as follows: | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
(in thousands) | | Statement of Operations Location | | October 1, 2022 | | October 2, 2021 |
Operating lease cost: | | | | | | |
Lease cost | | Cost of goods sold | | $ | 413 | | | $ | 535 | |
Lease cost | | Research and development expenses | | 806 | | | 155 | |
Lease cost | | Selling, general and administrative expenses | | 407 | | | 141 | |
Variable lease cost(1) | | Cost of goods sold | | 51 | | | 1 | |
Variable lease cost(1) | | Research and development expenses | | 75 | | | — | |
Variable lease cost(1) | | Selling, general and administrative expenses | | 304 | | | — | |
Operating lease cost | | | | $ | 2,056 | | | $ | 832 | |
| | | | | | |
Short-term lease cost | | Selling, general and administrative expenses | | $ | 147 | | | $ | 72 | |
| | | | | | |
Finance lease cost: | | | | | | |
Amortization of right-of use assets | | Cost of goods sold | | $ | 54 | | | $ | 47 | |
Interest on lease liabilities | | Interest expense | | 3 | | | 5 | |
Finance lease cost | | | | $ | 57 | | | $ | 52 | |
| | | | | | |
Total lease cost | | | | $ | 2,260 | | | $ | 956 | |
____________
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended |
(in thousands) | | Statement of Operations Location | | October 1, 2022 | | October 2, 2021 |
Operating lease cost: | | | | | | |
Lease cost | | Cost of goods sold | | $ | 1,175 | | | $ | 1,630 | |
Lease cost | | Research and development expenses | | 1,871 | | | 494 | |
Lease cost | | Selling, general and administrative expenses | | 2,270 | | | 486 | |
Variable lease cost(1) | | Cost of goods sold | | 213 | | | 30 | |
Variable lease cost(1) | | Research and development expenses | | 75 | | | — | |
Variable lease cost(1) | | Selling, general and administrative expenses | | 304 | | | — | |
Operating lease cost | | | | $ | 5,908 | | | $ | 2,640 | |
| | | | | | |
Short-term lease cost | | Selling, general and administrative expenses | | $ | 446 | | | $ | 185 | |
| | | | | | |
Finance lease cost: | | | | | | |
Amortization of right-of use assets | | Cost of goods sold | | $ | 144 | | | $ | 131 | |
Interest on lease liabilities | | Interest expense | | 15 | | | 15 | |
Finance lease cost | | | | $ | 159 | | | $ | 146 | |
| | | | | | |
Total lease cost | | | | $ | 6,513 | | | $ | 2,971 | |
____________(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Supplemental balance sheet information as of October 1, 2022 and December 31, 2021 related to leases are as follows:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Balance Sheet Location | | October 1, 2022 | | December 31, 2021 |
Assets | | | | | | |
Operating leases | | Operating lease right-of-use assets | | $ | 88,335 | | | $ | 26,815 | |
Finance leases, net | | Property, plant and equipment, net | | 745 | | | 615 | |
Total lease assets | | | | $ | 89,080 | | | $ | 27,430 | |
| | | | | | |
Liabilities | | | | | | |
Current: | | | | | | |
Operating lease liabilities | | Current portion of operating lease liabilities | | $ | 4,585 | | | $ | 4,458 | |
Finance lease liabilities | | Short-term finance lease liabilities | | 226 | | | 182 | |
Long-term: | | | | | | |
Operating lease liabilities | | Operating lease liabilities, net of current portion | | 56,484 | | | 22,599 | |
Finance lease liabilities | | Finance lease obligations and other long-term liabilities | | 525 | | | 442 | |
Total lease liabilities | | | | $ | 61,820 | | | $ | 27,681 | |
The following is a schedule by year of the maturities of lease liabilities with original terms in excess of one year, as of October 1, 2022:
| | | | | | | | | | | | | | |
| | October 1, 2022 |
(in thousands) | | Operating Leases | | Finance Leases |
Remainder of 2022 | | $ | 1,647 | | | $ | 64 | |
2023 | | 7,699 | | | 244 | |
2024 | | 7,200 | | | 209 | |
2025 | | 6,725 | | | 178 | |
2026 | | 6,572 | | | 72 | |
2027 | | 6,168 | | | 34 | |
Thereafter | | 58,894 | | | — | |
Total undiscounted future minimum lease payments | | 94,905 | | | 801 | |
Less imputed interest | | (33,836) | | | (50) | |
Total discounted future minimum lease payments | | $ | 61,069 | | | $ | 751 | |
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Weighted average remaining lease terms and weighted average discount rates were:
| | | | | | | | | | | | | | |
| | October 1, 2022 |
| | Operating Leases | | Finance Leases |
Weighted average remaining lease term (years) | | 12.9 | | 3.6 |
Weighted average discount rate | | 6.1 | % | | 3.6 | % |
Note 5. Inventories
Major classes of inventory were as follows:
| | | | | | | | | | | |
(in thousands) | October 1, 2022 | | December 31, 2021 |
Raw materials and packaging | $ | 139,773 | | | $ | 129,974 | |
Work in process | 47,087 | | | 50,227 | |
Finished goods | 60,127 | | | 61,669 | |
Total | $ | 246,987 | | | $ | 241,870 | |
Note 6. Property, Plant and Equipment
The Company records property, plant, and equipment at cost and includes finance lease assets in “Property, plant and Equipment, net” in its condensed consolidated balance sheets. A summary of property, plant, and equipment as of October 1, 2022 and December 31, 2021, is as follows:
| | | | | | | | | | | | | | |
(in thousands) | | October 1, 2022 | | December 31, 2021 |
Manufacturing equipment | | $ | 159,669 | | | $ | 115,412 | |
Research and development equipment | | 16,948 | | | 16,837 | |
Leasehold improvements | | 22,539 | | | 20,250 | |
Building | | 22,276 | | | 22,937 | |
Finance leases | | 1,093 | | | 867 | |
Software | | 2,355 | | | 1,297 | |
Furniture and fixtures | | 863 | | | 868 | |
Vehicles | | 584 | | | 584 | |
Land | | 5,282 | | | 5,434 | |
Assets not yet placed in service | | 105,828 | | | 95,455 | |
Total property, plant and equipment | | $ | 337,437 | | | $ | 279,941 | |
Less: accumulated depreciation and amortization | | 74,842 | | | 53,452 | |
| | | | |
Property, plant and equipment, net | | $ | 262,595 | | | $ | 226,489 | |
Depreciation and amortization expense for the three months ended October 1, 2022 and October 2, 2021 was $8.4 million and $5.7 million, respectively. Of the total depreciation and amortization expense in the three months ended October 1, 2022 and October 2, 2021, $7.3 million and $4.7 million, respectively, were recorded in cost of goods sold; $1.0 million and $0.9 million, respectively, were recorded in research and development expenses; and $0.1 million and $0.1 million, respectively, were recorded in SG&A expenses in the Company’s condensed consolidated statements of operations.
Depreciation and amortization expense for the nine months ended October 1, 2022 and October 2, 2021 was $23.3 million and $14.9 million, respectively. Of the total depreciation and amortization expense
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) in the nine months ended October 1, 2022 and October 2, 2021, $19.8 million and $12.1 million, respectively, were recorded in cost of goods sold; $3.0 million and $2.7 million, respectively, were recorded in research and development expenses; and $0.4 million and $0.1 million, respectively, were recorded in SG&A expenses in the Company’s condensed consolidated statements of operations.
The Company concluded that no property, plant and equipment met the criteria for assets held for sale as of October 1, 2022 and December 31, 2021. Previous amounts classified as assets held for sale were sold for amounts that approximated book value for which a note receivable of $3.8 million, net of payments received, had been recorded. The note receivable is included in “Other non-current assets, net” in the Company’s condensed consolidated balance sheet at October 1, 2022 and December 31, 2021.
Note 7. Debt
The following is a summary of debt balances as of October 1, 2022 and December 31, 2021:
| | | | | | | | | | | | | |
(in thousands) | | | October 1, 2022 | | December 31, 2021 |
Convertible senior notes | | | $ | 1,150,000 | | | $ | 1,150,000 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Debt issuance costs | | | (17,376) | | | (20,326) | |
| | | | | |
| | | | | |
Convertible senior notes, net | | | $ | 1,132,624 | | | $ | 1,129,674 | |
Convertible Senior Notes
On March 5, 2021, the Company issued $1.0 billion aggregate principal amount of its 0% Convertible Senior Notes due 2027 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. On March 12, 2021, the initial purchasers of the Convertible Notes exercised their option to purchase an additional $150.0 million aggregate principal amount of the Company’s 0% Convertible Senior Notes due 2027 (the “Additional Notes”, and together with the Convertible Notes, the “Notes”), and such Additional Notes were issued on March 16, 2021.
The total amount of debt issuance costs of $23.6 million was recorded as a reduction to “Convertible senior notes, net” in the condensed consolidated balance sheet and are being amortized as interest expense over the term of the Notes using the effective interest method. During the three and nine months ended October 1, 2022, the Company recognized $1.0 million and $3.0 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes. During the three and nine months ended October 2, 2021, the Company recognized $1.0 million and $2.3 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes.
The following is a summary of the Company’s Notes as of October 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Principal Amount | | Unamortized Issuance Costs | | Net Carrying Amount | | Fair Value |
| | | | Amount | | Leveling |
0% Convertible senior notes due on March 15, 2027 | | $1,150,000 | | $17,376 | | $1,132,624 | | $345,000 | | Level 2 |
| | | | | | | | | | |
The Notes are carried at face value less the unamortized debt issuance costs on the Company’s condensed consolidated balance sheets. As of October 1, 2022, the estimated fair value of the Notes was approximately $0.3 billion. The Notes are quoted on the Intercontinental Exchange and are classified as Level 2 financial instruments. The estimated fair value of the Notes was determined based on the actual bid price of the Notes on September 27, 2022, the last trade day of the period.
As of October 1, 2022, the remaining life of the Notes is approximately 4.5 years.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Revolving Credit Facility
On March 2, 2021, the Company terminated its secured revolving credit agreement, dated as of April 21, 2020 (the “Credit Agreement”).
The Company recorded debt issuance costs on the revolving credit facility in “Prepaid and other non-current assets, net” in the accompanying condensed consolidated balance sheet. Debt issuance costs associated with the revolving credit facility were amortized as interest expense over the term of the loan. In the three and nine months ended October 2, 2021, debt issuance costs of $0 and $41,000, respectively, related to the Company’s prior revolving credit facility and equipment loan were amortized to interest expense.
In the three months ended October 1, 2022 and October 2, 2021, the Company incurred $0 in interest expense related to its bank credit facilities. In the nine months ended October 1, 2022 and October 2, 2021, the Company incurred $0 and $0.3 million, respectively, in interest expense related to its bank credit facilities.
Upon termination of the revolving credit facility, unamortized debt issuance costs of $1.0 million associated with the revolving credit facility were written off as “Loss on extinguishment of debt,” which is included in “Other, net” in the condensed consolidated statement of operations for the nine months ended October 2, 2021.
Concurrent with the Company’s execution of the Campus Lease, as a security deposit, the Company delivered to the landlord a letter of credit under the revolving credit facility in the amount of $12.5 million. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured.
Note 8. Stockholders’ Equity
As of October 1, 2022, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,735,625 shares of common stock were issued and outstanding, and 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no shares were issued and outstanding.
As of December 31, 2021, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,400,899 shares were issued and outstanding, and 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no shares were issued and outstanding.
The Company has not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock.
Note 9. Share-Based Compensation
In 2019, the Company’s 2011 Equity Incentive Plan (the “2011 Plan”) was amended, restated and re-named the 2018 Equity Incentive Plan (the “2018 Plan”), and the remaining shares available for issuance under the 2011 Plan were added to the shares reserved for issuance under the 2018 Plan. As of January 1, 2022, the maximum aggregate number of shares that may be issued under the 2018 Plan increased to 20,915,919 shares, which includes an increase of 2,144,521 shares effective January 1, 2022 under the terms of the 2018 Plan.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) The following table summarizes the shares available for grant under the 2018 Plan:
| | | | | |
| Shares Available for Grant |
Balance - December 31, 2021 | 6,515,807 | |
Authorized | 2,144,521 | |
Granted | (1,236,805) | |
Shares withheld to cover taxes | 35,954 | |
Forfeited | 410,957 | |
Balance - October 1, 2022 | 7,870,434 | |
| |
As of October 1, 2022 and December 31, 2021, there were 4,185,008 and 3,956,364 shares, respectively, issuable under stock options outstanding; 830,256 and 608,175 shares, respectively, issuable under unvested RSUs outstanding; 8,103,388 and 7,730,884 shares, respectively, issued for stock option exercises, RSU settlement and restricted stock grants; and 7,870,434 and 6,515,807 shares, respectively, available for grant under the 2018 Plan.
Stock Options
There were no new option grants in the three months ended October 1, 2022.
Following are the assumptions used in the Black-Scholes valuation model for options granted during the periods shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Risk-free interest rate | | —% | | 1.1% | | 1.9% | | 1.2% |
Average expected term (years) | | 0 | | 7.0 | | 7.0 | | 7.0 |
Expected volatility | | —% | | 55.9% | | 55.0% | | 55.9% |
Dividend yield | | — | | — | | — | | — |
Option grants to new employees in the nine months ended October 1, 2022 and October 2, 2021 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period, subject to continued employment through the vesting date. Option grants to continuing employees in the nine months ended October 1, 2022 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period, subject to continued employment through the vesting date. Option grants to continuing employees in the nine months ended October 2, 2021 generally vest monthly over a 48-month period, subject to continued employment through the vesting date. An option grant to one executive officer in the nine months ended October 2, 2021 vested over three months from the vesting commencement date.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) The following table summarizes the Company’s stock option activity during the nine months ended October 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value (in thousands)(1) |
Outstanding at December 31, 2021 | 3,956,364 | | | $ | 27.04 | | | 5.9 | | $ | 180,302 | |
Granted | 670,525 | | | $ | 44.83 | | | — | | $ | — | |
Exercised | (216,870) | | | $ | 7.41 | | | — | | $ | 6,949 | |
Cancelled/Forfeited | (225,011) | | | $ | 63.14 | | | — | | $ | — | |
Outstanding at October 1, 2022 | 4,185,008 | | | $ | 28.97 | | | 5.6 | | $ | 24,299 | |
Vested and exercisable at October 1, 2022 | 3,075,802 | | | $ | 18.50 | | | 4.5 | | $ | 24,299 | |
Vested and expected to vest at October 1, 2022 | 3,832,557 | | | $ | 26.35 | | | 6.1 | | $ | 24,299 | |
__________
(1) Aggregate intrinsic value is calculated as the difference between the value of common stock on the transaction date and the exercise price multiplied by the number of shares issuable under the stock option. Aggregate intrinsic value of shares outstanding at the beginning and end of the reporting period is calculated as the difference between the value of common stock on the beginning and end dates, respectively, and the exercise price multiplied by the number of shares outstanding.
During the three months ended October 1, 2022 and October 2, 2021, the Company recorded $4.1 million and $3.4 million, respectively, of share-based compensation expense related to options. During the nine months ended October 1, 2022 and October 2, 2021, the Company recorded $12.5 million and $10.5 million, respectively, of share-based compensation expense related to options. The share-based compensation expense is included in cost of goods sold, research and development expenses and SG&A expenses in the Company’s condensed consolidated statements of operations.
As of October 1, 2022, there was $22.8 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over a weighted average period of 1.3 years.
Restricted Stock Units
RSU grants to new and continuing employees in the nine months ended October 1, 2022 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining three years of the award, subject to continued employment through the vesting date. Some of the RSU grants to continuing employees in the nine months ended October 1, 2022 vest 50% of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining four quarters of the award, subject to continued employment through the vesting date. Annual RSU grants to directors on the Company’s Board of Directors (the “Board”) in the nine months ended October 1, 2022 vest monthly over a one-year period and an RSU grant to a new director on the Board vests monthly over a three-year period. RSU grants to nonemployee brand ambassadors in the nine months ended October 1, 2022 vest on varying dates, subject to continued service through the vesting date.
RSU grants to new employees in the nine months ended October 2, 2021 vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining three years of the award, subject to continued employment through the vesting date. RSU grants in the nine months ended October 2, 2021 include fully vested RSUs granted to an executive officer issued in settlement of the obligation discussed below under Share-Settled Obligation. An RSU grant to one executive officer in the nine months ended October 2, 2021 vested 100% over three months from the vesting commencement date. RSU grants to continuing employees in the nine months ended
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) October 2, 2021 generally vest quarterly over 16 quarters, subject to continued employment through the vesting date. An RSU grant to one executive officer in the nine months ended October 2, 2021 vests quarterly over four quarters, subject to continued employment through the vesting date. Annual RSU grants to the Board in the nine months ended October 2, 2021 vest monthly over a one-year period and RSU grants to two new directors on the Board vest monthly over a three-year period. RSU grants to nonemployee brand ambassadors in the nine months ended October 2, 2021 vest quarterly over four quarters from the vesting commencement date, subject to continued service through the vesting date.
The following table summarizes the Company’s RSU activity during the nine months ended October 1, 2022:
| | | | | | | | | | | | | | |
| | Number of Units | | Weighted Average Grant Date Fair Value Per Unit |
Unvested at December 31, 2021 | | 608,175 | | | $ | 88.78 | |
Granted | | 566,280 | | | $ | 42.63 | |
Vested(1) | | (158,770) | | | $ | 90.07 | |
Cancelled/Forfeited | | (185,429) | | | $ | 68.60 | |
Unvested at October 1, 2022 | | 830,256 | | | $ | 61.56 | |
________
(1) Includes 35,954 shares of common stock that were withheld to cover taxes on the release of vested RSUs and became available for future grants pursuant to the 2018 Plan.
During the three months ended October 1, 2022 and October 2, 2021, the Company recorded $5.2 million and $3.1 million, respectively, of share-based compensation expense related to RSUs. During the nine months ended October 1, 2022 and October 2, 2021, the Company recorded $16.4 million and $9.3 million, respectively, of share-based compensation expense related to RSUs. The share-based compensation expense is included in cost of goods sold, research and development expenses and SG&A expenses in the Company’s condensed consolidated statements of operations.
As of October 1, 2022, there was $31.6 million in unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted average period of 1.3 years.
Share-Settled Obligation
There was no share-based compensation expense in the three months ended October 1, 2022 and October 2, 2021 for liability classified, share-settled obligations. Share-based compensation expense in the nine months ended October 1, 2022 and October 2, 2021 includes $0 and $1.6 million, respectively, for a liability classified, share-settled obligation to an executive officer related to a sign-on award pursuant to the terms of the executive officer’s offer letter. The share-based compensation expense related to this share-settled obligation is included in SG&A expenses in the Company’s condensed consolidated statements of operations. Financing activities in the statement of cash flows for the nine months ended October 1, 2022 and October 2, 2021 includes $0 and $2.5 million, respectively, noncash reclassification of the share-settled obligation from “Other current liabilities” to “Additional paid-in capital.”
In the first nine months of 2021, two quarterly tranches related to this obligation were earned, and the Company delivered to this executive officer 20,872 fully vested RSUs with a settlement date fair value of $2.5 million.
Restricted Stock to Nonemployees
During the nine months ended October 1, 2022, no shares of restricted stock had been issued to nonemployee brand ambassadors.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) During the three months ended October 1, 2022 and October 2, 2021, the Company recorded no share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors.
During the nine months ended October 1, 2022 and October 2, 2021, the Company recorded $0 and $0.2 million, respectively, of share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors, which is included in SG&A expenses in the Company’s condensed consolidated statements of operations.
As of October 1, 2022, there was no unrecognized compensation expense related to unvested restricted stock granted to nonemployee brand ambassadors.
Employee Stock Purchase Plan
As of October 1, 2022, the maximum aggregate number of shares that may be issued under the 2018 Employee Stock Purchase Plan (the “ESPP”) was 2,412,585 shares of common stock, including an increase of 536,130 shares effective January 1, 2022 under the terms of the ESPP. The ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The administrator has not yet approved an offering under the ESPP.
Note 10. Commitments and Contingencies
Leases
On January 14, 2021, the Company entered into the Campus Lease with HC Hornet Way, LLC, a Delaware limited liability company (the “Landlord”), to house the Company’s lab and innovation space and headquarters offices in El Segundo, California.
Under the terms of the Campus Lease, the Company will lease an aggregate of approximately 282,085 rentable square feet in a portion of a building located at 888 Douglas Street, El Segundo, California, to be built out by the Landlord and delivered to the Company in multiple phases. During the three months ended October 1, 2022, the tenant improvements associated with Phase 1-A were completed and the underlying asset was delivered to the Company. Therefore, the Company has recognized a right-of-use asset and lease liability for Phase 1-A in its condensed consolidated balance sheet as of October 1, 2022. See Note 4. Aggregate payments towards base rent over the initial lease term associated with the remaining phases not yet delivered to the Company will be approximately $118.4 million. Concurrent with the Company’s execution of the Campus Lease, as a security deposit, the Company delivered to the Landlord a letter of credit under its revolving credit facility at that time in the amount of $12.5 million which amount will decrease to: (i) $6.3 million on the fifth (5th) anniversary of the Rent Commencement Date (as defined in the Campus Lease); (ii) $3.1 million on the eighth (8th) anniversary of the Rent Commencement Date; and (iii) $0 in the event the Company receives certain credit ratings; provided the Company is not then in default of its obligations under the Campus Lease. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured.
China Investment and Lease Agreement
On September 22, 2020, the Company and its wholly-owned subsidiary, Beyond Meat (Jiaxing) Food Co., Ltd. (“BYND JX”), entered into an investment agreement with the Administrative Committee (the “JX Committee”) of the Jiaxing Economic & Technological Development Zone (the “JXEDZ”) pursuant to which, among other things, BYND JX agreed to make certain investments in the JXEDZ in two phases of development, and the Company agreed to guarantee certain repayment obligations of BYND JX under such agreement.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) During Phase 1, the Company agreed to invest $10.0 million as the registered capital in the JXEDZ through an intercompany investment in BYND JX and BYND JX agreed to lease a facility in the JXEDZ for a minimum of two years. In connection with such agreement, BYND JX entered into a factory leasing contract with an affiliate of the JX Committee, pursuant to which BYND JX agreed to renovate and lease a facility in the JXEDZ for a minimum of two years. In the nine months ended October 1, 2022, the lease was amended to extend the term for an additional five years without rent escalation. As of October 1, 2022, the Company had invested $22.0 million as the registered capital and had advanced $20.0 million to its subsidiary, BYND JX.
In the event that the Company and BYND JX determine, in their sole discretion, to proceed with the Phase 2 development in the JXEDZ, BYND JX has agreed in the first stage of Phase 2 to increase its registered capital to $40.0 million and to acquire the land use right to a state-owned land plot in the JXEDZ to conduct development and construction of a new production facility. Following the first stage of Phase 2, the Company and BYND JX may determine, in their sole discretion, to permit BYND JX to obtain a second state-owned land plot in the JXEDZ in order to construct an additional facility thereon.
The Planet Partnership
On January 25, 2021, the Company entered into TPP, a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack and beverage products made from plant-based protein. For the three months ended October 1, 2022 and October 2, 2021, the Company recognized its share of the net losses in TPP, in the amount of $8.7 million and $0.6 million, respectively. For the nine months ended October 1, 2022 and October 2, 2021, the Company recognized its share of the net losses in TPP in the amount of $10.8 million and $1.2 million, respectively. For the year ended December 31, 2021, the Company contributed its share of the investment in TPP, $11.0 million, which was increased to $21.0 million in the three months ended October 1, 2022. See Note 2, Note 13. Subsequent to the quarter ended October 1, 2022, the Company agreed to contribute an additional $6.5 million as its share of the additional investment in TPP, with half to be contributed in the fourth quarter of 2022 and the remaining half in the first quarter of 2023. Purchase Commitments
As of October 1, 2022, the Company had a commitment to purchase pea protein inventory totaling $49.4 million, of which $9.3 million is expected to be purchased in the remainder of 2022, and $40.1 million in 2023.
On April 6, 2022, the Company entered into a co-manufacturing agreement (“Agreement”) with a co-manufacturer to manufacture various products for the Company. The Agreement includes a minimum order quantity commitment per month and an aggregate quantity over a 5-year term. If the minimum order for a month during a quarter is not fulfilled, the Company may be assessed a fee per pound, which fee may be waived by the co-manufacturer upon reaching certain aggregate quantity limits.
The following table sets forth the schedule of the fees for the committed quantity under the Agreement. | | | | | | | | |
(in thousands) | | As of October 1, 2022 |
Remainder of 2022 | | $ | 2,955 | |
2023 | | 11,820 | |
2024 | | 11,820 | |
2025 | | 11,820 | |
2026 | | 11,820 | |
2027 | | 34,475 | |
| | $ | 84,710 | |
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Litigation
Don Lee Farms I and Don Lee Farms II
As previously reported by the Company in the 2021 10-K and on Form 10-Q for the fiscal quarter ended July 2, 2022 filed with the SEC on August 11, 2022, Don Lee Farms and certain of its employees, on the one hand, and Beyond Meat, and certain of its respective current and former employees, on the other hand, were parties to litigation filed in the Superior Court of the State of California for the County of Los Angeles (Case No. BC662838, the “State Court Case”) and the United States District Court for the Central District of California (Case No. 2:22-CV-03751-AB-GJS, the “Federal Court Case”). Subsequent to the quarter ended October 1, 2022, on October 18, 2022, the parties entered into a confidential written settlement agreement and mutual release, pursuant to which the parties agreed to dismiss all claims and cross-claims asserted in the State Court Case and Federal Court Case with prejudice. The terms of the settlement did not have a material impact on Beyond Meat’s financial position or results of operations. No party admitted liability or wrongdoing in connection with the settlement.
Consumer Class Actions Regarding Protein Claims
From May 31, 2022 through September 30, 2022, multiple putative class action lawsuits were filed against the Company in various federal and state courts alleging that the labeling and marketing of certain of the Company’s products is false and/or misleading under federal and/or various states’ laws. Specifically, each of these lawsuits allege one or more of the following theories of liability: (i) that the labels and related marketing of the challenged products misstate the quantitative amount of protein that is provided by each serving of the product; (ii) that the labels and related marketing of the challenged products misstate the percent daily value of protein that is provided by each serving of the product; and (iii) that the Company has represented that the challenged products are “all-natural,” “organic,” or contain no “synthetic” ingredients when they in fact contain methylcellulose, an allegedly synthetic ingredient. The named plaintiffs of each complaint seek to represent classes of nationwide and/or state-specific consumers, and seek on behalf of the putative classes damages, restitution, and injunctive relief, among other relief. Additional complaints asserting these theories of liability are possible. Some lawsuits previously filed were voluntarily withdrawn or dismissed without prejudice; though they may be refiled. The Company intends to vigorously defend against all claims asserted in the complaints. Based on the Company’s current knowledge, the Company has determined that the amount of any material loss or range of any losses that is reasonably possible to result from these lawsuits is not estimable.
The active lawsuits are:
•Roberts v. Beyond Meat, Inc., No. 1:22-cv-02861 (N.D. Ill.) (filed May 31, 2022)
•Cascio v. Beyond Meat, Inc., No. 1:22-cv-04018 (E.D.N.Y.) (filed July 8, 2022)
•Miller v. Beyond Meat, Inc., No. 1:22-cv-06336 (S.D.N.Y.) (filed July 26, 2022)
•Garcia v. Beyond Meat, Inc., No. 4:22-cv-00297-SHL-SBJ (filed September 9, 2022)
•Borovoy v. Beyond Meat, Inc., No. 2022LA000862 (DuPage Co., Ill.) (filed September 30, 2022)
Securities Related Litigation
As previously reported by the Company in the 2021 10-K and on Form 10-Q for the fiscal quarter ended July 2, 2022 filed with the SEC on August 11, 2022, the parties have reached a settlement of the Weiner, Brink/Klein and Chew derivative actions. On April 8, 2022, the Company published notice of the preliminary approval and the proposed settlement in accordance with the Stipulation of Settlement. On April 18, 2022, the Company paid to escrow the $515,000 for Plaintiffs’ attorneys’ fees and costs and on April 19, 2022, the Company filed proof of notice with the Court. Plaintiffs filed their motion for final approval on June 13, 2022. On July 1, 2022, Plaintiffs filed a notice of non-objection, stating that they received no objections to the proposed settlement. The Final Approval Hearing was scheduled for July 11, 2022, but on July 7, 2022, the Court entered a Scheduling Notice and Order finding that Plaintiffs’ motion for final approval is appropriate for submission on the papers without oral argument. On September 27,
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) 2022, the Court entered a Final Order and Judgment approving the settlement. The appeal period expired on October 27, 2022, which means that the settlement of these actions is now final. On October 31, 2022, plaintiff’s counsel in the Chew action, in accordance with the Stipulation of Settlement, filed a Joint Stipulation and [Proposed] Order to Dismiss Action with Prejudice, which was signed and entered by the Court on November 1, 2022.
Interbev
In October 2020, Interbev, a French trade association for the cattle industry sent a cease-and-desist letter to one of the Company’s contract manufacturers alleging that the use of “meat” and meat-related terms is misleading the French consumer. Despite the Company’s best efforts to reach a settlement, including a formal settlement proposal from the Company in March 2021, the association no longer responded. Instead, on March 13, 2022, the Company was served a summons by Interbev to appear before the Commercial Court of Paris. The summons alleges that the Company misleads the French consumer with references to e.g. “plant based meat,” “plant based burger” and related descriptive names, and alleges that the Company is denigrating meat and meat products. The relief sought by Interbev includes (i) changing the presentation of Beyond Meat products to avoid any potential confusion with meat products, (ii) publication of the judgment of the court in the media, and (iii) damages of EUR 200,000. The Company strongly denies these claims and will defend its position with the utmost vigor. On October 12, 2022, the Company submitted its brief in defense. The litigation is expected to take at least 18 months in the first instance, and if the Court rules against the Company, it could disrupt the Company’s ability to market in France. Should the case be referred to the Court of Justice of the European Union, this case may have repercussions for the entire plant-based protein industry, in all member states of the European Union.
The Company is involved in various other legal proceedings, claims and litigation arising in the ordinary course of business. Based on the facts currently available, the Company does not believe that the disposition of such matters that are pending or asserted will have a material effect on its financial statements.
Note 11. Income Taxes
For the three months ended October 1, 2022 and October 2, 2021, the Company recorded $0 and $23,000, respectively, in income tax benefit in its condensed consolidated statements of operations. For the nine months ended October 1, 2022 and October 2, 2021, the Company recorded $21,000 and $27,000, respectively, in income tax expense in its condensed consolidated statements of operations.
The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all deferred tax assets. If the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets will be made and the adjustment would have the effect of increasing net income in the period such determination is made.
As of October 1, 2022, the Company did not have any accrued interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal tax authority and U.S. state tax authority examinations for all years with respect to net operating loss and credit carryforwards.
In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in March 2020 and on March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. These Acts include various income and payroll tax measures. The income tax and payroll tax measures did not materially impact the Company’s financial statements.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Note 12. Net Loss Per Share Available to Common Stockholders
The Company calculates basic and diluted net loss per share available to common stockholders in conformity with the two-class method required for companies with participating securities. Pursuant to Accounting Standards Update 2020-06, the Company applies the more dilutive of the if-converted method and the two-class method to its Notes.
Computation of net loss per share available to common stockholders for the three and nine months ended October 1, 2022 excludes the dilutive effect of 4,185,008 shares issuable under stock options and 830,256 RSUs outstanding at October 1, 2022 because the Company incurred a net loss and their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and nine months ended October 1, 2022 also excludes the dilutive effect of the Notes because the Company recorded a net loss and their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and nine months ended October 2, 2021 excludes the dilutive effect of 3,783,183 shares issuable under stock options and 263,113 RSUs outstanding as of October 2, 2021 because their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and nine months ended October 2, 2021 also excludes adjustments under the two-class method relating to a liability classified, share-settled obligation to an executive officer to deliver a variable number of shares based on a fixed monetary amount (see Note 9) because the shares to be delivered are not participating securities as they do not have voting rights and are not entitled to participate in dividends until they are issued. Computation of net loss per share available to common stockholders for the three and nine months ended October 2, 2021 also excludes the dilutive effect of the Notes because the Company recorded a net loss and their inclusion would be anti-dilutive. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share amounts) | | Three Months Ended | | Nine Months Ended | | |
| October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | | | |
Numerator: | | | | | | | | | | | | |
Net loss available to common stockholders | | $ | (101,678) | | | $ | (54,816) | | | $ | (299,270) | | | $ | (101,734) | | | | | |
Undistributed net income available to unvested restricted stockholders | | — | | | — | | | — | | | — | | | | | |
Net loss available to common stockholders—basic | | (101,678) | | | (54,816) | | | (299,270) | | | (101,734) | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted average common shares outstanding—basic | | 63,694,592 | | | 63,280,122 | | | 63,579,763 | | | 63,111,703 | | | | | |
Dilutive effect of shares issuable under stock options | | — | | | — | | | — | | | — | | | | | |
Dilutive effect of RSUs | | — | | | — | | | — | | | — | | | | | |
Dilutive effect of share-settled obligation | | — | | | — | | | — | | | — | | | | | |
Dilutive effect of Notes, if converted(1) | | — | | | — | | | — | | | — | | | | | |
Weighted average common shares outstanding—diluted | | 63,694,592 | | | 63,280,122 | | | 63,579,763 | | | 63,111,703 | | | | | |
Net loss per share available to common stockholders—basic | | $ | (1.60) | | | $ | (0.87) | | | $ | (4.71) | | | $ | (1.61) | | | | | |
Net loss per share available to common stockholders—diluted | | $ | (1.60) | | | $ | (0.87) | | | $ | (4.71) | | | $ | (1.61) | | | | | |
__________
(1) As the Company recorded net losses in the three and nine months ended October 1, 2022 and October 2, 2021, inclusion of shares from the conversion premium or spread would be anti-dilutive. The Company had $1.2 billion in Notes outstanding as of October 1, 2022.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Note 13. Related Party Transactions
In connection with the Company’s investment in TPP, a joint venture with PepsiCo, Inc., the Company sells certain products directly to the joint venture. In the nine months ended October 1, 2022, the Company also entered into an agreement for a nonrefundable up-front fee associated with its manufacturing and supply agreement with TPP that will be recognized over the estimated term of the manufacturing and supply agreement. Net revenues earned from TPP included in U.S. retail channel net revenues were $4.5 million and $0 for the three months ended October 1, 2022 and October 2, 2021, respectively, and $31.1 million and $0 for the nine months ended October 1, 2022 and October 2, 2021, respectively.
Accounts receivable from TPP were $0.1 million and $0 at October 1, 2022 and December 31, 2021, respectively. Current and long-term portions of the unrecognized revenue associated with the up-front fee charged to TPP as of October 1, 2022 were $0.9 million and $3.0 million, respectively, and included in "Accrued expenses and other current liabilities" and "Finance lease obligations and other long-term liabilities," respectively, in the Company's condensed consolidated balance sheet as of October 1, 2022. There were no such balances as of December 31, 2021.
Note 14. Subsequent Events
Reduction-in-force
Subsequent to the quarter ended October 1, 2022, on October 11, 2022, the Company’s Board of Directors approved a plan to reduce the Company’s workforce by approximately 200 employees, representing approximately 19% of the Company’s total global workforce. This decision was based on cost-reduction initiatives intended to reduce operating expenses as the Company focuses on a set of key growth priorities.
The Planet Partnership
Subsequent to the quarter ended October 1, 2022, the Company agreed to contribute an additional $6.5 million as its share of the additional investment in TPP, with half to be contributed in the fourth quarter of 2022 and the remaining half in the first quarter of 2023.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors,” of our 2021 10-K and Part II, Item 1A, “Risk Factors” and “Note Regarding Forward-Looking Statements” included in this report and those discussed in other documents we file from time to time with the SEC. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this quarterly report and our audited consolidated financial statements and notes thereto included in our 2021 10-K. Our historical results are not necessarily indicative of the results to be expected for any future periods and our operating results for the three and nine months ended October 1, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year or period. Overview
Beyond Meat is a leading plant-based meat company, offering a portfolio of revolutionary plant-based meats. We build meat directly from plants, an innovation that enables consumers to experience the taste, texture and other sensory attributes of popular animal-based meat products while enjoying the nutritional and environmental benefits of eating our plant-based meat products. Our brand commitment, “Eat What You Love,” represents a strong belief that there is a better way to feed our future and that the positive choices we all make, no matter how small, can have a great impact on our personal health and the health of our planet. By shifting from animal-based meat to plant-based protein, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare. The success of our breakthrough innovation model and products has allowed us to appeal to a broad range of consumers, including those who typically eat animal-based meats, positioning us to compete directly in the $1.4 trillion global meat industry.
We sell a range of plant-based meat products across the three main meat platforms of beef, pork and poultry. As of September 2022, Beyond Meat branded products were available at approximately 188,000 retail and foodservice outlets in more than 85 countries worldwide, across mainstream grocery, mass merchandiser, club store, convenience store, and natural retailer channels, and various food-away-from-home channels, including restaurants, foodservice outlets and schools.
The condensed consolidated financial statements for the period ended October 1, 2022 include the accounts of the Company and its foreign subsidiaries, Beyond Meat EU B.V., BYND JX and Beyond Meat Canada Inc. All inter-company balances and transactions have been eliminated.
We operate on a fiscal calendar year, and each interim quarter is comprised of one 5-week period and two 4-week periods, with each week ending on a Saturday. Our fiscal year always begins on January 1 and ends on December 31. As a result, our first and fourth fiscal quarters may have more or fewer days included than a traditional 91-day fiscal quarter.
For the three months ended October 1, 2022, our retail and foodservice channels accounted for approximately 68.3% and 31.7% of our net revenues, respectively. For the three months ended October 2, 2021, our retail and foodservice channels accounted for approximately 69.3% and 30.7% of our net revenues, respectively. For the nine months ended October 1, 2022, our retail and foodservice channels accounted for approximately 71.8% and 28.2% of our net revenues, respectively. For the nine months ended October 2, 2021, our retail and foodservice channels accounted for approximately 71.6% and 28.4% of our net revenues, respectively.
For the three months ended October 1, 2022, our U.S. and international channels accounted for approximately 75.4% and 24.6% of our net revenues, respectively. For the three months ended October 2, 2021, our U.S. and international channels accounted for approximately 63.4% and 36.6% of
our net revenues, respectively. For the nine months ended October 1, 2022, our U.S. and international channels accounted for approximately 73.2% and 26.8% of our net revenues, respectively. For the nine months ended October 2, 2021, our U.S. and international channels accounted for approximately 68.5% and 31.5% of our net revenues, respectively.
In the three and nine months ended October 1, 2022, net revenues from both international foodservice channel sales and international retail channel sales decreased as compared to the prior-year periods. International net revenues decreased 47.8% and 20.9% in the three and nine months ended October 1, 2022, respectively, as compared to the prior-year periods.
In the three and nine months ended October 1, 2022, U.S. retail channel net revenues decreased as compared to the prior-year periods. Although U.S. foodservice channel net revenues increased slightly in the three months ended October 1, 2022, they decreased in the nine months ended October 1, 2022. U.S. net revenues in the three and nine months ended October 1, 2022 decreased 7.9% and 0.4%, respectively, as compared to the prior-year periods. This decrease was in addition to the decrease in international net revenues, resulting in a 22.5% and 6.9% decrease in total net revenues in the three and nine months ended October 1, 2022, respectively, as compared to the prior-year periods.
In addition to the impact of COVID-19 on our business discussed below under “Impact of COVID-19 on Our Business,” our net revenues, gross profit, gross margin, earnings and cash flows have been and may continue to be adversely impacted in 2022 by the following:
•changes in our product mix including the launch of new products (especially Beyond Meat Jerky), which may carry lower margin profiles relative to existing products due in part to early cost of production inefficiencies;
•weak demand in the retail channel due to slower category growth, particularly for refrigerated plant-based meat, and increased competitive activity, including the deceleration of plant-based meat across Europe and our ability to successfully launch extended shelf-life products;
•the impact of high inflation and the plant-based meat sector’s premium pricing relative to animal protein, including causing consumers to trade down into cheaper forms of protein, including animal meat;
•our decreased revenue forecast negatively impacting capacity utilization, which could also give rise to underutilization fees and termination fees to exit certain supply chain arrangements and/or the write-off of certain equipment, driving less leverage on fixed costs and delaying the speed at which cost savings initiatives impact our financial results;
•changes in forecasted demand, particularly for Beyond Meat Jerky;
•effectively managing inventory levels, including sales to the liquidation channel and the level of inventory reserves;
•price reductions, primarily in the retail channel in Europe, intended to improve price competitiveness relative to competing products;
•increased unit cost of goods sold due to lower production volumes in response to weaker demand, which would adversely impact coverage of fixed production costs within our manufacturing facilities;
•increased unit cost of goods due to inflation, rising interest rates, higher transportation, raw materials, energy, labor and supply chain costs;
•increased promotional programs and trade discounts to our retail and foodservice customers, including to bolster support for our core lines, and shifts in product and channel mix resulting in negative impacts on our gross margins;
•potential disruption to our supply chain and the supply chain more generally caused by distribution and other logistical issues; and
•labor needs at the Company as well as in the supply chain and at customers.
Subsequent to the quarter ended October 1, 2022, on October 11, 2022, our Board of Directors approved a plan to reduce our workforce by approximately 200 employees, representing approximately 19% of our total global workforce. This decision was based on cost-reduction initiatives intended to reduce operating expenses as the Company focuses on a set of key growth priorities. We may not be able to fully realize the costs savings and benefits initially anticipated from these actions, and the expected costs may be greater than expected. See Part II, Item 1A. “Risk Factors – Risks Related to Our Business – Our strategic initiatives to reduce our cost structure towards cash flow positive operations could have long-term adverse effects on our business, and we may not realize the operational or financial benefits from such actions” and “Our inability to streamline operations and improve cost efficiencies could result in the contraction of our business and the implementation of significant cost cutting measures.” Impact of COVID-19 on Our Business
The COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business. In response to the COVID-19 pandemic, governments and other authorities around the world implemented significant measures intended to control the spread of the virus, including social distancing measures, business closures or restrictions on operations, quarantines, lockdowns and travel bans. While some of these restrictions were lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized and as various COVID-19 vaccines have become more widely available, a resurgence of COVID-19 and the impact of variants of the virus that causes COVID-19 in some markets, including China, has slowed the reopening process.
The COVID-19 pandemic continues to impact the global economy. We have established a cross-functional task force that monitors and tracks relevant data, including guidance from local, national and international health agencies. This task force works closely with our senior leadership and is instrumental in making critical, timely decisions and is committed to continuing to communicate to our employees as more information is available to share. In response to COVID-19, we have taken, and continue to take measures to support the health and safety of our employees as well as the communities in which we operate.
It is challenging to estimate the extent of the adverse impact of the COVID-19 pandemic on our results of operations due to continued uncertainty regarding the duration, spread and intensity of the COVID-19 pandemic. While the ultimate health and economic impact of COVID-19 continues to be highly uncertain, our business operations and results of operations, including our net revenues, gross profit, gross margin, earnings and cash flows, may be adversely impacted in the remainder of 2022, including as a result of:
•variability of demand in the foodservice channel due to the ongoing impact of COVID-19, including the resurgence of COVID-19 and the appearance of variants of the virus, despite the resumption of customer traffic in some foodservice establishments;
•potential disruption or closure of our facilities or those of our suppliers or co-manufacturers due to employee contraction of COVID-19;
•COVID-19 lockdowns in China or other factors;
•the timing and success of strategic QSR partnership launches and resumption of any expansion plans for our product lines for those QSR customers who are in trial or test phase;
•reduced consumer confidence and consumer spending, including spending to purchase our products, and negative trends in consumer purchasing patterns due to consumers’ disposable income, credit availability, debt levels, inflation and rising interest rates;
•reduced confidence by our foodservice partners due to the resurgence of COVID-19, as well as reimplementation of safety measures in certain jurisdictions and its potential impact on customer demand levels;
•further foodservice customer closures (including re-closures in connection with resurgences of COVID-19) or further reduced operations;
•our ability to introduce new foodservice products as QSR and other partners look to simplify menu offerings as a result of the pandemic;
•uncertainty in the length of recovery time for the U.S. and world economies; and
•disruptions in our ability to expand to new international locations.
Future events and effects related to COVID-19 cannot be determined with precision and actual results could significantly differ from estimates or forecasts.
Environmental, Social and Governance
As a disruptive leader in the food industry, we have established ourselves as a leading producer of plant-based meat products that deliver a reduced environmental footprint and mitigate the social and welfare issues inherent to the production and consumption of animal protein. In order to continue that work and position ourselves as a leader in the integration of environmental and social change, we have committed to developing a comprehensive ESG program. As part of the development of our ESG program, we have conducted a materiality analysis to determine which ESG issues are relevant to our business (the “ESG Materiality Analysis”). The ESG Materiality Analysis was not designed to identify material issues for the purposes of financial reporting, or as defined by the securities laws of the United States. The environmental impacts of our products, climate change management, the safety and quality of the products we produce and how we manage our supply chain were all identified as highly relevant as a result of the ESG Materiality Analysis. We continue to work on leveraging the ESG Materiality Analysis to create comprehensive ESG goals that will assist us with our commitment to ensuring responsible and sustainable business practices within our organization.
Components of Our Results of Operations and Trends and Other Factors Affecting Our Business
Net Revenues
We generate net revenues primarily from sales of our products to our customers across mainstream grocery, mass merchandiser, club store, convenience store, and natural retailer channels and various food-away-from-home channels, including restaurants, foodservice outlets and schools, mainly in the United States.
We present our net revenues by geography and distribution channel as follows:
| | | | | | | | |
Distribution Channel | | Description |
U.S. Retail | | Net revenues from retail sales to the U.S. market and sales to our joint venture, the Planet Partnership, LLC |
U.S. Foodservice | | Net revenues from restaurant and foodservice sales to the U.S. market |
International Retail | | Net revenues from retail sales to international markets, including Canada |
International Foodservice | | Net revenues from restaurant and foodservice sales to international markets, including Canada |
The following factors and trends in our business have driven net revenue growth over prior periods and are expected to be key drivers of our net revenue growth over time, subject to the duration, magnitude and effects of COVID-19 and other challenges as discussed above:
•increased penetration across our retail channel, including mainstream grocery, mass merchandiser, club store, convenience store, and natural retailer channels, and our foodservice channel, including increased desire by foodservice establishments, including large Full Service Restaurant and/or global QSR customers, to add plant-based products to their menus and to highlight these offerings;
•the strength and breadth of our partnerships with global QSR restaurants and retail and foodservice customers;
•distribution expansion, increased sales velocity, household penetration, repeat purchases, buying rates (amount spent per buyer) and purchase frequency across our channels;
•increased international sales of our products across geographies, markets and channels as we seek to expand the breadth and depth of our international distribution and grow our numbers of international customers;
•our ability to accurately forecast demand for our products and manage our inventory;
•our operational effectiveness and ability to fulfill orders in full and on time;
•our continued innovation and product commercialization, including enhancing existing products and introducing new products, such as Beyond Meatballs, Beyond Breakfast Sausage Patties, Beyond Breakfast Sausage Links, the latest iteration of our Beyond Burger, Beyond Chicken Tenders, Beyond Meat Jerky, and the recent launches of Beyond Steak, Beyond Chicken Nuggets and Beyond Popcorn Chicken across our plant-based platforms that appeal to a broad range of consumers, specifically those who typically eat animal-based meat;
•enhanced marketing efforts as we continue to build our brand, amplify our value proposition around taste, health and sustainability, serve as a best-in-class partner to both retail and foodservice customers to support product development and category management, and drive consumer adoption of our products; and
•overall market trends, including consumer awareness and demand for nutritious, convenient and high protein plant-based foods.
In addition to the factors and trends above, we expect the following to positively impact net revenues in the long run, subject to the ultimate duration, magnitude and effects of the COVID-19 pandemic and other challenges discussed above:
•expansion of our own internal production facilities domestically and abroad to produce our woven proteins, blends of flavor systems and binding systems, and finished goods, while forming additional strategic relationships with co-manufacturers; and
•localized production and third-party partnerships to improve our cost of production and increase the availability and speed with which we can get our products to customers internationally.
As we seek to grow our net revenues, we face several challenges, including any lasting effects from COVID-19, which are difficult to quantify, global events such as the conflict in Ukraine and their impact on availability of raw materials, broad macroeconomic headwinds including elevated levels of inflation, waning consumer confidence and recessionary concerns, increasing competition in the plant-based meat category, and softening in demand of the plant-based meat category overall, particularly in the refrigerated subsegment among others.
We routinely offer sales discounts and promotions through various programs to customers and consumers. These programs include rebates, temporary on-shelf price reductions, off-invoice discounts, retailer advertisements, product coupons and other trade activities. We anticipate that over time we will need to continue to offer more trade and promotion discounts to both our retail and foodservice customers, to drive increased consumer trials, in response to COVID-19 and in response to increased competition and pressure on the plant-based meat category. The expense associated with these discounts and promotions is estimated and recorded as a reduction in total gross revenues in order to arrive at reported net revenues. At the end of each accounting period, we recognize a contra asset to “Accounts receivable” for estimated sales discounts that have been incurred but not paid which totaled $4.6 million and $3.6 million as of October 1, 2022 and December 31, 2021, respectively. We expect to face increasing competition across all channels, especially as additional plant-based protein product brands continue to enter the marketplace and as consumers trade down among proteins in the context of significant inflationary pressures. In response, we anticipate providing heavier discounting and promotions on some of our products from time to time. Although these actions are intended to build brand awareness and increase consumer trials of our products, they have had and are likely to continue to have a negative impact on our net revenues, gross margins and profitability, impacting period-over-period results.
In addition, because we do not have any purchase commitments from our distributors or customers, the amount of net revenues we recognize will vary from period to period depending on the volume, timing and the channels through which our products are sold, and the impact of customer orders ahead of holidays, causing variability in our results. Similarly, the timing of retail shelf resets are not within our control, and to the extent that retail customers change the timing of such events, variability of our results may also increase. Lower customer orders ahead of holidays, shifts in customer shelf reset activity and changes in the order patterns of one or more of our large retail customers could cause a significant fluctuation in our quarterly results and could have a disproportionate effect on our results of operations for the entire fiscal year. For example, in the third quarter of 2022, a combination of overall weaker than expected demand in the category and certain customer and distributor changes such as reducing targeted inventory levels, among other factors, contributed to the decline in net revenues across markets and channels compared to the prior-year period.
Our financial performance also depends on our operational effectiveness and ability to fulfill orders in full and on time. For example, in the third quarter of 2021 we experienced challenges in operations that led to unfulfilled orders, primarily due to severe weather resulting in the temporary loss of potable water in one Pennsylvania facility and water damage to inventory in another.
Further, we may not be able to recapture missed opportunities in later periods, for example if the opportunity is related to a significant grilling holiday like Memorial Day weekend, the Fourth of July, or Labor Day weekend. Missed opportunities may also result in missing subsequent additional opportunities. Internal and external operational issues therefore may impact the amount and variability of our results.
Seasonality
Generally, we expect to experience greater demand for certain of our products during the summer grilling season. In 2022, U.S. retail channel net revenues during the second quarter were 16% higher than the first quarter. In 2021, U.S. retail channel net revenues during the second quarter were 21% higher than the first quarter. We continue to see additional seasonality effects, especially within our retail channel, with revenue contribution from this channel generally tending to be greater in the second and third quarters of the year, along with increased levels of purchasing by customers ahead of holidays, the impact of customer shelf reset activity and the timing of product restocking by our retail customers. In an environment of uncertainty from the impact of COVID-19, recessionary and inflationary pressures, competition and other factors impacting our business, we are unable to assess the ultimate impact on the demand for our products as a result of seasonality.
Gross Profit
Gross profit consists of our net revenues less cost of goods sold. Our cost of goods sold primarily consists of the cost of raw materials and ingredients for our products, direct and indirect labor and certain supply costs, co-manufacturing fees, in-bound and internal shipping and handling costs incurred in manufacturing our products, warehouse storage fees, plant and equipment overhead, depreciation and amortization expense, cost of packaging our products, inventory write-offs and reserves. Under certain circumstances, our cost of goods sold may also include underutilization and/or termination fees associated with our co-manufacturing agreements. Over time, we expect our cost of goods sold in absolute dollars to increase as a result of anticipated growth in our sales volume.
Subject to the ultimate duration, magnitude and effects of COVID-19, recessionary and inflationary pressures, competition and other factors impacting our business, we continue to expect that gross profit improvements will be delivered primarily through improved volume leverage and throughput, reduced manufacturing conversion costs, greater internalization and geographic localization of our manufacturing footprint and finished goods, materials and packaging input cost reductions, tolling fee efficiencies, end-to-end production processes across a greater proportion of our manufacturing network, scale-driven efficiencies in procurement and fixed cost absorption, diversification of our core protein ingredients, product and process innovations and reformulations, cost-down initiatives through ingredient and process innovation and improved supply chain logistics and distribution costs. We are also working to improve
gross margin through ingredient cost savings achieved through scale of purchasing and through negotiating lower tolling fees. We intend to pass some of these cost savings on to the consumer as we pursue our goal to achieve price parity with animal protein in at least one of our product categories by the end of 2024.
Gross margin improvement may, however, continue to be negatively impacted by reduced capacity utilization if demand for our products does not meet our expectations, investments in our production infrastructure across the U.S., EU and China in advance of anticipated demand, investing in production personnel, partnerships and product pipeline, aggressive pricing strategies and increased discounting, increases in inventory reserves and potentially increased sales to the liquidation channel, changes in our product and customer mix, and expansion into new geographies and markets where cost and pricing structures may differ from our existing markets. Gross margin improvement may also be negatively impacted by the impact of lower demand forecast, inflation, increasing labor costs, materials costs and transportation costs.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses, share-based compensation, scale-up expenses, and depreciation and amortization expenses on research and development assets. Given our intention to reduce overall operating expenses and cash expenditures, we are currently exploring alternatives, including potentially terminating or subleasing our Commerce, California commercialization center. Our research and development efforts are focused on enhancements to our existing product formulations and production processes in addition to the development of new products. We expect to continue to invest in research and development over time, as research and development and innovation are core elements of our business strategy, and we believe they represent a critical competitive advantage for us. We believe that we need to continue to innovate in order to continue to capture a larger share of consumers who typically eat animal-based meats. We expect research and development expenses in 2023 to decrease from the levels in 2022, as we focus on reducing and optimizing expenses. Over time and subject to the duration, magnitude and effects of the COVID-19 pandemic, recessionary and inflationary pressures, competition and other factors impacting our business, we expect these expenses to increase in absolute dollars, but to decrease as a percentage of net revenues as we continue to expand our business.
SG&A Expenses
SG&A expenses consist primarily of selling, marketing and administrative expenses, including personnel and related expenses, share-based compensation, outbound shipping and handling costs, non-manufacturing lease expense, depreciation and amortization expense on non-manufacturing and non-research and development assets, consulting fees and other non-production operating expenses. Marketing and selling expenses include advertising costs, share-based compensation awards to brand ambassadors, costs associated with consumer promotions, product samples and sales aids incurred to acquire new customers, retain existing customers and build our brand awareness. Administrative expenses include expenses related to management, accounting, legal, IT, and other office functions.
We expect SG&A expenses in 2023 to decrease from the levels in 2022, as we focus on reducing and optimizing expenses. On August 3, 2022, we announced a reduction-in-force affecting approximately 4% of our global workforce. This reduction-in-force is expected to result in total annualized savings of approximately $8 million, excluding one-time separation costs of approximately $1 million, which we recorded in the third quarter of 2022 and reflected within the SG&A and Research and Development expenses in the condensed consolidated statement of operations. On October 11, 2022, our Board of Directors approved a plan to reduce our workforce by an additional approximately 200 employees, representing approximately an additional 19% of our total global workforce, based on cost-reduction initiatives intended to reduce operating expenses.
We currently estimate that we will incur one-time cash charges of approximately $4 million in connection with the reduction-in-force of October 11, 2022, primarily consisting of notice period and severance payments, employee benefits and related costs. We expect that the majority of these charges will be incurred in the fourth quarter of 2022, and that the reduction-in-force will be substantially complete by the end of 2022, subject to local law and consultation requirements, which may extend the process beyond the end of 2022 in certain countries. The charges the Company expects to incur are subject to assumptions, including local law requirements, and actual charges may differ from the estimate disclosed above.
Over time, our administrative expenses are generally expected to increase in absolute dollars with increased personnel to support various functions, including among others, operations and supply chain, accounting, finance, legal, IT and compliance-related functions, but to decrease as a percentage of net revenues.
Restructuring Expenses
In May 2017, management approved a plan to terminate an exclusive supply agreement with one of our co-manufacturers. Subsequent to the quarter ended October 1, 2022, on October 18, 2022, the parties entered into a confidential written settlement agreement and mutual release in connection with this matter. See Note 3, Restructuring, and Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements, included elsewhere in this report. Results of Operations
The following table sets forth selected items in our condensed consolidated statements of operations for the respective periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Net revenues | | $ | 82,500 | | | $ | 106,432 | | | $ | 338,995 | | | $ | 364,022 | |
Cost of goods sold | | 97,340 | | | 83,456 | | | 359,807 | | | 260,986 | |
Gross (loss) profit | | (14,840) | | | 22,976 | | | (20,812) | | | 103,036 | |
Research and development expenses | | 13,413 | | | 14,862 | | | 49,293 | | | 44,610 | |
Selling, general and administrative expenses | | 54,495 | | | 56,362 | | | 192,624 | | | 143,602 | |
Restructuring expenses | | 6,993 | | | 5,750 | | | 14,321 | | | 12,068 | |
Total operating expenses | | 74,901 | | | 76,974 | | | 256,238 | | | 200,280 | |
Loss from operations | | $ | (89,741) | | | $ | (53,998) | | | $ | (277,050) | | | $ | (97,244) | |
The following table presents selected items in our condensed consolidated statements of operations as a percentage of net revenues for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Net revenues | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of goods sold | | 118.0 | | | 78.4 | | | 106.1 | | | 71.7 | |
Gross (loss) profit | | (18.0) | | | 21.6 | | | (6.1) | | | 28.3 | |
Research and development expenses | | 16.3 | | | 14.0 | | | 14.5 | | | 12.3 | |
Selling, general and administrative expenses | | 66.0 | | | 53.0 | | | 56.8 | | | 39.4 | |
Restructuring expenses | | 8.5 | | | 5.4 | | | 4.3 | | | 3.3 | |
Total operating expenses | | 90.8 | | | 72.4 | | | 75.6 | | | 55.0 | |
Loss from operations | | (108.8) | % | | (50.8) | % | | (81.7) | % | | (26.7) | % |
Three and Nine Months Ended October 1, 2022 Compared to Three and Nine Months Ended October 2, 2021 (unaudited)
Net Revenues
Net revenues decreased by $23.9 million, or 22.5%, in the three months ended October 1, 2022, as compared to the prior-year period due to a 12.8% decrease in total pounds sold and an approximately 11.2% decrease in net revenue per pound. The decrease in net revenue per pound was primarily attributable to strategic but limited price reductions in the U.S. and broader list price reductions in the EU implemented in the first quarter of 2022, increased trade discounts and unfavorable changes in foreign exchange rates.
The following table presents our net revenues by channel in the three months ended October 1, 2022 as compared to the prior-year period:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
U.S.: | | | | | | | | |
Retail | | $ | 46,177 | | | $ | 52,361 | | | $ | (6,184) | | | (11.8) | % |
Foodservice | | 15,994 | | | 15,139 | | | 855 | | | 5.6 | % |
U.S. net revenues | | 62,171 | | | 67,500 | | | (5,329) | | | (7.9) | % |
International: | | | | | | | | |
Retail | | 10,195 | | | 21,391 | | | (11,196) | | | (52.3) | % |
Foodservice | | 10,134 | | | 17,541 | | | (7,407) | | | (42.2) | % |
International net revenues | | 20,329 | | | 38,932 | | | (18,603) | | | (47.8) | % |
Net revenues | | $ | 82,500 | | | $ | 106,432 | | | $ | (23,932) | | | (22.5) | % |
Net revenues from U.S. retail channel sales in the three months ended October 1, 2022 decreased $6.2 million, or 11.8%, as compared to the prior-year period, primarily driven by an 11.8% decrease in pounds sold with net revenue per pound staying flat. By product, the decrease in sales was primarily due to decreases in sales of breakfast sausage and dinner sausage and to a lesser extent in Beyond Burger
and Beyond Beef, partially offset by sales to TPP of Beyond Meat Jerky introduced in the first quarter of 2022, which contributed $4.5 million in net revenues, and, to a lesser extent, by chicken products including Beyond Chicken Tenders. Beyond Meat branded products were available at approximately 78,000 U.S. retail outlets as of September 2022.
Net revenues from U.S. foodservice channel sales in the three months ended October 1, 2022 increased $0.9 million, or 5.6%, as compared to the prior-year period, primarily driven by a 32.2% increase in pounds sold, partially offset by lower net revenue per pound. The decrease in net revenue per pound was primarily due to changes in sales mix and, to a lesser extent, higher trade discounts. By product, the increase in net revenues was primarily due to increased sales of chicken products including sales to a large QSR customer, partially offset by the decrease in sales of Beyond Burger, Beyond Sausage, Beyond Breakfast Sausage and Beyond Beef Crumble. Beyond Meat branded products were available at approximately 42,000 U.S. foodservice outlets as of September 2022.
Net revenues from international retail channel sales in the three months ended October 1, 2022 decreased $11.2 million, or 52.3%, as compared to the prior-year period, primarily driven by a 37.0% decrease in pounds sold and a 24.4% decrease in net revenue per pound. The decrease in net revenue per pound was primarily due to list price reductions in the EU implemented in the first quarter of 2022, unfavorable foreign exchange rate impact, changes in sales mix and increased trade discounts. By product, the decrease in sales was primarily due to decreases in sales of Beyond Burger, Beyond Sausage and Beyond Beef. Beyond Meat branded products were available at approximately 35,000 international retail outlets as of September 2022.
Net revenues from international foodservice channel sales in the three months ended October 1, 2022 decreased $7.4 million, or 42.2%, as compared to the prior-year period, primarily due to a 25.5% decrease in net revenue per pound and a 22.4% decrease in pounds sold. The decrease in net revenue per pound was primarily due to changes in sales mix and unfavorable foreign exchange rate impact. By product, the decrease in sales was primarily due to decreases in sales of Beyond Burger and chicken products which, in the prior-year period, benefited from a limited time offering at a QSR customer not repeated in the three months ended October 1, 2022. Beyond Meat branded products were available at approximately 33,000 international foodservice outlets as of September 2022.
Net revenues decreased by $25.0 million, or 6.9%, in the nine months ended October 1, 2022, as compared to the prior-year period, primarily due to a decrease in net revenue per pound of approximately 11.6%, partially offset by a 5.6% increase in total pounds sold. The decrease in net revenue per pound was primarily attributable to changes in sales mix, price, including the impact of sales to liquidation channels and list price reductions in the EU implemented in the first quarter of 2022, increased trade discounts, and unfavorable changes in foreign exchange rates.
The following table presents our net revenues by channel in the nine months ended October 1, 2022 as compared to the prior-year period:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
U.S.: | | | | | | | | |
Retail | | $ | 193,298 | | | $ | 193,382 | | | $ | (84) | | | — | % |
Foodservice | | 54,876 | | | 55,842 | | | (966) | | | (1.7) | % |
U.S. net revenues | | 248,174 | | | 249,224 | | | (1,050) | | | (0.4) | % |
International: | | | | | | | | |
Retail | | 50,024 | | | 67,134 | | | (17,110) | | | (25.5) | % |
Foodservice | | 40,797 | | | 47,664 | | | (6,867) | | | (14.4) | % |
International net revenues | | 90,821 | | | 114,798 | | | (23,977) | | | (20.9) | % |
Net revenues | | $ | 338,995 | | | $ | 364,022 | | | $ | (25,027) | | | (6.9) | % |
Net revenues from U.S. retail channel sales in the nine months ended October 1, 2022 remained flat as compared to the nine months ended October 2, 2021. Total pounds sold increased 6.8%, offset by a decrease of 6.3% in net revenue per pound attributable to lower pricing including the impact of sales to liquidation channels and list price reductions, changes in product mix and higher trade discounts. The increase in U.S. retail channel net revenues was primarily due to sales to TPP of Beyond Meat Jerky introduced in the first quarter of 2022, which contributed $31.1 million in net revenues, and, to a lesser extent, by chicken products including Beyond Chicken Tenders, and was more than offset by decreases in sales of other products.
Net revenues from U.S. foodservice channel sales in the nine months ended October 1, 2022 decreased $1.0 million, or 1.7%, as compared to the prior-year period, primarily driven by a decrease of 8.1% in net revenue per pound partially offset by a 6.9% increase in total pounds sold. By product, the decrease in sales was primarily due to reduced sales of Beyond Breakfast Sausage driven by the discontinuation of distribution at a certain customer, Beyond Burger and Beyond Beef Crumble, partially offset by increased sales of chicken products, including sales to a large QSR customer and sales of Beyond Chicken Tenders and Beyond Sausage.
Net revenues from international retail channel sales in the nine months ended October 1, 2022 decreased $17.1 million, or 25.5%, as compared to the prior-year period, primarily driven by a 21.9% decrease in net revenue per pound, and a 4.6% decrease in pounds sold. The decrease in net revenue per pound was primarily due to list price reductions in the EU implemented in the first quarter of 2022, increased trade discounts, unfavorable foreign exchange rate impact and changes in sales mix. By product, the decrease in sales was primarily due to decreases in sales of Beyond Burger, Beyond Sausage and Beyond Beef, partially offset by increases in sales of Beyond Breakfast Sausage and chicken products including Beyond Chicken Tenders.
Net revenues from international foodservice channel sales in the nine months ended October 1, 2022 decreased $6.9 million, or 14.4%, as compared to the prior-year period, primarily due to a 23.9% decrease in net revenue per pound, partially offset by a 12.4% increase in pounds sold. The decrease in net revenue per pound was mainly due to changes in sales mix, unfavorable foreign exchange rate impact and increased trade discounts. By product, the increase in sales was primarily due to increases in sales of Beyond Burger and chicken products including Beyond Chicken Tenders.
The following table presents total pounds sold by channel for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
| | | | | | | | | | | | | | | | |
U.S.: | | | | | | | | | | | | | | | | |
Retail | | 8,861 | | | 10,041 | | | (1,180) | | | (11.8) | % | | 37,371 | | | 35,003 | | | 2,368 | | | 6.8 | % |
Foodservice | | 3,378 | | | 2,556 | | | 822 | | | 32.2 | % | | 10,095 | | | 9,440 | | | 655 | | | 6.9 | % |
International: | | | | | | | | | | | | | | | | |
Retail | | 2,364 | | | 3,751 | | | (1,387) | | | (37.0) | % | | 10,955 | | | 11,485 | | | (530) | | | (4.6) | % |
Foodservice | | 2,785 | | | 3,588 | | | (803) | | | (22.4) | % | | 10,408 | | | 9,257 | | | 1,151 | | | 12.4 | % |
Total pounds sold | | 17,388 | | | 19,936 | | | (2,548) | | | (12.8) | % | | 68,829 | | | 65,185 | | | 3,644 | | | 5.6 | % |
Cost of Goods Sold
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
Cost of goods sold | | $ | 97,340 | | | $ | 83,456 | | | $ | 13,884 | | | 16.6 | % | | $ | 359,807 | | | $ | 260,986 | | | $ | 98,821 | | | 37.9 | % |
Cost of goods sold increased $13.9 million, or 16.6%, to $97.3 million, in the three months ended October 1, 2022 as compared to the prior-year period. Cost of goods sold as a percentage of net revenues in the three months ended October 1, 2022 increased to 118.0% from 78.4% of net revenues in the prior-year period. The increase in cost of goods sold was primarily due to increased cost per pound compared to the prior-year period. The increase in cost per pound was primarily driven by increases in manufacturing costs including depreciation, increased materials costs, and higher logistics costs. In addition, Beyond Meat Jerky, which was introduced in the first quarter of 2022, negatively impacted cost per pound in the three months ended October 1, 2022 compared to the prior-year period. Cost of goods sold in the three months ended October 1, 2022 included underutilization fees and one-time termination costs associated with certain co-manufacturing agreements in the amount of $7.2 million, in aggregate, as compared to amounts which were immaterial in the prior-year period. The decrease in revenue per pound in the three months ended October 1, 2022 compared to the prior-year period also had the effect of increasing cost of goods sold as a percentage of net revenues.
Cost of goods sold increased $98.8 million, or 37.9%, to $359.8 million, in the nine months ended October 1, 2022 as compared to the prior-year period. As a percentage of net revenues, cost of goods sold in the nine months ended October 1, 2022 increased to 106.1% from 71.7% of net revenues in the prior-year period. The increase in cost of goods sold was due to increased cost per pound and, to a lesser extent, increased pounds sold compared to the prior-year period. The increase in cost per pound was due to manufacturing costs including depreciation, increased logistics costs and, to a lesser extent, increased materials costs. In addition, the introduction of Beyond Meat Jerky in the first quarter of 2022 negatively impacted cost per pound in the nine months ended October 1, 2022 compared to the prior-year period. Cost of goods sold in the nine months ended October 1, 2022 included underutilization fees and one-time termination costs associated with certain co-manufacturing agreements in the amount of $10.1 million, in aggregate, as compared to amounts which were immaterial in the prior-year period. The decrease in revenue per pound in the nine months ended October 1, 2022 compared to the prior-year period also had the effect of increasing cost of goods sold as a percentage of net revenues.
Gross Profit and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
Gross (loss) profit | | $(14,840) | | $22,976 | | $(37,816) | | (164.6)% | | $(20,812) | | $103,036 | | $(123,848) | | (120.2)% |
Gross margin | | (18.0)% | | 21.6% | | (3,960) bps | | N/A | | (6.1)% | | 28.3% | | (3,440) bps | | N/A |
Gross profit in the three months ended October 1, 2022 was a loss of $14.8 million as compared to gross profit of $23.0 million in the prior-year period, a decrease of $37.8 million. Gross margin in the three months ended October 1, 2022 decreased to a negative gross margin of (18.0)% from a positive gross margin of 21.6% in the prior-year period. Gross profit and gross margin decreased primarily as a result of a decrease in total pounds sold of 12.8% and as a result of increased costs per pound of approximately $1.41 and decreased net revenue per pound of approximately $0.60 in the three months ended October 1, 2022 compared to the prior-year period. The increase in cost per pound was primarily driven
by higher manufacturing costs per pound including depreciation, as well as increased materials and logistics costs per pound. Gross profit in the three months ended October 1, 2022 was negatively impacted by underutilization fees and one-time termination costs associated with certain co-manufacturing agreements in the amount of $7.2 million, in aggregate, of which approximately $5.9 million of the underutilization fees and one-time termination costs were associated with Beyond Meat Jerky which negatively impacted gross profit by approximately $5.8 million in the three months ended October 1, 2022.
Gross profit in the nine months ended October 1, 2022 was a loss of $20.8 million as compared to gross profit of $103.0 million in the prior-year period, a decrease of $123.8 million. Gross margin in the nine months ended October 1, 2022 decreased to a negative gross margin of (6.1)% from a positive gross margin of 28.3% in the prior-year period. Despite a 5.6% increase in total pounds sold, gross profit and gross margin decreased primarily as a result of increased cost per pound of approximately $1.23 and decreased net revenue per pound of approximately $0.65 in the nine months ended October 1, 2022 compared to the prior-year period. Beyond Meat Jerky negatively impacted gross profit by approximately $22.8 million in the nine months ended October 1, 2022. Sales of Beyond Meat Jerky and sales into the liquidation channel were both headwinds to gross profit compared to the prior-year period. Approximately $10.1 million, in aggregate, of the underutilization fees and one-time termination costs associated with certain co-manufacturing agreements, including $5.9 million associated with Beyond Meat Jerky, negatively impacted gross profit in the nine months ended October 1, 2022.
We include outbound shipping and handling costs within SG&A expenses. As a result, our gross profit and gross margin may not be comparable to other entities that present shipping and handling costs as a component of cost of goods sold.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
Research and development expenses | | $ | 13,413 | | | $ | 14,862 | | | $ | (1,449) | | | (9.7) | % | | $ | 49,293 | | | $ | 44,610 | | | $ | 4,683 | | | 10.5 | % |
Research and development expenses decreased $1.4 million, or 9.7%, in the three months ended October 1, 2022, as compared to the prior-year period primarily due to a reduction in headcount partially offset by an increase in new product scale-up expenses. Research and development expenses increased to 16.3% of net revenues in the three months ended October 1, 2022 from 14.0% of net revenues in the prior-year period primarily as a result of lower net revenues in the three months ended October 1, 2022 as compared to the prior-year period.
Research and development expenses increased $4.7 million, or 10.5%, in the nine months ended October 1, 2022, as compared to the prior-year period. Research and development expenses increased to 14.5% of net revenues in the nine months ended October 1, 2022 from 12.3% of net revenues in the prior-year period primarily due to an increase in production trial activities compared to the prior-year period and lower net revenues in the nine months ended October 1, 2022, partially offset by lower expenses resulting from a reduction in headcount.
SG&A Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | Amount | | % | | October 1, 2022 | | October 2, 2021 | | Amount | | % |
Selling, general and administrative expenses | | $ | 54,495 | | | $ | 56,362 | | | $ | (1,867) | | | (3.3) | % | | $ | 192,624 | | | $ | 143,602 | | | $ | 49,022 | | | 34.1 | % |
SG&A expenses decreased $1.9 million, or 3.3%, in the three months ended October 1, 2022, as compared to the prior-year period. As a percentage of net revenues SG&A expenses increased to 66.0% of net revenues in the three months ended October 1, 2022, from 53.0% of net revenues in the prior-year period. The decrease in SG&A expenses was primarily due to $3.2 million in lower marketing expenses, $3.2 million in lower salaries and related expenses, $2.6 million in lower outbound freight costs, and $2.3 million in lower consulting fees, partially offset by $4.5 million in higher product donations, $2.9 million in higher share-based compensation expense, and $2.0 million in increased advertising costs.
SG&A expenses increased $49.0 million, or 34.1%, in the nine months ended October 1, 2022 to 56.8% of net revenues in the nine months ended October 1, 2022, from 39.4% of net revenues in the prior-year period. The increase in SG&A expenses was primarily due to $14.7 million in advertising costs, $11.2 million in higher salaries and related expenses, $7.2 million in higher share-based compensation expense, $6.1 million in higher product donations, $5.3 million in higher marketing expenses and $4.4 million in higher consulting fees.
Restructuring Expenses
As a result of the termination in May 2017 of an exclusive supply agreement with one of our co- manufacturers due to non-performance under the agreement, we recorded restructuring expenses of $7.0 million and $5.8 million in the three months ended October 1, 2022 and October 2, 2021, respectively, and $14.3 million and $12.1 million in the nine months ended October 1, 2022 and October 2, 2021, respectively. The restructuring expenses were primarily related to legal and other expenses associated with the dispute. As of October 1, 2022 and December 31, 2021, there were $4.1 million and $2.7 million, respectively, in accrued and unpaid restructuring expenses. Subsequent to the quarter ended October 1, 2022, on October 18, 2022, the parties entered into a confidential written settlement agreement and mutual release in connection with this matter. See Note 3, Restructuring, and Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Loss from Operations
Loss from operations in the three months ended October 1, 2022 was $89.7 million compared to $54.0 million in the prior-year period. The increase in loss from operations in the three months ended October 1, 2022 was primarily driven by lower gross profit, partially offset by a reduction in operating expenses, as compared to the prior-year period. The reduction in operating expenses was primarily attributable to lower selling expenses, reduced general and administrative expenses, and lower non-production headcount expenses, partially offset by increased product donations and restructuring costs.
Loss from operations in the nine months ended October 1, 2022 was $277.1 million compared to $97.2 million in the prior-year period. The increase in loss from operations in the nine months ended October 1, 2022 was primarily driven by lower gross profit, growth in non-production headcount expenses, higher share-based compensation expense, higher product donations, higher marketing-related expenses, higher consulting expenses, increased production trial activities and higher restructuring expenses compared to the prior-year period.
Total Other Expense, net
Total other expense, net in the three months ended October 1, 2022 of $3.2 million included approximately $3.9 million in realized and unrealized foreign currency transaction losses due to unfavorable changes in foreign exchange rates of the Euro and Chinese Yuan and $1.0 million in interest expense from the amortization of convertible debt issuance costs, partially offset by $1.5 million in interest income. Total other expense of $0.2 million in the prior-year period consisted of $1.0 million in interest expense from the amortization of convertible debt issuance costs and $0.2 million in foreign currency transaction losses, partially offset by $0.9 million in subsidies received from the Jiaxing Economic Development Zone Finance Bureau for our investment in BYND JX.
Total other expense, net in the nine months ended October 1, 2022 of $11.4 million consisted primarily of $10.5 million in realized and unrealized foreign currency transaction losses due to unfavorable changes in foreign exchange rates of the Euro and Chinese Yuan and $3.0 million in interest expense from the amortization of convertible debt issuance costs, partially offset by $2.2 million in interest income. Total other expense, net in the nine months ended October 2, 2021 of $3.3 million consisted of $2.3 million in interest expense from the amortization of convertible debt issuance costs, $1.0 million in loss on extinguishment of debt associated with the termination of our bank credit facility, $0.4 million in foreign currency transaction losses and $0.3 million in interest expense associated with our bank credit facility, partially offset by $1.1 million in subsidies received from the Jiaxing Economic Development Zone Finance Bureau for our investment in BYND JX.
Net Loss
Net loss was $101.7 million and $299.3 million in the three and nine months ended October 1, 2022, respectively, compared to net loss of $54.8 million and $101.7 million in the prior-year periods. The increase in net loss during the three and nine months ended October 1, 2022 as compared to the prior-year periods was primarily due to lower gross profit, higher losses in equity associated with TPP, and higher realized and unrealized foreign currency losses as discussed above. The increase in net loss for the nine months ended October 1, 2022 compared to the prior-year period was also driven by higher operating expenses.
Non-GAAP Financial Measures
We use the non-GAAP financial measures set forth below in assessing our operating performance and in our financial communications. Management believes these non-GAAP financial measures provide useful additional information to investors about current trends in our operations and are useful for period-over-period comparisons of operations. In addition, management uses these non-GAAP financial measures to assess operating performance and for business planning purposes. Management also believes these measures are widely used by investors, securities analysts, rating agencies and other parties in evaluating companies in our industry as a measure of our operational performance. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies.
“Adjusted EBITDA” is defined as net loss adjusted to exclude, when applicable, income tax expense, interest expense, depreciation and amortization expense, restructuring expenses, share-based compensation expense, and Other, net, including interest income, loss on extinguishment of debt and foreign currency transaction gains and losses.
“Adjusted EBITDA as a % of net revenues” is defined as Adjusted EBITDA divided by net revenues.
There are a number of limitations related to the use of Adjusted EBITDA and Adjusted EBITDA as a % of net revenues rather than their most directly comparable GAAP measure. Some of these limitations are:
•Adjusted EBITDA excludes depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future increasing our cash requirements;
•Adjusted EBITDA does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us;
•Adjusted EBITDA does not reflect income tax payments that reduce cash available to us;
•Adjusted EBITDA does not reflect restructuring expenses that reduce cash available to us;
•Adjusted EBITDA does not reflect share-based compensation expense and therefore does not include all of our compensation costs;
•Adjusted EBITDA does not reflect Other, net, including interest income, loss on extinguishment of debt and foreign currency transaction gains and losses, that may increase or decrease cash available to us; and
•other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
The following table presents the reconciliation of Adjusted EBITDA to its most comparable GAAP measure, net loss, as reported (unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(in thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Net loss, as reported | | $ | (101,678) | | | $ | (54,816) | | | $ | (299,270) | | | $ | (101,734) | |
Income tax (benefit) expense | | — | | | (23) | | | 21 | | | 27 | |
Interest expense | | 1,040 | | | 1,005 | | | 3,173 | | | 2,656 | |
Depreciation and amortization expense | | 8,435 | | | 5,703 | | | 23,255 | | | 14,910 | |
Restructuring expenses(1) | | 6,993 | | | 5,750 | | | 14,321 | | | 12,068 | |
Share-based compensation expense | | 9,250 | | | 6,385 | | | 28,848 | | | 21,624 | |
Other, net(2) | | 2,151 | | | (759) | | | 8,177 | | | 631 | |
Adjusted EBITDA | | $ | (73,809) | | | $ | (36,755) | | | $ | (221,475) | | | $ | (49,818) | |
Net loss as a % of net revenues | | (123.2) | % | | (51.5) | % | | (88.3) | % | | (27.9) | % |
Adjusted EBITDA as a % of net revenues | | (89.5) | % | | (34.5) | % | | (65.3) | % | | (13.7) | % |
____________
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(1) | Primarily comprised of legal and other expenses associated with the dispute with a co-manufacturer with whom an exclusive supply agreement was terminated in May 2017. Subsequent to the quarter ended October 1, 2022, on October 18, 2022, the parties entered into a confidential written settlement agreement and mutual release in connection with this matter. |
(2) | (a) Includes $3.9 million and $10.5 million in foreign currency transaction losses in the three and nine months ended October 1, 2022, respectively, and $0.2 million and $0.4 million in foreign currency transaction losses in the three and nine months ended October 2, 2021, respectively. (b) Includes $1.0 million in loss on extinguishment of debt associated with termination of the Company's credit facility in the nine months ended October 2, 2021. |
Liquidity and Capital Resources
Convertible Senior Notes
For a discussion about the Notes, see Note 7, Debt, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Liquidity
Liquidity Outlook
In 2022, our cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of COVID-19 and other risks detailed in Part I, Item 1A, “Risk Factors,” of our 2021 10-K and Part II, Item 1A, “Risk Factors” and “Note Regarding Forward-Looking Statements” included elsewhere in this report. The pandemic, inflation, rising interest rates, overall economic conditions and hostilities in Eastern Europe have led to increased disruption and volatility in capital markets and credit markets generally which could adversely affect our liquidity and capital resources in the future. However, based on our current business plan, we believe that our existing cash balances will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months. In the future, we may raise funds by issuing debt or equity securities. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Our cash requirements under our significant contractual obligations and commitments are listed below in the section titled “Contractual Obligations and Commitments.” Our future capital requirements may vary materially from those currently planned and will depend on many factors, including the impact of the COVID-19 pandemic; our rate of revenue growth; timing to adjust our supply chain and cost structure in response to material fluctuations in product demand; the number and characteristics of any additional products or manufacturing processes we develop or acquire to serve new or existing markets; our investment in and build out of our campus headquarters; the expenses associated with our marketing initiatives; our investment in manufacturing and facilities to expand our manufacturing and production capacity; our investments in real property and joint ventures; the costs required to fund domestic and international operations and growth; the scope, progress, results and costs of researching and developing future products or improvements to existing products or manufacturing processes; any lawsuits related to our products or commenced against us or our directors and officers; the expenses needed to attract and retain skilled personnel; the costs associated with being a public company; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing intellectual property claims, including litigation costs and the outcome of such litigation; and the timing, receipt and amount of sales of, or royalties on, any future approved products, if any.
Subsequent to the quarter ended October 1, 2022, on October 11, 2022, our Board of Directors approved a plan to reduce our workforce by approximately 200 employees, representing approximately 19% of our total global workforce. This decision was based on cost-reduction initiatives intended to reduce operating expenses, as the Company focuses on a set of key growth priorities.
We currently estimate that we will incur one-time cash charges of approximately $4 million in connection with the reduction-in-force, primarily consisting of notice period and severance payments, employee benefits and related costs. We expect that the majority of these charges will be incurred in the fourth quarter of 2022, and that the reduction-in-force will be substantially complete by the end of 2022, subject to local law and consultation requirements, which may extend the process beyond the end of 2022 in certain countries. The charges that we expect to incur are subject to assumptions, including local law requirements, and actual charges may differ from the estimate disclosed above. We may not be able to fully realize the costs savings and benefits initially anticipated from these actions, and the expected costs may be greater than expected.
Sources of Liquidity
Our primary cash needs are for operating expenses, working capital and capital expenditures to support the planned growth in our business. Prior to our IPO, we financed our operations through private sales of equity securities and through sales of our products. Since our inception and through our IPO, we raised a total of $199.5 million from the sale of convertible preferred stock, including through sales of convertible notes which
were converted into preferred stock, net of costs associated with such financings. In connection with our IPO, we sold an aggregate of 11,068,750 shares of our common stock at a public offering price of $25.00 per share and received approximately $252.4 million in net proceeds. In connection with our Secondary Offering, we sold 250,000 shares of our common stock at a public offering price of $160.00 per share and received approximately $37.4 million in net proceeds. In March 2021, we issued $1.2 billion in aggregate principal amount of Notes (see Note 7, Debt, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report). As of October 1, 2022, we had $390.2 million in cash and cash equivalents. In the nine months ended October 1, 2022, approximately $121.4 million in aggregate expenditures to purchase inventory, purchase property, plant and equipment and pay escrow payments related to the Campus Lease, and approximately $219.4 million in net cash outflows from other operating, investing and financing activities were funded with our existing cash balance.
The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods indicated.
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(in thousands) | | October 1, 2022 | | October 2, 2021 |
Cash (used in) provided by: | | | | |
Operating activities | | $ | (270,347) | | | $ | (191,047) | |
Investing activities | | $ | (70,704) | | | $ | (104,433) | |
Financing activities | | $ | 385 | | | $ | 1,022,120 | |
Net Cash Used in Operating Activities
In the nine months ended October 1, 2022, we incurred a net loss of $299.3 million, which was the primary reason for net cash used in operating activities of $270.3 million. Net cash outflows from changes in our operating assets and liabilities were $52.5 million, primarily due to the escrow payments related to the Campus Lease (see Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report), and increase in inventory. The cash outflows were partially offset by the decrease in accounts receivable and prepaid expenses and other assets. Net loss in the nine months ended October 1, 2022 included $81.4 million in non-cash expenses primarily comprised of share-based compensation expense, depreciation and amortization expense, our portion of the losses in our joint venture and unrealized losses on foreign currency transactions. In the nine months ended October 2, 2021, we recorded a net loss of $101.7 million which was the primary reason for net cash used in operating activities of $191.0 million. Net cash outflows from changes in our operating assets and liabilities were $132.9 million, primarily due to the increase in inventory, increase in accounts receivable balances and escrow payments related to the Campus Lease (see Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report). The cash outflows were partially offset by the increase in accrued expenses and other current liabilities. Net loss in the nine months ended October 2, 2021 included $43.6 million in non-cash expenses primarily comprised of share-based compensation expense and depreciation and amortization expense. Depreciation and amortization expense was $23.3 million and $14.9 million in the nine months ended October 1, 2022 and October 2, 2021, respectively.
Net Cash Used in Investing Activities
Net cash used in investing activities primarily relates to capital expenditures to support our investment in property, plant and equipment.
In the nine months ended October 1, 2022, net cash used in investing activities was $70.7 million and consisted of $60.0 million in cash outflows for purchases of property, plant and equipment, primarily driven by continued investments in facilities and production equipment and $10.0 million in payments for investment in
joint venture. Subsequent to the quarter ended October 1, 2022, the Company agreed to contribute an additional $6.5 million as its share of the additional investment in TPP, with half to be contributed in the fourth quarter of 2022 and the remaining half in the first quarter of 2023.
In the nine months ended October 2, 2021, net cash used in investing activities was $104.4 million and consisted of cash outflows for purchases of property, plant and equipment, primarily driven by continued investments in production equipment and facilities related to our capacity expansion initiatives domestically and abroad. Capital expenditures in the nine months ended October 2, 2021 include $10.4 million in payments for the purchase of a property that the Company had previously leased under an operating lease.
Net Cash Provided by Financing Activities
In the nine months ended October 1, 2022, net cash provided by financing activities was $0.4 million primarily from $1.6 million in proceeds from stock option exercises, partially offset by $1.1 million in payments of minimum withholding taxes on net share settlement of equity awards and payments under finance lease obligations.
In the nine months ended October 2, 2021, net cash provided by financing activities was $1,022.1 million primarily from the proceeds of the Notes of $1,066.1 million and $7.6 million in proceeds from stock option exercises, partially offset by repayment of revolving credit facility of $25.0 million, debt issuance costs of $23.6 million associated with the Notes, $2.7 million in payments of minimum withholding taxes on net share settlement of equity awards and payments under finance lease obligations.
Contractual Obligations and Commitments
There have been no significant changes during the nine months ended October 1, 2022 to the contractual obligations disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the 2021 10-K, other than the following:
Leases
On January 14, 2021, we entered into the Campus Lease with HC Hornet Way, LLC, a Delaware limited liability company (the “Landlord”), to house our lab and innovation space and headquarters offices in El Segundo, California (the “Premises”). Although the Company is involved in the design of the tenant improvements of the Premises, the Company does not have title or possession of the assets during construction. In addition, the Company does not have the ability to control the leased Premises until each phase of the tenant improvements is complete. We contributed $49.1 million and $59.2 million in payments towards the construction of the Premises in the nine months ended October 1, 2022 and in the year ended December 31, 2021, respectively. These payments are initially recorded in “Prepaid lease costs, non-current” in the Company’s condensed consolidated balance sheets as of October 1, 2022 and December 31, 2021, respectively, which will ultimately be recorded as a component of a right-of-use asset upon lease commencement for each phase of the lease. On September 15, 2022, the tenant improvements associated with Phase 1-A were completed, and the underlying asset was delivered to the Company. As such, the Company has recognized a $64.1 million right-of-use asset, which includes the reclassification of $27.7 million of the construction payments previously included in “Prepaid lease costs, non-current,” and a $36.6 million lease liability for Phase 1-A of the Campus Lease in its condensed consolidated balance sheet as of October 1, 2022. Aggregate payments towards base rent over the initial lease term associated with the remaining phases not yet delivered to the Company will be approximately $118.4 million.
Concurrent with our execution of the Campus Lease, as a security deposit, we delivered to the landlord a letter of credit under the revolving credit facility in the amount of $12.5 million. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured. See Note 4, Leases, and Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report.
China Investment and Lease Agreement
In the nine months ended October 1, 2022, we amended the lease for our facility in the JXEDZ to extend the term for an additional five years without rent escalation. As of October 1, 2022, we had invested $22.0 million and had advanced $20.0 million to our subsidiary, BYND JX. See Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Investment in The Planet Partnership
On January 25, 2021, we entered into TPP, a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack products made from plant-based protein. We believe TPP will allow us to reach more consumers by entering new product categories and distribution channels, increasing accessibility to plant-based protein around the world. We recognized our share of the net losses in TPP in the amount of $8.7 million and $0.6 million for the three months ended October 1, 2022 and October 2, 2021, respectively, and our share of the net losses in TPP in the amount of $10.8 million and $1.2 million for the nine months ended October 1, 2022 and October 2, 2021, respectively. In the nine months ended October 1, 2022, we also entered into an agreement for a nonrefundable up-front fee associated with our manufacturing and supply agreement with TPP that will be recognized over the estimated term of the manufacturing and supply agreement. See Note 13, Related Party Transactions, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. For the year ended December 31, 2021, we contributed our share of the investment in TPP, $11.0 million, which was increased in the nine months ended October 1, 2022 to $21.0 million. Subsequent to the quarter ended October 1, 2022, we agreed to contribute an additional $6.5 million as our share of the additional investment in TPP, with half to be contributed in the fourth quarter of 2022 and the remaining half in the first quarter of 2023. Purchase Commitments
As of October 1, 2022, we had a commitment to purchase pea protein inventory totaling $49.4 million, of which $9.3 million is expected to be purchased in the remainder of 2022, and $40.1 million in 2023, and $84.7 million in fee commitments to manufacture products at a co-manufacturer’s facility over a 5-year term (see Note 10, Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report). In addition, as of October 1, 2022, we had approximately $40.7 million in purchase order commitments for capital expenditures primarily to purchase machinery and equipment On July 27, 2022, we entered into an agreement to purchase certain real property on a neighboring site to our manufacturing facility in Europe located in Enschede, the Netherlands, for cash consideration of approximately €6.3 million. The purchase is expected to close in the second half of 2023.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any holdings in variable interest entities.
Critical Accounting Policies
In preparing our financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs and expenses, and disclosure of contingent assets and liabilities that are reported in the financial statements and accompanying disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates and assumptions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
There have been no material changes in our critical accounting policies during the nine months ended October 1, 2022, as compared to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2021 10-K other than as described in
Note 2, Summary of Significant Accounting Policies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Recent Accounting Pronouncements
Please refer to Note 2, Summary of Significant Accounting Policies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for a discussion of recently adopted accounting pronouncements and new accounting pronouncements that may impact us.