超越肉類 (BYND) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience.

You've joined Beyond Meat's First Quarter 2019 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the call over to your host, Katie Turner, for opening remarks.

Thank you.

Good afternoon, and welcome to Beyond Meat's First Quarter 2019 Earnings Conference Call and Webcast.

On today's call are Seth Goldman, Executive Chair; Ethan Brown, Founder, President and Chief Executive Officer; and Mark Nelson, Chief Financial Officer.

By now, everyone should have access to the earnings press release and Form 8-K issued today after market close.

These documents are available on the Investors section of Beyond Meat's website at www.beyondmeat.com.

Before we begin, please note that all of the financial information presented is unaudited, and during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws.

These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to the company's prospectus on Form S-1 filed with the Securities and Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Please note, on today's call, management will refer certain non-GAAP financial measures, such as adjusted EBITDA as well as pro forma basic and diluted net loss per common share.

While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.

Now I'd like to turn the call over to Seth Goldman.

Thank you, Katie, and good afternoon, everyone.

We appreciate you joining us on our first earnings call as a public company.

It was great to have the opportunity to meet many of you during the course of our IPO roadshow in May.

Ethan, Mark and I look forward to meeting more of you when we attend investor events this year.

Last month, Beyond Meat became the first plant-based meat company to successfully complete an initial public offering on a major U.S. stock exchange.

This was an important milestone for Beyond Meat and our sector as a whole, further demonstrating the potential of our plant-based innovations to appeal to a broad range of customers, including those who typically eat animal-based meats, positioning us to compete directly in the $1.4 trillion global meat industry.

The capital we raise from the IPO will provide the resources for long-term growth as we build and scale our business in the U.S. and expand our operations internationally.

I'd like to extend a special congratulations and thanks to our passionate and dedicated team who made the IPO and our success possible.

Between our management and Board of Directors, we have assembled a leadership team with significant experience in food and science to help fuel Beyond Meat's culture of innovation.

Finally, I want to stress that, at Beyond Meat, we are executing on what we believe is an incredibly robust long-term growth journey.

And for that reason, we are providing a 2019 annual outlook and long-term financial target, which Mark will review in more detail.

Our guidance philosophy is to reflect anticipated growth within our existing business and any confirmed distribution wins achieved to-date.

We believe this is a prudent approach given the inherent variability in the timing of new distribution wins, particularly in the foodservice channel.

We will continue to maintain the operational flexibility needed to make strategic decisions as opportunities present themselves during the year.

We look forward to continuing to update you on our progress in the coming quarters.

And now I'd like to turn the call over to our Founder and CEO, Ethan Brown.

Thank you, Seth, and good afternoon, everyone.

It's great to be speaking with all of you on our first earnings call following our successful IPO.

I will briefly review our first quarter financial highlights, provide an overview of Beyond Meat's business model and discuss the key reasons we believe we're well positioned for long-term growth in the U.S. and globally.

Mark will then review our financial results in more detail, discuss our guidance and long-term financial targets.

After that, we'll open the call up for your questions.

We are pleased to report a strong first quarter.

Total net revenue increased 215% to $40.2 million compared to Q1 last year.

We also saw positive trends in our key profit metrics.

Gross profit margin increased over 1,000 basis points year-over-year and nearly 200 basis points sequentially.

Adjusted EBITDA improved 50% from the first quarter of 2018 to a loss of $2.1 million continuing our march toward profitability ahead of our initial plan.

Given that many of you are new to our story, I want to take a little more time on this first call to provide an overview of our business model and global growth strategy.

At Beyond Meat, our focus is squarely on the center-of-the-plate protein, a segment traditionally have seen very little in step-change innovation.

We began with a simple question.

Do you need an animal to produce meat?

The common understanding of meat is it has to come from a chicken, cow or pig or some other type of animal.

When we think about meat, we define it in terms of its composition.

And as it turns out, meat is, at a high level, an assembly of amino acids, lipids, trace minerals and vitamins, and water.

We've developed the scientific and technological understanding as well as infrastructure over the past decade to assemble these core parts into the architecture of meat drawing directly from plant-based sources.

We understand and use the architecture of meat to present these inputs in a way that, to the best of our ability today, offers the same satisfying taste, texture, aroma and nutritional benefits as animal-based meats.

So instead of running plant materials in the form of feed to an animal to build meat, we are bypassing the animal and using plants to build meat directly.

We view our work as a progress in advancements, some big, most incremental, toward a build of meat from plants that is indistinguishable from its animal protein equivalent.

Since the first days of the company, we do this in dialogue with the consumer.

The voice of the consumer is deeply embedded in our products.

We ask our scientists and engineers what can science do, but we ask consumer what should science do.

And here's what they've told us.

They've made it very clear that they don't want GMOs in their food, that they don't want artificial ingredients, that they feel they have too much soy and wheat in their diets already.

They want familiar and short ingredient lists.

It is this dialogue that led us to trademark the phrase, Eat What You Love, because we believe that we are enabling consumers and their families to continue to enjoy and even increase their consumption of burgers and sausage by using our plant-based meats and avoiding some of the concerns they may have around animal-derived meats.

Lastly, in addition to learning from the consumer, our willingness of the last 10 years to enter the market while still iterating the product has given Beyond Meat an important first-mover advantage in several key markets.

Our work begins at our innovation center, the Manhattan Beach Project.

The name reflects our shoreline location, but, more importantly, is designed to evoke the spirit of the group of men and women who came together at the University of Chicago during the Second World War, namely to tap into that notion that the assembly of right scientists, engineers and managers, together with a goal that is urgent, global and societal in nature, can bring to life what's previously residing only in imagination.

Here we work to make obsolete our very own products on the shelf today, while introducing new products across our core categories of beef, pork and poultry.

We capture this organizational mindset in a formal process, which we call the Beyond Meat Rapid and Relentless Innovation Program.

Our approach has resonated strongly with consumers and allowed us to achieve tremendous growth becoming a leading disruptor in the meat category.

Over the past 2 years, we've generated total revenue CAGR of over 130% and achieved broad distribution across more than 30,000 points of sale in both retail and foodservice channels.

To start 2019, Beyond Meat has made noticeable strides securing a runway for continued growth.

We launched 2 new products, breakfast sausage and ground meat, which are generating significant positive consumer responses.

We've continued to roll out in foodservice our Beyond Burger 2.0, while readying this 2.0 burger platform for retail release later this summer.

We've also introduced our products in Del Taco and Carl's Jr.

to much fanfare.

And most recently, Tim Hortons began testing our new breakfast sausage in select stores.

We've also made progress expanding our international reach.

What's so exciting for us about the quick-serve restaurant channel is that every time a consumer sees the product on the menu, it's the Beyond Meat brand.

We're building our brand alongside these important partners.

Operationally, our team continues to push forward to keep up strong demand for our products.

We've improved the efficiency of our manufacturing process.

We've tripled our manufacturing capacity from last summer, and we've secured ample protein supply from not only our existing supplier but by bringing on a new U.S.-based supplier.

As we move forward, our growth strategies are anchored by innovating, including improving existing products and launching new ones, expanding brand awareness, growing our distribution channels and investing in infrastructure and capacity to be able to serve Beyond Meat's global market demand.

At a point that one can only find exciting as we look to the future, with all this activity, we're still in the very early innings of growth.

Based on a recent Nielsen panel data, Beyond Meat has just 2% household penetration in United States.

Just as we see this tremendous runway ahead, we see an equally compelling future internationally.

Beyond Meat is not only in the United States and Canada, but we've also begun to respond to significant demand for our products across Europe where we recently launched distribution and announced a new manufacturing partnership with Zandbergen World's Finest Meat, a leader in international protein supply chain.

In addition, we've also secured limited distribution in parts of South Africa, Chile, Australia and Korea, among others.

While we know there's a lot of room for growth ahead, we also want to be disciplined about how we pursue these opportunities.

Our team look for top-tier distributors that can bring the product to the right market in the right way.

In 2017 and 2018, we experienced sudden yet sustained upticks in demand that led to temporary shortages in product supply.

Subsequently, we made significant strategic investments in our own internal production capacity to support an accelerated growth trajectory.

Our team is not only increasing internal capacity but also quickening the rate of throughput across our machines.

Externally, we continue to invest in downstream processing partners in the form of copackers.

And finally, in terms of our core ingredients of plant protein, which is today predominantly harvested peas, we took steps to make sure that we have contracts and supply in place to grow at the rate we expect for 2019 and beyond.

In summary, we believe Beyond Meat is incredibly well positioned for growth in the U.S. and internationally.

I'd like to now turn the call over to Mark Nelson, our Chief Financial Officer, who will walk you through our first quarter financials.

Thank you, Ethan, and good afternoon, everyone.

It's great to be speaking with you on our first earnings call as a public company.

We're very pleased with our first quarter financial results and the significant opportunities for growth ahead.

We've made meaningful investments to build a revolutionary business as we expand our development in the U.S. and multiple markets internationally.

While this approach requires strong investment in the short term, it creates the foundation for us to leverage and scale in the medium to long term.

As Ethan indicated, net sales in the quarter were $40.2 million, up 215% compared to the first quarter last year.

This strong start gives us confidence in our expectation to exceed total net revenues of $210 million for 2019, representing a growth rate in excess of 140% compared to 2018.

Growth in total net revenues for the first quarter of 2019 was driven primarily by an increase in sales of the Beyond Burger; expansion in the number of retail and foodservice points of distribution, including new strategic customers and greater demand from our existing customers.

From a distribution channel perspective, retail channel net revenues increased 111%, while restaurant and foodservice channel net revenues increased 491% off of a smaller base versus the first quarter of 2018.

This significant increase in our restaurant and foodservice volume drove our net revenues through this channel to represent over 50% of our total net revenues in the quarter.

On the product side and as a reminder, we had discontinued our frozen chicken strip product line during the first quarter of 2019, which caused our frozen product gross revenues to decline by 5%.

However, as Beyond Meat continues to concentrate more on its fresh platform, this has delivered an increase of 304% in our fresh product gross revenues, now representing 90% of our total gross revenues for the first quarter of 2019.

We will continue to focus on expanding distribution across retail and foodservice channels and increasing sales velocity of our fresh products.

This is supported by increased supply of our product through the investments we're making on the manufacturing front that Ethan discussed earlier and increased demand across retail and foodservice channels and increasingly international customers seeking to add plant-based options to their menus.

Gross profit in the quarter was $10.8 million or 26.8% of net revenues in the first quarter of 2019 compared to $2.1 million or 16.1% of net revenues for the first quarter last year.

The $8.7 million increase in gross profit and the more than 1,000 basis point gross margin increase was primarily due to a greater amount of product sold, driving improved production operating leverage efficiencies.

The greater proportion of revenues from Beyond Meat's fresh platform products also contributed to the improvement in gross margin.

Going forward, over the next several years, we expect gross profit improvement will be delivered primarily through improved volume leverage through our internal manufacturing footprint, materials and packaging input cost reductions, tolling fee efficiencies and improved supply chain distribution and logistic costs.

Total operating expenses were $16.1 million or 40% of total net revenues compared to $7.6 million or 60% of total net revenues in Q1 last year.

This primarily includes R&D expenses of $4.5 million, a $2.9 million increase compared to Q1 last year or 11.2% of total net revenues, and SG&A expense of $11.2 million, an increase of $5.4 million year-over-year or 27.8% of total net revenues.

The increase in operating expenses largely reflects higher personnel costs as we continue to expand our internal capabilities as well as higher expenses to support our expanded operations.

Adjusted EBITDA was a loss of $2.1 million for the first quarter of 2019 compared to an adjusted EBITDA loss of $4.3 million in the first quarter of 2018.

The improvement in adjusted EBITDA was primarily a result of our strong revenue growth and resulting gross margin achieved in the first quarter in excess of growth in our operating expenses.

Looking ahead, we expect adjusted EBITDA to be approximately breakeven for the full year of 2019.

Additionally, while we do not provide quarterly guidance due to the timing of product innovation launches at retail and new foodservice distribution expansion, we do expect Q2 and Q3 to represent the strongest net revenue and profit contribution quarters of the year providing approximately 55% of our total annual net revenues with the expectation that Q3 will be greater than Q2.

Now shifting to our capital structure.

Subsequent to the end of our first quarter, on May 6, 2019, we completed our initial public offering in which Beyond Meat issued 11,068,750 shares of common stock at an IPO price of $25 per share.

This resulted in net proceeds of approximately $252.5 million after deducting underwriter discounts, commissions and estimated offering expenses.

Of note, the company's $35.4 million cash balance and total debt outstanding of $30.4 million as of March 30, 2019, does not include the proceeds from our IPO.

Capital expenditures totaled $3.8 million for the first quarter of 2019.

Using the proceeds from our IPO, we continue to plan to primarily invest in current and additional manufacturing facilities, expand our research and development and sales and marketing capabilities as well as for working capital and general corporate purposes.

On May 31, 2019, subsequent to the IPO, there were 60,122,797 shares of common stock outstanding.

As we look ahead at the plant-based meat industry, we believe we have a unique opportunity at Beyond Meat to achieve strong growth today and for many years to come.

Over the long term, we expect gross margin will approach the mid-30% range along with adjusted EBITDA as a percent of net revenues approaching the mid-teens level with both of these measures approaching profitability levels in line with other best-in-class consumer packaged goods companies.

With that, now I'll turn the call back over to Ethan.

Thank you, Mark.

In conclusion, we're off to a great start in 2019.

We delivered a very strong and balanced first quarter and believe we have significant momentum for the journey ahead.

With this, I'd like to turn it over to the operator for questions.

(Operator Instructions) Our first question comes from the line of Ken Goldman of JPMorgan.

I wanted to ask about the guidance for revenue exceeding $210 million.

Obviously, you're leaving yourself not even a range, just a big number that we can plug in there.

So can you walk us through a little bit what can go right that can get this number much above $210 million, and, alternatively, I don't want to say what can go wrong but certainly things might go right that don't happen necessarily that bring you back down to that $210 million level?

I just want to get a little bit of the sense of the puts and takes potentially.

Sure, thank you, Ken, and good to hear your voice.

We wanted to state kind of the philosophy about guidance again around we're being very conservative.

I view this as a floor.

I believe that it's important to note that we really don't count in our forecast onboarding of customers until we're in posttrial distribution.

So if you look at the last 12 months, for example, we've entered into tests initially with QSRs.

And then once that test is completed and we have the initial distribution set up with them in a broader sense, then we add them into our forecast.

So one of the things that gives me great excitement about our future is that we are entering into additional tests, which we can't disclose here.

But as those occur, we move past the trial phase and into an actual distribution arrangement with them, those will be additive to our numbers.

But we think it's inherent within the stage that we're in today with so much volatility as we take on new customers -- and I mean upward volatility in that regard that we don't count the customers prior to that point of posttrial distribution.

Okay.

And then my follow-up is you clearly, if media reports are right, have a lot of competition coming over the next several months from a lot of producers with, I think it's fair to say, very deep pockets.

So I'm just curious, can you walk us structurally through what you're doing in advance of these entries to protect your brand and your distribution that you have right now and really to protect your growth that you're expecting?

Sure.

So I've relied heavily over the last decade on the concept of competition to motivate and to resource our innovation center, which is the heartbeat of what we do.

We know that others are out to tackle this challenge, and we know that our group of scientists, engineers and managers want to be part of this generation at a leadership level that can separate meat from animals and restructure the protein market.

So first and foremost, it's a very large market.

So in some sense, competitors coming in validates the direction that we're headed.

But as you look at what we do versus what some of the larger, more established food companies will do, we have a singular focus, and we've had that focus for a decade.

I have no distraction with an incumbent business, no concerns about upsetting my existing supply chain.

I am maniacally focused on driving this business forward through innovation, to build a product that is a perfect build of plant -- of meat directly from plants.

So we'll continue to drive the taste and sensory experience the consumers have come to love from our brand.

We'll also continue to drive the growth of the brand.

And I think it's important to note that this brand has not just been built by us.

It's been built by consumers.

We didn't have venture money at first.

What we had was revenue coming in from customers whether at Whole Foods or at hospitals and universities.

And we listened intently to what the consumer had to say.

So there is enormous ownership among consumers in this brand and brand loyalty.

And that only grows by the day.

If you look at our investor base, some of the highest and most high-profile names in sports entertainment are involved with us.

I think that's very hard to replicate an authentic level.

We've also made the right choice on ingredients.

As you look at some of the competitive entrants into the field most recently, you've seen, I think, some missteps that allowed us to continue to lead markets whether as we entered into Europe or here in the United States.

This is hard to do.

And it's -- we haven't taken shortcuts.

We've avoided GMOs.

We have downplayed soy and emphasized other ingredients because we know what the consumer wants.

And so as you see some of these larger companies come in, they're going to be disciplined about what ingredients they're using.

As they become more disciplined about those ingredients, they're going to learn this is very, very hard to build products with the level of ingredient integrity that we have.

We also had a significant head start.

I'm very focused on grabbing as much land as I can as we're in this leadership position.

So I have a very aggressive stance not only on Europe but elsewhere and here in the United States.

We don't pause for a second.

We understand that there are competitors wanting to come in, but we'll use our continued resource spend on innovation as well as marketing to build both the product platform and brand platform that allow us to be competitive.

And we were obviously asked this question quite a bit on our roadshow, and I returned that with a question around, why is Amazon able to do what they do vis-à-vis Barnes & Noble's in the early days, Tesla vis-à-vis some of the incumbent auto, Netflix, et cetera, beats Sony.

So there are intangibles and there's focus and there's drive and there's a community of buyers that propel you beyond some of the normal competitive threats.

We'll continue to nurture those and spend in the direction that allow us to capture more and more market share.

Our next question comes from the line of Bryan Spillane of Bank of America.

So I guess a question I had was if you could give us a sense in terms of the revenue base, I guess, so far this year, any sense of what the difference between like trial and repeat is, so repeat purchases both, I guess, at the consumer level so in retail?

And then also as you're sort of building that, that restaurant business, just what the reorder rates are like?

So just trying to get a sense for how you're feeling about or how things are trending in terms of repeat levels.

Sure.

So we don't have as much data as we'd like in this category.

We do have some, and our repeat rates are actually quite high relative to some of the animal-based meats that are in the category that we're being evaluating in as well as some of the plant-based alternatives.

We have from IRR panel data.

We've got a 40% to 50% repeat rate for the Beyond Burger in certain markets, but this is an area that we're going to continue to invest in from a marketing research perspective to make sure that we're continuing to retain the consumers.

But that number, over 40%, is actually very, very high for this category and for a CPG product in general where we are.

Our next question comes from Adam Samuelson of Goldman Sachs.

So I guess my first question was just on the capacity side.

And Ethan, Mark, any way you could help frame just the bottlenecks or the constraints that you see in the supply chain today and really avoiding some of the issues that you had in the last couple years whether it's around especially internal extrusion capacity or raw material supply and how we just think about if there's a feeling just from a capacity side that we should be mindful of as we go through the year and it's 2020?

Sure, no, great question.

So I look a lot at this question.

It preoccupies me quite a bit.

We did go through that experience in '17 and '18.

And in the end, it was fortuitous or fortunate rather that we did at that period because as we now step into a much larger arena, as we qualified some of the really progressive and leading but smaller chains and been able to adequately and then robustly serve them, we're now entering into a phase where we're going to be dealing with much larger and even international customers down the road.

And so we needed to have this sorted out and in place.

And I'm very thankful to say that we were able to do that.

So I'll break it into 3 different parts.

And firstly, a quick overview, and we feel very strongly that we have solid capacity that is in excess of our 2019 and '20 forecast.

And that's -- I can't reveal the exact amount that it's in excess, but as I spoke about on our roadshow, I feel we have considerable headroom.

But if you look at our production process, we have contracts in place now for protein that are in excess of our forecast.

And it's not just the existing proteins that we use that I'm focused on.

So we have a contract with our long-term or historical provider.

We also just onboarded a new one, and we're looking at qualifying additional ones.

But I'm also interested in continuing to diversify the proteins that we use.

As I've said, peas are a great source of protein, but they're not particularly unique in any way that wouldn't allow us to utilize a broad range of feedstocks for our protein supply.

So I'm very aggressive in thinking about that not only because I want to diversify supply chain for reasons of cost and driving that down and stability, et cetera, but I believe that's what the consumer wants.

The consumer wants to have additional sources of protein in their diet, and I want to be able to provide that.

Secondly, we have really expanded the core internal production that we have.

As you know, last year, we opened a new facility.

We've really built that out both from a footprint perspective and equipment perspective that have allowed us now to significantly increase the amount of raw materials that are flowing out of our system and into our copacking network.

Lastly on the copacking side, we've been able to bring on additional copackers, so our manufacturing network has now increased from what was a short time ago, just 2 to 5. And as our brand grows in profile, we are able to bring on not only additional copackers but really high-quality copackers, the type that you want to grow your business with.

So I'm very happy about that.

So short answer, robust capacity in place to handle the 2019 and '20 forecast.

You will see some isolated incidents where we're maybe a bit lower than our otherwise very strong fill rates.

And that has to do with things like product transition as we transition the Beyond Burger 1.0 to the Beyond Burger 2.0, which by the way, I'm thrilled to get out to the retail market.

It's an amazing product.

I'm really excited about it.

As we develop new formulations for specific markets -- for example, when you go into Canada, there's somewhat different requirements there in terms of ingredients, in terms of what needs to be added into the product.

So as we do those smaller changes for those specific markets, there may be a slightly lower fill rate, but overall, very strong capacity as we look forward to the near-term growth.

Great.

And then just a quick follow-up just a point of clarification on what's in and what's not in the guidance.

When you define posttrial distribution, so would it be safe to say that with the Tim Hortons win, your expectation for revenue from Tim Hortons is in the guidance?

Sorry, the -- so that is not yet in post -- we have not added that yet because it's just coming out of trial.

And so we'll be -- that would all be additive to the overall $210 million number.

Our next question comes from the line of Robert Moskow of Credit Suisse.

So I think one of the questions I got a lot on, it's very similar to the capacity question, is that you have a big restaurant chain, McDonald's, that suddenly could represent a huge number for you.

And you've been very clear about what capacity you have for the next couple years.

But if that's -- if those numbers are not in your guidance right now, if a McDonald's launch is not in your number right now, I mean, how quickly can you ramp up to satisfy something like that?

I guess what I'm asking is you have a capacity plan that you've been very clear with, can you accelerate that in the event that you have a major customer that's not in the guidance right now?

Yes, so Rob, I'm going to start with a question to you.

I'm assuming you guys drew straws to who's going to ask the McDonald's question or get to ask it.

So how'd you win that?

Very simple.

Very simple.

So as you've seen from the onboarding of whether it's A&W or maybe more recently and probably better would be around Del Taco, et cetera.

We want to try to do these things in a way that is structured and bringing on percents of their business in relation to the ability to scale our supply chain.

And so none of these conversations that we're having with large QSRs are occurring in isolation.

We're in dialogue with them every step of the way in terms of scenario planning, number of units per store, regions that we can bring on, et cetera.

And I don't see any material obstacle, and I don't see any manufacturing obstacle to be able to, in the appropriate amount of time with the right structure, take on many of the largest QSRs out there.

And I don't mean all at once, but I mean there's -- I don't see anyone out there that would break our system provided we're able to do it in a way that has the cadence of responsibility and gives us the opportunity to plan to grow into their most broadest points of distribution.

So it's an ongoing discussion with many of the QSRs, and I feel very comfortable that we're providing them with complete transparency into our supply chain, and we're not seeing anyone raise objection to how we're going about that from their side.

Our next question comes from the line of Kevin Grundy of Jefferies.

Congratulations on the IPO and strong start to the year.

I wanted to pivot to margins if I could.

So can you talk about your level of confidence and visibility for this year?

The comment was you expect to break even, and then I think the longer term, at least looking out to '21, I think it's sort of an 8% EBITDA margin and then longer term low to mid-teens.

Can you talk about your level of confidence or visibility on hitting those numbers?

And then getting back to the competitive dynamic, is there any concern that the cost of growth potentially moves up here as we look forward here in the coming months and, certainly, over the next several years such that, that may not be reflected in your outlook?

So any commentary there would be helpful.

Sure, Kevin.

See, I can talk about the margins, and I'll talk about the first quarter first.

We had really good performance.

Gross margin improved significantly.

Piece of that was the mix shift into the fresh product line, but there was also when you'll see pound data come out in the Q next week.

But we're seeing really strong leverage across our internal manufacturing, and we're also seeing just really the beginnings of the efficiencies on material cost inputs and the rest of our supply chain -- frozen chain that we utilize.

So we feel very strongly about that margin picture for towards the end of the year in the high-20s.

The margin that we achieved in Q1 really demonstrates our ability to go and continue to push and leverage our network.

And then as we get to EBITDA, as we move down the P&L, the bottom line, very strong performance on the proxy that we use for cash flow.

This adjusted EBITDA measure really leads us to believe that we are within this striking distance of getting the breakeven EBITDA.

We will continue to invest in the real critical areas of marketing and R&D.

And so as we grow and scale, we'll still put spending dollars against both of those categories, but driving this into the mid- to high single-digit EBITDA level is something that we feel confident about.

I think Ethan can talk more about kind of the longer-term balance between wanting to lower prices to get consumer pricing levels but still driving for these internal efficiencies on our cost model as well.

Yes.

And in terms of the overall price of growth, we do continue to see an expansion in absolute dollars of our marketing spend even though the increase in revenue somewhat massive on a percentage basis.

We also continue to see expansion on absolute dollars of our innovation, which is the driver of growth.

So those 2 levers are available to us, and we're going to work those pretty hard.

But as I've spoken about publicly, we do have a 5-year initiative in place, which is still in the science/technology phase, and it's an internal target that we've kept out of any projections and out of any modeling because of the -- it's still in nascent form.

But 2 -- and at least 1 category with 1 product, and my focus is on beef in this regard to be able to underprice animal protein in at least 1 product line.

And it's very important to do.

We're talking about a $1.4 trillion industry.

I think you get a lot of room to play with products that are terrific and higher cost.

But as you start to look at the 3 pillars of growth really and success for us, it's one is taste and sensory.

Are we delivering to consumers a taste and sensory experience of meat that they love?

And we're getting closer on that, and that's something that we're -- continue to work very hard on.

Are we delivering the positive nutrition of meat, which there is many different points?

And I think we are getting very good on that.

But the last piece is price, right.

This needs to be affordable.

And ultimately, if you look at the model we have, right, we've taken out this very large bottleneck in the animal.

And we're pulling pieces of basically the core parts of meat directly from plants.

And so we should be able to over time offer pricing that someday is under that of animal protein.

So we have those levers of innovation, marketing, and ultimately, over a much longer period of time, continuing to adjust our pricing downward through improvements in COGS to capture more market share.

Our next question comes from the line of Alexia Howard of Bernstein.

Can we just ask about the strategy around marketing investment?

It's interesting to me that you are planning to reach breakeven on EBITDA as quickly as you're saying.

Is there a limit?

Or do you feel as though you'll be pretty saturated on the marketing spending, especially as Kevin rightly pointed out, new entrants enter the market later in the year?

Just wondering how you're thinking about digital versus TV versus how much you're willing to spend to really retain that leadership edge?

Sure.

So I think we do see that increase in marketing dollars occurring in '20 and '21, and we continue to look at that.

I believe that you win with the best product possible, and I've always believed that.

Marketing is absolutely critical to getting our message out, and we will continue to spend and increase our spending to do that.

But what would have carried this brand is an absolute devotion to enabling consumers to continue to eat what they love, which is great-tasting meat.

And so we'll continue to focus an enormous amount of our energy on that.

Now in terms of getting the message out, we have built into this business, even in the investor basement, a cap table, marketing engines, right.

There are very, very significant celebrity voices associated with our brand.

We have the ability to tap into those.

They have vested interest in helping us.

So we will do some conventional marketing, for sure.

You saw the Super Bowl ad that we ran with Carl's Jr.

We did make a contribution towards that as Carl's Jr.

handled most of the expense there, but we did contribute.

And so as we continue to expand, you'll see us take on some more of that.

But thus far, we haven't seen the need to do some of the more expensive marketing that's out there in the traditional marketing stream.

Should it become necessary, we'll do it, and we've factored that into some of the higher expense in marketing in '20 and '21.

Our next question comes from the line of Clay Williams of William Blair.

Clay Williams on for Jon Andersen.

Can you provide some more color around the partnership with Zandbergen, their production capabilities and capacity?

Sure.

So since, Seth, you were just there and shaking hands and opening facilities, do you want to field that one?

Sure.

I'd be happy to.

Yes, we have had -- we have several distribution partners in Europe, and we have been especially pleased with the commitment and support we've gotten from Zandbergen.

And they proactively have proposed to handle the production for us and so -- at their own cost of investing in a major production facility and with the capability for distribution of covering all of Europe.

And we expect that the production should be able to do that as well.

So it's a great first step.

We have certainly seen growth in Europe happening more quickly than we anticipated.

And so from our point of view, as Ethan said, we want to be aggressive with production.

Obviously, it'll make more sense for both sustainability and cost reasons to have a production setup in the continent.

And so we're excited about that.

And for my follow-up, can you break down the sales guidance of $210 million between foodservice and retail?

Yes, so we can give a generalized sense of the revenue mix.

And currently, it's basically a 50-50 in 2019.

We do think that foodservice continues to grow as a percentage of overall revenue given the binary but very large nature of some of the large QSR accounts that are out there.

So that'll be balanced then, of course, with additional international movement on our end as well.

So -- but right now, it's about 50-50.

Our next question comes from the line of Chase West of Consumer Edge Research.

Most of mine have been answered, but I did want to follow up on the international opportunity.

Longer term, are you able to quantify kind of how much of the growth this could drive going forward?

Is it something low single digit like it is now for the guidance?

Or maybe if we're thinking 3 years out, could it be mid-teens or higher?

So currently, it represents an important but still pretty small percentage of our overall revenue.

I think about it more in terms of the overall potential and I think mostly about obviously Europe and Asia.

Those markets are very significant for our products.

Europe has a very well-developed market for plant-based proteins and obviously a healthy one for animal protein.

Asia has a desperate need for this.

So I'm going to be very aggressive in going into those markets and our team will be as well.

We don't disclose exact percentages we hope to achieve.

But it's really a race between -- the United States has incredible opportunity, our neighbors in Canada as well.

And then getting into Europe and getting into Asia is absolutely a strong part of our strategy.

At this time, I'd like to turn the call back to management for closing remarks.

Thank you, everybody, for joining.

And I also wanted to thank you for the ability to get to know some of you along the way.

But I, most importantly, want to thank our investors and the people who have joined us since we had the IPO.

It's been enormously gratifying to be able to continue to lead this business and to continue to be a leader in the space of offering a new form of meat to the consumer.

One of the things that we look to are innovators of the past that allow us to focus our energies here.

And I wanted to share both with the opportunity in mind, the mission in mind as well as competitors in mind the wall that's very -- a quote that's very prominent on the wall of our innovation center, and it's by Edwin Land who was obviously a prolific inventor in the first part of the 20th Century.

And he wrote, "Let us not make more of something there is too much of.

Let us find out what is desperately needed, although people may not know it.

Let us find out what will beautify the world, although people may not know it.

Then let's learn and learn and teach ourselves and support each other in doing that until we lose ourselves in those tasks." I wanted to thank the investors for allowing us to do this and for allowing us to be able to tackle such an important global problem.

Thank you very much.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation, and have a wonderful day.

You may disconnect your lines at this time.