超越肉類 (BYND) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Beyond Meat Second Quarter 2019 Conference Call.

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

I would now like to introduce your host for today's conference, Ms. Katie Turner.

You may begin.

Thank you.

Good afternoon and welcome to Beyond Meat's Second 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 and Treasurer.

By now, everyone should have access to the company's second quarter earnings press release and second quarter Form 10-Q filed 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 financial information presented on today's call is unaudited, and during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws.

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

Please refer to the second quarter 10-Q, the company's registration statement on Form S-1 filed today and other filings with the Securities and Exchange Commission 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 to adjusted EBITDA, which is a non-GAAP financial measure.

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

Please refer to today's release for a reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with GAAP.

And now I'd like to turn the call over to Seth Goldman, Executive Chair.

Thank you, Katie, and good afternoon, everyone.

We appreciate you joining us for our quarterly earnings call.

Today, Ethan will briefly review our second quarter financial and operational highlights and reiterate the key reasons we believe Beyond Meat is well positioned for long-term growth in the U.S. and globally.

Mark will then review our financial results in more detail, discuss our raised annual outlook and reiterate our long-term financial targets.

After that, we'll open it up for questions.

We are very pleased with our strong second quarter financial results.

At Beyond Meat, we have made meaningful investments to build a revolutionary business as we expand in the U.S. and multiple markets internationally.

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

We believe Beyond Meat is well positioned for growth in the U.S. and internationally.

Now before I turn things over to Ethan and Mark, I would like to take a moment to highlight several members of our talented and passionate team who play a critical role in delivering our results.

John Lennon once said, "A dream you dream alone is only a dream.

A dream you dream together is reality." Today, I want to recognize several leaders and their teams who have been doing remarkable work to make our dream a reality.

The crown jewel of Beyond Meat is our team of scientists, engineers and chefs, led by our Chief Innovation Officer, Dr. Dariush Ajami.

Before joining our team, Dariush worked at Scripps Research Institute specializing in molecular assembly and drug discovery.

His team at the Manhattan Beach Research Project combines the scientific disciplines of biology, chemistry, physics, material sciences and engineering with culinary expertise.

Their relentless effort to continually innovate and improve our products are one of the main reasons our products have been so warmly received in the marketplace.

But the products our innovation team develops don't make it onto the shelves of our retailers and the menus of our foodservice partners without our sales team.

And that's why we are glad to have Chuck Mute as our Chief Growth Officer.

Chuck started his early sales work as a Coca-Cola truck driver and went on to help build great beverage brands over the next 30 years.

He has done a fabulous job challenging and inspiring his team to compete at the highest level while also empowering them to own the results of their work.

Of course, before Chuck can sell our products, we need to manufacture them, and it is one thing to figure out how to manufacture a new and novel product like plant-based protein, but it is entirely another thing to create the scale needed to support our growth, which makes the work done by our operations team, led by our Senior Vice President, Stephanie Pullings Hart, critical to our success.

Stephanie's background includes 23 years of international operations work at Nestlé, and she and her team have been doing remarkable work.

And of course, there are inherent challenges that come with this pace of growth.

It means adding new suppliers and production facilities.

But we know there is nothing more important to our business than consistently providing safe and delicious plant-based meat.

So we are fortunate to have Kelli Wilson as our Vice President of Quality Assurance and Regulatory Compliance.

Kelli previously worked for major animal meat producers, such as Niman Ranch and ConAgra.

And her tremendous experience, toughness and discipline have been invaluable as Kelli and her team work to ensure we uphold the quality standards consumers demand.

Finally, I want to recognize the 2 individuals joining me on the call today, Ethan and Mark.

It takes a strong and visionary leader to attract and manage a team of this caliber.

Ethan brings a rare combination of bold and confident vision of the future, combined with a humility and urgency about the work.

While Ethan pushes for high performance across every aspect of the business, Mark has worked to instill a focus on driving us toward profitability while also ensuring we maintain robust financial controls.

Overall, we remain focused on delivering top line growth and pursuing our mission to create nutritious, plant-based meats that taste delicious and deliver a consumer experience that is indistinguishable from that provided by animal-based meat.

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

Thank you, Seth, for that generous introduction.

On behalf of all of us at Beyond Meat, we appreciate your steadfast contributions, your leadership and support.

We are pleased to report very strong second quarter operational and financial progress.

In the second quarter, we continued to experience robust, broad-based momentum and remain excited about the enthusiasm from customers and consumers alike for Beyond Meat's plant-based meat products.

For the second quarter, we expanded our sales on both retail and foodservice channels domestically and abroad, continued to invest in and realized the benefits of our innovation program while growing our supply chain and operations capabilities.

We believe our momentum demonstrates the mainstream consumers' increasing appetite for our plant-based meats.

In fact, according to a recent statistic from NPD Group, when dining out, 95% of the people who are purchasing plant-based burgers are also consumers of beef burgers.

This speaks to the broad-based relevancy of the plant-based meat movement and complements our brand-specific data.

We are seeing consumers envelop our brand in a broader movement that they are leading.

We believe this movement is imbued with enthusiasm for a future where meat isn't separated from animals and one where the consumer can enjoy meat absent emerging concerns they may have regarding its health, environmental or animal welfare impact.

This consumer movement parallels our own thinking, where in tradition of American ingenuity, we are taking the good, in this case, meat, and seeking to make it better through persistent innovation.

With this context, I'd like to now turn to the numbers and execution of our growth strategy.

Net revenue for the second quarter increased 287% compared to the second quarter of last year.

We also saw positive trends in our key profit metrics.

Gross profit margin increased nearly 1,900 basis points year-over-year and over 700 basis points sequentially.

Importantly, we also reported our first quarter of positive adjusted EBITDA as we continue to scale our business with improved operating leverage and increased overall production efficiencies.

As we progress through the balance of 2019 and begin 2020, our team remains focused on 3 key growth pillars.

First and foremost, innovation drives our company.

We center on innovation as the foundational vehicle for expanding market share.

As we've spoken about before, the Beyond Meat rapid and relentless innovation program reflects the company DNA that is constantly seeking to close the gap between our plant-based products and that of our true north animal-based meats while also tackling new and longer-term product forms in our core categories of beef, pork and poultry.

In Q2, we released 2 notable products by the Beyond Meat Rapid and Relentless Innovation team.

Specifically, we were pleased to begin distribution of the newest version of the Beyond Burger.

This latest iteration, which can be identified by a call-out even meatier on its package, has an improved mouth feel, a more nuanced beef taste and aroma, a better color transition during cooking and a strong protein score due to the combination of amino acids from peas, mung bean and brown rice.

Additionally, we launched Beyond Beef, a 1 pound pack of plant-based ground beef.

This product is a challenging initiative given diverse consumer usage for traditional animal-based ground beef and our desire to match this versatility.

Even as we further work to close gaps, we are pleased to report an overwhelmingly positive response to the product as consumers use Beyond Beef with such diverse applications as taco meat, meatballs, lasagna, meatloaf and burgers, among others.

We are also encouraged to see early data indicating Beyond Beef is largely incremental to our Beyond Burgers.

Second, we are using our first-mover advantage to drive continued expansion in both retail and foodservice channels.

Today, we have achieved broad distribution across more than 53,000 points of sale worldwide.

This is up from about 30,000 points of sale at the time of our IPO just 3 months ago.

We're expanding offerings at existing retail and foodservice partners as well as increasing velocities.

It is gratifying to see, for instance, Del Taco extend from its initial offering of Beyond Tacos to its new Beyond Burrito menu items and see Tim Hortons add the Beyond Burger to its menu following the successful launch of Beyond Breakfast Sausage, among other examples.

These and many other forward-leading partners are listening to consumer, providing the consumer with a choice and, in turn, being rewarded by the consumer.

As a company, we deeply appreciate each and every partner who's leaned in and launched with us.

In every case, no matter the size, we're trying very hard to make sure that in partnership we delight their customers, help them attract new ones and enable more and more consumers to enjoy their favorite meals now plant-based and do so where they are accustomed to eating.

Given its recency and significance, it is worth noting the new Dunkin' partnership is a reminder of our broad promise.

The Beyond Breakfast Sausage patty, like those at A&W and Tim Hortons, delivers on our value proposition of enabling consumers to eat what they love while providing nutritional wins.

Specifically, the Beyond Breakfast Sausage patty provides great taste and a satiating experience while delivering 10 grams of protein, 0 cholesterol, 50% less fat, 44% less saturated fat and 37% less sodium compared to a traditional breakfast sausage patty on an ounce-per-ounce basis.

And finally, third, we remain focused on increasing sales velocity and product availability.

For example, Beyond Burger sales across all SPINS' channels are up 177% in units and 181% in dollars from the 12 weeks ending June 19, 2019, versus a year ago.

In retail, we continue to add to store count, including outside the United States.

For example, in Canada, we are proud to share new retail availability in Loblaws, Sobeys and Metro.

While in the retail front in Europe, we've added Delhaize, Albert Heijn, Migros, Coop and REMA, among others.

Currently, Beyond meat products are available in 51 countries, and we will be actively expanding that footprint over the near and long term.

Before closing, I'd like to share a perspective on 2 important areas.

One, we are often asked if we have sufficient capacity to meet escalating demand.

Our answer remains that we are and have been on a sustained investment campaign around infrastructure and personnel necessary to grow and operate a global protein company.

To this end, in the second quarter, we added new manufacturing lines, continued our efforts to secure a sufficient and diverse protein supply to support future growth and grew our operations and quality teams.

Two, I'd like to share my own thoughts about the process of bringing meat to the center of the plate.

In my hope that as a company we are helping consumers to understand that there are at least 2 processes, both of which begin with the same inputs.

At a high level, the traditional proteus are in plant material at the form of feed or grasses along with water through an animal.

The animal's biology works from the digestive tract through to the muscular system to convert these inputs to muscle, which are then harvested for meat in processing facilities.

At Beyond Meat, also at a high level, our processes start with the same inputs, plant material, from which we gather protein, lipids, trace minerals and vitamins, and combined with water, run these through a system of heating, cooling, pressure and mixing that build meats directly from plants.

Along the way, we offer the consumer transparency.

They are welcome to visit our production facilities in Missouri to learn more about how we build meat.

It is my belief they will leave inspired and with a stronger understanding that when it comes to meat, it's not a question of processed or not no matter which process they prefer.

In summary, we enter the latter half of 2019 intensely focused on our innovation path: growing distribution domestically and internationally and investing in infrastructure and personnel throughout operations to continue along with the consumer on this exciting journey that we believe is the future of protein.

I'd like to now turn the call over to Mark Nelson, our Chief Financial Officer, who will walk us through our second quarter financial results in detail.

Thank you, Ethan, and good afternoon, everyone.

We are very pleased with our second quarter financial results and the opportunities for growth ahead.

As Ethan indicated, net revenue in the quarter was $67.3 million, up 287% compared to the second quarter last year.

As I mentioned on our Q1 call, we expected the second quarter to be one of our seasonally strongest quarters of the year in terms of net revenues and profit contribution based on the summer growing season as well as product innovation launches and new foodservice distribution expansion.

This strong start gives us confidence in our net revenues expectation for the year, which we now expect to exceed $240 million in 2019, representing a year-over-year growth rate in excess of 170% compared to 2018.

Growth in net revenues for the second 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 as well as greater demand from our existing customers.

From a distribution channel perspective, retail net revenues increased 192% while restaurant and foodservice net revenues increased 483% versus the second quarter of 2018.

The significant increase in our restaurant and foodservice sales volume drove our net revenues through this channel to represent 49% of our net revenues in the quarter.

On the product side, gross revenues for our fresh platform increased 348% versus the year ago period, representing 92% of our gross revenues for the second quarter of 2019 compared to 77% of gross revenues compared to the second quarter of 2018.

Gross revenues for our frozen platform increased 25% year-over-year despite the discontinuation of our frozen chicken strip product line during the first quarter of 2019.

We remain focused on expanding distribution across retail and foodservice channels and increasing sales velocity of our fresh products.

Gross profit was $22.7 million or 33.8% of net revenues in the second quarter of 2019 compared to $2.6 million or 15% of net revenues in the second quarter of last year.

The $20.1 million increase in gross profit and nearly 1,900 basis points improvement in gross margin was due primarily to an increase in the amount of products sold resulting in operating leverage and production efficiency improvements.

A greater proportion of revenues from our fresh platform products also contributed to the improvement in gross margin.

Going forward, over the next several years, we continue to expect that gross profit improvements will be delivered primarily through improved volume leverage, greater internalization of our manufacturing footprint, materials and packaging input cost reductions, tolling fee efficiencies and improved supply chain logistics and distribution costs.

Income from operations in the second quarter of 2019 was $2.2 million compared to loss from operations of $7.3 million in the second quarter of the prior year.

This improvement was driven entirely by the year-over-year increase in net revenues and the resulting increase in gross profit partially offset by higher operating expenses to support the company's expanded manufacturing and supply chain operations, higher administrative costs associated with being a public company and continued investment in our innovation and marketing capabilities.

Net loss was $9.4 million in the second quarter of 2019 compared to a net loss of $7.4 million in the prior year period.

The expanded net loss was primarily the result of $11.7 million in noncash expense associated with the remeasurement of our preferred and common stock warrant liabilities in conjunction with our initial public offering in May of 2019.

In the second quarter, our weighted average common shares outstanding, basic and diluted, was 39.1 million, which reflects a time-weighted average of both pre- and post-IPO share counts.

As of June 29, we had 60.2 million shares of common stock outstanding, reflecting new share issuance and preferred shares conversion in conjunction with our May IPO as well as warrant and option exercises since the IPO.

Adjusted EBITDA was $6.9 million in the second quarter of 2019 compared to an adjusted EBITDA loss of $5.6 million in the second quarter of 2018.

The improvement in adjusted EBITDA was primarily the result of our strong revenue growth and resulting gross margin in the quarter.

Looking ahead, although we do expect to have a net loss in accordance with GAAP, we now expect our adjusted EBITDA to be positive for the full year of 2019 compared to our prior expectations of breakeven adjusted EBITDA for 2019.

Additionally, while we do not provide quarterly guidance, we do expect Q2 and Q3 to represent the strongest net revenue and profit contribution quarters of the year with Q3 contributing somewhat more from a net revenue perspective relative to Q2.

Now shifting to our capital structure.

The company's cash and cash equivalent balance was $277 million and total debt outstanding was $30.5 million as of June 29, 2019.

Net cash used in operating activities was $22.4 million for the 6 months ended June 29 compared to $12.7 million for the prior year period.

Capital expenditures totaled $7.5 million for the 6 months ended June 29 compared to $10 million for the prior year period.

Net proceeds from our IPO have been invested in short-term interest-bearing investment-grade securities, and there has been no material change from the expected use of net proceeds from our IPO as described in our registration statement on Form S-1.

Also, as you may have seen, today, we filed a registration statement on Form S-1 with the SEC and issued a press release announcing a follow-on offering, principally comprised of sales by our existing shares by our pre-IPO stockholders and with a small number of shares to be offered by the company.

Please refer to the press release and Form S-1 for more information about that offering.

Due to regulatory requirements, we won't be answering any questions about the offering during our Q&A session.

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

Thank you, Mark.

In conclusion, we are very pleased with the results of the second quarter and for the first half of 2019.

Going forward, we believe Beyond Meat has significant momentum, and our team looks forward to continuing to update you on our progress in the coming quarters.

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

(Operator Instructions) Our first question comes from Ken Goldman with JPMorgan.

Two questions for me.

First, during your IPO roadshow, you highlighted sort of an ultimate but rough gross margin target of 35%.

I don't know if that's still your level that you're looking for, but you're fairly close to it right now.

But Mark, you had talked about some gross margin drivers ahead.

So how do we think about that?

Has the gross margin bar been raised?

Or are you thinking, look, these are tailwinds to our gross margin going forward, but we'll offset that maybe with some price investments?

I just want to get a better sense of how you're thinking about some of the tailwinds and headwinds for that line item.

Yes.

Ken, we had really good results on margin for the quarter.

We were pleased with the gross profit level and gross margin.

We were looking at that kind of that mid-30s, mid to high 30s is still a reasonable target for us.

One of the goals is to drive the pricing for the product, get to parity on some of the products with animal protein.

So that's been something that we've looked to as we've matured as pricing goes.

But we do feel comfortable with that mid to high 30 longer-term pricing target and gross margin target for us, and that's still a very valid target.

Okay.

And then second question.

Ethan, so many restaurants are adding, as you know better than anyone, alternative meat to the menu.

But some of the world's biggest QSRs still haven't done anything of size on that front.

I guess I'm curious, does it surprise you at this point with so much evidence that consumers are willing to pay for this product, plant-based meat, right, then at least one of those huge QSRs is still on the sidelines?

Just wanted to get your thoughts there.

Sure.

Thank you, Ken.

So I do think it's a function of just the size and complexity of some of the largest, most global QSRs out there.

I think it's going to take them time to figure out how to integrate it into their menu and their operations.

So it doesn't necessarily surprise me.

I think that the intent is certainly there, and it's just a question of allowing the process to play out.

And our next question comes from Bryan Spillane with Bank of America.

Just a couple of questions for me.

I guess the first one, can you -- Ethan, can you give us any sort of color on where you stand today on service levels, out of stocks?

Just trying to get a sense for kind of where you stand today as businesses ramp up in the summer selling season.

Sure.

Bryan, thank you for the question.

So as you know in '17 and '18, we really did experience some shortages during the peak seasons.

And so we launched, as I mentioned in my comments, a really sustained investment program not only in operations, but in quality, both personnel and infrastructure, to make sure that didn't happen again.

And I'm very pleased to report that this summer, we really haven't experienced anything close to what we did in '17 and '18.

In fact, between Q1 and Q2, despite the significant increase in demand associated with the peak grilling season, our fill rates actually went up quite a bit.

And so we are seeing some pretty strong fill rates.

There will be, from time to time, some very short-lived outages on a particular product as we switch from one platform to another.

But the fill rates are, I think, very consistent with a high-performing operation to this point.

So I don't feel the pressure that we did in '17 and '18 on that front.

Okay.

And then, Mark, just to follow up, I don't know if you gave guidance on capital spending for this year.

I might have missed it.

But could you just update us on CapEx for the year?

And then I guess given the growth that you're seeing now as we're thinking about probably more in the next year, will we see potential for CapEx even accelerate more just to sort of catch up with the demand?

Yes.

So for 2019, we're still looking at that $20 million or so CapEx number.

We still think that's a pretty solid number.

For 2020, we're looking at potentially some increased deployment on capital around just some of the production that we do, looking at potentially some of the back end, bringing that in-house.

We've talked about that.

So we think that capital number may be in the $35 million to $40 million range for 2020.

But we've had a pretty flexible model where a lot of our partners in the back end do the downstream production for us typically with their assets and their facilities.

So it's been capital-light.

We'll additionally look at increasing options for production internationally.

But as you know, some of the partners, very similar to the model we have now in contract manufacturing internationally, will be similar to how it works in the U.S. So we think that's a pretty fair number in that $35 million to $40 million range.

Our next question comes from Alexia Howard with Bernstein.

So 2 questions for me.

You started off with some comments about the capacity questions.

Could you maybe just explain to us between raw material procurement, you own in-house production as part of the production process and then your relationship with the co-packers, where would you say the bottleneck really is?

And if it's with the co-packing relationships, how quickly can that capacity be reasonably expanded over time?

That will be my first question.

And the second one is how do you prioritize new areas of growth.

You've obviously got the high-quality problem of having a lot of people demanding your product.

But how do you decide which channel, which restaurant chain, which growth and what types of products you're going to roll out given the capacity constraints that you have?

Yes.

Thank you, Alexia, very much.

So I think just to reiterate the way that our production system is set up, we really have 3 main buckets of focus.

One is the protein and raw materials.

Two is the in-house extrusion and mixing that we do.

And then three is the kind of downstream production partner work that we do where it's then formed into patties and sausage, et cetera.

And so in each case, we really have made substantial investment.

We feel very comfortable with our protein supply for the balance of the year and into 2020, that there's a comfortable margin there relative to the forecast that we're sharing.

We also feel that more and more providers of protein are coming into the markets.

Established names including DuPont, et cetera, are getting involved.

More separation facilities for protein are being constructed even domestically here in the U.S.

And then finally, more crops are coming in.

So there's more peak coverage occurring now than before.

So on the protein supply side, I feel the last 6 months, we've made substantial progress in securing what we need.

On the extrusion side, we have been very aggressive in ordering and installing new equipment.

We will end the year with nearly 100% increase in that capacity area, and we're placing additional orders for distribution potentially internationally as well.

And then finally, on the downstream side, our team has been really aggressive and active in signing up new high-quality production partners for downstream forming and packaging.

So in each case, while those have been historically for us areas of constraints, we've taken the measures to alleviate those constraints and build capacity.

Again, as I mentioned, that's not to say that we will not have some periodic disruption.

We're always introducing new iterations of our products.

We're introducing new products.

And sometimes, that will lead to changes in lines and things of that nature that may create a temporary shortage in a particular product line.

But overall, I feel much differently and much better than I did 6 months ago regarding each of those 3 areas.

Okay.

The second question was around how do we prioritize new growth.

And I think if you look at the history of the company, something we've always tried to do, whether it was with the investment houses we work with, the venture capital funds we work with, the banks we work with, the retail customers we work with or the foodservice partners, we've always gone for marquee players that are leading the category.

So the best example I can give of that early on in the business was I sold directly to Whole Foods and made that a priority very early in the life of the business.

I think it was 2009.

And as we go into foodservice, you see that as well.

We try to pick the very best partners that we feel will help together grow our brands.

So that we help them attract new customers and new consumers and that we help ourselves position our products in the market -- at places the consumers are traditionally excited to go to.

So it's a strategy of picking the best partners in each segment.

Our next question comes from Robert Moskow with Credit Suisse.

Ethan, I was hoping that you could maybe help us quantify the extent to which your manufacturing capacity has been expanded over the past 6 months.

I mean I think during the IPO, I had it in my head that it was going to be $400 million of capacity by the end of '19.

Are you well beyond that now?

Or maybe you can jump ahead to 2020 and give us a number that might be higher than where you were in 2020?

Just to give us a sense of as things keep improving sequentially, that you're staying ahead of the demand.

Yes, it's a really, as you can imagine, important priority for me.

Having been through some shortage in the past, it's something that we're constantly focused on.

So you're absolutely right.

I do challenge the team to get well ahead of demand even as demand escalates.

And so yes, the $400 million in terms of capacity for this year is well within reach.

Next year, we can also bring on additional capacity, whether in the co-packing network or on the extrusion side that should take us quite a bit higher than that.

I'm a little hesitant to give you exact numbers.

But I think it's -- I'm very comfortable saying that there's been significant adds both in internal capacity and in downstream forming and packaging equipment that would take us above and feel quite comfortable about the 2020 forecast.

Okay.

And just to be clear, the CapEx guide for 2020, $35 million to $40 million, that is a lot more than the original estimate, right?

And it is tied to -- is it mostly tied to bringing the co-packing in-house?

Or is it other things, too?

Yes, a big chunk of it drove more capital.

We're still in early phase.

The payback from something like that, internalization of the back end, we're starting to look at that as very, very accretive.

And so we've been considering how we might be able to add capacity while reducing costs altogether in that step.

And so it's still early phase and looking at that -- to augment what Ethan said, the pursuit of additional contract manufacturers continues.

We continue to qualify and work to qualify additional co-mans because that -- it will be a blended approach as we look to the future.

And can I ask one more question?

Have you had any consumer response for Beyond 2.0?

Has anyone gotten back to you saying that this is a lot better or I like the old formula or anything like that?

Well, thank you for the question.

It's been really a pleasant and gratifying experience to see the consumer reaction to 2.0.

We've worked so hard on it.

It really -- the kind of things we try to approach with -- as I mentioned in the introduction, really around mouth feel and the aroma and taste, get more nuanced and subtle.

All of those things, I think, did get recognized by the consumer.

So we have just -- there's always going to be an outlier that doesn't like this or that, but we have seen just enormous positive feedback around the product.

I think it's -- obviously, like I've said before, it's not there yet, but it's extremely -- it's getting closer and closer.

So yes, very, very positive feedback.

Our next question comes from Jon Andersen with William Blair.

I wanted to stick with the new formulation for a minute.

I haven't tried it myself, but I think it's a significant leap forward.

But to Rob's question, Ethan, how would you kind of characterize where that kind of takes you in terms of closing the gap with animal protein?

How much more opportunity remains ahead?

And does it become more difficult to close that gap from here?

And then the second part of the question is around kind of the ingredient deck and how important you feel or you've heard from consumers and customers the kind of the clean ingredient deck that you have, and I'm thinking about things like GMO and soy, et cetera.

And how important that is to an animal protein consuming customer?

Yes.

Okay.

Both very good questions.

So I'll preface my response by just reiterating that I am probably our toughest critic.

I think it's quite a bit further in the direction of our true north, which is animal protein, at the same time, acknowledge we have miles to travel.

I'd say it's maybe 75% of the way there and how hard that 25% is.

It is going to be harder.

But at the same time, we are really, really building a tremendous database and set of expertise that I think is unparalleled around how to use all-natural ingredients from plants and from the plant kingdom globally to construct meat directly from plants.

And so while that last 25% stretch or 30% stretch, wherever you want to put it at, will be more difficult, we also have tools and expertise and capabilities that are giving us, I think, a lot of enthusiasm for closing that final stretch.

On the ingredient deck itself, I think it's vital.

This gets back to understanding your consumer, the relationship with the consumer.

It comes back to our own families.

My own family eats a lot of our products.

What does mom feel comfortable serving her children?

And I think you complicate the message by including things like genetic modification, artificial ingredients, soy that has questions around its origin and what's in it.

So I think all of those things we have correctly stayed away from, and it's helped us to access the broadest base of consumers.

It's -- what you're trying to do is educate consumers that there's a way to produce meat that doesn't involve an animal.

You don't want to burden yourself with a secondary education message around specifically what the ingredients are.

So the simpler and cleaner the ingredient list, the better, and we're constantly striving in that direction.

Okay.

If I could ask one follow-up.

When you think about the protein sources -- obviously, pea being the primary source historically.

As you think about the business longer term, is it important to diversify?

Are you working on diversifying your sources of protein?

Kind of what benefits do you think will that allow you to kind of accrue over time, whether it be getting the cost down and sharper pricing at retail, et cetera?

Yes.

No.

These are great questions.

And like the capacity question, this is one that's constantly top of mind for me.

And it's important for a number of reasons.

One is just the diversification of supply and the ability to -- is there a pricing pressure, building redundancy, et cetera.

But to be honest, that's probably, to me, almost a secondary consideration.

One of the most important considerations is really -- continues to be around pleasing the consumer.

And if you think about the way mom shops or dad shops on a weekend for the family, they're not buying a particular protein in 6 or 7 different form factors.

They're buying pork.

They're buying beef.

They're buying turkey, chicken, et cetera.

So for us to credibly take a very, very long run and broad run at the meat case, we'd offer the consumer that same diversity.

So I think if you look ahead 5 years from now, you'll see sausage from us that has different proteins.

Maybe one sausage will be offered a lentil protein, the other with lupin or camelina.

You can kind of name your source.

But when you start to think about the plant kingdom as a source of protein, there's really just almost an endless number of crops that you can pull it from.

And there's fascinating science going on in the area about which crops can yield the highest scores of amino acids and not through genetic modification, but through breeding, how you get there.

And so I think we're just scratching the surface of an amazing journey in agriculture to grow protein directly for human consumption.

And I think it's really important that, as a company, Beyond Meat leads that charge in bringing new proteins to the market.

So if you a look at, for example, what we're able to do with our breakfast sausage.

I'm very proud of that product because I think it points in the direction of where we're headed for the future.

Not only it has pea protein, in it -- but it has mung bean protein, brown rice protein and sunflower seed protein.

That's really the way to do this.

You get a lot of benefits not only in supply chain, but you get consumer satisfaction with that in terms of having a more diverse supply of protein.

But importantly, you also get a pretty big win on the PDCAAS score, which is the measure of protein quality in a human body.

And so in that case, when you're combining amino acids from different sources like that, you're able to craft amino acid score that actually exceeds that; in some cases, the pork equivalents.

So if you look at our latest breakfast sausage, it actually has more protein in it ounce per ounce than its protein -- than its animal protein equivalent.

So lots ahead for us on that front.

Our next question comes from Kevin Grundy with Jefferies.

Congrats on a strong quarter.

Question, Ethan, around some key metrics awareness, household penetration, repeat purchase rates for your products.

So how are you seeing those data points progress?

What are you targeting longer term?

Where do you feel like you're getting the best ROI on investment to improve upon these metrics today?

Maybe you can share some of the learnings in those areas.

And last on this topic, are you seeing a meaningful difference with respect to repeat purchase rates of your products in foodservice versus retail?

And then I have a couple of follow-ups.

Sure.

Okay.

So let me just take those in sequence.

So yes, there are a lot of really good metrics that we have available to us now on this overall growth of the business, so I'll spin through some of those and then maybe get to some of the areas that are a little bit harder to tease out.

So if you look at SPINS data, for example, for the burger, we're up 177% in units over the second quarter a year ago, up 181% in dollars in the second quarter over a year ago.

Our velocity, and this is really -- this one is amazing to me, our velocity is up 140% over a year ago for the burger according to SPINS data.

So much of this growth is being driven by volume both in terms of the number of points of distribution, but also in that increased velocity.

If you look at just our store count alone going from 30,000 to 53,000, you're seeing a pretty even split between retail and foodservice.

Retail, about 27,000 locations; foodservice, about 26,000.

On the repeat data, we don't necessarily have fresh data on that.

I think we shared this last time that with the Beyond Burger it's at about 40% repeat.

I'm very curious to see what that number is.

I'm curious around 2 numbers, around the new 2.0 because I do think it's a much-improved product.

One is the repeat and see whether that's going to rise, and so we'll do some spend on that to figure that one out.

And then second is just the overall velocity of that, are we going to see an increase in velocity based on that improved innovation there.

So overall, we're seeing very, very strong trends.

In terms of the investment, one of the things that I've really liked to see is these -- the partnerships we form with these foodservice organizations that I mentioned in my introductory comments are really meaningful and important.

And so to jump in with them and do co-marketing, support their marketing -- I just went -- actually, I've been twice today to Dunkin' Donuts.

It's right down the street.

And I've had a couple of coffees and a few sausage.

And their personnel are wearing our shirts.

The signs are everywhere.

I love our product, and I support our customer.

I was at Del Taco quite a bit this weekend.

And the same thing, they're wearing our shirts.

They've got our signage up, same with Carl's Jr.

You go to Canada A&W, it's somewhat the same.

So that, in my view, is really where you're going to get the best bang for your buck because we really have a campaign around tasting is believing.

And man, it's easy to really believe once you go to one of those places.

The way they're preparing the product, I think, is really well done.

It's a place where people familiar with it are eating.

So in terms of investment, I find that to be a pretty compelling case.

Okay.

I didn't mean to cut you off.

Is there something else to add on?

No.

No.

I just want to make sure I was being...

No, that's all helpful color.

I appreciate it.

I'll throw in 2 quick ones and just kind of group them together.

So Ethan, can you -- competitively, it's been topical, though seemingly quiet down a bit, the potential for Impossible to enter U.S. retail.

How you're thinking about the risk and the potential time line?

Maybe we can get your updated thoughts on that?

And then, Mark, just housekeeping on the guidance.

So EBITDA, now up a bit less than $5 million year-to-date.

You didn't put a number on it, but now you expect it to be positive.

Maybe you can talk a little bit -- drill down a little bit on how you're thinking about EBITDA and margin progression in the back half of the year, so we can kind of have a better sense on how to quantify our models here for EBITDA.

Sure.

So on the question about competition.

I think -- I actually really do believe this answer, I mean, in terms of just people say it all the time, but I think there's real truth to it.

It's a $1.4 trillion industry, getting more players in that are willing to market and tell the story, I think, is really important.

We like competition.

We particularly like it when we're winning.

But I think, overall, competition keeps everybody sharp.

In terms of a particular company entering retail, we just stay focused on what we're doing.

And I'll tell you, I'm not sure that we're all selling to the same customer -- same consumer rather.

So if you think about what our value proposition is, we're building meat direct from plants.

We're -- our promise to the consumers is we're going to make it indistinguishable at some point and that we're getting closer and closer.

We listen to what they want in terms of ingredients.

And so we really stayed away from genetic modification or anything artificial, soy, et cetera, in recent years.

And so that, I think, appeals to a very broad set of consumers.

And you are going to have some that are very comfortable with GMOs, but a lot that aren't, right?

So there's going to be a division within consumers on who's buying what kind of product.

Then you look at other companies, like Tyson or Perdue and others that are maybe considering these blended products, and so that will appeal to a particular type of consumer.

So I feel very good about our strategy as new entrants coming to the market.

We've got a tremendous lead in terms of distribution, in terms of brand awareness and a bigger innovation.

This will only get better.

So I recognize there's competition out there, but I'm also really eager to compete.

So Kevin, yes, to really reiterate on the EBITDA guidance that we gave, we think positive EBITDA, the kind of bracket as we start to scale up, we're going to see some of the benefit really dropping through.

You can see Q1 to Q2 dropped almost twice the gross profit dollars at these volume levels that really starts to drop through the model as you saw very, very strong quarter with that gross profit performance.

And EBITDA, as you know, adds back for things like that -- more remeasurement expense that we had in the quarter.

It's a noncash item, anyway.

But that -- in sum, for us, to be at a 10% EBITDA margin in the quarter was very, very strong performance.

I think it really highlights the true profitability that we're starting to achieve here.

Sequentially, Q3, we -- Q2, Q3 are the stronger quarters for us.

We think we're going to have slightly better in Q3.

And at these volume levels, we'll still see these gross profit drop through.

For the year, the fourth quarter, probably seasonally a little lighter for us.

And that volume drop-through as well may not be as strong.

But there's a new plateau of profitability for us.

I think as you look at gross profit, positive operating income in the second quarter, that's a very strong achievement for us as well.

And I think these are going to continue to help drive that EBITDA margin for us.

(Operator Instructions) Our next question comes from Adam Samuelson with Goldman Sachs.

I was hoping to get a little bit more color on the longer-term investment and on the supply chain side.

Specifically kind of digging more into Rob's question, I guess.

And I think in the prepared remarks, there was allusion to internalizing kind of some of the supply chain.

I think -- I guess that was in relation to some of the co-packing.

But given the capital kind of on the balance sheet, given the growth ahead of you, do you see a point in time, whether it's '21, '22, 2020, where you have to start reaching a decision point on vertically integrating more production whether that's raw material procurement, co-packing or you start reaching a point where you minimum need a bigger production base than what you have in Missouri.

And then I have a follow-up on the guidance.

Sure.

So I think it's a foregone conclusion that we'll continue to expand our footprint in Missouri.

We are adding significant square footage in the next year there.

I also think that if you look at our own modeling the production, that there are cost savings available to us through continuous lines that are significant.

That said, there are benefits to this model of both segmenting the production of the protein and fat matrix and that system within our own house, and then the forming and packaging can occur outside.

So we'll probably always have a blend of those 2 approaches.

And just on that balance of -- the capital requirement and the speed at which we can bring on our own production facilities versus where the demand is and the need for external partners will drive that mix.

But I think as you've heard me speak about, we are very committed to this notion of at least one category with one important product within 5 years or less being able to underprice animal protein.

And I see internal production as a significant path in that direction.

But that said, we have a lot of really good partners, and they are on this journey with us.

And so they're making modifications to their own system.

So I think it's too early to tell whether we're going strongly in one direction versus the other.

I think a hybrid is probably the best answer right now.

Mark, I don't know if you want to add to that.

No?

Okay.

And then I appreciate the color.

And then just following up on the guidance.

I think the revenue guidance went up by $30 million -- or the baseline went up $30 million from last quarter.

Just any color?

I presume -- I believe last quarter, Tim Hortons was not in the guidance.

And so presumably, it's the inclusion of Tim Hortons and Dunkin' is kind of the bigger distribution gains that are now in the guidance.

But just where expectations from a channel perspective have exceeded your own?

Any color there would be helpful.

Yes.

No, another good question.

So Tim Hortons is in the forecast with respect to the sausage they're offering.

But again, to our conservatism, we've excluded the burger from our internal modeling and forecast because it's still in what they refer to as a test mode.

Dunkin' is not yet in either because it's still in test mode.

So those would be additive.

I think some of the things that are really driving the much stronger results will really be around both the increased distribution more generally as well as this really high velocity number.

Both of those are operating in our favor.

So I think if you look back at the history of our introduction of key partners in foodservice, my expectation is that, that cadence will be followed into the near future.

But we haven't baked those in to our model yet.

And at this time, I'd like to turn the call back over to Ethan for any closing remarks.

Thank you very much.

So in closing, I did want to share an experience that we had at our research center in Los Angeles, the center we call the Manhattan Beach Project.

Chris Paul, who's a professional basketball player and an investor and advocate for Beyond Meat, along with his parents and his broader family, brought 30 or so teenage children to visit with us as part of an education initiative with Club 61, a nonprofit Chris started in honor of his grandfather.

The children who come from communities in each of the cities where Chris has played, New Orleans, Los Angeles and Houston, enjoyed a tour of each of our research facilities and the meal around our new breakfast sausage patty.

To see the children quickly grasp the idea that you can and would want to build meat direct from plants and to feel their contagious excitement on glimpsing the future was truly gratifying.

But I share this experience to make a point.

It was in their enthusiasm that it became clear that there's a broader movement afoot.

Not everyone may appreciate or see it yet, but the generation represented by these children, we are offering them an opportunity to empower themselves to make a difference in their own health, the health of their families and communities and to make their own statement about the relationship to the earth and the life that we share it with.

When a new generation and the newest generation finds the disruptive to be intuitive, we know that change is on the way.

With Chris' visit that day, we were lucky enough to witness such a moment.

So I want to thank you for joining this call, for listening to our journey, and we look forward to reporting back to you next quarter.

Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program.

You may now disconnect.

Everyone, have a great day.