超越肉類 (BYND) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Beyond Meat's Third Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) I would now like to hand the conference over to your speaker today, Katie Turner.

Ma'am, please go ahead.

Thank you.

Good afternoon, and welcome to Beyond Meat's Third 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 third quarter earnings press release and third quarter investor presentation filed today after market close.

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

Before we begin, please note that all 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 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 10-Q 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 press 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.

Thanks, Katie.

On today's call, I will provide a brief introduction.

Ethan will review our business highlights for the quarter, and then Mark will discuss our Q3 financial results and 2019 outlook in more detail.

Finally, Ethan will open up the call for your questions.

Today's earning report marks several significant milestones for Beyond Meat.

After 10 years of aggressively investing in our science and product innovation, this is the first quarter we have generated net income.

It is a wonderful validation from consumers who support our business strategy of building meat directly from plants and choose Beyond Meat for its superior taste and texture while enjoying the nutritional and environmental benefits of eating our plant-based meat products.

It also highlights our ability to generate strong expense leverage as we increasingly scale our operations, both in the U.S. and internationally.

As many of you are undoubtedly aware, this week also marks the end of the lockup period related to our IPO, which will permit the sale of pre-IPO shares by some of our longest-standing supporters.

While we recognize short-term reactions to these milestones are often marked by heightened uncertainty, we believe that Beyond Meat is in a stronger position today than at any other time in its history.

Our transition to a public company has positioned Beyond Meat well to be able to capitalize on the substantial growth opportunities that lie ahead of us.

And we sincerely thank our pre-IPO investors for getting us to this point and for their long-term commitment and belief in our company.

Before turning the call over to Ethan, I would also like to recognize one of our earliest Board members, Greg Bohlen, who has resigned from the Board as disclosed today in an 8-K filing with the SEC.

Greg has been a strong and consistent supporter, and the venture funds he works with have participated in multiple financing rounds.

We thank Greg for his service.

With his resignation, the company will reduce the size of our Board from 10 to 9 seats.

Going forward, we believe our brand commitment, "eat what you love," encourages consumers to eat more not less of the traditional dishes they enjoy while feeling great about the health, sustainability and animal welfare benefits associated with consuming plant-based protein.

We look forward to sharing our continued growth and success with you

For many years to come.

And with that, I'll turn it over to Ethan.

Thanks, Seth.

Good afternoon, everyone.

We generated very strong results for Q3, measured both by financial metrics as well as a series of marquee partnerships that position our company well for future growth.

Specifically, we recently initiated tests at McDonald's, Kentucky Fried Chicken and Subway and announced the national rollout of our Beyond Breakfast sausage at 9,000 Dunkin' locations starting next month.

Looking forward, we've made significant additions to our team, including senior leadership in operations and marketing while investing in aggressive international expansion.

Q3 net revenue increased 250% to $92 million compared to the prior year period.

We grew our points of distribution to greater than 58,000 outlets across retail and foodservice globally.

Further, we generated strong velocity growth of 144%, resulting in a roughly 1,200 basis point improvement in market share through the end of Q3.

For the 12-week period ending October 6, 2019, with only 6 SKUs in the marketplace, Beyond Meat has become the second largest plant-based meat brand in retail nationwide, outpacing the leading brand in terms of sales growth by a factor of nearly 20x according to SPINS data for total U.S. multi outlet, natural and specialty channels.

In addition, during that same period, the Beyond Burger was the #1 selling plant-based meat item across all SPINS channels and was up 162% in units and 155% in dollars.

Gross profit margin expanded over 1,600 basis points to 35.6%, with strong cost and expense leverage, leading to the first quarter of positive net income in the company's history.

Adjusted EBITDA improved more than $16 million to $11 million, representing a 12% adjusted EBITDA margin.

In summary, Q3 financial results outpaced our expectations.

And as a result of this growth and our outlook for the remainder of the year, we are raising our 2019 full year financial outlook.

Returning to the topic of strategic partnerships, we began Q3 with the Beyond Breakfast Sausage test in Dunkin's Manhattan locations.

And we'll be expanding to Dunkin's more than 9,000 locations nationwide beginning on November 6. We believe the success of the Beyond Breakfast Sausage sandwich test at Dunkin's speaks to our brand's eat what you love promise.

From a nutritional perspective, when compared to a leading pork sausage patty on an ounce for ounce basis, our Beyond Breakfast Sausage provides a delicious and satiating breakfast meal while delivering compelling nutritional wins, including more protein and iron, 44% less saturated fat, 50% less total fat and 37% less sodium.

In Q3, we teamed up with Subway, the world's largest restaurant chain by number of locations to test the Beyond Meatball Marinara sub.

This partnership illustrates the versatility of our product platforms, in this case, our ground beef line, and our ability to serve a widening set of market opportunities within our core focus of beef, pork and poultry.

We followed the exciting Subway announcement with a test at a Kentucky Fried Chicken location in Atlanta of Beyond Fried Chicken in nugget and boneless wing form, which sold out in less than 5 hours.

In a measure of the appetite for our brand and a changing American consumer, guests purchased as much Beyond Fried Chicken in those 5 hours as KFC would typically sell of popcorn chicken in a week on a single store basis.

Most recently, McDonald's announced they'd be testing Beyond Meat to select locations in Southwestern Ontario, Canada, in their plant, lettuce, and tomato or PLT Burger.

This important step reflects a dream becoming reality.

We've long had our sights on ubiquitous availability for Beyond Meat.

And years ago, I set a goal that my own children will be able to go to major fast food chains and order Beyond by the time they could drive.

With both beginning high school this year and McDonald's testing, as Carl's Jr., Hardee's, Dunkin', A&W, Del Taco and many others already proudly offering the brand, I'm getting in by the skin of my teeth.

Beyond Meat is now available in 53 countries with new doors opening wide for growth.

A few key highlights from the quarter include the addition of Beyond Sausage at Tesco and the Beyond Burger in El Corte Ingles, Spain.

In Canada, we've entered the retail channel in Q2.

And by the end of Q3, we are now in nearly 4,000 stores, including all Sobeys locations.

We've also launched the new meatier Beyond Burger at retail in Australia.

Across Asia, an important strategic region for Beyond Meat, we have distribution in Hong Kong, Taiwan, Thailand, Vietnam, South Korea, the Philippines and Singapore.

Moving forward, we will continue to grow our sales and operations footprint globally, applying the same aggressive pursuit of growth in international markets as we have here in the United States.

As noted, a central tenant of our mission is to enable consumers to eat what they love, meat, while enjoying the nutritional benefits of plant-based protein.

I want to reiterate some key nutritional metrics of our product lines relative to their animal protein equivalents.

The beyond Breakfast Sausage at Dunkin' is a good place to start with nutritional wins that are worth repeating.

More protein, more iron, 44% less saturated fat, 50% less total fat, 37% less sodium and no cholesterol.

Turning to Beyond Burger.

We offer a slight advantage in total protein, along with 32% less saturated fat and no cholesterol compared to the burger made from AB20 beef.

Our sodium content at 16% of daily value with 390 milligrams is less than the amount you will find in half a cup of marinara sauce, one cup of vegetable soup or 2 flower tortillas, as just a few reference points.

More generally, when we consider the nutritional benefits of our plant-based meats, it's important to note that cholesterol is not the only component of potential concern we leave out nor is saturated fat the only input we seek to minimize.

For example, our products are free of many other elements in animal protein that are the subject of medical study and debate for their role in inflammation and potential carcinogenic and cardiovascular risk.

Nor do they contain what the USDA refers to as residual contaminants that can be present in certain, but by no means all commercial meats.

Finally, at Beyond Meat, we have never claimed perfection.

We are proud of our products in the market today but are committed to a rigorous cycle of rapid and relentless innovation that includes a continual search for simple non-GMO inputs from plants that will enable us to offer better products in both taste and nutrition.

We have long been clear that our intention is to build a global protein company, one capable of serving a growing world demand for protein.

To realize this vision at a pace commensurate with the market opportunity and the urgency of our mission, we are further investing in best-in-class talent and leadership throughout the organization.

In Q3, we welcomed Sanjay Shah to Beyond Meat as our Chief Operating Officer.

It was Sanjay's extensive experience at Amazon, including serving as Vice President of North American Fulfillment, coupled with a strong background in international operations, including in Southeast Asia that sparked and sustained our interest in bringing him to the team.

Stuart Kronauge will be joining us as Chief Marketing Officer.

She comes to us with over 20 years of marketing and brand building experience at the Coca-Cola Company, most recently as President, Sparkling Brands, serving as a driving force behind the resurgence of legacy brands such as Coca-Cola, Coke Zero, Diet Coke, Sprite and Fanta.

We've built our company in dialogue with the consumer being inspired by and hopefully, in turn, inspiring them.

They are our greatest advocates and most persistent voices with regard to the health, sustainability and animal welfare benefits of going Beyond.

Our goal remains to serve, connect with and amplify the voice of the consumer in what has become a movement, and we look forward to Stuart and team scaling our message and engagement to a global market.

Turning to outside the company.

I should offer some brief comments on competition.

It is important to establish the right context.

The market we play in is a $1.4 trillion category, the largest in food.

It would be naive to expect a 1 or 2 horse race given the size of this opportunity.

So the competitive entrants are not a surprise nor a development we are not equipped to handle.

Business history, including recent business history is replete with examples of companies that reset markets right before the eyes of incumbents.

We do not interpret the interests and efforts of large companies to capture our leadership position as evidence that they will do so, any more than Amazon's ascent was squelched by traditional retailers who entered e-commerce to unseat them.

In fact, we have been preparing for a competitive market for years, and I look forward to continuing to execute on our strategy.

As has been our practice, we intend to continue to invest in and innovate at an aggressive pace while maintaining our commitment to non-GMO and simple plant-based ingredients, to leverage our first-mover advantage here in the U.S. and abroad, including rapidly expanding customer relationships and production infrastructure to capture market share, and investing in marketing to articulate and amplify our story and value proposition to a broadening group of consumers.

Moreover, we will continue to apply a singular focus to our singular goal, building meat perfectly plants and making it widely accessible globally.

We spend no time debating budget allocation between competing commercial divisions.

We are not beholden to some cost tied to a traditional industry or to an entrenched supply chain.

Instead, we nurture an aspirational challenger brand borne out of consumers' desires for something new from someone new.

In summary, we believe we're well positioned at Beyond Meat today and in the future with strong brand authenticity and a commitment to enabling consumers to eat what they love, a robust innovation pipeline supported by our differentiated approach to R&D and a terrific team to execute against our global growth strategy as we increasingly appeal to a broadening group of consumers.

We will continue to invest in our infrastructure, ensuring we have sufficient capacity to meet escalating demand and to operate a global protein company.

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

Thank you, Ethan, and good afternoon, everyone.

We are very pleased with our third quarter financial results and our continued opportunities for future long-term growth.

As Ethan indicated, net revenue in the quarter was $92 million, up 250% compared to the third quarter of last year.

As I mentioned in our Q2 call, we expected the third quarter to be our seasonally strongest quarter of the year in terms of net revenues and profit contribution based on the summer grilling season as well as product innovation launches and new foodservice distribution expansion.

Based on our strength in net revenues for the third quarter and year-to-date, we are increasing our 2019 outlook.

We now expect net revenues in the range of $265 million to $275 million, representing year-over-year growth of more than 200% compared to 2018.

As a result of this top line strength, we have also raised our annual adjusted EBITDA outlook to be approximately $20 million, up from our prior expectation of being adjusted EBITDA positive for the year.

Growth in net revenues for the third quarter of 2019 was driven primarily by an increase in our fresh product platform across retail, restaurant and foodservice channels.

This reflects our expansion in the number of retail and foodservice points of distribution, including new strategic customers, new international customers and greater demand from existing customers.

From a distribution channel perspective, retail net revenues increased 212% while restaurant and foodservice net revenues increased 312% versus the third quarter of 2018.

The significant increase in our restaurant and foodservice sales volume drove net revenues through this channel to represent 45% of our total net revenues in the quarter.

On the product side, gross revenues for our fresh platform increased 265% versus the year ago period, representing 96% of our gross revenues for the third quarter of 2019 compared to 92% of gross revenues in the third quarter of 2018.

Gross revenues for our frozen platform increased 75% 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 further increasing sales velocity of our fresh products.

Gross profit was $32.8 million or 35.6% of net revenues in the third quarter of 2019 compared to $5 million or 19.2% of net revenues in the third quarter of last year.

The $27.7 million increase in gross profit and over 1,600 hundred basis point improvement in gross margin demonstrate the operating leverage and production efficiency gains we were able to achieve on higher net revenues.

Over the next several years, we 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.

In addition to leveraging our cost of goods sold, we were also able to achieve strong operating cost leverage in the quarter.

SG&A expenses were 22.8% of net revenues in the third quarter as compared to 39.4% in Q3 last year, again, demonstrating strong operating efficiency, which we expect to be a great enabler of strategic flexibility in the future.

We achieved net income of $4.1 million or $0.06 per diluted share for Q3, which represented our first quarter of profitability compared to net loss of $9.3 million in Q3 last year.

As of the end of the quarter, our weighted average common shares outstanding diluted were 66 million, reflecting a time-weighted average of all common stock outstanding in addition to 5.6 million potentially dilutive options.

The potentially dilutive options are included in the weighted average common shares outstanding because the company recorded net income in the quarter.

As of September 28, we had 60.6 million shares of common stock outstanding, reflecting new shares issuance and preferred shares conversion in conjunction with our May IPO and August secondary as well as warrant and option exercises.

Adjusted EBITDA was $11 million in the third quarter of 2019 compared to an adjusted EBITDA loss of $5.7 million in the third quarter of 2018.

The improvement in adjusted EBITDA was primarily the result of our strong revenue growth and resulting gross margin expansion as well as SG&A leverage in the quarter.

Now shifting to our capital structure.

The company's cash and cash equivalent balance was $312.5 million, and total debt outstanding was $30.5 million as of September 28, 2019.

Net cash used in operating activities was $18.3 million for the 9 months ended September 28 compared to $24.4 million for the prior year period.

Capital expenditures totaled $16.9 million for the 9 months ended September 28 compared to $18.3 million for the prior year period.

Net proceeds from our IPO and secondary offerings have been invested in short-term, interest-bearing investment-grade securities.

There has been no material change from the expected use of net proceeds, as described in our registration statement on Form S-1.

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

Thanks.

Thank you, Mark.

In conclusion, we are very pleased with the results of the third quarter and year-to-date in 2019.

We believe Beyond Meat has significant momentum, and we are well positioned for future growth and continued success.

I'd like to now turn it over to the operator for questions.

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

A few for me, if I can.

First, I'm curious why Greg left the Board, if you can add any color there.

Second, I wanted to know how your burgers and really all your products are doing in retailers that have added the Impossible burger.

And then I'll have a follow-up to that.

Great.

Thank you, Ken.

So with respect to Greg, that was a very natural progression for him.

And he's an early-stage venture investor who was with us since, I think, 2010-2011 period.

And so it was not a surprise and something that was long in the making.

On the question regarding the retail environment.

We continue to see extremely strong gains in retail.

Our velocity this quarter over previous is up 144%.

Sales are up 250%.

So we have not seen any evidence of any diminished interest in our products or diminished sales as a result of any competitive entrants in retail.

Okay.

But obviously, you do see that Impossible has come in and -- into some retailers.

Has -- in those retailers where you play an Impossible play, is there any substantial deceleration in your velocity or even in your shelf space there?

Yes.

No, we've seen nothing at all and certainly not in shelf space, no.

Okay.

And then my final question would be, obviously, it's early days in McDonald's, but can you give us any color on how things are going?

Any reaction from McDonald's?

Obviously, they talked about it in general the other day.

But I'm just curious what they're telling you and what you're seeing in the numbers.

Sure.

And so we can't comment specifically on any tests that are going on now.

But we feel very optimistic about the long-term relationship there.

We've been working with McDonald's for a very long period of time, deeply embedded in this product development effort with them.

It's a collaboration between the 2 companies.

So I have every expectation that this test will result in more work with McDonald's, but it will be up to them to characterize that and share that with the public market.

Our next question comes from Robert Moskow of Crédit Suisse.

Obviously, a lot of restaurants -- more and more announcements of them testing your product.

We did see a headline saying that Tim Hortons had decided to, I guess, not go any further with the test for burgers.

And I think there was also a regional reduction in breakfast sausage.

But just want to know if you could comment on that and is it within your expectations or not.

Yes, absolutely.

I mean these things are truly tests.

And we were gratified to see that they're going forward with over 60% of their stores.

I think it's about 2,500 over -- about 4,000 total that elected to keep it in market.

And I think it's really up to them to make the right decision about which customer base and which demographic they're going to be most successful with.

So I didn't make much of that.

If you look at the number of tests that have gone to successful launch, it's very, very significant, whether it's TGIF, or A&W, Del Taco, Carl's Jr., Hardee's, Dunkin', BurgerFi, the list goes on and on.

You see a tremendous amount of momentum coming out of these tests.

You see the tests themselves being very rewarding for the QSRs, whether in terms of just brand recognition and traffic into their stores.

And then you see new tests occurring and new announcements occurring post the Tim Hortons decision.

So Denny's, Courtyard Marriott, et cetera.

So I view it as inconsequential to our overall growth and just part of the process of each QSR determining what's the best rollout for their customer.

Got it.

And could you just remind me, Ethan, like how long do these tests typically take?

And is it common for a restaurant chain to go national right away after a test is over?

Or would they -- especially a big one.

Might they consider like rolling it out regionally step by step?

Well, I think your intuition is right there that if it's a very, very large chain, you will see it occur on a regional basis.

Smaller chains will work more quickly.

And then just depending on how aggressive their management is, Dunkin' is a good example of that going from New York City to national very quickly.

So it really reflects back on the individual characteristics of the particular QSR.

But I think that initial intuition is right, that the larger they are, the more regional they're going to be in their rollout, which is good for us because it allows us to scale at a rate that is good for both sides.

I'm going to ask one more, if I could.

Burger King has branded the Impossible Whopper after Impossible.

Does it matter to you whether your customers' brand their burgers Beyond or use it as a subheading?

Do you push one way or the other?

So we always like to see our brand used as much as possible.

And we think it's not only good for us, but very good for the quick-serve restaurant themselves.

If you look at the reaction that we received at Kentucky Fried Chicken in Atlanta, that was, I think, an extraordinary testament to not only our execution but to our brand, the number of consumers coming in that day to try the product.

So I think it behooves both of us to use the brand as much as possible.

With McDonald's and the PLT, that is a nomenclature that they think works best for their consumer.

But if you look at how they're rolling it out, whether it's in the press release, whether it's in store, whether it's on social, Beyond Meat is all over that.

And that's not by accident.

They recognize the power of our brand to bring new consumers into their stores as well as excite their existing consumers.

Our next question comes from Alexia Howard of Bernstein.

Can I first ask about the international business?

Are you able to give us numbers on roughly how -- what proportion of your sales in 2019 are likely to be outside of the U.S. and Canada?

And if you could talk explicitly about Europe and how quickly perhaps you expect to get a plant installed over there.

That would be my first question.

And then I have one follow-up.

Sure.

So I will first comment on the European production.

So we're very fortunate to have a good partner there in Zandbergen, and we are aggressively putting infrastructure in place with them to be able to serve the EU market, which we think is a very attractive one for us.

More generally, if I could comment internationally, I have a strong conviction that we should be producing in the markets that we are selling in on a regional basis.

And so you'll see us continue to make investments globally and bringing production into place in the markets that are the most attractive to us.

So we certainly won't be stopping with Zandbergen, and you'll see more behavior from us in that regard.

If you look at the overall percentage of revenue that's coming from international, this past quarter, it's about 18%.

And we think that trend will continue.

It's up quite a bit.

It was up from about 4% in the third quarter of last year.

So we want to continue to nurture the international market.

Like many, we believe that Asia is a very attractive market for us and of course, as I mentioned to you.

So you'll see us continue to be aggressive there.

Great.

And just as a follow-up, how quickly at a company-wide level is the co-packing capacity increasing?

We know that you currently have maybe about $350 million of capacity from your own extrusion stack.

But if the bottleneck is on the co-packing capacity, how quickly can that scale, particularly as we look out through 2020, both domestically and internationally?

And I'll pass it on.

Sure.

Great question.

So as I said in the past, we really think about this in 3 different buckets, and those buckets have individually provided us with bottlenecks at one point or the other.

But I'm feeling very good about each of the 3 areas currently going into 2020.

So if you look at our co-packers, for example, we have co-packers in Pennsylvania, 2 here in California, 1 in Texas.

And in the first half of next year, we'll be adding a co-packer I just mentioned in the EU, we'll be expanding our presence there.

Ohio, Indiana and Québec will all be bringing on co-packers for us.

So you'll see a doubling roughly of our co-packing capacity.

In the extrusion area, we continue to bring new lines into existence.

And you'll see not only between now and the end of the year us add at least 2 additional lines but be pretty aggressive in that regard in 2020.

And then I think the bottleneck that has been the most concern historically, during this period when we've been going public, has been around protein.

And I'm very pleased to remark today that we've dramatically increased our protein supply and diversified our supplier base for that.

So I feel good in each instance that we can more than serve expected demand for 2020.

Our next question comes from Adam Samuelson of Goldman Sachs.

First question for me, actually, maybe just continuing on the capacity front.

And Ethan, you just alluded to significantly expanding the protein availability and sourcing into next year.

As we roll it all together, I think last quarter, we had been at about a $400 million annualized run rate on the revenue side from a capacity perspective.

Thinking into next year, kind of where would we sit today?

I mean you were almost at that level on a quarterly basis in 3Q, so I'm just trying to get a sense of how much headroom you've built into the plan as we move into 2020.

Yes.

So using that reference point of $400 million gross in 2019, I feel pretty comfortable in sharing that we're about 3x that number for 2020 in available protein.

So in a good position.

Okay.

That's very helpful.

And then on the sales side, I appreciate the color you gave on the sales velocity front.

Is there any kind color -- incremental color you could give on maybe more mature points of distribution versus newer ones?

Are you seeing kind of distribution in some of the more established retailers and geographies like Kroger in Southern California or Albertsons versus the newer ones?

And how the sales velocity is trending between kind of newer and more established retailers standpoint on the foodservice side?

Yes.

So on the retail side, we don't have disaggregated numbers for you today.

I could try to give you some additional color and follow up.

But overall, it's at that very strong velocity of 144% growth in velocity.

Our sales growth, if you look at us relative to the leading brand in the market by -- in the meat alternative set, which again, I don't really reference that much, but we're -- our sales growth is about 20x that brand.

Our market share has gone up about 1,200 basis points year-over-year and according to SPINS.

So we've been very successful in continuing to drive the interest from the consumer in our brand.

We've also put additional SKUs to work for us in those stores.

And in my view, that is really just the sort of tip of the iceberg for us.

We have a very, very small SKU set for the level of brand attention we get, and I look forward to growing that SKU set over the next year to drive some incremental sales in each of those locations.

Okay.

That's helpful.

And I just have one quick follow-up.

I think you'll disclose this in the Q, but do you have the tonnage growth that you experienced in the quarter?

In terms of overall weight.

Yes.

I can address that.

So we -- our third quarter pounds, 16 million 0-1-6 versus Q3 '18, 4.338 million.

Our next question comes from Kevin Grundy of Jefferies.

Congrats on another great quarter.

Ethan, question for you, and I apologize if I missed this.

Repeat purchase rates, can you provide an update there and maybe separate between foodservice and retail, to the extent you have it?

And then I have a follow-up.

Yes.

So I can share it on the retail side, but unfortunately, it's not a new number we have for the brand across each of the SKUs.

We're at about a 45% repeat rate.

So it's something that we're going to update in the coming quarter, but we don't have new information today.

Okay.

The follow-up question is around price gaps and how much of a priority it is for you, Ethan, in terms of the company's ability to close that price gap versus traditional beef.

Over what period of time you think you can do it.

And then how much -- what is the assumption that's included -- and maybe that's a question for Mark, in the company's mid-teens EBITDA margin.

How -- what is embedded in there with respect to the company's ability to close some of that price gap?

And I can pass it on.

Sure.

No, great question, and it is one where I have a lot of passion for it.

It's -- I think you've heard me say this in the past that Beyond Meat is going to continue to be successful by providing the very best products to consumers around taste and around nutritional value.

Those are 2 of the 3 pillars that we really need to execute against.

And the third is around price, right?

The day that we can get to the point where we can drop our pricing below that of animal protein in certain segments, I think, is going to be a really important day for us as we think about that $1.4 trillion industry that we're going after.

And so it's something that I drive every day toward here.

Some of the hires you've seen me make in the last quarter have been expressly around that idea, including with bringing Sanjay in to help us on the operations side.

We're setting up a Center for Strategic Planning and Commercialization.

One of the key goals of that is around our cost structure and getting the cost structure to the point we can support underpricing animal protein.

It won't be in every category for sure, and we will offer differentiated product lines, just like the meat industry does itself today with Angus and then with some other offerings throughout the beef value chain.

But it is something that's really important for us to do.

I haven't given a public time line other than within 5 years, and that was probably about 6 months ago.

So I'd say within 4.5.

But everything about what we're doing and everything about what I think is really important for this company, you'll see us do that earlier.

And I can't give a particular date, but you can be very confident it's something that gets a lot of attention here.

That's helpful.

Can you guys comment on what the assumption is with respect to the mid-teens EBITDA margin target?

Yes.

And now just kind of talking about the top line first.

Our dollars per pound, our net selling price per pound over year-over-year went from $6.06 down to $5.74 a pound.

So we retain pretty strong pricing power year-over-year.

Where our margin expansion really came from year-over-year was a significant drop in our cost of goods sold per pound.

So we dropped COGS by 25%, going from $4.89 a pound down to $3.69.

And that's the, really, the driver that will allow us to continue to take cost out and allow us to drop pricing while maintaining that mid- to high-30s gross profit target.

And then that drops through really to the EBITDA line.

We think the volume growth will increasingly be able to drop in to EBITDA.

And like you saw in the third quarter, getting to a 12% EBITDA margin really gives a lot of momentum towards getting to that goal.

So it's mid- to long term.

We'll start to deliver some price in retail to achieve our longer-term goal of getting to parity with animal protein, but we'll continue to take cost out as well alongside that.

And the goal is in that same time line to get to the mid- to high 30s and also get to EBITDA in the teens.

Our next question comes from John Baumgartner of Wells Fargo.

I guess, first off, I wanted to follow up on Rob's question on the foodservice side.

On the one hand, you have the pullback in Tim Hortons; on the other hand, Dunkin's going the other way, expanding nationally.

So I'm curious about what your learnings or takeaways are, hearing back from these operators in terms of product appeal.

I mean are there any distinctions emerging on the basis of geographies or socioeconomic consumer groups?

Or any other aspect you've been able to glean?

And if so, how are those learnings informing how you choose to expand distribution from here?

It's a great question.

Thank you.

So we have garnered a lot of learnings from these tests, and I think less so around demographic appeal, but we do feel that our products, particularly because of the health aspect tends to do well independent of the particular region.

If a consumer is looking to make a healthier choice in-store or at the QSR, they're going to do that regardless of whether they're standing in a cornfield in Iowa or on Madison Avenue.

And so we have seen some pretty consistent results.

I do think that the learning that's been the most strong for me, it's really around the execution by the partner.

And so if you look at -- if you come out here and look at Carl's Jr.

or Del Taco or Dunkin' back in New York as examples, it is very clear in the store that they're selling Beyond Meat, right?

And it's very clear in their social, and it's very clear in some of their traditional advertising.

Those tests seem to have the very strongest results when the partner is leaning in a messaging and advertising and communication perspective.

And so the ones where that's maybe less clear, you can expect maybe a little less robust pickup, but it's about messaging and getting the consumer to understand that this is where they can get the product.

When that's executed really well, it does great.

And when it's maybe a little bit less pronounced, it's a little bit of a slower build would be my biggest learning.

And just a follow-up.

I wanted to also ask about the gross to net revenue number.

That discount rate was stable in Q3 year-on-year, but it's up sequentially throughout 2019.

I'm curious, how much of that increase is a function of just retail becoming a larger part of the mix?

And how do you envision that gross to net spread changing from here given the number of new entrants coming into the refrigerated space at retail?

Well, that's exactly right.

The higher proportion of retail in the quarter is where we see most of that trade discount.

And year-over-year, it's pretty stable.

It's still about 9.7% in the third quarter last year, 9.8% this year.

But that's a pretty low trade rate spending rate that we have.

So we do anticipate we'll be doing more promotion through trade and discounts going into the future, but we've been fortunate with the demand that we've seen.

We haven't had to do a lot of promotions so far.

Our next question comes from Brian Holland of D.A. Davidson.

The first question, I wanted to follow-up on Rob's earlier question about the co-branding on the foodservice side.

I'm curious how you sort of define the McDonald's test.

Is that a co-brand?

Is there signage in the stores?

And how else is McDonald's sort of promoting the McDonald's brand?

I think you mentioned social media.

Yes.

So it is very clear that Beyond Meat is the product inside the PLT.

They think about that sandwich like they do the Big Mac in the sense it's an overall architecture, and they wanted to name that the PLT.

But it's extremely clear that it's with Beyond Meat and that Beyond Meat is the brand.

We haven't seen every in-store execution, so I can't answer specifically to each store, but everything that they've shared with us in terms of the social and obviously, the press release and some of the point-of-sale materials indicates that they're leaning very much into the partnership with our brand.

And we expect that going forward.

Okay.

I appreciate that color.

Then on the retailer side, what are you hearing from customers with respect to -- or seeing with respect to shelf space allotment amidst kind of the recent or ongoing shelf resets?

Are your plant-based competitors getting similar placement to the Beyond Meat brand alongside animal protein?

And where is that shelf space coming from?

Is that animal protein products donating the shelf space?

Yes.

That's a good word.

So they do -- you do see certain retailers, I think Safeway, for example, recently is starting to create an overall architecture for the category with plant-based meats.

And I'd have to ask them simply where that's coming from.

My assumption there is that it is coming from animal protein offerings.

We have only heard the same thing that we've always heard from retailers, which is to what other SKUs can we offer and interest in us getting into a deeper diversity of SKUs within each of the categories of beef, pork, and poultry.

We have not had any pressure yet from other entrants into the market, and we continue to feel very comfortable about our relationship with the retailers and our position on shelf.

Just to add, this is Seth.

We have absolutely not seen our shelf space shrink.

We've seen the overall shelf expand and so certainly, our place within it, but not at our expense.

Okay.

Got it.

Last one for me.

Appreciate the color about the repeat rates.

I know you'll update those again, so look forward to that.

Certainly, the number, pretty solid at this rate for the brand based on my experience looking at such metrics.

I'm curious about purchase frequency.

Repeat rate is a function of that.

But I'm just curious if you're seeing among kind of your earliest adopters whether they're sticking with the brand.

Is their frequency of purchase going up once we get past trial?

I appreciate that's kind of a tough question.

We're so early days here.

But just curious if there's anything you can share to that end.

I think it's a great question.

We don't have that data though, but it's something we can look into.

We do see there's a tremendous amount of loyalty to this brand.

And so we are seeing consumers, for example, when the Beyond Beef came out, they flocked to that and seemed to appreciate the new offerings.

But I don't have specific data.

Our next question comes from Jon Andersen of William Blair.

I wanted to ask about chicken.

Given the success of the test with KFC, which you mentioned in the prepared comments, how do you think -- how should we think about the role of chicken?

What -- how are you thinking about the potential for broader commercialization of that part of the platform in foodservice and retail?

Thanks, Jon.

Good question, and I'm very excited about it.

I mean poultry was the first real internal innovation that we ever did and we had, I think, a very strong product there.

We weren't able to innovate around that over the years.

And so we decided to pull it in exchange for opening up more production capacity for the Beyond Burger at the time.

But poultry is an important category for us and one that we're doing a lot of development work in.

The kind of Holy Grail in that space is a fresh chicken breast offering, and we have work in that direction.

No time line on it, but you'll see us do some of these other offerings like we did with Kentucky Fried Chicken with their boneless wing or nugget sooner rather than later.

As -- it's amazing what's happening with the consumer.

I mean the consumer pulls away most quickly from red meat and then processed meat, things like pork in sausage form, et cetera.

But as they get into a decision-making framework around what proteins to consume and what not, poultry is increasingly coming into view as well, and we're benefiting from that with the launch of KFC -- or the test at KFC, et cetera.

So you'll see us get active in that and return to some of the platforms that we had in the past.

Great.

Great.

I just wanted to revisit one more thing.

So you mentioned protein and the kind of the commitment or your ability to secure additional supply with additional sources.

I think you mentioned you had visibility into kind of 3x the level of plant-based protein for 2020.

Is there any reason why you would secure more than you're kind of forecasting for your business in 2020?

And I guess first, is the 3x the level the right number?

And then is there any reason why you'd buy more than you anticipated selling?

Sure.

I mean I think it has to do with if you look at our recent history, I just wanted to make sure that we have enough on hand.

But it also has a shelf life to it which allows for us to use it over several years if needed to.

And so there's just some conservatism in what we're doing based on a recent past of not having enough.

But as we go forward, hopefully we'll be able to get into a cadence that the supply contracts we have more appropriately match where our sales expectations are for the year.

Fair point.

One last housekeeping, maybe for Mark, on the points of distribution.

I think more than 58,000 this quarter.

Any ability to kind of give us a retail and a foodservice figure that add up to that?

In terms of the -- just the split?

Yes.

The split between the 2 channels.

So we're -- so yes.

So we're about, this quarter, we went up.

We're at actually about 45% now in foodservice due to some increase in retail activity.

It was -- last quarter, it was about 50-50.

It's about 45-55 now.

Yes.

So that 58,000 breakdown: retail, 28,000; foodservice, 23,000; international, 7,000, which excludes Canada in that international number.

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

So just a couple of follow-ups.

First, the tonnage growth, which is up a lot -- a ton, I guess, to use a bad pun.

Can you give us a sense for how much of it is like been pulled through?

So just consumption versus how much of it is just -- is filling the points of distribution.

Any sort of way to color that would be helpful.

It's harder to think of it that way.

I believe some of our newer points of distribution may not have the same volume.

We think about some of our kind of more longer term, say, retail customers like Whole Foods.

Their volume is not only up, it's up per store.

And so we're selling more through existing points of distribution, but then we have all sorts of new distribution coming on as well.

And within that, you have the overlay of more SKUs being sold at retail as well.

So some of the -- where we had a couple, we now have 3 or 4 SKUs at some of these retail points of distribution.

So it's -- I don't know the precise answer, but I think there's growth definitely in both certainly in our existing year-over-year comparison, but also driven a lot by the new customers as well.

Okay.

And then as you went through the summer season, just service level, how did that stack up versus your expectation?

It was better -- certainly better than last year.

Not perfect though, but I think that is quite a bit stronger than last year.

We filled -- as opposed to seeing empty shelves, I think in last summer we had more full deliveries.

Retailers weren't seeing the outages, which is really helpful.

And also, it's a very high service level requirement in the QSR space that we're excited to be able to achieve.

So I'd say it was quite a bit better than last year.

But not in a position where you had customers on allocation or anything like that?

No.

No.

Okay.

And then just a last one.

There was a couple of questions around the margins.

And I guess as I was listening to the prepared remarks and you talked a bit, Ethan, about international expansion.

You've also begun to hire some people, bring some more people into the company.

Just how linear should we think about margins?

Because if you're expanding into new markets and you're, I don't know, bringing more capabilities and more people into the organization, will the margin expansion necessarily be linear?

Or would there be some reinvestment or some revenues next year that are maybe not at scale because you're building out markets and still building some capabilities?

Yes, I mean, I believe you're right.

We probably won't see as linear a growth.

I mean the year-over-year increase in margin was really driven on the cost side.

We've -- thinking forward, we think about some of the price that we may deliver in trade promotion; some of the -- this mix shift into the QSR space, which could also drive margins tighter.

But we still have a lot of opportunity, I think, to take cost out.

We look at what we did and it was a lot of just volume -- straight volume leverage.

We really haven't started to work on material costs, packaging.

There's quite a few things that we can continue to drive cost down on.

But I don't know that it would be a linear thing.

I think we'll step function.

And another big initiative we are looking at is in the contract manufacturing space, looking at how we can balance that with some internal capacity as well.

That will do a lot to take down the tolling fee costs in the BOM.

So there may be some steps as we deliver price, but then as we achieve additional cost savings to match it.

Our next question comes from Benjamin Theurer of Barclays.

Wanted to follow up on the international piece.

So clearly, you've -- hello?

Can you hear me?

Yes.

Yes.

We're here.

Okay.

My question is more on the international side.

So clearly, you have your 2 products, mainly, the sausage and the burger and the ground beef basically.

But within Europe, I mean, clearly there are different taste settings.

You go to France.

You go to Switzerland.

You go to Germany.

You go to Spain.

So with all the co-manufacturing, is there something you've also thought about it more, like a regional type of product, plant-based sausages that owe more within the taste of the different nations that are clearly different not only within, for example, France or within Spain or within Germany, but more broadly speaking, to adapt your production to what the actual consumer in Europe is looking for?

And how are you thinking about that rollout?

Yes.

No, it's a great question, Benjamin.

Thank you.

And so I hope that what's coming through in my comments, in introductory comments and in my answer to these questions, is that I am very focused on building us into an international brand.

And if you look at the folks we've hired in the last quarter, including Sanjay and Stuart, these are folks that have helped to build international brands and supported those in the markets that they're serving.

And so you will not see us do this lightly.

It will not be an export model.

I want to be in the regions producing and selling with our own staff and management.

I think the opportunity is that big, and it deserves that much care and attention.

So we're actively pursuing that in the EU, and you'll hear from us later about our plans for Asia.

But the opportunity, for example, to produce and sell pork dumplings, for example, in Asia is significant and not one that's lost on us.

Different flavor profiles throughout Europe, also not lost on us.

So you'll see us get to know these markets well and serve the consumers in those markets with products they will appreciate.

What we've done here in the United States is to build this brand with the consumer, and I have every expectation we'll do that internationally.

Okay.

Just to follow-up on that, I mean, you always talk about the size of the U.S. market in comparison to the global market.

But at least from a ceiling perspective, I guess in Europe, most of the per capita meat consumption really goes over sausage and whatsoever.

Would you somehow agree that this is a more -- it is an easier product to be replicated than maybe steaks and whatsoever and that clearly, you actually have a bigger opportunity outside the U.S. than maybe in the U.S. with your products?

Well, I think the first part of your comment around what's an easy extension for us is one that I do focus on.

And for example, sausage, and I've said this publicly, I feel is easier to do, of course, than steak or even certain ground products on the beef side because there's such a reliance on flavor systems and spices.

And so to the extent that we can get very meaningful penetration in Europe and in Asia by extending our existing product lines with different flavor profiles and slightly different mouth feel that fits the consumer's interest, you'll see us do that.

We won't lose sight of these longer-term initiatives around steak and bacon, et cetera.

But we're not going to pursue those at the expense of tailoring our products to the local palette.

Our next question comes from Ken Goldman of JPMorgan.

Ethan, I just wanted to ask one last question because you did highlight Amazon as an example of a disruptor that fended off competition.

So I'm going to put you on the spot here, right?

Totally fair, right, Amazon is a great company, but there's a lot of Polaroids and Blockbusters and Betamaxes out there, too, right?

And obviously, I have a buy on your stock.

I think you're more Amazon than Blockbuster.

But since you raised it as a subject, I kind of wanted to just ask how deep have you gone into this analysis, right?

Have you looked at some of the disruptors that didn't succeed?

What mistakes that they made?

What are you doing to avoid that, I guess, is what I wanted to maybe just push back a little bit.

Yes.

No, no, it's a very fair point here.

And look, Ken, I am obsessed with this question, right?

I mean it's something that's just fascinating.

And you mentioned Polaroid.

So you're giving me the opportunity to bring up Edward Land -- Edwin Land.

I really do think it's important that you learn from history and you learn what companies have done to stick around and beat the competition.

They're going to have to wrestle this from our hands.

Like, there is -- every intent here is to remain the leader, and we think we have what it takes.

If you look at -- and so you asked for sort of principles of how to stave off competitive pressure from incumbents, it really begins with innovation, right?

You have to be myopic and almost manic about the pace at which you innovate, right?

And so we bring that intensity and that focus.

And there's a disregard for the products we have on the shelf today, and that's something that I think is unique to our company in many ways.

We want so desperately to replace those with new products that are better.

And so every year, we seek to do that.

And so if you're an incumbent presence that wants to come in and maybe replicate what we're doing, I've said this in the past, you'll be chasing a ghost because we are moving so quickly.

We shy away from any notion that what we've done is good enough.

And when you're deciding whether or not to allocate capital between baby food and a plant-based meat product if you're a large company, you're going to potentially stop at good enough.

We will never stop at good enough, and that needs to be understood.

Brand.

We have built our brand with the consumer, and we built it with some very famous consumers and users that are lending their name and their voice to our brand, whether it's the many professional athletes we use or the celebrities that work with us.

Those are investors, and they are users of our products in a way that's very unique to our company.

We will continue to support that and grow that.

The authenticity around it's a value-driven brand.

We do not have baggage that's associated with the very industry that we're trying to disrupt.

We have a first-mover advantage that we continue to exploit and use and a nimbleness and quickness that is very hard for incumbents to copy.

And so it's that singular focus.

There's an appetite for risk within our company and a willingness to take chances, I think, that others are not able to take.

Those are not something that we just dreamed up.

That comes from a long study and understanding of companies that have been successful.

I'm no longer allowed to use Tesla but I'll say it today because I got a little flak when I used it last time in an investor conference, but I asked that question of incumbents in that space: Why are you allowing Tesla to do this?

And I'd ask it for the analysts: Why are you allowing -- or why did Tesla have the impact it's had on the automotive industry when General Motors and Ford and everybody else could see it coming and have yet to provide a credible threat to them?

And that may happen, right, and I'm not tying my horse to their outcome -- my cart, rather, to their outcome.

But I am saying that there's a playbook here and we're exploiting every angle that we can.

Is that fair enough?

It is.

You mentioned horses and carts.

I won't mention buggy whips.

So we'll let that go.

Thank you, Ken, very much.

Appreciate it.

Thank you.

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

Sir?

Look, unless Ken has more questions, I'd just like to thank everybody for calling in.

We've had a great quarter.

We're really excited for the end of the year coming with some of the additional work we're doing.

2020 looks very good for us.

We keep building this brand, keep investing in the team, keep investing in the consumer.

We love the consumer.

We love the consumer loves our products, and we're going to continue to grow with them.

Appreciate you guys covering the company and our stock and look forward to working together next quarter.

Thanks very much.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.