Good afternoon, and welcome to the Beyond Meat 2023 Fourth Quarter Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Paul Shepherd, Vice President, FP&A, and Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome. Joining me on today's call are Ethan Brown, Founder, President, and Chief Executive Officer, and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's fourth quarter and full year 2023 earnings press release filed today after market close. This document is available in the Investor Relations section of Beyond Meat's website. Before we begin, please note that all the information presented on today's call is unaudited, and that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Forward-looking statements in today's earnings release, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. We refer you to today's press release, company's quarterly report on Form 10-Q for the quarter ended September 30, 2023, and to the company's annual report on Form 10-K for the fiscal year ended December 31, 2023, to be filed with the SEC, along with other filings with the SEC, for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management may reference adjusted EBITDA, which is a non-GAAP financial measure. While we believe this non-GAAP financial measure provides useful information for investors, any reference to 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 GAAP measure. And with that, I would now like to turn the call over to Ethan Brown.

Thank you, Paul, and good afternoon, everyone. I will begin my comments by briefly reviewing the five priorities we anchored our activities around in Q4 2023, and then turn to our five forward priorities for 2024. In both instances, these steps are intended to serve and accelerate our progress towards sustainable operations and return to growth. In Q4 2023, we executed across the following actions: One, we sought to accelerate our transition to a leaner operating structure. As part of these efforts, we established a minimum of $70 million in cuts from our operating budget for 2024. We recorded approximately $95.6 million in non-cash charges, primarily relating to inventory and assets now deemed to be in excess or no longer consistent with our path to profitability and continue to consolidate our production footprint. Two, in U.S. retail, we put the finishing touches on a multi-year renovation of certain core platforms, including Beyond Burger and Beyond Beef. We believe this renovation further positions the brand to overcome misinformation regarding the nutritional and health profile of our products while providing strong support for certain pricing actions. Three, we conducted extensive pricing analysis and, as discussed momentarily, are now preparing to implement pricing changes to support gross margin expansion. Four, throughout the quarter, we continued to use inventory management to free up working capital. Five, we maintained our investment focus in Europe and served our strategic customers in this important market for plant-based meats, including continued traction at McDonald's across countries such as Austria, Germany, Ireland, the Netherlands, UK, Malta, Portugal, Slovenia, and Switzerland. Turning to 2024, a pivotal year for Beyond Meat, we are pursuing the following five priorities, several of which simply represent a transition from 2023 planning to 2024 implementation. One, we are beginning 2024 by executing within a leaner operation, consistent with substantially reduced 2024 planned OpEx and cash use. Part and parcel with this leaner operation is our ongoing tightening of focus relating to portfolio, markets, and consumers. We are, as just one example, discontinuing our Beyond Meat Jerky product line, despite its number one position in the plant-based jerky category. These refinements allow focus and resources to be put against our latest product platform renovation, Beyond IV, and other SKUs which we believe have higher profitable growth potential here in the U.S. and are consistent with my intention to focus more resources against key markets and customers in Europe. Two, we will be rolling out Beyond IV in U.S. retail and view this renovation as an important and potentially transformative moment for our brand and category. Iron sharpens iron and we certainly experienced this ancient metaphor firsthand. Specifically, the current climate of misinformation and efforts by incumbents, including sadly, pharmaceutical interests, to poison the plant-based meat well push us to accelerate gains in the health profile of our product platforms. To be clear, as I've often repeated, likely to the point of boredom for listeners, we are proud of the health benefits available through our current products, including those documented in the SWOT meat study published in the American Journal of Clinical Nutrition, where participants experienced a meaningful drop in LDL or bad cholesterol, as well as a decline in TMAO, the compound in the gut associated with heart disease, after switching from animal-based meats to Beyond Meats across eight-week intervals. And we are proud of the certifications associated with our existing product lines, such as the American Heart Association's Heart-Check Program Certification of our Beyond Steak and Beyond Beef Crumbles. However, as we have also oft-repeated, we are chasing a perfect build of meat from plants, and this goal encompasses sensory as well as nutritional characteristics. On the latter, our job is to deliver as much of the nutritional benefits of plant-based eating as we can in the familiar and satiating form and taste of meat. Over the years, we've surrounded ourselves with a broad ecosystem of doctors, registered dietitians, and leading health institutions to guide us in this effort. The combination of this extensive input and the talent and expertise of our research and development team is what led to what I believe is a significant breakthrough in the Beyond IV platform. If you come to our facilities in Los Angeles, you will see that one of the analytical areas that we emphasize is the structure, interplay, and distribution of plant-based proteins and fats. In Beyond IV, the team was able to blend high-quality proteins from fava beans, red lentils, peas, and brown rice together with fats from avocado oil in a way to deliver superior nutrition and sensory outcomes. The nutritionals are clear and compelling, including high levels of plant-based protein, 21 grams specifically, with just 2 grams of saturated fat, which is 75% less saturated fat than a typical 80-20 animal beef patty. Avocado oil has been identified as potentially beneficial across a range of health outcomes, including reducing the risk of various chronic diseases, among them heart disease, as well as potentially helpful with eye and skin health, reflecting its composition of monounsaturated fats, antioxidants, and other plant compounds. The critics will undoubtedly continue to agitate. A favorite target is sodium levels, and the sleight of hand employed is to compare the Beyond Burger, which is seasoned to an unseasoned ground beef burger. Keeping in mind that the current Beyond Burger contains 17% of the daily recommended value of sodium, which when appropriately compared to seasoned beef burgers often means less, not more sodium. Nevertheless, Beyond IV achieves a 20% reduction in the amount of sodium, with the sodium content now registering at 14% of daily values. Quick math reveals that even if you were to have seven of the Beyond IV burgers in a single day, this consumption alone would not exceed the daily recommended value of sodium. And here's the thing, we're not done. As the critics position, talk, post, and lobby, we will keep chasing our own true north, that perfect build of meat from plants, and you can expect even lower sodium levels in subsequent generations. These and other advances in Beyond IV have earned recognition from important members of the health and nutrition community. This includes the American Association's Heart-Check Program Certification of a series of heart-healthy recipes featuring the Beyond IV Beef and Burger, the placement of the American Diabetes Association seal on our Beyond IV Beef and Burger packaging, as both products meet the nutritional guidelines of the American Diabetes Association's Better Choices for Life program, and the Clean Label Project certification of the Beyond IV Beef and Burger. Moreover, in a survey of registered dietitians at a recent conference, 94% of these dietitians answered that they enjoyed the taste of the new Beyond Burger, viewed it as healthful and would recommend it, while broader consumer testing scored favorably across the taste, juiciness, and texture relative to our existing burger. Three, we are implementing changes to our U.S. trade and pricing programs, effective in early Q2. Though varied across channels and product lines, we expect the overall impact of these pricing changes to meaningfully impact margin across the balance of the year. This change in strategy does not reflect an abandonment of our long-sought price parity goal, which we in fact achieved in certain very specific offerings. Rather, the change reflects three main factors. One, we clearly need to restore our margins, and this, coupled with the network consolidation I discussed momentarily, are expected to aid greatly toward this end. Two, the broad pricing programs we put in place over the last 18 months simply didn't accomplish the goal of crossing from early adopters into the mainstream. In retrospect, the noise and swirl surrounding the category reached decibels that were perhaps sufficient to drown out pricing and other messages. Three, given the aforementioned margin objectives, as well as the inclusion of certain premium ingredients in the Beyond IV platform, our pricing architecture is putting far more deliberate emphasis on tiered pricing across our product lines. Four, as referenced above, we are nearing the completion of what has been a very difficult, but highly worthwhile consolidation of our production network. Though we undertook these changes for myriad reasons, depending on the site and partner, we expect this right-sizing to substantially contribute to margin. To give a sense of the magnitude of this restructuring effort, it helps to consider that in the last two years, we've contracted our production network from as many as 13 co-packers in North America to just one today. This consolidation, coupled with an emphasis on internal production, has obvious benefits relating to overhead absorption, as well as logistics and quality control. Five, we are continuing to invest in our European business and related strategic customers. In a recent trip to the UK, I was struck by what I'm personally certain is the future of plant-based meat, that is, a growing ubiquity. I was able to, within a radius of no more than three blocks, enjoy delicious Beyond Meat offerings at McDonald's UK, Pizza Hut UK, and Starbucks UK. More generally, I routinely enjoy watching with much interest the reaction of visitors at our headquarters in Los Angeles when they taste the McPlant Nugget, which is now available in Germany. Almost universally, it is viewed as indistinguishable from its animal protein equivalent. Similar to the delicious aforementioned products at Pizza Hut UK and Starbucks UK, this outcome reflects years of development and investment that helps separate Beyond Meat. Before moving on from Europe, I should note that across 2024, we look forward to more fulsome entry into the German retail market, given our recent satisfaction of local shelf life requirements. In closing my comments, I want to properly frame the state of our business. Over the last 12 to 18 months, we spent considerable time, energy, and resources reorienting Beyond Meat's trajectory amidst changing and challenging conditions with an eye towards sustainable operations and return to growth. To reiterate, these major steps include a potential leap forward in the value proposition of our core product lines, a steep reduction in our operating costs and cash use as we continue to implement lean management principles, the contraction of our production network to achieve quality and margin gains, and the implementation of pricing changes also in support of margin expansion. As we look forward, we expect the early results from this extensive groundwork, together with specific actions we plan to pursue to bolster our balance sheet to make 2024 an important, promising year for the Beyond Meat story. With that, I'll turn it over to Lubi, our Chief Financial Officer and Treasurer, to walk us through our fourth quarter and full year 2023 financial results in greater detail, as well as provide our outlook for 2024.

Thank you, Ethan, and good afternoon, everyone. Before diving into the components of our fourth quarter P&L, let me provide some color more broadly on the significant non-cash charges you will have seen in our press release today. You'll recall we announced in November 2023 that we were initiating a review of our global operations spanning five areas: first, the potential exit of select product lines; second, changes to our pricing architecture within certain channels; third, accelerated cash accretive inventory reduction initiatives; fourth, further optimization of our manufacturing capacity and real estate footprint; and lastly, fifth, a review and potential restructuring of our operations in China. We recorded $67.5 million in non-cash charges in cost of goods sold this quarter in connection with our global operations review. These charges consisted of a few different items, including the provision for certain inventory now deemed to be excess or obsolete, given changes to our strategic priorities as well as more limited internal resources following our November 2023 reduction in force. We also recorded a significant charge representing accelerated depreciation expense on certain fixed assets determined to be non-core to our strategic priorities within the foreseeable horizon, but for which no recovery or sale value could be reasonably expected. Also, in connection with the global operations review, we recorded a non-cash write-off to cost of goods sold associated with a prepaid option to purchase certain raw material ingredients which we no longer expect to exercise. Within operating expenses, we recorded a non-cash charge of $17.6 million, reflecting the write-down to estimated fair value of certain production and R&D fixed assets, which we now intend to sell. Of note, $16.3 million of the non-cash items recorded in cost of goods sold and $3.6 million of the non-cash items recorded in operating expenses related to Beyond Meat Jerky, which we have made the decision as part of our global operations review to discontinue. Let me now briefly review our fourth quarter financial results before turning to our 2024 outlook. Net revenues decreased 7.8% to $73.7 million in the fourth quarter of 2023 compared to $79.9 million in the year-ago period. The decrease in net revenues was driven by a 14.6% decrease in net revenue per pound, partially offset by an 8% increase in the volume of products sold. The decrease in net revenue per pound was mainly driven by changes in product sales mix and increased trade discounts, partially offset by favorable impact from foreign exchange rates. The increase in volume sold was primarily driven by sales in our international business, where we continue to see solid growth across our retail and food service channels. However, this was partially offset by softness in our U.S. business, where volumes declined in both our retail and food service channels, due mainly to continued category weakness and the lapping of certain business in our food service channel that did not repeat in Q4 '23. Turning to gross profit and gross margin, gross profit in the fourth quarter of 2023 was a loss of $83.9 million compared to a loss of $2.9 million in the year-ago period, which included the negative impact of non-cash charges totaling $78 million taken in the fourth quarter of 2023. Of the aforementioned amount, $67.5 million was associated with strategic decisions arising from our global operations review, and $10.5 million was due to other special items driven mainly by additional reserves for inventory associated with a large QSR customer and the write-off of a prepaid fee resulting from the termination of a co-manufacturing agreement in Q4 2023. Excluding the aforementioned charges, gross profit and gross margin were also impacted by lower net revenue per pound, partially offset by reduced logistics costs per pound compared to the year-ago period. Operating expenses were $76.9 million in the fourth quarter of 2023 compared to $62.8 million in the year-ago period. The increase in operating expenses included non-cash charges totaling $17.6 million associated with our global operations review, which I described a moment ago. Excluding these charges, operating expenses also reflected reduced non-production headcount expenses, lower restructuring expenses, reduced scale-up expenses, and lower selling expenses, partially offset by higher consulting fees compared to the year-ago period. Moving down the P&L, total other income net of $5.7 million was lower by approximately $1.2 million compared to the year-ago period, reflecting decreased realized and unrealized foreign currency gains. Losses related to the company's joint venture with PepsiCo, the Planet Partnership, decreased by approximately $8 million year-over-year, reflecting the reduced scale of our jerky business versus the year-ago period. Overall, net loss in the fourth quarter of 2023 was $155.1 million, or $2.40 per common share, compared to net loss of $66.9 million or $1.05 per common share in the year-ago period. Net loss in the fourth quarter of 2023 included non-cash charges totaling $95.6 million as previously described. Adjusted EBITDA was a loss of $125.1 million in the fourth quarter of 2023 compared to an adjusted EBITDA loss of $56.5 million in the year-ago period. Turning now to our balance sheet, the company's cash and cash equivalence balance, including restricted cash, was $205.9 million, and total outstanding debt was $1.1 billion as of December 31, 2023. Net cash used in operating activities was $107.8 million in the year ended December 31, 2023 compared to $320.2 million in the year-ago period. Capital expenditures totaled $10.6 million in the year ended December 31, 2023 compared to $70.5 million in the year-ago period. Let me now turn to our full year 2024 outlook. We expect net revenues to be in the range of $345 million, and net revenues for the first quarter of 2024 are expected to be in the range of approximately $70 million to $75 million. Gross margin is expected to be in the mid- to high-teens and is expected to be higher in the second half of the year relative to the first half, reflecting the timing of anticipated pricing actions and further production insourcing activities. Operating expenses are expected to be in the range of $170 million to $190 million, weighted slightly more towards the first half of the year. And capital expenditures are expected to be in the range of $15 million to $25 million. Finally, in 2024, we plan to bolster our liquidity and potentially restructure our balance sheet.

We will now begin the question-and-answer session. Our first question comes from Andrew Strelzik with BMO. Please go ahead.

Hi, thanks for taking my question. This is Daniel Gold on for Andrew. When will the Beyond IV be rolled out? And will that be a phased rollout? And is pricing going to be rolled out alongside it? And what's the magnitude of pricing you plan on taking? And kind of what channels and geographies does that plan for?

Thank you for your question. We are very excited about the upcoming launch of Beyond IV, which will begin shipping next month and is expected to see wider distribution around April and May in U.S. retail stores. Regarding pricing, there are two key aspects to consider. As I mentioned earlier, the Beyond IV has been years in development, and we're pleased to launch it just in time for the summer season this year. Its release aligns with some necessary pricing adjustments we need to implement. These adjustments will coincide largely, and it’s advantageous that Beyond IV contains premium ingredients, enhancing its overall value proposition and justifying the pricing. We should discuss specific pricing details with retailers first before outlining those numbers. Our main goal is to ensure we restore healthy margins, and we've conducted significant analysis on pricing elasticity, collaborating with an external firm to evaluate our portfolio and identify areas for potential price growth. We believe we've made the right choices here and are eager to proceed with the rollout. This initiative is part of a broader strategy to reset our business after an extensive period focused on aggressive growth. We are now shifting to a model that emphasizes sustainability and profitability. The pricing increase is just one aspect of this change. Additionally, we plan to substantially reduce operating budgets from 2023 if we follow through with our 2024 plans, along with a significant cut in cash expenditure. Over the past few years, we've made global staff reductions, including a notable 19% reduction in November, to align our business size with current opportunities and growth goals. While pricing is a critical tool for restoring margins, it is not the only measure we're taking. We are actively working on improving production efficiencies. After reviewing our manufacturing setup, we have reduced external facilities from 13 down to one by bringing much of the production in-house. This change will enhance overhead absorption, improve material flow efficiency, and minimize logistics costs. All these efforts are part of our strategy to reshape the business towards a sustainable and profitable organization. As I mentioned earlier, we will also be discontinuing jerky, which follows the same principle. Finally, we are conducting a global business review to eliminate excess inventory and assets to relieve pressure and enhance monetization efforts. Overall, we've streamlined our operations to become leaner. Looking ahead to 2024, I am optimistic about the outcomes of these efforts and the successful execution of our reset strategy.

That's very helpful. Thank you. Just one more for me. Can you speak to your confidence in the gross margin guide?

I’ll pass that to Lubi, but I think the two main features I mentioned are the pricing change and the consolidation of our production network, along with the ongoing reductions in cost of goods sold we’ve seen over the past year. These factors will be significant, along with reducing some of the higher reserve levels we had. Lubi?

Yeah. Not a whole lot to add to that, but I think just generally in speaking to sort of our confidence level, we feel pretty good about it, right? So, we did say in the guidance that we provided that we expect gross margins to be higher in the back half relative to the first half, and that's related to some of the timing around some of these actions. Ethan already discussed the pricing. One thing that we have communicated on prior calls as well as that we are rolling back to some degree, right, the level of promotions that we've done. We really did some aggressive promotions in 2023 as a means of trying to draw more consumers into the category. We're taking a little bit of a different approach this year. The in-sourcing of finished goods production is something that I think should not be underestimated. As Ethan said, it really gives us an opportunity to sweat our assets more and benefit from the fixed cost absorption, as well as the fact that it helps us from a logistics cost perspective as well, right? You can imagine if you have eight or 10 different co-manufacturers in your network, you're transporting ingredients and work-in-process items to multiple locations; that starts to have a detrimental effect on your logistics costs. So, all of these things combined, I think, give us pretty good confidence that we should be able to achieve the margin targets that we're seeking.

The next question is from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thank you. Good afternoon, everyone.

Good afternoon.

Hey, there.

Hi. So, I just want to, Lubi, Ethan, I want to just make sure I'm thinking about 2024 outlook pieces correctly. Given the revenue outlook you've given, given the gross margin outlook for mid- to high-teens, the operating expenses, and there's some D&A and stock comps, so it's not all cash, but there's also the CapEx. It would still look like the cash burn based on the gross margin less the OpEx, less the CapEx, add back some D&A and stock comp, you would still have a cash burn from operations in 2024 of $100 million-plus. And am I missing something in terms of the non-cash expenses in there? Because I'm just trying to think about that level of cash burn in 2024 relative to an ending cash balance in '23 of, I think, $205 million, arguably kind of expecting to burn half or more of your cash balance in '24 before further liquidity actions.

I can provide a high-level response and then pass it over to Lubi. After the call, we should probably discuss this with you to go over the details. We're quite confident that the number will be reasonable and below $100 million, especially at the midpoint, but Lubi can offer more specific guidance on that.

I'm not certain about the assumptions you're incorporating regarding some of the non-cash adjustments. However, the figure you mentioned, approximately $100 million, aligns with the significant non-cash factors like depreciation and stock compensation from last year when you consider our guidance. We anticipate performing better in specific areas. Additionally, the substantial non-cash charges arise from adjusting certain fixed assets to their fair value for sale and monetizing them, as well as similar actions on the inventory side, which should enhance our cash position. We're focused on strengthening our liquidity and making necessary adjustments to improve the core operations of the business, aiming to reduce cash consumption in the long run and achieve sustained positive free cash flow. One of our goals for 2024 is to strengthen the balance sheet. There are other factors not reflected in our guidance that could offer some upside compared to your estimates.

Okay, that's helpful. Let me address that later. If I could ask a follow-up regarding the revenue outlook, which is projected to decline by 8% to around flat year-over-year for 2024. What volume assumptions are in place at this time? I'm trying to understand how much price elasticity you anticipate from the increased prices, especially in U.S. retail.

Yeah. So, we don't necessarily guide to volume, right? So, we gave you the revenue dollar projection. But what I can say is we looked at price elasticities very deeply as part of this exercise and we're looking at our pricing and it is going to vary by channel and region, et cetera. But we believe and we feel pretty confident, right, that in some of the areas where we are looking to take pricing, the elasticity changes in price will offset or more than offset the anticipated loss of volume as a result of the price increase. And so, I don't want to get too specific on volume numbers, but generally speaking, right, we would expect the elasticity to be less than 1.

I think that's right. The continued kind of vulnerability in U.S. retail is something that just as you do your models, as we do our models, right, we didn't want to project too rosy a picture. I think the general notion here is that we're doing a massive product launch that's, I think, transformative in terms of what we've done over the last eight years, probably the most important renovation we've done since the Beyond Burger. And then, we're also taking price. So, the two of those make it very hard to predict with a ton of certainty any type of growth. We just don't know. So, we wanted to come in with something that was reflected, kind of current information, and hope to change it and have a better outcome.

The next question is from John Baumgartner with Mizuho. Please go ahead.

Good afternoon. Thanks for the question.

Sure. Hi, John.

Why don't we stick with the guidance for next year and specifically the OpEx. I mean the midpoint you're guiding to, it's about like a 25% drop from your recent sort of run rates. The global force reduction announced last quarter, I guess, explains a small part of it. But I'm trying to understand the rest of that decline, especially in the context of what, I guess, seems to be more reinvestment in marketing and brand building at this point.

I believe I've mentioned this before, but marketing becomes much simpler when it reflects the truth. At its core, it means having a great product. Edwin Land conveyed this even more clearly when he said that marketing is what you resort to when your product isn't good enough. Our goal is to reconnect consumers with this entire category by offering products that truly provide value in a way they comprehend. For us, this involves enhancing taste, which we've improved with Beyond IV, while also addressing crucial health issues. As I noted earlier, we currently have products that can deliver outstanding health benefits, which I've personally experienced as well as observed in studies conducted with Stanford and others. We aimed to elevate our offerings further, making a significant progression that's more than just a simple update. We want our products to provide the fulfilling experience of enjoying a burger or bolognese, while also containing oils recognized by many in the nutrition and wellness sectors as heart-healthy. This improvement has decreased saturated fat from 5 grams to 2 grams. It's not only about the fat content; it's also about the source, which is now better recognized for its health benefits. This includes ingredients like polyphenols, antioxidants, and other plant compounds that studies have linked to various health benefits, including cardiovascular health and wellness for eyes and skin. We have also managed to reduce sodium significantly, now at 14% of the daily value, which is a notable enhancement. Additionally, we've increased protein content by using not just pea protein but also incorporating red lentils, fava beans, and brown rice. This results in a product that offers a stronger value proposition. We certainly plan to market this, but there's also a strong word-of-mouth interest within health, environmental, and welfare communities for these types of products. We're looking to capitalize on this and will engage actively with registered dietitians, nutritionists, and major health organizations like the American Heart Association and the American Diabetes Association, which will feature our products' seal on their packaging, along with initiatives like the Clean Label Project. While we will certainly market our products, this represents a fundamental transformation in our value proposition that is enhanced and improved, and I believe people will start to recognize this. By using grassroots marketing and supported by reputable institutions, we can achieve this more efficiently. The cost reductions we've made in the business should help us reach profitability faster rather than hinder our marketing efforts.

Okay. And then...

No, I think you covered it.

Okay. Then, as a follow-up on the gross margin guidance for 2024, the improvement there, how much does that rest on the price increases? I mean, I guess it sounds as though you're not building in much operating leverage from new volume growth. The Coleman consolidation, I think, has been accruing sort of quietly all along. And then, with the China anti-dumping duties in the pea protein, I imagine input costs can't be all that beneficial this year. So, it feels like the gross margin expansion in the guide, a fair amount of it just boils down to the price increases. Is that right? I guess, can you walk through the relative contribution and magnitude there for the drivers?

I often express my pride in the research and development team here and tend to spend more time discussing them than the operations team. Unfortunately, it hasn't seemed fair that while they're doing a fantastic job of reducing our fundamental cost structure, they haven't had the opportunity to shine publicly. This is due to various challenges, such as dislocating from a co-packer and dealing with fees or legacy product partnerships that disrupt their efforts. However, as we stabilize and improve our production network, I believe the savings from our facilities will become more apparent. For instance, as we shift production from external networks to internal ones, the utilization rates in our facilities are significantly improving. These enhancements, even with some premium ingredients in products like Beyond IV, will help offset costs and contribute to overall savings as we continue to internalize production. I appreciate everyone listening, and if we maintain this momentum, we will eventually be able to demonstrate these improvements.

Yeah. I would just add, I think it's fair to say that the price increases are a significant factor that play into the gross margin expansion that we're targeting for next year. But it's not just that. As Ethan mentioned, right, there's a lot of stuff that's been going on just across the production, our operations, organization, et cetera. The other thing in addition to just price increases, we talked about pulling back on trade. So, the combined impact of those two things, right, actually has a pretty potentially meaningful impact on overall net revenue per pound. And then, you mentioned the internalization, right, the increased insourcing of our finished good production, and you mentioned that some of that has pretty much been accruing already. I think that's true, but there still was a lot of noise in our cost of goods in 2023. Even as we were internalizing, we're still dealing with things like underutilization fees and things like that. And I think that type of stuff should be significantly reduced in 2024. And so, now I think we are in a position where we start to benefit in a much more meaningful way from bringing a lot of those production volumes in-house. And then, I mentioned a little bit earlier that there should be benefits as well from just a more streamlined network overall from in terms of logistics costs. When you look at some of these initiatives that we're targeting now to reduce overall inventory balances, that benefits warehousing costs and things like that. Even the reclassification of some of these fixed assets to held for sale, right, will have a beneficial impact from a depreciation perspective, right? And so, you combine all of these things together and that makes us feel pretty optimistic about where gross margins can go this year.

The next question is from Robert Moskow with TD Cowen. Please go ahead.

Hi. Thanks for the question. Ethan and Lubi, it looks like the center of gravity is going to continue to shift to international markets for your business. Can you speak to the profit margin profile of operating internationally? How is it different from domestic? Can you operate at a respectable margin overseas, or are there complicating factors that make it more difficult than here?

Thanks, Robert. It's good to hear from you. So, when we think international, obviously, I've said a lot about Europe in the past, and in some sense, that's becoming its own operation over there. So, it's not necessarily like we're shipping things from here or anything of that nature. They're driving a lot of the same cost reduction. We have a terrific partner there who does some of our production and is really a true partner to us, as well as a very good general manager there and team. So, I think I don't foresee that being particularly challenged from the cost perspective now. We're still pretty nascent there. And so, we do have to continue to adjust downward the cost structure, but that's possible and it's something that we'll continue to focus on because some of our retail pricing, for example, is just too high for those markets, and so we need to continue to adjust it. But that comes with time and further localization of our network, which is doable. We just need to have time to do it. And then, on the kind of food service side, we're continuing to drive cost out of those products and improve margin. And I think you'll start to see that come through in '24. But, Lubi?

Yeah. Not a lot I would add to that, Rob. But I think fundamentally, if you look at our international business relative to U.S., it does skew more towards food service. And we've built a pretty meaningful business now with some of the large QSR customers in international. And so, as you can imagine, the margin profile for that business would look somewhat different from then on the retail side. But I guess the short answer to your question about, do we have respectable margins in an international, I would say yes. But as Ethan mentioned, there's still a number of things and initiatives that we're pursuing to bring about even further improvement in margins in international business.

It is striking to see the difference in the uptake of the category of products. The significant point I made in my prepared remarks is that within a few blocks in London, you can go to McDonald's for a Beyond Burger, Starbucks for a Beyond Sausage, and Pizza Hut for Beyond Pepperoni. These trends tend to be stronger in Europe before making their way here, and we hope to move past the politicization of these protein choices in the U.S. and focus on what's beneficial for our health and the environment.

Well, Ethan, I'm very impressed that you're going to McDonald's and Burger King in London when you visit there. So, keep up the good fight.

Thank you.

But you also mentioned that pricing is too high for some of your products in the market? I think you've said that before. Can you be more specific as to why that is? Is it more commoditized, the category in Europe? Or how do I think about that?

Sure, I'll let Lubi provide the details. I was referring to retail and it's important to consider that Beyond Meat is still in the early stages, much like we were in 2009 in the United States. We're making progress in our production processes, but we are definitely further along than back then. Lubi can elaborate on this.

One notable difference between the retail landscape in the EU and the U.S. is the significantly larger presence of private label products in Europe. The penetration of private label in the EU is roughly twice that of the U.S. As a result, there is a much broader assortment of items available at lower prices competing within our category. Consumers in the EU generally appear more inclined to choose private label products compared to the average consumer in the U.S. Two years ago, we took steps to reduce the price difference of our products compared to the wider competition in the EU, although there are still certain categories where we maintain a substantial premium. Our long-term goal remains to narrow this gap, although we do not necessarily aim to reach the price levels of private label products in the region. However, we believe there are areas where the price gap could be reduced and this will be addressed gradually. It's important to note that we are not looking to make immediate changes, which highlights some fundamental differences between the trading environment in the EU and the U.S.

Okay. Thank you.

Thanks, Rob.

Sure, thanks, Rob.

The next question is from Alexia Howard with Bernstein. Please go ahead.

Thank you. Good evening, everyone.

Hey, Alexia.

So, can we just get back to the dynamic in the U.S. and how do you go about re-recruiting lapsed consumers? If people were somehow disappointed in previous products, what compels them back into this, especially if the price gaps to animal meat products are expanding because of the price increases you're planning to take? And then, specifically, I guess, linked to that, is marketing spend expected to be up or down in 2024?

On the topic of re-engaging consumers in the category, the main barrier has been health concerns. I've mentioned before that there are influences not just from the animal protein industry and its lobbyists but also from the pharmaceutical sector, which is quite concerning. We needed to communicate our message effectively, whether by promoting the benefits of our current offerings or by enhancing their health aspects. That's what we've achieved with Beyond IV, and we will keep advancing this. Future iterations will aim for continuous improvement. Collaborating with associations and national organizations that can support our claims is crucial. We engaged with the community, gathering insights from doctors and nutritionists, and our Head of Communications did a fantastic job of bringing together a network of health professionals and academic institutions. We listened intently to their feedback, which informed our product development. There is potential for a more organic marketing approach that leverages social media and the actual merits of our products to bring people back. This wasn’t just about health improvements; we have also been striving to achieve a more neutral beef flavor. There are thousands of molecules contributing to meat flavor, and our goal is to match those with plant-based equivalents while identifying the key contributors to enhance our products. The team has excelled in this endeavor. We're seeing advantages in both health and taste, and we've effectively spread our message over the past decade by engaging influential figures who genuinely support it. When we offer opportunities for improving cardiovascular health and reducing daily health risks, influential individuals are eager to share that. We plan to utilize this strategy extensively to disseminate our message, whether through ambassadors, influencers, or institutions. When an initiative is beneficial and backed by truth, support tends to follow, and I believe we'll receive some help in this regard.

And when will it be out on the shelf? Is it a national launch in the first half of the year?

Well, if that's a personal question I can send you some.

I’m not sure if it's a significant advancement. Regarding the marketing spend, will it increase or decrease this year overall? I'll pass it on now.

Lubi?

Yeah. Alexia, we do expect, in aggregate, our marketing spend to be down. As you can imagine, if you look at our guidance, our OpEx guidance, and what that implies in terms of a year-over-year decline, we are taking pretty broad cuts across the organization. But I think when you start to dig down into specific areas of the business, specific departments, what really matters is how that spend is going to be directed. So, Ethan touched on this, but it's really the mix of the marketing spend and really taking a targeted approach, being very deliberate about where we want to spend those marketing dollars. And so, in aggregate, yes, it will be lower, but...

Just one comment on pricing. You're right that in certain areas, there will be more of a delta between animal protein and ourselves, but in others, there will not be. And so, this is not a kind of crude application of a price increase. We have some very important partnerships and relationships where getting on the product line, there won't be much change. And so, including in retail, you'll see some products where there's really not that much change. But in the aggregate, based on the elasticity studies we did, we'll get a nice bump in terms of margin while still offering the consumer value for those that want it.

Great. Thank you very much. I'll pass it on.

Sure.

The next question is from Peter Saleh with BTIG. Please go ahead.

Thank you for taking my question. It seems like you've put substantial effort into your pricing strategy, which appears to be a significant shift. I'm curious whether you view this as a one-time price increase to align things, or if this marks a genuine change in your approach where you're considering one or possibly two hikes this year, along with additional increases in the future. I’d also like to understand more about your tiered pricing strategy. Is this based on distribution channels or products? Are some prices decreasing while others are increasing? I'm trying to get a clearer understanding of your comments. Thank you.

Sure. I don't think it's a change in the long-term strategy. I mean, if you think about, and this is something that I find enormously fascinating, but won't dive into too much here, but just the incredible efficiency you have when you take a set of amino acids from plants versus waiting for the animal to process and develop them, bacteria and turn nitrogen into protein, all of that. It's just more efficient. And so, there will be a day when this dramatically underprices animal protein, but that's not today. We did achieve price parity with certain products in certain markets recently. But in my view, that was not certainly a global statement at all in terms of the products. We still have a big delta for most of our products. But I will say that the pricing measures we took, I don't know they made that much difference. I think there was so much noise in the category, so much noise about the category, so much agitation outside the category with people saying negative things about the category, scaring consumers away, that pricing just wasn't that as effective a tool. And my view is that we probably ended up selling a lot of our products to the same consumer at a reduced price. So, we learned that and moved away from it. But I do think there's a real opportunity to continue to offer outstanding innovation year after year that does have a more premium price on it while you continue to offer some of the rest of your portfolio at lower pricing. And so, I do think you'll see that from us. And so, when we talk about tiered, part of that is that type of dynamic. I think the other is with particular customers and channels. If you think about very large strategic customers that are selling, let's say, billions of burgers a day, that type of customer price sensitivity is so important. And so, we will continue to drive those types of products to parity as quickly as we can. I hope that helps.

Yeah, I know that's very helpful. And then just lastly on my end, given all the changes you guys are making, do you expect this to have a material impact on the number of doors that you're in in 2024?

Yeah, I think it's too early to tell. I meant to say it's billions served, not per day. I think it's just too early to tell.

Yeah. I mean, Peter, the one thing that I'd call out in terms of distribution outlets is we said we are discontinuing the jerky product. And as you know, there was a pretty significant distribution presence related to that product. It got us into certain channels like convenience, for example, where you look at the rest of our portfolio, doesn't really play there. And so, certainly on the U.S. retail side, if you include, right, the impact of jerky, those numbers should come down. But apart from that, I think we're pretty well distributed across U.S. retail, so I wouldn't expect too much movement in those numbers. I think we would expect over time to continue to grow our presence across U.S. food service. And then, it still feels like pretty early days for us in international, quite honestly. And so, I think there's room for further distribution expansion in international markets, in the EU and other areas, and even same on the international food service side.

Great. Thank you very much.

Sure.

The next question is from Ben Theurer with Barclays. Please go ahead.

Yeah, thank you very much. And I'll keep it short. So, thanks for squeezing me in. To follow up a little bit on some of the dynamics in food service, and kind of the success international versus the declining trends in the U.S., and also wanted to bring this back to some of the partnerships over the years you've flowed out with Yum! Brands, with McDonald's and so on. I know Ethan, you talk a lot about the McDonald's case over in the UK. But what are you seeing, particularly with those food service players in the U.S. as it relates to your products and the rollout of those? Any color you can share on that, that would be much appreciated.

Thank you for the question. It's a valid one. As I've mentioned before, I need to allow our partners to share their perspectives on the category since we primarily supply to them. They observe the success we're experiencing in Europe and make their decisions based on that. However, the current climate is quite politicized and filled with misinformation, so it's essential to clarify that first. We need to disseminate the right information and ensure consumers grasp the value proposition, which will lead to further developments. What we're aiming to do is inspire consumers to question why they wouldn't choose this option. Price may be a factor, but we believe it won't be prohibitive. The health benefits are apparent, there is backing from the medical and nutrition communities, and the taste is appealing. Additionally, there are environmental advantages. The potential to address significant climate issues by changing how we source protein is remarkable. Experts studying these matters, such as those at Yale and NYU, emphasize the positive impact of utilizing land and biomass to reduce carbon emissions and lower methane emissions from livestock. It's crucial that consumers recognize this connection between improving their health and fostering planetary health. When the value proposition becomes compelling enough, consumers will return. We need to remove the politics and focus on collaboration. Farmers can play a significant role, enhancing their livelihoods not just through crop production but potentially through government initiatives to sequester carbon. This presents a promising path forward both domestically and globally. We need to rekindle excitement around this idea, and then the rest of the industry, including restaurants, will likely follow. However, putting too much emphasis on this right now might not be advisable. Let's continue our success in Europe and see how things develop in the U.S. in the future.

This concludes our question-and-answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks.

Great, thank you. I would encourage folks to visit and put it in the press release with the video that we put together around Beyond IV, again, to get a sense of the health benefits and to get a sense of the global environmental benefits. Both of them are very strong. I think both will bring the consumer back to this discussion. And tasting is believing; we're a try-and-buy-type brand. And as folks taste this new iteration, I think they'll be quite pleased with it. So, we're cautious in our optimism. We've obviously had some tough years, but by making these changes and creating a sustainable baseline for which we can grow, we're going to create some room for ourselves to execute and get back on track for growth. Thanks, everybody.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.