Earnings Call Transcript - BYND Q1 2024

Operator, Operator

Welcome to the Beyond Meat 2024 First Quarter Conference Call. Please be aware that this event is being recorded. I will now hand the conference over to Paul Sheppard, Vice President of FP&A and Investor Relations. Please continue.

Paul Sheppard, Vice President, FP&A and Investor Relations

Thank you. Hello, everyone, and thank you for your participation on today's call. Joining me are Ethan Brown, Founder, President and Chief Executive Officer; and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our first quarter 2024 earnings press release filed today after market close. This document is available in the Investor Relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented today 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 our 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, our quarterly report on Form 10-Q for the quarter ended March 30, 2024, to be filed with the SEC and our annual report on Form 10-K for the fiscal year ended December 31, 2023, 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, adjusted loss from operations and adjusted net loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide 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 through a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown.

Ethan Brown, Chief Executive Officer

Thank you, Paul, and good afternoon, everyone. I'll begin with a brief overview of our Q1 2024 performance, afterwards I'll provide updates on the 5 priorities I outlined on our previous earnings call and how we are building toward our goal of sustainable operations and return to growth. Total net revenue is above the top end of our $70 million to $75 million guidance range at $75.6 million, an 18% decline from Q1 in the previous year. Gross margin was 4.9% higher than each of the 3 previous quarters, but a reduction from 6.7% in Q1 2023. While we are pleased to return to positive gross profit or gross margin this quarter, this fell short of expectations due to, among other factors, trade discounts running a bit higher than planned, transitional and start-up costs related to bringing production in-house as we continue to consolidate our network, and incremental accelerated depreciation of certain fixed asset disposals. As this positive swing in margin occurred prior to the enactment of our price increases, the first tranche of which began rolling out last month, and prior to completion of our network consolidation work as well as being impacted by the aforementioned accelerated depreciation, we are optimistic regarding margin improvement across the balance of the year. Operating expenses in Q1 were $57.1 million, a $6.8 million reduction year-over-year. This operating expense total includes a $7.5 million accrual for consumer class action settlement, which without operating expenses would have been $49.6 million, a reduction of $14.3 million year-over-year. This reduction in operating expense helped reduce our loss from operations to $53.5 million in Q1 '24 compared to $57.7 million in the year ago period. Adjusted loss from operations was $46 million, reflecting the exclusion of the $7.5 million accrual for the consumer class action settlement. We will continue to drive efficiencies throughout the organization to support further operating expense reductions throughout 2024. Turning to our balance sheet and cash flow. Inventory fell to $122.5 million, down by $7.8 million from Q4 2023 and down by almost $100 million from Q1 2023. Our cash consumption of $32.5 million in Q1 2024 was down significantly from $49 million in the same period in 2023. I should note that while inventories fell, the first quarter does represent a period of inventory build as we prepare for higher demand during our peak selling quarters. This build, which included inventories for the Beyond Burger IV and Beyond Beef IV launch meant that we parked more cash in finished goods inventory this quarter than we did in Q4 2023. Coming off of this first quarter of the year and looking across 2024, we remain focused on driving further reductions in cash consumption. With that brief overview, I will now run more fully through the progress we're making against each of our priorities for 2024, while Lubi will follow with more detail on our overall financial performance in Q1 2024. First, getting leaner. The first quarter of 2024 provides a clear proof point that our operations continue to get leaner and more efficient. We realized a positive gross margin despite a lower revenue base or reducing operating expenses, inventory and cash consumption relative to the same period in 2023. Our continued emphasis on leaning out our operations also entails tightening our focus with regard to product portfolio, markets, consumer targets, claims and messaging, which leads me to our second priority, Beyond IV. In February, we unveiled Beyond Burger IV and Beyond Beef IV and across April, these products began rolling out in grocery stores nationwide, including Walmart and Kroger. Through this fourth generation projects, which we expect to be fully distributed by Memorial Day, we took a leap forward on a continuous improvement journey, that is our rapid and relentless innovation program. As you'll recall, we iterate our product lines across monolectic properties in a framework referred to as FAAT for flavor, aroma, appearance and texture while driving improvements in nutrition, costs and other considerations. In the Beyond IV platform, as discussed previously, we placed considerable emphasis on unlocking further health gains. To this end, we work intensely with leading medical and nutrition experts as we build this next generation. Together with this network, our team, in my view, delivered a home run and improved sensory experience with a nutritional build, so impressive that it goes to market with a host of important validations. These include becoming the first plant-based meat brand to be recognized by the American Diabetes Association evidence-based nutritional guidelines for Better Choices for life program. Being featured in a collection of hard healthy recipes certified by the American Heart Association's Heart-Check program as well as an upcoming American Heart Association and Beyond Meat cookbook. Earning Good Housekeeping's coveted nutritionist-approved envelope, which assesses food products based on specific nutritional criteria as well as taste, simplicity and transparency. And finally, becoming the first plant-based meat products to be clean label project certified. As has been the case with other disruptive innovations in history, innovations that are today commonplace everyday items. One of the biggest challenges our brand has faced is orchestrated misinformation regarding our product lines. As Beyond Burger IV and Beyond Beef IV approaches full distribution, we will launch our 2024 marketing program, which highlights their strongly validated helpfulness, built with protein from yellow peas, red lentils, brown rice and fava beans, together with heart healthy avocado oil, Beyond Burger IV and Beyond Beef IV provides consumers with 21 grams of clean protein with only 2 grams of saturated fat per serving. As the Beyond IV platform rolls out to more stores, we are pleased with the positive though still anecdotal feedback we're receiving from consumers as well as members of the health and wellness community, including nutritionists and dietitians. I won't consume our time today with a lengthy review of what has been a very gratifying initial introduction, but instead share perhaps one of my favorite headlines thus far. This is from Good Housekeeping, which simply states: 'Our registered dietitians can't stop talking about Beyond Meat's newest launch.' This headline is particularly important to me as it represents our promise that we build plant-based meats that are not only delicious, but serve an important role in human health. This and other similar reviews are also important because they help create strong relevance for large swaths of consumers, whether quantified as roughly 160 million Americans who have some type of cardiovascular disease, with 97 million Americans were prediabetic or the 38 million Americans who are diabetic or the 25 million Americans who have high cholesterol. We believe, as do the nutritionists, institutions and dietitians standing behind Beyond IV, that we offer consumers a delicious yet powerful choice that can help them and their loved ones with healthier lives. The aforementioned 2024 marketing campaign, which we are rolling out imminently, will bring this message to life across a variety of media throughout the summer grilling season and beyond. Moving on to products. I should note that we announced a newly renovated and expanded line of 3 different Beyond Crumbles, original, feisty and Italian style. These tasty bite-sized crumbles go from frozen to finish in just a few minutes and provide a delicious and healthy protein option throughout the day. Beyond Crumbles have 12 grams of protein per serving, less than 1 gram of saturated fat and no cholesterol. These are intended to join Beyond Steak in the frozen aisle and as with Beyond Steak, the Beyond Crumble lineup has been certified by the American Heart Association's Heart-Check program and the American Diabetes Association's Better Choices for Life program. Moving forward, we expect to be introducing yet another delicious product set to this heart-healthy lineup later this year. I'll turn now to our third priority, implementing changes to our U.S. trade and pricing programs beginning in Q2, which we believe will meaningfully impact gross margin. Our overarching goal is to restore margins to previous levels achieved in 2019 and 2020 over time. As we report, we just passed through the second major tranche and majority of our pricing actions for the year. These measures reflect a series of tiered pricing changes following a thorough analysis regarding elasticities in our frozen and fresh product offerings and the introduction of Beyond IV and its more premium ingredients, among other factors. Fourth, we are nearing completion of the difficult task of consolidating our production network. Lower decisions regarding a degree of consolidation reflect myriad factors depending on the co-manufacturing partner. We expect this comprehensive action to substantially contribute to margin as we emphasize the current production and benefit from better asset utilization, overhead absorption, production and logistics efficiencies while also providing for better management of logistics and quality control. Finally, fifth, we are investing in our European business and related strategic partners. We continue to make progress with our quick service restaurant business in Europe and the U.K., even as the quarter's year-over-year numbers were impacted by the lapping of product load-in and promotional activities in the year-ago period that did not repeat in Q1 2024, a consumption trend toward value items in a certain geography, reflecting broader macroeconomic conditions. Looking forward, just today, McDonald's Germany kicked off its famous meals promotional campaign at all restaurants across Germany. The campaign features 2 celebrity favorite meals built around plant burgers and plant nuggets, exclusively. Additionally, in Q1, McDonald's expanded availability of the plant burger across the Baltic countries of Latvia, Lithuania and Estonia. In Europe, more broadly, we launched Beyond Steak for foodservice in the Netherlands and retail in Belgium as well as expanded availability of the Beyond Burger at Co-op stores across the U.K. Further, we are excited that we will soon be expanding our presence of retail in Germany given our recent satisfaction of local shelf-life requirements and see continued opportunity for further distribution expansion in the EU and other international markets. To conclude, we believe that 2024 is a pivotal year for change and progress for Beyond Meat. We began the year making solid strides along our 2024 strategy and correspondingly, our path to sustainable operations and a return to growth. We believe that our determination to sharply reduce our operating expenses and cash use, consolidate our production network, implement pricing changes to help restore margins and launch the most significant renovation to date, Beyond IV, for purposes of reinforcing as well as raising the bar on the health benefits of our plant-based needs amidst sustained misinformation campaigns are beginning to pay off. We expect to continue to harvest benefits from these actions across the balance of the year and beyond. These powerful measures and their early dividends, coupled with our initiative to bolster our balance sheet this year, infuse us with cautious optimism as we look forward. And with that, I'll turn the call over to Lubi to walk us through our Q1 financial results in greater detail as well as provide our outlook for 2024.

Lubi Kutua, Chief Financial Officer

Thank you, Ethan, and good afternoon, everyone. I'll begin by reviewing our first quarter financial results before providing an update on our 2024 outlook. Net revenues decreased 18% to $75.6 million in the first quarter of 2024 compared to $92.2 million in the year-ago period. The decrease in net revenues was driven by a 16.1% decrease in volume of products sold and, to a lesser extent, a 2.3% decrease in net revenue per pound. Taking a closer look by channel, net revenues in our U.S. retail and foodservice channels decreased by 16% and 16.2%, respectively, primarily due to a decrease in volume of products sold and reflecting continued macroeconomic and category-specific headwinds. Net revenues in our international retail and foodservice channels decreased by 12% and 28.7%, respectively. Softness in our international retail channel mainly reflected the lapping of large initial pipeline orders in Europe for our chicken innovation launches from a year ago, as well as softer demand in the Canadian market for certain of our beef and pork items. The year-over-year decline in our international foodservice channel primarily reflected the lapping of strong sell-in of burger and chicken items to a large QSR customer in the year-ago period, as well as generally softer demand in the U.K. With regard to the U.K., recessionary pressures appear to be dampening demand, both in our retail and foodservice channels, although we believe this could be a transitory effect. It's also worth noting that while the EU and Canada remain our 2 largest markets in the international space by some margin, we do have presences in Mexico, Australia and certain parts of Asia among other regions where we did experience some idiosyncrasies that also impacted our first quarter results, albeit to a lesser extent. Turning to gross profit. Gross profit in the first quarter of 2024 was $3.7 million or gross margin of 4.9% compared to $6.2 million or gross margin of 6.7% in the year-ago period. The year-over-year change in gross profit and gross margin reflected higher manufacturing costs, including depreciation, higher material costs and reduced net revenue per pound, partially offset by lower inventory reserves and lower logistics cost per pound. Within manufacturing costs, although we realized solid benefits from our network consolidation efforts, we did also see transitional costs such as temporary labor and increased overtime in our own facilities as we brought in substantially higher production volumes in a short period of time. However, we saw encouraging sequential trends within the quarter and expect our meaningful in-sourcing of production volume to pay dividends in terms of reduced costs and improved quality in the coming periods. Operating expenses were $57.1 million in the first quarter of 2024 compared to $63.9 million in the year-ago period. The decrease in operating expenses was primarily due to reduced non-production headcount expenses, lower marketing expenses and reduced selling expenses, partially offset by an increase in general and administrative expenses. General and administrative expenses included a $7.5 million accrual for a consumer class action settlement associated with certain lawsuits that originated in 2022. Of the aforementioned settlement amounts and subject to court approvals, we anticipate making a cash payment of approximately $250,000 in 2024 and the remainder in 2025. Overall, loss from operations was $53.5 million in the first quarter of 2024 compared to $57.7 million in the year-ago period. Adjusted loss from operations, which excludes the aforementioned class action settlement accrual, was $46 million in the first quarter of 2024. Net loss was $54.4 million or $0.84 per common share in the first quarter of 2024 compared to a net loss of $59 million or $0.92 per common share in the year-ago period. Adjusted net loss was $46.9 million or $0.72 per common share in the first quarter of 2024. Adjusted EBITDA was a loss of $32.9 million in the first quarter of 2024 compared to an adjusted EBITDA loss of $45.8 million in the year-ago period. While we still have a lot of work to do, this represents our smallest adjusted EBITDA loss going back to the second quarter of 2021. Turning now to our balance sheet and cash flow highlights. Our cash and cash equivalents balance, including restricted cash, was $173.5 million, and total debt outstanding was $1.1 billion as of March 30, 2024. Net cash used in operating activities was $32.2 million in the quarter ended March 30, 2024, compared to $42.2 million in the year-ago period. Capital expenditures totaled $1.2 million in the quarter ended March 30, 2024, compared to $5.3 million in the year-ago period. Finally, I'll conclude my remarks by commenting on our 2024 full year outlook, which we are largely reaffirming as follows: net revenues are expected to be in the range of $350 million to $345 million for the full year; net revenues for the second quarter of 2024 are expected to be in the range of $85 million to $90 million; gross margin is expected to be in the mid- to high teens range for the full year 2024 and is expected to be higher in the second half of the year relative to the first half; operating expenses, excluding the $7.5 million consumer class action settlement, are expected to be in the range of $170 million to $190 million weighted slightly more towards the first half of the year; lastly, capital expenditures are expected to be in the range of $15 million to $25 million. And with that, I'll turn the call back over to the operator to open it up for your questions. Thank you.

Operator, Operator

Your first question comes from Alexia Howard with Bernstein.

Alexia Howard, Analyst

So I guess my main question is around the confidence that you have in the sales outlook. It feels as though last quarter, the pricing was down quite a bit and the volumes improved. And this time, obviously, we've seen a big sequential increase on the pricing side, but the volumes have deteriorated. So as you look out, what gives you the confidence to be able to reiterate the full year guidance, what improves over the summer during grilling season and so on.

Ethan Brown, Chief Executive Officer

Thank you for the question. We began rolling out the Beyond IV product towards the end of the first quarter, and those products are now arriving in stores. We anticipate being fully distributed by Memorial Day. A significant focus for us has been on this reset, which I have mentioned frequently. The slowdown in growth across the plant-based meat category seems to stem from concerns about the health benefits of these products, which used to be perceived positively. For instance, in 2020, surveys indicated that over 50% of Americans believed plant-based meat was healthy, but that number fell to 38% in 2022. I believe it may have declined further since then. We wanted to address this issue directly and ensure that our products are seen as healthy, alongside their positive attributes concerning climate, environment, and animal welfare. Over the past three years, we have collaborated with healthcare professionals, nutritionists, and dietitians to achieve this. The product, now reaching full distribution, has garnered strong approval from the medical and nutrition communities. We are confident it addresses the primary concern in the category. The endorsements I mentioned, including those from the American Heart Association and the American Diabetes Association, serve as a reassurance to consumers that despite any misinformation, this product provides the expected health benefits. This represents a significant improvement over the negative perceptions we faced a year ago when there was considerable skepticism in the market. Although we had ongoing studies with Stanford, we lacked the robust endorsements and support from the health and nutrition sectors that we have now. Some early reviews, like those from Good Morning America and Prevention magazine, have highlighted our product as a leading choice in plant-based meat, noting its heart-healthy features, particularly for the 160 million Americans with cardiovascular challenges. Changing perceptions about this category has required significant time and effort. As we progress through this critical year, we are implementing various strategies, such as reducing operating expenses and decreasing our cost of goods, to stabilize the business while launching this major product. We believe these actions will contribute to growth in the latter part of the year. The price adjustments, which took effect on April 5th and May 5th, were not reflected in the first quarter results.

Alexia Howard, Analyst

In that case, may I follow up and ask whether you're seeing any preliminary price elasticity as you've introduced those price increases over the last month?

Ethan Brown, Chief Executive Officer

It's too early to determine the impact. While we are pleased with some of what we've observed so far, the situation remains unclear. We are not only launching new pricing but also a new premium product, which adds different value for the consumer. We'll monitor the situation and remain optimistic.

Operator, Operator

Your next question comes from Ben Theurer with Barclays.

Benjamin Theurer, Analyst

So first of all, I just wanted to follow up a little bit on the initiatives as you've laid out in order to just focus on the new products, like a little bit of a premiumization getting the right price points. It felt like that in the quarter, prices were still on average, slightly down. So can you help us understand how we should think about the cadence of the new product flowing into results and how that price points potentially going to move as you have like this more differentiated approach as to pricing. So how should we think about the cadence here for the coming quarters?

Ethan Brown, Chief Executive Officer

Yes. We won't get a full benefit from that in this quarter, although you will see definitely some benefit from it. Again, it's just reaching full distribution and the pricing went through in those 2 tranches as of May 5. So I think you can expect this quarter to see a meaningful increase in net revenue per pound in the U.S., and then of course we also have some activities elsewhere that we think will also be accretive to us from a margin perspective globally.

Benjamin Theurer, Analyst

Okay. And then just a quick follow-up as to the performance in international, which used to be the stronger market, but felt a little softer this time just on like a year-over-year basis. Was there anything in particular that you could point us to what happened in the international markets that drove particularly the volume decline?

Ethan Brown, Chief Executive Officer

Yes. I think we remain very bullish about Europe and about some of our other international markets, Canada, et cetera. Two main factors. I'll address retail first. We did sell in quite a bit of a new product in the first quarter of '23 in Europe. That's our chicken product, and we're lapping that in Q1 of '24. And then secondly, we do have some exposure to both, obviously, the U.K. is a good and healthy market for us from an overall demand perspective as well as Canada. But in both cases, you see some recessionary factors in place there and consumer trading around looking more for value at the moment. Therefore, those two issues on the retail side I think led to some of the lumpiness in that story. I think on the international foodservice side, somewhat similar in the sense that we were lapping a year ago sell-in of chicken to one of our largest QSRs as well as some additional burger sales loading. Then in two of the markets I just mentioned, the U.K. and Canada, there's overall slower sales in some of our QSRs; they're not necessarily related to our category. So those two factors. Some of it is particularly on the QSR side and can be explained by timing. We did see a pretty decent level of orders at the end of the fourth quarter of '23, and we did see some pretty healthy orders coming in as we started the second quarter here. So had those moves happened a few weeks earlier or later in either direction, I think it would have been a different story.

Operator, Operator

The next question comes from Adam Samuelson with Goldman Sachs.

Adam Samuelson, Analyst

Ethan, Lubi, could you provide more details on the pricing and gross margins for the first half versus the second half? I'm trying to understand how we could reach mid- to high-teens margins for the full year when we're currently at 5% for the first quarter. Furthermore, it seems the revenues for the first and second halves are roughly evenly distributed based on the guidance for the second quarter. If we aim for those mid- to high-teens margins in the latter half, it suggests that gross margins would need to be comfortably above 20%. Can you help us understand the extent of pricing increases needed to achieve this alongside any reductions in unit costs that might enhance gross margins? It appears that we expect contributions from both factors.

Ethan Brown, Chief Executive Officer

Yes. Thank you. That's a great question. You're absolutely right. We do see, obviously, some significant benefit from the pricing increase. I also want to pause on it for a minute to emphasize the consolidation of our network. We did this for a number of reasons, including quality, cost and things of that nature, but we wanted to begin the year with a lot more of the production under our own roof. We were able to do that. There were some significant transitory costs from a transitioning perspective, whether it was temporary labor, overtime, logistics, start-up costs and things of that nature that did bring the overall margin for the quarter down. But if you look at the over-absorption we expect to see across the balance of the year as well as the efficiencies of being under 1 or 2 roofs, and also reduce logistics and things of that nature, you can begin to see quite a significant spread occurring between the price that we're charging and the cost of our production. We do feel good about it for the balance of the year. The amount of throughput that's flowing through our facilities right now is pretty impressive relative to where it was. It's a lot of work, but it's the right thing. If you look at the steps we're taking, I think one of the reasons I'm so optimistic about where we're headed is that our business is getting leaner from an operations perspective. If you look, we took $14 million out year-over-year once you adjust for the settlement. We continue to bring down the overall size of the network, and we're going to realize very significant cost savings on a COGS basis. Raising price is going to generate additional margin. The new products that are coming out address very squarely the market need. We didn't just proliferate SKUs. We wanted to address the fundamental issues going on with the category as a leader, and I think we've done that. That, by the way, is opening up some new markets for us as we work with the American Heart Association and others to address some of the disease states that are out there. All of these things, to me, are addressing the fundamental issues around the business and going to allow us this year to have the type of return to growth that we've been anticipating.

Lubi Kutua, Chief Financial Officer

Yes. And Adam, I'll just add to that. So I think it's a good question regarding what the margin trajectory looks like for the balance of the year, just given where we finished in Q1. A couple of things I'll say about Q1, and we mentioned this in the prepared remarks. First off, we talked about phasing out the promotional activities that we were doing on the aggressive side. We were encouraged to see that sequentially as we progress through the quarter, our level of trade spend came down pretty nicely. The other thing, which Ethan mentioned, we identified some incremental assets in the quarter. We're still wrapping up the heavy lifting regarding our network consolidation efforts, and there were some incremental fixed assets that we identified. That drove some higher depreciation costs in Q1. Lastly, we mentioned that there were some spikes in direct labor costs, such as temporary labor and overtime that drove up our costs. Most of those should be substantially less of a drag for the balance of the year. As pricing becomes effective, we'll benefit from a full quarter's worth for the back half of the year, as the new pricing starting kicking in, we expect to see a meaningful sequential improvement. In the back half, we also expect to see incremental improvement versus Q2, mainly because we will benefit from a full quarter of the price increases in Q3 and Q4.

Operator, Operator

Our next question comes from Ken Goldman with JPMorgan.

Kenneth Goldman, Analyst

I wanted to follow up on the line of questioning about pricing. A few here, right? One, how are your customers reacting given that you're raising prices as your costs decline and the category is still struggling a little bit? I guess the second one is how should we think about your competitors' reactions to your raising prices? What are you seeing or thinking you're going to see in the market? And then the third is what's in your guidance? I mean I don't need an exact number, but just are you being conservative enough on price elasticity in the markets where you're taking those meaningful increases. So I know that's a lot. I just wanted to kind of dig in a little bit.

Ethan Brown, Chief Executive Officer

Sure. So I think on the first question about customer reactions as we roll this out, it's just too early to tell. I mean, it's just hitting the shelf now. We did have long discussions with a lot of the main retailers we work with around why we're doing this. With limited exception, most were accepting. We're doing this at a time when we're also offering a more premium set of products, which I think made those discussions easier. From a competitive perspective, we're largely following a lot of price increases, both in retail and from our largest competitor, who went through a similar process about a year before us. So I don't anticipate much in terms of strategic interplay from them. They are also trying to drive their business toward profitability, so I don't think we're going to see very strong discounting. Then on guidance, just what's in it, Lubi?

Lubi Kutua, Chief Financial Officer

Yes. We think that we are being appropriately conservative. We did a significant amount of work with an external consultant as we went through this price increase. We did various consumer studies to gauge what elasticity might look like. We are baking into our estimates for the balance of this year an elasticity that's lower than one, but we feel like there's some conservatism baked into that.

Kenneth Goldman, Analyst

I appreciate the guidance on second-quarter sales. Regarding the gross margin, there have been questions about its progression. What target do you have in mind for the gross margin in the second quarter? Also, the Street is projecting a negative $25 million for adjusted EBITDA. How reasonable do you see that estimate in relation to your expectations for top-line performance?

Lubi Kutua, Chief Financial Officer

Yes. In terms of margin, I would say we would expect to see a decent sequential improvement from Q1 to Q2. Q2 tends to be our highest volume quarter just as we enter grilling season and things like that. So usually, we will see benefits from fixed-cost absorption. With the price increases starting to kick in, we expect to see a meaningful sequential improvement. In the back half, we also expect some incremental improvement versus Q2. We would expect there would be some additional benefit due to the effective pricing for Q3 and Q4. Could you remind me what the question was about EBITDA?

Kenneth Goldman, Analyst

Yes, I'm just trying to figure out a way to ask if the consensus number of negative $25 million is kind of in the ballpark of where you'd like us to be?

Lubi Kutua, Chief Financial Officer

I don't want to provide specific quarterly guidance for EBITDA, so I'll just leave it at that.

Michael Lavery, Analyst

Just curious if you could update us on the state of the union for SKU rationalization? And how much of that work is done or midstream versus still to come? And obviously, you've given the revenue guidance that wraps it all together. But how do we think about that as a piece of one of the moving parts for revenues?

Ethan Brown, Chief Executive Officer

Yes. No, thanks for the question. We continue to complete the process of exiting Jerky. In terms of the overall emphasis on SKUs, you'll see us very much lean into the Beyond IV platform this year, including launching a very impactful marketing campaign as we roll it out. We're not in a position to announce any major SKU reductions or things of that nature right now.

Daniel Gold, Analyst

This is Daniel on for Andrew Strelzik. The release mentioned ongoing further slowdown in plant-based meat category trends. How do you juxtapose that with keeping the guidance?

Ethan Brown, Chief Executive Officer

Yes, I mean, I think this all gets back to we've been looking at this, trying to crack this nut for 3 or 4 years now and what's going to bring back growth to the category. We've done a ton of consumer research and analysis. We've seen that these products, like Beyond Steak and the Beyond IV, whether it's with strong accolades from the right communities, address the fundamental issues with the category. We really do believe that this will change the growth trajectory of the category and Beyond Meat. We remain the category captain, and we're doing all the necessary steps to lead the category. So to address cash burn and the trajectory as well, it's a different story for us because we often have inventory costs associated with our preparation to meet demand. You'll continue to see a downward trajectory in cash consumption over the balance of the year, and we are taking steps to bolster our balance sheet. That should help as well.

Peter Saleh, Analyst

Ethan, I want to ask on the Beyond IV product. You gave us a list of endorsements from accredited health institutions that back your product. I'm curious how you plan to get this word out to really change perception?

Ethan Brown, Chief Executive Officer

It's something I talk about all the time internally. Our marketing will focus on having each of these emblems present front and center on product literature, to the extent possible on product packaging. You'll see this messaging prominently as we roll into Memorial Day. We want to ensure that the endorsements of such important institutions are clear to consumers because they act as a signaling mechanism. We are launching a substantial campaign that will change perceptions. We have a terrific agency working on that. This will be a great piece to highlight the health benefits of our products.

Robert Moskow, Analyst

I guess 2 quick questions. Lubi, I think on the last call, you said that to bolster the balance sheet, you would look at a combination of possibilities, either debt or equity. Is that still the case?

Lubi Kutua, Chief Financial Officer

Yes, nothing has really changed since the last time we were on the call. We would consider all of those options that you mentioned.

Ethan Brown, Chief Executive Officer

To address taste comparison with our main competitor, we do a lot of testing. Both products really resemble or score at parity with animal protein. We do feel good about our results, and we don't move forward unless we see statistically significant benefits. Competitors do a nice job. We enjoy competing with them.

Operator, Operator

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

Ethan Brown, Chief Executive Officer

Thank you. Not to be repetitive, but just to be clear, we really do believe that we are at the early stages of a terrific and pivotal year for Beyond Meat. The leaning out of our operating expenses, the stabilization of pricing and the lowering of our cost of goods, and the improvements we're going to see across margin, addressing the #1 issue in the category, coming out with products that are not only winning on sensory but also receiving such accolades from important institutions around the health benefits, we are doing things to get through a period that is challenging and resume growth. I'm excited, and we look forward to reporting to you through the balance of the year. Thank you.