Earnings Call Transcript - BYND Q3 2025

Operator, Operator

Thank you, everyone, and welcome to the Beyond Meat, Inc. 2025 Third Quarter Conference Call. Please note this call is being recorded. It is now my pleasure to turn today's conference over to Paul Sheppard, Vice President of FP&A and Investor Relations.

Paul Sheppard, VP of FP&A and Investor Relations

Thank you. Hello, everyone, and thank you for your participation in 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 third quarter 2025 earnings press release filed yesterday 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 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 yesterday's press release, our quarterly report on Form 10-Q for the quarter ended September 27, 2025, to be filed with the SEC and our annual report on Form 10-K for the fiscal year ended December 31, 2024, 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 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 yesterday's press release for 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, CEO

Thank you, Paul, and good afternoon, everyone. First and foremost, I would like to recognize all veterans on this important day of observance, including those veterans we are fortunate enough to have on our team at Beyond. You exemplify the values of putting others and country first, and we are deeply appreciative of your service and sacrifice. I will now turn to the business and cover three main subject areas. First, I will seek to put our recent balance sheet activities in the appropriate context. Second, I will briefly review the performance headlines from our third quarter of 2025, results that point to a business that remains in turnaround mode. Third, I will outline the key operational and top line initiatives we are taking in pursuit of this turnaround and return to growth. Though a protracted process, our recently announced transaction with our bondholders was sweeping in its scope and together with the nearly $150 million in cash we raised through the completion of our existing ATM program represents a fundamental reset of our balance sheet. Specifically, we reduced debt levels by approximately $900 million, nearly 75% of our total leverage and put in place a path to potentially convert another $209 million for a total reduction of over 90% in total outstanding debt for consideration of any PIK interest. Further, the transaction not only significantly reduced leverage levels but extended the maturity of most of our overall debt profile. We view this as an important resetting of our balance sheet and one that supports, in many ways, a reset of our business as we target sustainable operations and renewed growth. Clearly, we were disappointed by this quarter's results, which I will now summarize before outlining with as much specificity as this forum permits our path forward. Net revenue of $70.2 million came in within our guided range, but nevertheless, represent a 13.3% decline year-over-year as we faced ongoing category challenges. This quarterly net revenue decline, coupled with a less favorable product mix and higher trade promotion spending versus the prior year put pressure on gross margin even as conversion costs fell on a year-over-year basis. Lower volumes also reduced fixed cost absorption, and we continue to experience a transitory accounting drag in the form of $1.7 million in noncash charges related to the suspension of our China operational activities. Accordingly, gross margin landed at 10.3% in the third quarter, down from 17.7% in the year-ago period. Operating expenses, excluding a large noncash impairment charge relating to certain long-lived assets improved on both a year-over-year and sequential basis. I should note that operating expenses in the third quarter included substantial nonroutine expenses, a factor that makes our cost cutting appear more incremental than our underlying progress would suggest. We are intensely focused on five following steps towards sustainable operations and return to growth. First, we continue to address misinformation surrounding our plant-based needs. As many of you are aware, industrial livestock and pharmaceutical interests rally around scare tactics and misinformation to confuse consumers. We are driving the health profile of our products to greater heights to reduce this disinformation. The results of our multiyear efforts is a growing range of products, such as the Beyond Pork platform and Beyond Steak that deliver on taste with ingredient and nutritional profiles and have earned various accreditations and recognition from credible entities such as the American Diabetes Association and American Heart Association. More of this journey is shared in our short documentary on YouTube, 'Planting Change.' Our innovations include the Beyond chicken pieces, which, despite still gaining national retail distribution, has achieved considerable taste and nutrition accolades. Additionally, we've recently opened Beyond Test Kitchen, where consumers get the early opportunity to buy our latest innovation before it hits supermarket shelves. Second, we are building back distribution in U.S. retail and food service. We are successfully rebuilding distribution and seeking to consolidate our brand where possible into brand blocks. We believe that ultimately plant and animal protein should be offered to consumers in equally prominent locations in the supermarket and ideally in the same section to facilitate convenience and choice. The unplanned and chaotic transition, with periods of product unavailability, has been damaging to our business. We are now encouraging the consolidation of our brand within brand blocks in the frozen section of supermarkets to reduce what can seem like a game of hide-and-seek for the consumer. Third, through our transformation office and program, we are implementing further actions to reduce and reset our operating expenses. We continue to seek to fundamentally reset our operating base. We have enlisted the restructuring support of AlixPartners, including the appointment of John Boken as Chief Transformation Officer. We are deep into this process and committed to positioning the business for a more fundamental resizing of operating expense. Fourth, we are taking additional actions to expand margin in the currently constrained demand environment. We continue to exit certain unprofitable product lines while making targeted investments in our facilities, including a continuous production line for certain popular lower margin products. Finally, we are considering certain strategic initiatives that could accelerate our return to growth. We do see the potential for growth outside of these actions when taking a more comprehensive view of the Beyond brand technology across our U.S. and European markets. It would be premature to provide further information today for various reasons, and I will leave the subject for future updates. In closing, we've experienced a deeply disruptive potential within this nascent industry. I have sought to characterize our response as harnessing adversity to come back stronger, better, and more capable of achieving our long-term vision. We have the opportunity today to reset our business on behalf of all shareholders. We are buoyed and moved by the tremendous support from retail investors from throughout the United States to Korea. We are aware of the challenges ahead, such as countering misinformation, cutting costs, and expanding margins. We've been in our turnaround phase for too long. Moving forward, you will not see more of the same from us. There is plenty of fight left and enthusiasm to use this reset to hasten our future as a global protein company. With that, I will now turn the call over to Lubi.

Lubi Kutua, CFO

Thank you, Ethan, and good afternoon, everyone. I'll begin by reviewing our financial results for the quarter before providing some brief remarks on our outlook for the fourth quarter and commenting on the significant balance sheet initiatives that we completed subsequent to the end of our third quarter. Total net revenues decreased 13.3% to $70.2 million in the third quarter of 2025 compared to $81 million in the year-ago period. The decrease in net revenues was primarily driven by a 10.3% decrease in the volume of products sold and a 3.3% decrease in net revenue per pound. The year-over-year weakness in volume of products sold continues to reflect general softness in the plant-based meat category as well as select distribution losses and, to a lesser extent, impacts from competitive activity. While category dynamics in our key international markets remain more favorable than in the U.S., two of our top three markets in the EU have also been experiencing year-over-year declines, according to consumer takeaway data. This reflects the current reach of the soft macroeconomic environment in plant-based meat that we continue to navigate. With respect to pricing, the year-over-year decrease in net revenue per pound was primarily driven by higher trade discounts and changes in product sales mix, partially offset by favorable changes in foreign currency exchange rates. Taking a closer look by channel, U.S. retail net revenues decreased 18.4% to $28.5 million in the third quarter of 2025 compared to $35 million in the year-ago period. The decrease in net revenues was primarily driven by a 12.6% decrease in the volume of products sold, mainly reflecting weak category demand and reduced points of distribution, along with a 6.6% decrease in net revenue per pound. In our U.S. foodservice channel, net revenues decreased 27.3% to $10.5 million in the third quarter of 2025 compared to $14.5 million in the year-ago period. The decrease was primarily driven by a 27.1% decrease in the volume of products sold due to weak category demand and the lapping of a limited-time offering of our chicken products at a QSR customer in the year-ago period. Turning to international, in international retail, net revenues decreased 4.6% to $15.8 million in the third quarter of 2025 compared to $16.6 million in the year-ago period. The decrease in international retail net revenues was primarily driven by a 12.5% decrease in the volume of products sold, partially offset by a 9.1% increase in net revenue per pound. Finally, International Foodservice net revenues increased 2.3% to $15.3 million in the third quarter of 2025, driven by a 4.4% increase in volume of products sold, reflecting higher sales of chicken products to a QSR customer, partially offset by reduced burger sales. Now, turning to the P&L. Gross profit in the third quarter was $7.2 million or gross margin of 10.3% compared to gross profit of $14.3 million or gross margin of 17.7% in the year-ago period. Gross margin continues to be weighed down by lower volume and higher trade discounts as a percentage of gross revenues. Our total cost of goods sold per pound increased on a year-over-year basis due to higher materials costs and inventory provisions. However, we made positive progress on reducing our conversion and logistics costs. Through various initiatives under our transformation office, we are pursuing investments that we expect will benefit our conversion costs beginning in early next year. Lastly, our cash and cash equivalents balance, including restricted cash, was $131.1 million, and total outstanding debt was approximately $1.2 billion as of September 27, 2025. We continue to navigate a soft and uncertain macroeconomic environment across several key geographies, making it difficult to forecast our operating results beyond the near term.

Benjamin Theurer, Analyst

Thanks for the detailed prepared remarks and congratulations on the refinancing efforts. I have two quick questions. First, Ethan, you talked about your path to get back to a gross profit margin of 30% plus. What is currently holding you back from achieving that margin compared to 2019 when you reached that level in sales that were somewhat similar to now?

Ethan Brown, CEO

Great. Good to hear from you, and thanks for the question. If you look at our history on margin, we've had healthy margins in the past. The main drag that you see throughout the P&L is the lower top line. We've built a system that was designed for much higher revenue than we're currently facing, leading to issues with lower overhead absorption. The lower top-line impacts pressure on margin due to product mix, with more popular products being lower-margin items. Additionally, we face higher material costs and the charge related to the China depreciation. On a positive note, we've made underlying progress, such as in conversion costs, which are lower on a year-over-year basis. We expect substantial margin improvements in the next several quarters as we implement continuous production lines for our lower-margin products. Ultimately, our conservative target is healthy margins at lower volume, while the optimistic scenario aligns with returning to growth.

Lubi Kutua, CFO

We can't quantify specific figures on the cash balance since the end of September, but we added incremental proceeds from the ATM. However, transaction fees related to the exchange offer will need to be factored into future estimates, along with the ongoing rate of cash consumption of the business.

Ethan Brown, CEO

Regarding quarterly cash consumption, we're focused on it and expect to bring it down. We've faced a lot of one-off expenses this year. We believe that over time, cost minimization efforts will convert to cash generation. Thank you, and thanks, everyone, for joining. I want to reinforce that we need to change the narrative surrounding our products. There is significant misinformation out there, but we are making progress in countering it. We are focusing on the health benefits of our products. The more we can get consumers to see these benefits, the more we can return to growth. We are continually working on providing favorable pricing and reinforcing our product narrative through collaborations with credible organizations. We've got strong support from retail investors and are committed to growing together with them. We are excited about the innovations coming and our ongoing efforts to transform operations and margin management.

Operator, Operator

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

Ethan Brown, CEO

Thank you, and thanks, everyone, for joining. I appreciate your continued support and look forward to our next conversation.

Operator, Operator

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