BEYOND MEAT, INC. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, "Risk Factors," of our 2020 Form 10-K and Part II, Item 1A , "Risk Factors" and "Note Regarding Forward-Looking Statements" included in this report and those discussed in other documents we file from time to time with theSEC . The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this quarterly report and our audited consolidated financial statements and notes thereto included in our 2020 10-K. Our historical results are not necessarily indicative of the results to be expected for any future periods and our operating results for the three months endedApril 3, 2021 are not necessarily indicative of the results to be expected for the fiscal year endingDecember 31, 2021 or for any other interim period or for any other future year or period.
Overview
Beyond Meat is one of the fastest growing food companies inthe United States , offering a portfolio of revolutionary plant-based meats. We build meat directly from plants, an innovation that enables consumers to experience the taste, texture and other sensory attributes of popular animal-based meat products while enjoying the nutritional and environmental benefits of eating our plant-based meat products. Our brand commitment, Eat What You Love, represents a strong belief that there is a better way to feed our future and that the positive choices we all make, no matter how small, can have a great impact on our personal health and the health of our planet. By shifting from animal-based meat to plant-based meat, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare. The success of our breakthrough innovation model and products has allowed us to appeal to a broad range of consumers, including thosewho typically eat animal-based meats, positioning us to compete directly in the$1.4 trillion global meat industry. We sell a range of plant-based products across the three main meat platforms of beef, pork and poultry. As ofApril 3, 2021 , our products were available at approximately 118,000 retail and foodservice outlets in more than 80 countries worldwide, across mainstream grocery, mass merchandiser, club, convenience store, and natural retailer channels, direct to consumer, and various food-away-from-home channels, including restaurants, foodservice outlets and schools. Our primary production facilities are located inColumbia, Missouri , andDevault, Pennsylvania , and research and development and administrative offices are located inEl Segundo, California . In addition to our own production facilities, we use co-manufacturers in various locations inthe United States ,Canada andthe Netherlands . In the second quarter of 2020, we acquired our first manufacturing facility inEurope located in Enschede,the Netherlands . This facility completed operational testing of dry blend production in late 2020 and is expected to begin commercial trial runs in the second quarter of 2021. We also announced the official opening of a new co-manufacturing facility, built by our distributor inthe Netherlands , to be used forBeyond Meat production. In the third quarter of 2020, we and BYND JX entered into an investment agreement and related factory leasing contract to design and develop manufacturing facilities in the Jiaxing Economic &Technological Development Zone to manufacture plant-based meat products under the Beyond Meat brand inChina . Renovations in the leased facility have been substantially completed and trial production began in the first quarter of 2021. Full-scale end-to-end production is expected by the end of the second quarter of 2021. OnJanuary 15, 2021 , we entered into a 12-year lease with two 5-year renewal options to house our corporate headquarters, lab and innovation space inEl Segundo, California . See Note 10 , Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. OnJanuary 25, 2021 , we entered intoThe PLANeT Partnership, LLC ("TPP"), a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack and beverage products made from plant- 31 -------------------------------------------------------------------------------- based protein. We believeTPP will allow us to reach more consumers by entering new product categories and distribution channels, increasing accessibility to plant-based protein around the world. OnMarch 5, 2021 , we issued$1.0 billion aggregate principal amount of our 0% Convertible Senior Notes due 2027 (the "Convertible Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. OnMarch 12, 2021 , the initial purchasers of the Convertible Notes exercised their option to purchase an additional$150.0 million aggregate principal amount of the Company's 0% Convertible Senior Notes due 2027 (the "Additional Notes", and together with the Convertible Notes, the "Notes"), and such Additional Notes were issued onMarch 16, 2021 . The initial conversion price of the Notes is$206.00 , which represents a premium of approximately 47.5% over the closing price of the Company's common stock onMarch 2, 2021 . The Notes will mature onMarch 15, 2027 , unless earlier repurchased, redeemed or converted. The Notes were issued pursuant to, and are governed by, an indenture (the "Indenture"), dated as ofMarch 5, 2021 , between us andU.S. Bank National Association , as trustee. We used$84.0 million of the net proceeds from the sale of the Notes to fund the cost of entering into capped call transactions, described below and intend to use the remainder of the net proceeds for general corporate purposes and working capital. The proceeds from the issuance of the Notes were approximately$1.0 billion , net of capped call transactions cost of$84.0 million and debt issuance costs totaling$23.6 million . See Note 7 , Debt, to the Notes to Unaudited Condensed Consolidated Financial Statements elsewhere in this report. OnMarch 2, 2021 , in connection with the pricing of the offering of the Convertible Notes, we entered into capped call transactions (the "Base Capped Call Transactions") with the option counterparties and used$73.0 million in net proceeds from the sale of the Convertible Notes to fund the cost of the Base Capped Call Transactions. OnMarch 12, 2021 , in connection with the Additional Notes, we entered into capped call transactions (the "Additional Capped Call Transactions") with the option counterparties and used$11.0 million in net proceeds from the sale of the Additional Notes to fund the cost of the Additional Capped Call Transactions. The Base Capped Call Transactions and the Additional Capped Call Transactions (collectively, the "Capped Call Transactions") cover, subject to customary adjustments, the aggregate number of shares of our common stock that will initially underlie the Notes, and are expected generally to reduce potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is$279.32 , which represents a premium of 100% over the last reported sale price of the Company's common stock onMarch 2, 2021 . The aggregate$84.0 million paid for the Capped Call Transactions was recorded as a reduction to APIC. The condensed consolidated financial statements for the period endedApril 3, 2021 include the accounts of the Company and its foreign subsidiaries,Beyond Meat EU B.V. and BYND JX. All inter-company balances and transactions have been eliminated. We operate on a fiscal calendar year, and each interim quarter is comprised of one 5-week period and two 4-week periods, with each week ending on a Saturday. Our fiscal year always begins onJanuary 1 and ends onDecember 31 . As a result, our first and fourth fiscal quarters may have more or fewer days included than a traditional 91-day fiscal quarter. Impact of COVID-19 on Our Business The COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business. COVID-19 has led governments and other authorities around the world to implement significant measures intended to control the spread of the virus, including social distancing measures, business closures or restrictions on operations, quarantines and travel bans. While some of these restrictions have been lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized, a resurgence of COVID-19 and the discovery of various new COVID-19 variants in some markets has slowed, halted or reversed the reopening process altogether. In the fourth quarter of 2020, the FDA approved the distribution of various COVID-19 vaccines for emergency use. Other COVID-19 vaccines have also been approved for emergency use in other countries or 32 -------------------------------------------------------------------------------- are pending approval in theU.S. While the rollout of the vaccines is currently underway inthe United States , we expect that it will take significant time before the vaccines are widely available on a significant scale. As government authorities around the world continue to implement significant measures intended to control the spread of the virus and institute restrictions on commercial operations, while at the same time rolling out vaccines and implementing multi-step policies with the goal of re-opening certain markets, we are working to ensure our compliance with these measures while also maintaining business continuity for essential operations in our facilities. We have established a cross-functional task force that meets regularly and continually monitors and tracks relevant data, including guidance from local, national and international health agencies. This task force works closely with our senior leadership and is instrumental in making critical, timely decisions and is committed to continuing to communicate to our employees as more information is available to share. While our manufacturing facilities remain operational, beginning inMarch 2020 employees at our corporate headquarters began working remotely. For essential activities at our Manhattan Beach Project Innovation Center, we are strictly limiting the number of employees allowed in the building and have implemented physical distancing protocols, mandatory face coverings, temperature screening of all personnel entering the site and comprehensive preventative hygienic measures to support the health and safety of our employees. We expect our corporate headquarters employees to remain working remotely pending further notice and guidelines from local, state and federal agencies. At our manufacturing facilities, we have implemented a series of physical distancing, and hygienic practices to further support the health and safety of our manufacturing employees. Our manufacturing employees are monitored for COVID-19 symptoms, including temperature screening of all personnel entering the site, and are following strict COVID-19 suggested Personal Protective Equipment guidelines perUnited States Centers for Disease Control andWorld Health Organization , including mandatory face coverings, increased hand washing and significantly increased sanitation of hard surfaces. All non-essential company-sponsored travel has been suspended and field marketing activities have been curbed due to the COVID-19-related restrictions. For the first quarter of 2021, we generated foodservice channel net revenues of$27.1 million compared to$41.2 million in the first quarter of 2020. Although foodservice channel net revenues have been improving each successive quarter after the decline in the second quarter of 2020, they have not recovered to the level seen in the first quarter of 2020 and were 34.1% lower than the foodservice channel net revenues in the first quarter of 2020. In response to the recent COVID-19 resurgence in some markets, new lockdowns, curfews and other restrictive measures are being imposed which have slowed, halted or reversed the reopening process altogether and may adversely impact the foodservice recovery. We continue to partner with our QSR and foodservice customers during this challenging environment and during the quarter continued to offer promotional programs to many of our foodservice partners to allow them to offer our products to consumers at reduced price points or on other promotional terms. The impacts of the ongoing COVID-19 pandemic also continue to result in delays in tests or launches of our products among our foodservice customers and negatively impact the rate of our growth. Excluding our sales to large QSR customers, our foodservice channel has broad exposure to certain markets within that channel that have been disproportionately affected by COVID-19. These include, among others: amusement parks; academic institutions; hospitality; corporate catering services; movie theaters; sports arenas; and bars and pubs. As such, we continue to expect recovery in our foodservice channel net revenues to generally lag the broader foodservice sector. While we saw some improvement in demand in our foodservice business during the first quarter of 2021, amid relaxed stay-at-home orders in some states, the environment remains highly uncertain given the ongoing pandemic and COVID-19 resurgence. As a result, it is unclear how long it will take for foodservice demand to return to pre-pandemic levels, if at all. We expect revenues in our foodservice channel will continue to be significantly negatively impacted through at least the remainder of 2021 and likely into 2022. At the same time while foodservice channel net revenues declined, our retail channel net revenues increased in the first quarter of 2021. For the first quarter endedApril 3, 2021 , we generated retail channel net revenues of$81.0 million , representing an increase of 45% as compared to the first quarter of 2020 but a decrease of$18.6 million or 18.7% as compared to the second quarter of 2020, when we experienced a retail surge amid panic buying in response to COVID-19. The increase in our net revenues in the retail channel during the first quarter of 2021, as compared to the prior-year period, was primarily driven by our expansion in total retail outlets, higher sales velocity at existing retail outlets and new product introductions. We also 33 -------------------------------------------------------------------------------- continued to offer promotional and reduced pricing to certain of our retail customers in the first quarter of 2021 to encourage greater consumer trial and adoption of our products. For the three months endedApril 3, 2021 , our retail and foodservice channels accounted for approximately 74.9% and 25.1% of our net revenues, respectively. For the three months endedMarch 28, 2020 , our retail and foodservice channels accounted for approximately 57.6% and 42.4% of our net revenues, respectively. For the three months endedApril 3, 2021 , retail net revenues increased 45.0%, while foodservice net revenues declined 34.1% compared to the prior-year period. The change in mix of our distribution channels has been significant since the start of the COVID-19 pandemic and is likely to continue to cause fluctuation in our quarterly results depending on the duration, magnitude and effects of the COVID-19 pandemic. It is challenging to estimate the extent of the adverse impact of the COVID-19 pandemic on our results of operations, due to continued uncertainty regarding the duration, magnitude and effects of the COVID-19 pandemic (including any resurgences), impact of the new COVID-19 variants, rollout and uptake of the COVID-19 vaccines and the public's willingness to receive them, potential supply chain or manufacturing disruptions, and the magnitude of reduced customer traffic at our foodservice customers, or the extent to which this reduction may be offset by increased retail demand, or increasing consumer awareness of the benefits of plant-based meat products. While the ultimate health and economic impact of COVID-19 is highly uncertain, we expect that our business operations and results of operations, including our net revenues, gross profit, gross margin, earnings and cash flows, will be adversely impacted through 2021, including as a result of: •continued weak demand in the foodservice channel from decreased foot traffic in foodservice establishments and the level of demand shift from foodservice to retail business; •increased cost of goods sold and increased promotional programs and trade discounts to our retail and foodservice customers resulting in negative impacts on our gross margins; •potential disruption to the supply chain caused by distribution and other logistical issues; •potential disruption or closure of our facilities or those of our suppliers or co-manufacturers due to employee contraction of COVID-19; •the timing and success of strategic partnership launches and resumption of any expansion plans for our product lines for those QSR customerswho are in trial or test phase; •reduced consumer confidence and consumer spending (including as a result of lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic), including spending to purchase our products; and negative trends in consumer purchasing patterns due to consumers' disposable income, credit availability and debt levels; •continued foodservice customer closures (including re-closures in connection with resurgences of COVID-19) or further reduced operations; •our ability to introduce new foodservice products as QSR and other partners look to simplify menu offerings as a result of the pandemic; •changes in the retail landscape, including the timing and level of trade and promotion discounts, our ability to grow market share and increase household penetration, repeat buying rates and purchase frequency, and our ability to maintain and increase sales velocity of our products; •the pace and success of new product introductions; •the uncertain economic and political outlook in theU.S. and worldwide; •uncertainty in the length of recovery time for theU.S. and world economies; and •disruptions in our ability to expand to new international locations. Future events and effects related to COVID-19 cannot be determined with precision and actual results could significantly differ from estimates or forecasts. 34 -------------------------------------------------------------------------------- Environmental, Social and Governance As a disruptive leader in the food industry, the Company has established itself as a leading producer of plant-based products that deliver a reduced environmental footprint and mitigate the social and welfare issues inherent to the production and consumption of animal protein. In order to continue that work and position itself as a leader in the integration of environmental and social change, the Company has committed to developing a comprehensive environmental, social and governance ("ESG") program. As part of the development of its ESG program, the Company has completed a materiality analysis and is working on leveraging that analysis to create comprehensive ESG goals that will assist the Company with its commitment to ensuring responsible and sustainable business practices within its organization. Components of Our Results of Operations and Trends and Other Factors Affecting Our Business Net Revenues We generate net revenues primarily from sales of our products to our customers across mainstream grocery, mass merchandiser, club, convenience store, and natural retailer channels, direct-to-consumer, and various food-away-from-home channels, including restaurants, foodservice outlets and schools, mainly inthe United States . We present our net revenues by geography and distribution channel as follows: Distribution Channel DescriptionU.S. Retail Net revenues from retail sales to the U.S. market(1)U.S. Foodservice Net revenues from restaurant and foodservice sales to the U.S. market International Retail Net revenues from retail sales to international markets, includingCanada International Foodservice Net revenues from restaurant and foodservice sales to international markets, includingCanada ___________
(1) Includes net revenues from direct-to-consumer sales.
The following factors and trends in our business have driven net revenue growth over prior periods and are expected to be key drivers of our net revenue growth, subject to the duration, magnitude and effects of COVID-19 as discussed above: •increased penetration across our retail channel, including mainstream grocery, mass merchandiser, club, convenience store, and natural retailer channels, and our foodservice channel, including increased desire by foodservice establishments, including large full service restaurants and/or global QSR customers, to add plant-based products to their menus and to highlight these offerings; •the strength and breadth of our partnerships with global QSR restaurants and retail and foodservice customers; •distribution expansion, increased sales velocity, household penetration and repeat buying rates across our channels; •increased international sales of our products across geographies, markets and channels as we continue to expand the breadth and depth of our international distribution and grow our numbers of international customers; •our continued innovation and product commercialization, including enhancing existing products and introducing new products, such as Beyond Meatballs, Beyond Breakfast Sausage Patties and Beyond Breakfast Sausage Links and the recent launch of the latest iteration of our Beyond Burger, across our plant-based platforms that appeal to a broad range of consumers, including thosewho typically eat animal-based meat; •enhanced marketing efforts as we continue to build our brand, amplify our value proposition around taste, health and sustainability, serve as a best-in-class partner to strategic and other QSR customers 35 -------------------------------------------------------------------------------- to support product development and category management, and drive consumer adoption of our products, including scaling our Go Beyond marketing campaign, which seeks to mobilize our ambassadors to welcome consumers to the brand, define the category and remain its leader, the launch of our What if We all Go Beyond? brand anthem, inviting consumers to see how over time through small changes, such as what you put at the center of your plate, there can be a meaningful collective impact on human health and the health of our planet, mobile pop-ups in selectU.S. cities to give consumers an exclusive first taste of our latest innovative products ahead of in-store availability, increased social activity to build consumer awareness and excitement, shopper marketing programs to incentive consumer trial, and a robust marketing campaign around the launch of the latest iteration of our Beyond Burger; •overall market trends, including growing consumer awareness and demand for nutritious, convenient and high protein plant-based foods; and •increased production levels as we invest in production infrastructure and scale production to meet demand for our products across our distribution channels both domestically and internationally. In addition to the factors and trends above, we expect the following to positively impact net revenues going forward, subject to the duration, magnitude and effects of the COVID-19 pandemic: •expansion of our own internal production facilities domestically and abroad to produce our woven proteins, blends of flavor systems and binding systems, and finished goods, while forming additional strategic relationships with co-manufacturers; and •localized production and third-party partnerships to increase the availability and speed with which we can get our products to customers internationally. We distribute our products internationally in more than 80 countries worldwide as ofApril 3, 2021 . In addition to our own production facilities, we use co-manufacturers in various locations inthe United States ,Canada andthe Netherlands . International net revenues decreased 12.5% in the three months endedApril 3, 2021 , as compared to the prior-year period, primarily due to the decline in international foodservice net revenues attributable to COVID-19. As we seek to continue to rapidly grow our net revenues, we face several challenges. The extent of COVID-19's effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of COVID-19 (including any resurgences), impact of the new COVID-19 variants and the rollout and uptake of COVID-19 vaccines, and the level of social and economic restrictions imposed onthe United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. For example, the impact of COVID-19 on any of our suppliers, co-manufacturers, distributors or transportation or logistics providers may negatively affect the price and availability of our ingredients and/or packaging materials and impact our supply chain. Additionally, if we are forced to scale back hours of production or close our production facilities or our Manhattan Beach Project Innovation Center in response to the pandemic, we expect our business, financial condition and results of operations would be materially adversely affected. In addition, our growth strategy to expand our operations internationally may be impeded. We expect to also continue to be impacted by decreased customer and consumer demand as a result of event cancellations and social distancing, government-imposed restrictions on public gatherings and businesses, shelter-in place orders and temporary restaurant and retail store closures and operating restrictions. The uncertainty created by COVID-19 significantly increases the difficulty in forecasting operating results and strategic planning. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business, results of operations, financial condition or liquidity. However, the pandemic has had and may continue to have a material adverse impact on our business, results of operations, financial condition and cash flows and may adversely impact the trading price of our common stock. While the ultimate economic impact of the COVID-19 pandemic is highly uncertain, we expect that the adverse impact of COVID-19 pandemic on our business operations and results of operations, including our net revenues, gross profit, gross margin, earnings and cash flows, will continue through the remainder of 2021 and likely into 2022. Future events and effects related to the COVID-19 pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts. We routinely offer sales discounts and promotions through various programs to customers and consumers. These programs include rebates, temporary on-shelf price reductions, off-invoice discounts, retailer advertisements, product coupons and other trade activities. We anticipate that we will need to continue to offer 36 -------------------------------------------------------------------------------- more trade and promotion discounts to both our retail and foodservice customers, to drive increased consumer trial and in response to COVID-19. The expense associated with these discounts and promotions is estimated and recorded as a reduction in total gross revenues in order to arrive at reported net revenues. At the end of each accounting period, we recognize a liability for estimated sales discounts that have been incurred but not paid which totaled$2.8 million and$3.6 million as ofApril 3, 2021 andDecember 31, 2020 , respectively. We anticipate that these promotional activities will impact our net revenues as well as negatively impact our gross margins and profitability and that changes in such activities will impact period-over-period results. In addition, because we do not have any purchase commitments from our distributors or customers, the amount of net revenues we recognize will vary from period to period depending on the volume and the channels through which our products are sold, causing variability in our results. We expect to face increasing competition across all channels, especially as additional plant-based protein product brands continue to enter the marketplace. Gross Profit Gross profit consists of our net revenues less cost of goods sold. Our cost of goods sold primarily consists of the cost of raw materials and ingredients for our products, direct labor and certain supply costs, co-manufacturing fees, in-bound and internal shipping and handling costs incurred in manufacturing our products, plant and equipment overhead, depreciation and amortization expense, as well as the cost of packaging our products. In anticipation of future growth, we have had to very quickly scale production and expand our sources of supply for our core protein inputs such as pea protein. We intend to continue to increase our production capabilities at our two in-house manufacturing facilities inColumbia, Missouri , andDevault, Pennsylvania , while expanding our co-manufacturing capacity and exploring additional production facilities domestically and abroad. Our first manufacturing facility inEurope is located in Enschede,the Netherlands . This facility completed operational testing of dry blend production in late 2020 and is expected to begin commercial trial runs in the second quarter of 2021. In addition, inJune 2020 we announced the official opening of a new co-manufacturing facility, built by our distributor inthe Netherlands , to be used forBeyond Meat production. In the third quarter of 2020, we and BYND JX entered into an investment agreement and related factory leasing contract to design and develop manufacturing facilities to manufacture plant-based meat products under the Beyond Meat brand inChina . Renovations in the leased facility have been substantially completed and trial production began in the first quarter of 2021. Full-scale end-to-end production is expected by the end of the second quarter of 2021. OnOctober 30, 2020 , we acquired certain assets including land, building, manufacturing equipment and assembled workforce from one of our former co-manufacturers located inDevault, Pennsylvania . We are using this manufacturing facility for the production of our finished goods. Acquisition of these assets is expected to allow us to reduce manufacturing and packaging costs through vertical integration and provide opportunities for us to test new processes and scale new products more quickly. As a result of these expansion initiatives, we expect our cost of goods sold in absolute dollars to increase to support our growth. Subject to the ultimate duration, magnitude and effects of COVID-19, we continue to expect that gross profit improvements will be delivered primarily through improved volume leverage and throughput, greater internalization and geographic localization of our manufacturing footprint and expansion of our own internal production facilities domestically and abroad to produce our woven proteins, blends of flavor systems and binding systems, and finished goods, materials and packaging input cost reductions, tolling fee efficiencies, end-to-end production processes across a greater proportion of our manufacturing network, scale-driven efficiencies in procurement and fixed cost absorption, diversification of our core protein ingredients, product and process innovations and reformulations, cost-down initiatives through ingredient and process innovation and improved supply chain logistics and distribution costs. We are also working to improve gross margin through ingredient cost savings achieved through scale of purchasing and through expanding our co-manufacturing network while negotiating lower tolling fees. We intend to pass some of these cost savings on to the consumer as we pursue our goal to achieve price parity with animal protein in at least one of our product categories by 2024. 37 -------------------------------------------------------------------------------- Margin improvement may, however, continue to be negatively impacted by our focus on investing heavily in our business, establishing infrastructure in theU.S. , EU andChina , investing in personnel, partnerships and product pipeline, investing in our headquarters campus and expanding ourManhattan Beach Project Innovation Center, growing our customer base, volume deleveraging, aggressive pricing strategies and increased discounting, expanding into new geographies and markets, enhancing our production infrastructure, improving our innovation capabilities, enhancing our product offerings and increasing consumer engagement to apply increasing pressure on the three key levers of taste, health and cost that we believe are critical for mass adoption. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses, and share-based compensation, scale-up expenses, and depreciation and amortization expense on research and development assets. Our research and development efforts are focused on enhancements to our product formulations and production processes in addition to the development of new products. We expect to continue to invest substantial amounts in research and development, as research and development and innovation are core elements of our business strategy, and we believe they represent a critical competitive advantage for us. We believe that we need to continue to rapidly innovate in order to continue to capture a larger market share of consumerswho typically eat animal-based meats. Over time and subject to the duration, magnitude and effects of the COVID-19 pandemic, we expect these expenses to increase in absolute dollars, but to decrease as a percentage of net revenues as we continue to scale production volume. SG&A Expenses SG&A expenses consist primarily of selling, marketing and administrative expenses, including personnel and related expenses, share-based compensation, outbound shipping and handling costs, non-manufacturing lease expense, depreciation and amortization expense on non-manufacturing assets and other non-production operating expenses. Marketing and selling expenses include share-based compensation awards to brand ambassadors, advertising costs, costs associated with consumer promotions, product samples and sales aids incurred to acquire new customers, retain existing customers and build our brand awareness. Administrative expenses include the expenses related to management, accounting, legal, IT, and other office functions. We expect SG&A expenses in absolute dollars to increase as we increase our domestic and international expansion efforts, expand our marketing efforts, and incur costs related to our status as a public company. We have historically had a very small sales and marketing force. As we continue to grow, including internationally, we expect to expand our sales and marketing force to address additional opportunities, which would substantially increase our selling and marketing expense. Our administrative expenses are expected to increase as a public company with increased personnel cost in accounting, legal, IT and compliance-related functions. Restructuring Expenses InMay 2017 , management approved a plan to terminate an exclusive supply agreement with one of our co-manufacturers. See Note 3 , Restructuring, and Note 10 , Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements, included elsewhere in this report. Seasonality Generally, we expect to experience greater demand for certain of our products during the summer grilling season. In 2020, the impact of COVID-19 masked this seasonal impact. As our business continues to grow, we expect to see additional seasonality effects, especially within our retail channel, with revenue contribution from this channel tending to be greater in the second and third quarters of the year. In an environment of uncertainty from the impact of COVID-19, we are unable to assess the ultimate impact on the demand for our products as a result of seasonality. 38 --------------------------------------------------------------------------------
Results of Operations The following table sets forth selected items in our condensed consolidated statements of operations for the periods presented:
Three Months Ended
April 3, March 28,
(in thousands) 2021 2020
Net revenues $ 108,164 $ 97,074
Cost of goods sold 75,456 59,383
Gross profit 32,708 37,691
Research and development expenses 15,925 6,194
Selling, general and administrative expenses 38,954 27,315
Restructuring expenses 2,474 2,373
Total operating expenses 57,353 35,882
(Loss) income from operations $ (24,645)
The following table presents selected items in our condensed consolidated
statements of operations as a percentage of net revenues for the periods
presented:
Three Months Ended
April 3, March 28,
2021 2020
Net revenues 100.0 % 100.0 %
Cost of goods sold 69.8 61.2
Gross profit 30.2 38.8
Research and development expenses 14.7 6.4
Selling, general and administrative expenses 36.0 28.1
Restructuring expenses 2.3 2.4
Total operating expenses 53.0 37.0
(Loss) income from operations (22.8) % 1.9 %
Three Months Ended April 3, 2021 Compared to Three Months Ended March 28, 2020
(unaudited)
Net Revenues
Net revenues increased by $11.1 million , or 11.4%, in the three months ended
April 3, 2021 , as compared to the prior-year period primarily due to an increase
in volume sold, partially offset by lower net price per pound driven by our
strategic investments in promotional activity intended to encourage greater
consumer trial and adoption and, to a lesser extent, product mix shifts as
larger-pack items carrying a lower net price per unit volume accounted for a
greater proportion of our retail net revenues compared to the prior-year period.
Growth in net revenues was primarily due to increased retail channel sales,
resulting from retail distribution gains, higher sales velocities at existing
retail customers, and contribution from new product introductions. The increase
in retail channel sales was largely offset by a decline in foodservice channel
sales as a result of the continued impact of COVID-19 on foodservice demand
levels.
39
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The following table presents our net revenues by channel in the three months
ended
Three Months Ended Change
April 3, March 28,
(in thousands) 2021 2020 Amount %
U.S. :
Retail $ 63,826 $ 49,923 $ 13,903 27.8 %
Foodservice 16,742 22,631 (5,889) (26.0) %
U.S. net revenues 80,568 72,554 8,014 11.0 %
International:
Retail 17,199 5,952 11,247 189.0 %
Foodservice 10,397 18,568 (8,171) (44.0) %
International net revenues 27,596 24,520 3,076 12.5 %
Net revenues $ 108,164 $ 97,074 $ 11,090 11.4 %
Net revenues from U.S. retail sales in the three months ended April 3, 2021
increased $13.9 million , or 27.8%, primarily due to increases in sales of Beyond
Breakfast Sausage, Beyond Meatball, Beyond Sausage and Beyond Beef.
Approximately 33% of the increase in U.S. retail sales was due to the
introduction of Beyond Meatball during the third quarter of 2020 and Beyond
Breakfast Sausage Links during the second quarter of 2020.
Net revenues from U.S. foodservice sales in the three months ended April 3, 2021
decreased $5.9 million , or 26.0%, primarily due to decreases in sales of all
product categories, principally due to the impact of COVID-19 on our foodservice
customers. Our products were available at approximately 32,000 U.S. retail
outlets and 39,000 U.S. foodservice outlets as of April 3, 2021 .
Net revenues from international retail sales in the three months ended April 3,
2021 increased $11.2 million , or 189.0%, primarily due to the increase in sales
of Beyond Burger, Beyond Sausage and Beyond Beef. Our products were available at
approximately 24,000 international retail outlets as of April 3, 2021 .
International retail outlets where our products are distributed declined in the
three month ended April 3, 2021 from the number of outlets as of December 31,
2020 due to a recent transition away from our former distribution partner in
Germany who relied heavily on discounting and limited-time placements at various
retail outlets.
Net revenues from international foodservice sales in the three months ended
April 3, 2021 decreased $8.2 million , or 44.0%, primarily due to the impact of
COVID-19 on our foodservice customers. Our products were available at
approximately 23,000 international foodservice outlets as of April 3, 2021 .
The following table presents consolidated volume of our products sold in pounds
for the periods presented:
Three Months Ended Change
April 3, March 28,
(in thousands) 2021 2020 Amount %
U.S.:
Retail 11,128 8,446 2,682 31.8 %
Foodservice 2,882 4,066 (1,184) (29.1) %
International:
Retail 2,959 828 2,131 257.4 %
Foodservice 2,003 3,312 (1,309) (39.5) %
Volume of products sold 18,972 16,652 2,320 13.9 %
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Cost of Goods Sold
Three Months Ended Change
April 3, March 28,
(in thousands) 2021 2020 Amount %
Cost of goods sold $ 75,456 $ 59,383 $ 16,073 27.1 %
Cost of goods sold increased by $16.1 million , or 27.1%, to $75.5 million , in
the three months ended April 3, 2021 as compared to the prior-year period. Cost
of goods sold in the three months ended April 3, 2021 increased to 69.8% from
61.2% of net revenues in the prior-year period. The increase in cost of goods
sold was primarily due to an increase in the volume of products sold, higher
warehousing costs, higher depreciation and amortization expense, and higher
in-bound and internal shipping and handling costs.
Gross Profit and Gross Margin
Three Months Ended Change
April 3, March 28,
(in thousands) 2021 2020 Amount %
Gross profit $32,708 $37,691 $(4,983) (13.2)%
Gross margin 30.2% 38.8% (860) bps N/A
Gross profit in the three months ended April 3, 2021 was $32.7 million as
compared to gross profit of $37.7 million in the prior-year period, a decline of
$5.0 million . Gross margin in the three months ended April 3, 2021 declined to
30.2% from 38.8% in the prior-year period. The decline in gross profit and gross
margin in the three months ended April 3, 2021 was primarily due to higher
inbound and internal shipping and handling costs driven by higher lane rates, an
increase in warehousing costs driven by higher inventory levels particularly for
pea protein, lower net price realization as a result of higher trade discounts
and product mix shifts, higher depreciation and amortization expense primarily
attributable to incremental fixed assets associated with the Company's
production facilities in Pennsylvania , the Netherlands and China , and increased
fixed overhead costs due to the Company's recent acquisition of a former
co-manufacturing partner and increase in assets in the Company's international
subsidiaries. As disclosed in Note 2 , Summary of Significant Accounting
Policies-Shipping and Handling Costs, in the Notes to Unaudited Condensed
Consolidated Financial Statements included elsewhere in this report, we include
outbound shipping and handling costs within SG&A expenses. As a result, our
gross profit and gross margin may not be comparable to other entities that
present shipping and handling costs as a component of cost of goods sold.
Research and Development Expenses
Three Months Ended Change
April 3, March 28,
(in thousands) 2021 2020 Amount %
Research and development expenses $ 15,925 $ 6,194 $ 9,731 157.1 %
Research and development expenses increased $9.7 million , or 157.1%, in the
three months ended April 3, 2021 , as compared to the prior-year period. Research
and development expenses increased to 14.7% of net revenues in the three months
ended April 3, 2021 from 6.4% of net revenues in the prior-year period primarily
due to a 59% increase in headcount, higher scale-up expenses and higher
depreciation and amortization expense compared to the prior-year period.
41
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SG&A Expenses
Three Months Ended Change
April 3, March 28,
(in thousands) 2021 2020
Amount %
Selling, general and administrative expenses
SG&A expenses increased$11.6 million , or 42.6%, in the three months endedApril 3, 2021 to 36.0% of net revenues in the three months endedApril 3, 2021 , from 28.1% of net revenues in the prior-year period. The increase in SG&A expenses was primarily due to$8.5 million in higher salaries and related expenses resulting from higher headcount,$1.8 million in higher share-based compensation expense,$1.7 million in higher outbound freight costs and$0.9 million in higher general insurance costs, partially offset by$1.1 million in lower product donations and$0.6 million in lower legal fees. The increase in share-based compensation expense in the three months endedApril 3, 2021 was primarily due to substantially higher staffing levels and to a lesser extent due to the appreciation in our stock price as compared to the prior-year period. Restructuring Expenses As a result of the termination inMay 2017 of an exclusive supply agreement with one of our co- manufacturers due to non-performance under the agreement, we recorded restructuring expenses of$2.5 million and$2.4 million in the three months endedApril 3, 2021 andMarch 28, 2020 , respectively. The restructuring expenses were primarily related to legal and other expenses associated with the dispute. As ofApril 3, 2021 andDecember 31, 2020 , there were$2.4 million and$0.8 million , respectively, in accrued and unpaid restructuring expenses. We continue to incur legal fees and other costs in connection with our ongoing efforts to resolve this dispute. See Note 3 , Restructuring, and Note 10 , Commitments and Contingencies to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. (Loss) Income from Operations Loss from operations in the three months endedApril 3, 2021 was$24.6 million compared to income from operations of$1.8 million in the prior-year period. The decrease in income from operations in the three months endedApril 3, 2021 was primarily driven by lower gross profit, growth in overall headcount levels primarily to support increased innovation capabilities and international growth, increased production trial activities, higher share-based compensation expense and higher freight costs included in our selling expenses compared to the prior-year period. Total Other Expense (Income) Total other expense, net in the three months endedApril 3, 2021 of$2.2 million consisted primarily of$1.0 million in costs associated with early extinguishment of our revolving credit facility,$0.6 million in interest expense on our bank debt including$0.3 million in amortization of debt issuance costs and foreign currency transaction losses of$0.3 million . Total other income of$5,000 in the prior-year period primarily included interest income, partially offset by$0.7 million in interest expense on our debt balances. Net Loss Net loss was$27.3 million in the three endedApril 3, 2021 , respectively, compared to net income of$1.8 million in the prior-year period. Net loss during the three months endedApril 3, 2021 was primarily due to lower gross profit and higher operating expenses discussed above compared to the prior-year period. 42 -------------------------------------------------------------------------------- Non-GAAP Financial Measures We use the non-GAAP financial measures set forth below in assessing our operating performance and in our financial communications. Management believes these non-GAAP financial measures provide useful additional information to investors about current trends in our operations and are useful for period-over-period comparisons of operations. In addition, management uses these non-GAAP financial measures to assess operating performance and for business planning purposes. Management also believes these measures are widely used by investors, securities analysts, rating agencies and other parties in evaluating companies in our industry as a measure of our operational performance. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. "Adjusted EBITDA" is defined as net (loss) income adjusted to exclude, when applicable, income tax expense (benefit), interest expense, depreciation and amortization expense, restructuring expenses, share-based compensation expense, expenses attributable to COVID-19, remeasurement of our warrant liability, and Other, net, including interest income, loss on extinguishment of debt and foreign currency transaction gains and losses. "Adjusted EBITDA as a % of net revenues" is defined as Adjusted EBITDA divided by net revenues. There are a number of limitations related to the use of Adjusted EBITDA and Adjusted EBITDA as a % of net revenues rather than their most directly comparable GAAP measure. Some of these limitations are: •Adjusted EBITDA excludes depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future increasing our cash requirements; •Adjusted EBITDA does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us; •Adjusted EBITDA does not reflect income tax payments that reduce cash available to us; •Adjusted EBITDA does not reflect restructuring expenses that reduce cash available to us; •Adjusted EBITDA does not reflect expenses attributable to COVID-19 that reduce cash available to us; •Adjusted EBITDA does not reflect share-based compensation expense and therefore does not include all of our compensation costs; •Adjusted EBITDA does not reflect Other, net, including loss on extinguishment of debt and foreign currency transaction gains and losses, that may increase or decrease cash available to us; and •other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. 43 --------------------------------------------------------------------------------
The following table presents the reconciliation of Adjusted EBITDA to its most comparable GAAP measure, net (loss) income, as reported (unaudited):
Three Months Ended
April 3, March 28,
(in thousands) 2021 2020
Net (loss) income, as reported $ (27,266) $ 1,815
Income tax expense (benefit) 48 (1)
Interest expense 629 705
Depreciation and amortization expense 4,326 2,583
Restructuring expenses(1) 2,474 2,373
Share-based compensation expense 7,376 5,949
Expenses attributable to COVID-19(2) - 1,175
Other, net(3) 1,570 (710)
Adjusted EBITDA $ (10,843) $ 13,889 Net (loss) income as a % of net revenues (25.2) % 1.9 % Adjusted EBITDA as a % of net revenues
(10.0) % 14.3 %
____________
(1) Primarily comprised of legal and other expenses associated with the dispute with a
co-manufacturer with whom an exclusive supply agreement was terminated in
April 3, 2021 . Liquidity and Capital Resources Convertible Senior Notes OnMarch 5, 2021 , we issued$1.0 billion aggregate principal amount of our 0% Convertible Senior Notes due 2027 (the "Convertible Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. OnMarch 12, 2021 , the initial purchasers of the Convertible Notes exercised their option to purchase an additional$150.0 million aggregate principal amount of the Company's 0% Convertible Senior Notes due 2027 (the "Additional Notes" and, together with the Convertible Notes, the "Notes"), and such Additional Notes were issued onMarch 16, 2021 . The initial conversion price of the Notes is$206.00 , which represents a premium of approximately 47.5% over the closing price of our common stock onMarch 2, 2021 . The Notes will mature onMarch 15, 2027 , unless earlier repurchased, redeemed or converted. The Notes were issued pursuant to, and are governed by, an indenture (the "Indenture"), dated as ofMarch 5, 2021 , between the Company andU.S. Bank National Association , as trustee. We used$84.0 million of the net proceeds from the sale of the Notes to fund the cost of entering into capped call transactions. The net proceeds from the issuance of the Notes were approximately$1.0 billion , net of capped call transaction costs of$84.0 million and debt issuance costs totaling$23.6 million . See Note 7 , Debt, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Revolving Credit Facility OnMarch 2, 2021 , we terminated our secured revolving credit agreement, dated as ofApril 21, 2020 (the "Credit Agreement"), among the Company, as borrower, the lenders party thereto andJPMorgan Chase Bank, N.A ., as the administrative agent, and in connection with such termination: (i) all borrowings outstanding under the Credit Agreement were repaid in full by the Company; and (ii) all liens and security interests under the Credit Agreement in favor of the lenders thereunder were released. See Note 7 , Debt, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. 44 --------------------------------------------------------------------------------
Liquidity
Our primary cash needs are for operating expenses, working capital and capital expenditures to support the growth in our business. InMarch 2021 , we issued$1,150.0 million in aggregate principal amount of Notes as discussed above. As ofApril 3, 2021 , we had$1,125.0 million in cash and cash equivalents. We believe that our cash and cash equivalents and cash flow from operating activities will be sufficient to fund our working capital and meet our anticipated capital requirements for the next 12 months. Additionally, we may also raise funds by issuing debt or equity securities. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including the impact of the COVID-19 global pandemic; the number and characteristics of any additional products or manufacturing processes we develop or acquire to serve new or existing markets; our investment in and build out of our campus headquarters; the expenses associated with our marketing initiatives; our investment in manufacturing and facilities to expand our manufacturing and production capacity; the costs required to fund domestic and international growth; the scope, progress, results and costs of researching and developing future products or improvements to existing products or manufacturing processes; any lawsuits related to our products or commenced against us, including the costs associated with our current litigation with a former co-manufacturer, the putative class action cases brought against us, and the shareholder derivative lawsuits putatively brought on our behalf; the expenses needed to attract and retain skilled personnel; the costs associated with being a public company; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing intellectual property claims, including litigation costs and the outcome of such litigation; and the timing, receipt and amount of sales of, or royalties on, any future approved products, if any. Cash Flows In the three months endedApril 3, 2021 , approximately$48.1 million in aggregate expenditures to purchase inventory and property, plant and equipment and approximately$3.9 million in other cash outflows from operating, investing and financing activities were funded by net borrowings, after repaying the entire balance of the revolving credit facility, of$1,017.9 million . The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods indicated. Three Months Ended April 3, March 28, (in thousands) 2021 2020 Cash (used in) provided by: Operating activities$ (30,657) $ (17,202) Investing activities$ (23,381) $ (13,362) Financing activities$ 1,019,913 $ 986 Net Cash Used in Operating Activities In the three months endedApril 3, 2021 , we incurred a net loss of$27.3 million which was the primary reason for net cash used in operating activities of$30.7 million . Net cash outflows from changes in our operating assets and liabilities was$17.6 million , primarily due to the increase in finished goods inventory. The cash outflows from an increase in inventory was partially offset by the increase in accrued expenses and other current liabilities. Net loss in the three months endedApril 3, 2021 included$14.2 million in non-cash expenses primarily comprised of share-based compensation expense and depreciation and amortization expense. In the three months endedMarch 28, 2020 , we recorded net income of$1.8 million . The primary reason for net cash used in operating activities of$17.2 million was$28.1 million in net cash outflows from changes in our operating assets and liabilities, primarily due to increase in inventory to meet growth in anticipated sales and to accommodate longer lead times for international shipments and prepayments to one of our pea protein suppliers, partially offset by the increase in accounts payable. Net income in the three months endedMarch 28 , 45 -------------------------------------------------------------------------------- 2020 included$9.0 million in non-cash expenses primarily comprised of depreciation and amortization expense and share-based compensation expense. Depreciation and amortization expense was$4.3 million and$2.6 million in the three months endedApril 3, 2021 andMarch 28, 2020 , respectively.Net Cash Used in Investing Activities Net cash used in investing activities primarily relates to capital expenditures to support our growth and investment in property, plant and equipment. In the three months endedApril 3, 2021 , net cash used in investing activities was$23.4 million and consisted of cash outflows for purchases of property, plant and equipment, primarily driven by continued investments in production equipment and facilities related to our capacity expansion initiatives and international expansion. In the three months endedMarch 28, 2020 , net cash used in investing activities was$13.4 million and consisted of$12.4 million in cash outflows for purchases of property, plant and equipment, primarily driven by growth in capital production equipment purchases related to our capacity expansion initiatives and$1.0 million in cash outflows related to property, plant and equipment purchased for sale to co-manufacturers. Net Cash Provided by Financing Activities In the three months endedApril 3, 2021 , net cash provided by financing activities was$1,019.9 million primarily from the proceeds of the Notes of$1,066.1 million and$2.9 million in proceeds from stock option exercises, partially offset by repayment of revolving credit facility of$25.0 million , debt issuance costs of$23.2 million associated with the Notes and$0.8 million in payments of minimum withholding taxes on net share settlement of equity awards, and payments under finance lease obligations. In the three months endedMarch 28, 2020 , net cash provided by financing activities was$1.0 million primarily from proceeds from stock option exercises. As ofMarch 28, 2020 , we had borrowed the entire availability of$20.0 million under the term loan facility and$6.0 million under the revolving credit facility provided bySilicon Valley Bank . Both facilities were terminated onApril 21, 2020 . Contractual Obligations and Commitments There have been no significant changes during the three months endedApril 3, 2021 to the contractual obligations disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the 2020 10-K, other than the following: Convertible Senior Notes OnMarch 5, 2021 , we issued$1.0 billion aggregate principal amount of Convertible Notes and onMarch 16, 2021 , we issued$150.0 million aggregate principal amount of Additional Notes. The proceeds from the issuance of the Notes were approximately$1.0 billion , net of capped call transaction costs of$84.0 million and debt issuance costs totaling$23.6 million . See Note 7 , Debt, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Leases OnJanuary 14, 2021 , we entered into a Lease (the "Campus Lease") withHC Hornet Way, LLC , aDelaware limited liability company (the "Landlord"), to house our headquarters offices, lab and innovation space inEl Segundo, California . The initial term of the Campus Lease is 12 years, with two renewal options, each for a period of five years. Under the terms of the Campus Lease, we will lease an aggregate of approximately 281,110 rentable square feet in a portion of a building located at888 Douglas Street ,El Segundo, California (the "Premises"), to be built out by Landlord and delivered to the Company in three phases over a 26 month period. Aggregate payments towards base rent for the Premises over the term of the lease will be approximately$159.3 million . 46 -------------------------------------------------------------------------------- We are involved in the design of the Premises during the construction phase incurring the cost of certain architectural services and design elements, and consider these as costs of tenant improvements to the Premises we expect to ultimately lease pursuant to the terms of the Campus Lease. The Landlord is providing a tenant improvement allowance equal to$100.00 per rentable square foot for each phase of the Premises (the "Tenant Improvement Allowance") to be used towards the cost of the build-out of the Premises, with the Company responsible for any build-out costs in excess of the Tenant Improvement Allowance. Neither we nor the Landlord intend or expect that the costs of tenant improvements will be consideration paid to the Landlord for the right to use the Premises that would reduce the amount of future cash lease payments required after we take possession of the Premises. We will recognize the lease assets and liabilities for each phase when the Landlord makes the underlying asset for each phase available to us. During the construction phase, we are expected to have access to the Premises to start to construct tenant improvements on the Base, Shell and Core ("BSC") Completion Date, the date on which the Landlord is expected to make the Premises available to us to construct such tenant improvements. As ofApril 3, 2021 , the BSC Completion Date had not yet occurred or been communicated to us. Therefore, we have not recognized an asset or a liability for the Campus Lease in our condensed consolidated balance sheet as ofApril 3, 2021 . Concurrent with the Company's execution of the Lease, as a security deposit, we delivered to Landlord a letter of credit in the amount of$12.5 million which amount will decrease to: (i)$6.3 million on the fifth (5th) anniversary of the Rent Commencement Date; (ii)$3.1 million on the eighth (8th) anniversary of the Rent Commencement Date; and (iii)$0 in the event the Company receives certain credit ratings; provided the Company is not then in default of its obligations under the Lease. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured.China Investment and Lease Agreement OnSeptember 22, 2020 , we and BYND JX entered into an investment agreement with the Administrative Committee (the "JX Committee") of the Jiaxing Economic &Technological Development Zone (the "JXEDZ") pursuant to which, among other things, BYND JX has agreed to make certain investments in the JXEDZ in two phases of development and we have agreed to guarantee certain repayment obligations of BYND JX under such agreement. See Note 2 , Summary of Significant Accounting Policies, elsewhere in this report. During Phase 1, the Company has agreed to invest$10.0 million in the JXEDZ through an intercompany investment in BYND JX and BYND JX has agreed to lease a facility in the JXEDZ for a minimum of two (2) years. In connection with such agreement, BYND JX entered into a factory leasing contract as ofSeptember 10, 2020 with an affiliate of the JX Committee, pursuant to which BYND JX has agreed to lease and renovate a facility in the JXEDZ and lease it for a minimum of two (2) years. As ofApril 3, 2021 , renovations in the leased facility have been substantially completed, with trial production completed in the first quarter of 2021. Full-scale end-to-end production is expected by the end of the second quarter of 2021. In the event that the Company and BYND JX determine, in their sole discretion, to proceed with the Phase 2 development in the JXEDZ, BYND JX has agreed in the first stage of Phase 2 to increase its registered capital by$30.0 million and to acquire the land use right to a state-owned land plot in the JXEDZ to conduct development and construction of a new production facility. Following the first stage of Phase 2, the Company and BYND JX may determine, in their sole discretion, to permit BYND JX to obtain a second state-owned land plot in the JXEDZ in order to construct an additional facility thereon. See Note 10 , Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Investment inThe PLANeT Partnership OnJanuary 25, 2021 , the Company entered intoThe PLANeT Partnership, LLC ("TPP"), a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack and beverage products made from plant-based protein. The Company believesTPP will allow the Company to reach more consumers by entering new product categories and distribution channels, increasing accessibility to plant-based protein around the world. For the three months endedApril 3, 2021 , the Company recognized its share of the net losses inTPP in the amount of$0.4 million . No such amounts were recognized in the three months endedMarch 28, 2020 . 47 -------------------------------------------------------------------------------- Purchase Commitments As ofApril 3, 2021 , we had a commitment to purchase pea protein inventory totaling$141.9 million , approximately$83.4 million in the remainder of 2021 and$58.5 million in 2022. In addition, as ofApril 3, 2021 , we had approximately$21.7 million in purchase order commitments for capital expenditures primarily to purchase machinery and equipment. Payments for these purchases will be due within twelve months. We intend to use cash from operations to fund these purchase commitments. Off-balance Sheet Arrangements We do not have any off-balance sheet arrangements or any holdings in variable interest entities. Critical Accounting Policies In preparing our financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs and expenses, and disclosure of contingent assets and liabilities that are reported in the financial statements and accompanying disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates and assumptions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. There have been no material changes in our critical accounting policies during the three months endedApril 3, 2021 , as compared to those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in the 2020 10-K other than as described in Note 2 , Summary of Significant Accounting Policies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report. Emerging Growth Company Status EffectiveDecember 31, 2020 , we lost our EGC status and are now categorized as a Large Accelerated Filer based upon the current market capitalization of the Company according to Rule 12b-2 of the Exchange Act. As a result, we must comply with all financial disclosure and governance requirements applicable to Large Accelerated Filers. Recent Accounting Pronouncements Please refer to Note 2 , Summary of Significant Accounting Policies, to the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for a discussion of recently adopted accounting pronouncements and new accounting pronouncements that may impact us. 48
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