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 and six months endedJuly 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. OverviewBeyond 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 those who 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 ofJune 2021 , our products were available at approximately 119,000 retail and foodservice outlets in more than 80 countries worldwide, across mainstream grocery, mass merchandiser, club store, 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. In the second quarter of 2021, this facility completed commercial trial runs for dry blend production and began commercial trial runs for our extruded product which is expected to be completed by the end of the third 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 in the Jiaxing Economic &Technological Development Zone to manufacture plant-based meat products under the Beyond Meat brand inChina . Renovations in the leased facility were substantially completed and trial production began in the first quarter of 2021. In the second quarter of 2021, several commercial trials of certain of our manufacturing processes were completed. Full-scale end-to-end production is expected by the end 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. 34 -------------------------------------------------------------------------------- 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-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 per share of common stock, 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 endedJuly 3, 2021 include the accounts of the Company and its foreign subsidiaries,Beyond Meat EU B.V. ,BYND JX and Beyond Meat Canada Inc. 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 were lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized and various COVID-19 vaccines are being distributed, a resurgence of COVID-19 and the rising impact of various COVID-19 variants in some markets has slowed, halted or reversed the reopening process altogether. 35 -------------------------------------------------------------------------------- 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 and our Manhattan Beach Project Innovation Center remained operational, beginning inMarch 2020 employees at our corporate headquarters began working remotely. Beginning inJuly 2021 , our corporate employees returned to work and are provided a flexible working schedule of working in the office or from home depending on job responsibilities, company need and performance. At all facilities, we have implemented mandatory face coverings while indoors, comprehensive preventative hygienic measures to support the health and safety of our employees, a mandatory vaccine policy absent approved accommodations, and required weekly testing. 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. Travel and field marketing activities have resumed with instructions to adhere to COVID-19-related guidelines. All employees returning from international travel are required to quarantine for three days and provide a negative COVID-19 certificate 24 hours prior to returning onsite. Illness prevention policies have been updated company-wide to state that no employee may be onsite when experiencing any symptom of illness. Employees must remain home when sick and may not return onsite until symptom-free and must provide a negative COVID-19 certificate 24-hours prior to returning. For the first half of 2021, we generated foodservice channel net revenues of$70.8 million compared to$54.9 million in the first half of 2020. Foodservice channel net revenues have been improving each successive quarter after the decline in the second quarter of 2020, and in the second quarter of 2021 they exceeded the level seen in the first quarter of 2020 by 6.0%. Foodservice channel net revenues in the second quarter of 2021 were$43.7 million as compared to$41.2 million in the first quarter of 2020, prior to COVID-19. Despite the apparent recovery in the foodservice channel compared to a year ago, we recognize that our anticipation of continued recovery in foodservice channel is based on the assumption that COVID-19 infection rates both in theU.S. and abroad will be reasonably contained. In response to the recent more virulent COVID-19 variants' impact 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 outlets 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 half of 2021, amid relaxed stay-at-home orders in some states, the environment remains highly uncertain given the ongoing pandemic and the resurgence of COVID-19 and its variants. For the first half of 2021, we generated retail channel net revenues of$186.8 million , representing an increase of 20.1% as compared to the first half of 2020. The increase in our net revenues in the retail channel during the first half of 2021, as compared to the prior-year period, was primarily driven by our expansion in total retail outlets and new product introductions. In the second quarter of 2021, retail channel net revenues increased$6.1 million , or 6.2%, as compared to the second quarter of 2020, when we experienced a surge in retail demand amid panic buying in response to COVID-19. For the six months endedJuly 3, 2021 , our retail and foodservice channels accounted for approximately 72.5% and 27.5% of our net revenues, respectively, as compared to approximately 73.9% and 26.1% of our net revenues, respectively, in the six months endedJune 27, 2020 . Although we experienced a recovery in foodservice channel net revenues in the first half of 2021, the resurgence of COVID-19 and its variants and the resulting changes in the marketplace are likely to continue to cause fluctuation in our quarterly results, including in the mix of our distribution channels. 36 -------------------------------------------------------------------------------- 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. While the ultimate health and economic impact of COVID-19 continues to be highly uncertain, we acknowledge that our business operations and results of operations, including our net revenues, gross profit, gross margin, earnings and cash flows, could be adversely impacted through 2021 and likely into 2022, including as a result of: •weak demand in the foodservice channel due to the ongoing impact of COVID-19, including the resurgence of COVID-19 and its variants, despite the resumption of customer traffic in foodservice establishments;
•increased unit cost of goods sold due to lower production volumes in response to weaker demand, which would adversely impact coverage of fixed production costs within our manufacturing facilities;
•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 customers who 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, debt levels and inflation; •reduced confidence by our foodservice partners due to the resurgence of COVID-19 and its variants, as well as reimplementation of safety measures in certain jurisdictions and its potential impact on customer demand levels; •further foodservice customer closures (including re-closures in connection with resurgences of COVID-19) or further reduced operations, as well as foodservice labor challenges; •our ability to introduce new foodservice products as QSR and other partners look to simplify menu offerings as a result of the pandemic; •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. Environmental, Social and Governance As a disruptive leader in the food industry, the Company has established itself as a leading producer of plant-based protein 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. 37 -------------------------------------------------------------------------------- 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 store, 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 store, 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, purchase frequency 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, the recent launches of the latest iteration of our Beyond Burger and Beyond Chicken Tenders across our plant-based platforms that appeal to a broad range of consumers, specifically those who 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 to support product development and category management, and drive consumer adoption of our products, including, for example, our billboard campaign, food truck tours in selected cities, our first Reddit AMA, our presence onTikTok , our NBA Twitter campaign during the NBA finals, 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 incentivize consumer trial, and a robust Spotify podcast 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 38 -------------------------------------------------------------------------------- •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 ofJune 2021 . In addition to our own production facilities, we use co-manufacturers in various locations inthe United States ,Canada andthe Netherlands . International net revenues increased 187.1% and 83.6%, respectively, in the three and six months endedJuly 3, 2021 , as compared to the prior-year periods. The increase in net revenues was primarily due to growth in sales to retail channel customers, mainly as a result of increased sales velocities, new product introductions and increased distribution, and, to a lesser extent, the recovery in foodservice channels from the severe impact of COVID-19 that we experienced in the second quarter of 2020. 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), the rising impact of COVID-19 variants, the wide distribution and public acceptance 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. Although our foodservice channel net revenues showed recovery in the second quarter of 2021 from the severely depressed levels seen in the second quarter of the prior year, there is uncertainty related to the COVID-19 infection rates, as well as the reimplementation of safety measures in certain jurisdictions, and potential impact on customer demand levels. 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. 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 more trade and promotion discounts to both our retail and foodservice customers to drive increased consumer trial and in response to COVID-19, and in response to increased competition. 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$4.1 million and$3.6 million as ofJuly 3, 2021 andDecember 31, 2020 , respectively. In the absence of offsetting measures, 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 39 -------------------------------------------------------------------------------- channels through which our products are sold, causing variability in our results. Similarly, the timing of retail shelf resets are not within our control, and to the extent that retail customers change the timing of such events, variability of our results may also increase. 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 and indirect labor and certain supply costs, co-manufacturing fees, in-bound and internal shipping and handling costs incurred in manufacturing our products, warehouse storage fees, 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 in-house manufacturing facilities inColumbia, Missouri ,Devault, Pennsylvania ,the Netherlands andChina , while expanding our co-manufacturing capacity and exploring additional production facilities domestically and abroad. As a result of 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 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. 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 by applying 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, 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 consumers who 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. 40 -------------------------------------------------------------------------------- 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 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 greater outbound shipping and handling costs as our revenues increase. 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 with increased personnel cost in accounting, finance, 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 2021,U.S. retail channel net revenues during the second quarter were 21% higher than the first quarter. 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. Results of Operations The following table sets forth selected items in our condensed consolidated statements of operations for the periods presented: Three Months Ended Six Months Ended July 3, June 27, July 3, June 27, (in thousands) 2021 2020 2021 2020 Net revenues$ 149,426 $ 113,338 $ 257,590 $ 210,412 Cost of goods sold 102,074 79,687 177,530 139,070 Gross profit 47,352 33,651 80,060 71,342 Research and development expenses 13,823 6,016 29,748 12,210 Selling, general and administrative expenses 48,286 34,292 87,240 61,607 Restructuring expenses 3,844 1,509 6,318 3,882 Total operating expenses 65,953 41,817 123,306 77,699 Loss from operations$ (18,601) $ (8,166) $ (43,246) $ (6,357) 41
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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 Six Months Ended
July 3, June 27, July 3, June 27,
2021 2020 2021 2020
Net revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 68.3 70.3 68.9 66.1
Gross profit 31.7 29.7 31.1 33.9
Research and development expenses 9.3 5.3 11.5 5.8
Selling, general and administrative
expenses 32.3 30.3 33.9 29.3
Restructuring expenses 2.6 1.3 2.5 1.8
Total operating expenses 44.2 36.9 47.9 36.9
Loss from operations (12.5) % (7.2) % (16.8) % (3.0) %
Three and Six Months Ended July 3, 2021 Compared to Three and Six Months Ended
June 27, 2020
Net Revenues
Net revenues increased by $36.1 million , or 31.8%, in the three months ended
July 3, 2021 , as compared to the prior-year period primarily due to an increase
in volume sold. Growth in net revenues was primarily due to increased
foodservice channel sales reflecting ongoing recovery from the reduced demand
levels brought on by the COVID-19 pandemic, increased average revenue per
customer and contribution from new product introductions. Net revenues from
retail channel sales increased primarily due to increased distribution outlets
and higher international retail channel sales, partially offset by lower U.S.
retail channel sales compared to the year-ago period, which benefited from
consumer stockpiling behavior at the onset of the pandemic. Net revenues in the
second quarter of 2021 also benefited from the quarter ending on July 3rd , which
is later than the prior-year period, which ended on June 27th . The later ending
of the second quarter resulted in more high sales volume days leading up to the
July 4th holiday in the U.S. being captured in the second quarter of 2021, which
may impact net revenues in the third quarter of 2021 negatively when compared to
the prior-year period. In aggregate, net price per pound during the second
quarter of 2021 remained approximately flat compared to the prior-year period.
The following table presents our net revenues by channel in the three months
ended July 3, 2021 as compared to the prior-year period:
Three Months Ended Change
July 3, June 27,
(in thousands) 2021 2020 Amount %
U.S.:
Retail $ 77,195 $ 90,040 $ (12,845) (14.3) %
Foodservice 23,961 6,486 17,475 269.4 %
U.S. net revenues 101,156 96,526 4,630 4.8 %
International:
Retail 28,544 9,572 18,972 198.2 %
Foodservice 19,726 7,240 12,486 172.5 %
International net revenues 48,270 16,812 31,458 187.1 %
Net revenues $ 149,426 $ 113,338 $ 36,088 31.8 %
Net revenues from U.S. retail channel sales in the three months ended July 3,
2021 decreased $12.8 million , or 14.3%, primarily due to decreases in sales of
the Beyond Burger, Beyond Beef, Beyond Sausage
42
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and Beyond Beef Crumble, as compared to the three months ended June 27, 2020 ,
which benefited from consumer stockpiling behavior brought on by the onset of
COVID-19. Decreased sales in the aforementioned products were partially offset
by increases in sales of Beyond Meatball and Beyond Breakfast Sausage, which
were introduced during the third and second quarter of 2020, respectively. Our
products were available at approximately 34,000 U.S. retail outlets as of June
2021 .
Net revenues from U.S. foodservice channel sales in the three months ended
July 3, 2021 increased $17.5 million , or 269.4%, from the three months ended
June 27, 2020 , when the severe impact of COVID-19 on our foodservice customers
was first recorded. Net revenues from U.S. foodservice channel sales increased
due to increases in sales of all product categories, primarily the Beyond
Burger. Our products were available at approximately 34,000 U.S. foodservice
outlets as of June 2021 .
Net revenues from international retail channel sales in the three months ended
July 3, 2021 increased $19.0 million , or 198.2%, primarily due to the increase
in sales of the Beyond Burger, Beyond Sausage and Beyond Beef. Our products were
available at approximately 29,000 international retail outlets as of June 2021 .
Net revenues from international foodservice channel sales in the three months
ended July 3, 2021 increased $12.5 million , or 172.5%, recovering from a
COVID-19-impacted prior period, primarily due to the increase in sales of the
Beyond Burger. Our products were available at approximately 22,000 international
foodservice outlets as of June 2021 .
Net revenues increased by $47.2 million , or 22.4%, in the six months ended
July 3, 2021 , as compared to the prior-year period primarily due to an increase
in volume sold. There were four additional shipping days in the six months ended
July 3, 2021 compared to the six months ended June 27, 2020 . Net revenues
increased both in the retail channel and foodservice channel. Percentage change
in foodservice channel net revenues was significantly higher reflecting ongoing
recovery from the reduced demand levels of the prior-year period brought on by
the COVID-19 pandemic, the higher number of shipping days, increased average
revenue per customer and contribution from new product introductions, partially
offset by lower net price per pound driven by our strategic investments in
promotional activity intended to encourage greater consumer trial and adoption.
Net revenues from retail channel sales increased primarily due to increased
distribution outlets, higher international retail channel sales and additional
number of shipping days compared to the year-ago period.
The following table presents our net revenues by channel in the six months ended
July 3, 2021 as compared to the prior-year period:
Six Months Ended Change
July 3, June 27,
(in thousands) 2021 2020 Amount %
U.S.:
Retail $ 141,021 $ 139,963 $ 1,058 0.8 %
Foodservice 40,703 29,117 11,586 39.8 %
U.S. net revenues 181,724 169,080 12,644 7.5 %
International:
Retail 45,743 15,524 30,219 194.7 %
Foodservice 30,123 25,808 4,315 16.7 %
International net revenues 75,866 41,332 34,534 83.6 %
Net revenues $ 257,590 $ 210,412 $ 47,178 22.4 %
43-------------------------------------------------------------------------------- Net revenues fromU.S. retail channel sales in the six months endedJuly 3, 2021 increased$1.1 million , or 0.8%, as compared to the six months endedJune 27, 2020 , when the COVID-19-impacted panic buying was evident. The increase inU.S. retail channel net revenues was primarily due to increases in sales of Beyond Breakfast Sausage and Beyond Meatball, which were introduced during the third and second quarter of 2020, respectively, partially offset by the decrease in sales of the Beyond Burger, Beyond Beef and Beyond Beef Crumble. Net revenues fromU.S. foodservice channel sales in the six months endedJuly 3, 2021 increased$11.6 million , or 39.8%, from the six months endedJune 27, 2020 , when the severe impact of COVID-19 on our foodservice customers was first recorded, due to increases in sales of the Beyond Burger, Beyond Beef, Beyond Sausage and Beyond Breakfast Sausage. Net revenues from international retail channel sales in the six months endedJuly 3, 2021 increased$30.2 million , or 194.7%, due to the increase in sales of all products, primarily the Beyond Burger, Beyond Sausage, Beyond Beef and Beyond Meatball. Net revenues from international foodservice channel sales in the six months endedJuly 3, 2021 increased$4.3 million , or 16.7%, primarily due to increases in sales of the Beyond Burger and Beyond Beef Crumble, partially offset by a decrease in sales of Beyond Beef. The following table presents consolidated volume of our products sold in pounds for the periods presented: Three Months Ended Change Six Months Ended Change July 3, June 27, July 3, June 27, (in thousands) 2021 2020 Amount % 2021 2020 Amount % U.S.: Retail 13,834 15,211 (1,377) (9.1) % 24,962 23,657 1,305 5.5 % Foodservice 4,002 1,366 2,636 193.0 % 6,884 5,432 1,452 26.7 % International: Retail 4,775 1,882 2,893 153.7 % 7,734 2,710 5,024 185.4 % Foodservice 3,666 1,458 2,208 151.4 % 5,669 4,770 899 18.8 % Volume of products sold 26,277 19,917 6,360 31.9 % 45,249 36,569 8,680 23.7 %
Cost of Goods Sold
Three Months Ended Change Six Months Ended Change
July 3, June 27, July 3, June 27,
(in thousands) 2021 2020 Amount % 2021 2020 Amount %
Cost of goods sold $ 102,074 $ 79,687 $ 22,387 28.1 % $ 177,530 $ 139,070 $ 38,460 27.7 %
Cost of goods sold increased by $22.4 million , or 28.1%, to $102.1 million , in
the three months ended July 3, 2021 as compared to the prior-year period. Cost
of goods sold as a percentage of net revenues in the three months ended July 3,
2021 decreased to 68.3% from 70.3% of net revenues in the prior-year period.
Cost of goods sold in the three months ended June 27, 2020 included $5.9 million
attributable to product repacking activities due to COVID-19 which were absent
in the three months ended July 3, 2021 . Excluding the product repacking
activities attributable to COVID-19 in the prior-year period, cost of goods sold
as a percentage of net revenues in the three months ended July 3, 2021 increased
from 65.1% of net revenues in the prior-year period to 68.3% of net revenues in
the three months ended July 3, 2021 . The increase in cost of goods sold was
primarily due to an increase in the volume of products sold, higher fixed
overhead costs,
44
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increased transportation costs, and higher depreciation and amortization
expense, partially offset by lower direct materials cost.
Cost of goods sold increased by $38.5 million , or 27.7%, to $177.5 million , in
the six months ended July 3, 2021 as compared to the prior-year period. As a
percentage of net revenues, cost of goods sold in the six months ended July 3,
2021 increased to 68.9% from 66.1% 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 and higher overhead costs, higher transportation costs and higher
depreciation and amortization expense, partially offset by lower direct
materials cost. Cost of goods sold in the six months ended June 27, 2020
included $5.9 million associated with product repacking activities due to
COVID-19 which were absent in the six months ended July 3, 2021 .
Gross Profit and Gross Margin
Three Months Ended Change Six Months Ended Change
July 3, June 27, July 3, June 27,
(in thousands) 2021 2020 Amount % 2021 2020 Amount %
Gross profit $47,352 $33,651 $13,701 40.7% $80,060 $71,342 $8,718 12.2%
Gross margin 31.7% 29.7% 200 bps N/A 31.1% 33.9% (280) bps N/A
Gross profit in the three months ended July 3, 2021 was $47.4 million as
compared to gross profit of $33.7 million in the prior-year period, an increase
of $13.7 million . Gross margin in the three months ended July 3, 2021 increased
to 31.7% from 29.7% in the prior-year period. Gross profit and gross margin in
the prior-year period included $5.9 million in costs associated with product
repacking activities due to COVID-19, which were absent in the three months
ended July 3, 2021 . The increase in gross profit was primarily due to the
increase in net revenues and the absence of costs attributable to product
repacking activities. The increase in gross margin was primarily due to the
absence of COVID-19-related expenses and lower direct materials costs, partially
offset by higher fixed overhead costs, increased transportation costs, and
higher depreciation and amortization expense primarily attributable to
incremental fixed assets.
Gross profit in the six months ended July 3, 2021 was $80.1 million as compared
to gross profit of $71.3 million in the prior-year period, an increase of $8.7
million . Gross margin in the six months ended July 3, 2021 declined to 31.1%
from 33.9% in the prior-year period. Gross profit and gross margin in the
prior-year period included $5.9 million in costs associated with product
repacking activities due to COVID-19, which were absent in the six months ended
July 3, 2021 . The increase in gross profit was primarily due to higher net
revenues and the absence of COVID-19-related expenses. The decrease in gross
margin was primarily due to higher production overhead costs, higher
transportation costs, and higher depreciation and amortization expense primarily
attributable to incremental fixed assets, partially offset by the absence of
lower direct materials cost and COVID-19-related expenses.
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.
45
--------------------------------------------------------------------------------Research and Development Expenses
Three Months Ended Change Six Months Ended Change
July 3, June 27, July 3, June 27,
(in thousands) 2021 2020 Amount % 2021 2020 Amount %
Research and
development expenses $ 13,823 $ 6,016 $ 7,807 129.8 % $ 29,748 $ 12,210 $ 17,538 143.6 %
Research and development expenses increased $7.8 million , or 129.8%, in the
three months ended July 3, 2021 , as compared to the prior-year period. Research
and development expenses increased to 9.3% of net revenues in the three months
ended July 3, 2021 from 5.3% of net revenues in the prior-year period primarily
due to a 67% increase in headcount, higher scale-up expenses and higher
depreciation and amortization expense compared to the prior-year period.
Research and development expenses increased $17.5 million , or 143.6%, in the six
months ended July 3, 2021 , as compared to the prior-year period. Research and
development expenses increased to 11.5% of net revenues in the six months ended
July 3, 2021 from 5.8% of net revenues in the prior-year period primarily due to
a 77% increase in headcount, higher scale-up expenses and higher depreciation
and amortization expense compared to the prior-year period.
SG&A Expenses
Three Months Ended Change Six Months Ended Change
July 3, June 27, July 3, June 27,
(in thousands) 2021 2020 Amount % 2021 2020 Amount %
Selling, general and
administrative expenses $ 48,286 $ 34,292 $ 13,994 40.8 % $ 87,240 $ 61,607 $ 25,633 41.6 %
SG&A expenses increased $14.0 million , or 40.8%, in the three months ended
July 3, 2021 to 32.3% of net revenues in the three months ended July 3, 2021 ,
from 30.3% of net revenues in the prior-year period. The increase in SG&A
expenses was primarily due to $7.4 million in higher salaries and related
expenses resulting from higher headcount, $3.4 million in higher marketing
programs-related expenses, $1.7 million in higher outbound freight costs, $0.8
million in higher share-based compensation expense, and $0.7 million in higher
general insurance costs, partially offset by $1.5 million in lower product
donations and $0.2 million in lower legal fees. The increase in share-based
compensation expense in the three months ended July 3, 2021 was primarily due to
the substantially higher staffing levels as compared to the prior-year period.
SG&A expenses increased $25.6 million , or 41.6%, in the six months ended July 3,
2021 to 33.9% of net revenues in the six months ended July 3, 2021 , from 29.3%
of net revenues in the prior-year period. The increase in SG&A expenses was
primarily due to $15.9 million in higher salaries and related expenses resulting
from higher headcount, $3.4 million in higher outbound freight costs, $3.2
million in higher marketing programs-related expenses, $2.6 million in higher
share-based compensation expense, and $1.7 million in higher general insurance
costs, partially offset by $2.7 million in lower product donations and $0.8
million in lower legal fees. The increase in share-based compensation expense in
the six months ended July 3, 2021 was primarily due to substantially higher
staffing levels as compared to the prior-year period.
Restructuring Expenses
As a result of the termination in May 2017 of an exclusive supply agreement with
one of our co- manufacturers due to non-performance under the agreement, we
recorded restructuring expenses of $3.8 million and $1.5 million in the three
months ended July 3, 2021 and June 27, 2020 , respectively, and $6.3 million and
$3.9 million in the six months ended July 3, 2021 and June 27, 2020 ,
respectively. The
46
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restructuring expenses were primarily related to legal and other expenses
associated with the dispute. As of July 3, 2021 and December 31, 2020 , there
were $2.6 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 from Operations
Loss from operations in the three months ended July 3, 2021 was $18.6 million
compared to $8.2 million in the prior-year period. The increase in loss from
operations in the three months ended July 3, 2021 was primarily driven by growth
in overall headcount levels primarily to support international growth and
increased innovation capabilities, increased investments in marketing, increased
production trial activities, higher restructuring expenses reflecting increased
legal costs and higher freight costs included in our selling expenses compared
to the prior-year period, partially offset by higher gross profit. In addition,
loss from operations in the prior-year period included $7.5 million in expenses
attributable to COVID-19 which were absent in the three months ended July 3,
2021 .
Loss from operations in the six months ended July 3, 2021 was $43.2 million
compared to $6.4 million in the prior-year period. The increase in loss from
operations in the six months ended July 3, 2021 was primarily driven by growth
in overall headcount levels primarily to support increased international growth
and innovation capabilities, increased investments in marketing, increased
production trial activities, higher share-based compensation expense and higher
freight costs included in our selling expenses compared to the prior-year
period, partially offset by higher gross profit. In addition, loss from
operations in the prior-year period included $8.7 million in expenses
attributable to COVID-19 which were absent in the six months ended July 3, 2021 .
Total Other Expense, net
Total other expense, net in the three months ended July 3, 2021 of $0.8 million
included approximately $1.0 million in interest expense from the amortization of
convertible debt issuance costs, partially offset by $0.2 million in foreign
currency transaction gains and $0.2 million in subsidies received from the
Jiaxing Economic Development Zone Finance Bureau for our investment in BYND JX.
Total other expense of $2.0 million in the prior-year period consisted of $1.5
million in loss on extinguishment of debt related to our refinanced bank credit
facility and $0.6 million in interest expense on our debt balances.
Total other expense, net in the six months ended July 3, 2021 of $3.0 million
consisted primarily of $1.3 million in interest expense from the amortization of
convertible debt issuance costs, $1.0 million in loss on extinguishment of debt
associated with the termination of our bank credit facility, $0.1 million in
foreign currency transaction losses and $0.3 million in interest expense
associated with our bank credit facility, partially offset by $0.2 million in
subsidies received from the Jiaxing Economic Development Zone Finance Bureau for
our investment in BYND JX. Total other expense of $2.0 million in the prior-year
period primarily included $1.5 million in loss on extinguishment of debt
associated with our refinanced credit arrangements and $1.3 million in interest
expense on our debt balances, partially offset by $0.8 million in interest
income.
Net Loss
Net loss was $19.7 million and $46.9 million in the three and six months ended
July 3, 2021 , respectively, compared to net loss of $10.2 million and
$8.4 million in the prior-year periods. Net loss during the three and six months
ended July 3, 2021 was primarily due to higher operating expenses discussed
above compared to the prior-year periods.
47
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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 adjusted to exclude, when applicable,
income tax expense, interest expense, depreciation and amortization expense,
restructuring expenses, share-based compensation expense, expenses attributable
to COVID-19, 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 interest income, 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.
48
--------------------------------------------------------------------------------The following table presents the reconciliation of Adjusted EBITDA to its most comparable GAAP measure, net loss, as reported (unaudited):
Three Months Ended Six Months Ended
July 3, June 27, July 3, June 27,
(in thousands) 2021 2020 2021 2020
Net loss, as reported $ (19,652) $ (10,205) $ (46,918) $ (8,390)
Income tax expense 2 16 50 15
Interest expense 1,022 569 1,651 1,274
Depreciation and amortization expense 4,881 3,272 9,207 5,855
Restructuring expenses(1) 3,844 1,509 6,318 3,882
Share-based compensation expense 7,863 7,586 15,239 13,535
Expenses attributable to COVID-19(2) - 7,482 - 8,657
Other, net(3) (180) 1,454 1,390 744
Adjusted EBITDA $ (2,220) $ 11,683 $ (13,063) $ 25,572
Net loss as a % of net revenues (13.2) % (9.0) % (18.2) % (4.0) %
Adjusted EBITDA as a % of net revenues (1.5) % 10.3 % (5.1) % 12.2 %
____________
(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
in product donation costs related to our COVID-19 relief campaign in the three months
ended
six months ended
the Company's credit facility in the six months ended
loss on extinguishment of debt associated with the Company's refinanced credit
arrangements in the three and six months ended
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 per share of common stock, 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. 49 -------------------------------------------------------------------------------- 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. 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 ofJuly 3, 2021 , we had$1,009.3 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 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, 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 six months endedJuly 3, 2021 , approximately$96.2 million in aggregate expenditures to purchase inventory and property, plant and equipment and approximately$71.2 million in other cash outflows from operating, investing and financing activities were funded by net borrowings of$1,017.4 million , after repaying the entire balance of the revolving credit facility. The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods indicated. Six Months Ended July 3, June 27, (in thousands) 2021 2020 Cash (used in) provided by: Operating activities$ (120,445) $ (44,335) Investing activities$ (51,565) $ (28,328) Financing activities$ 1,022,074 $ 19,176 Net Cash Used in Operating Activities In the six months endedJuly 3, 2021 , we incurred a net loss of$46.9 million . The primary reason for net cash used in operating activities of$120.4 million was net cash outflows from changes in our operating assets and liabilities of$102.6 million . Net cash outflows from changes in operating assets and liabilities were primarily due to the increase in finished goods inventory, increase in accounts receivable balances and escrow payments related to the Campus Lease (see Note 10 , Commitments and Contingencies, to the Notes to Unaudited 50 -------------------------------------------------------------------------------- Condensed Consolidated Financial Statements included elsewhere in this report). The cash outflows were partially offset by the increase in accrued expenses and other current liabilities. Net loss in the six months endedJuly 3, 2021 included$29.1 million in non-cash expenses primarily comprised of share-based compensation expense and depreciation and amortization expense. In the six months endedJune 27, 2020 , we recorded a net loss of$8.4 million . The primary reason for net cash used in operating activities of$44.3 million was$58.3 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 loss in the six months endedJune 27, 2020 included$22.4 million in non-cash expenses primarily comprised of share-based compensation expense and depreciation and amortization expense. Depreciation and amortization expense was$9.2 million and$5.9 million in the six months endedJuly 3, 2021 andJune 27, 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 six months endedJuly 3, 2021 , net cash used in investing activities was$51.6 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 six months endedJune 27, 2020 , net cash used in investing activities was$28.3 million and consisted of$26.0 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, international expansion, including the acquisition of a manufacturing facility inEurope located in Enschede,the Netherlands , and$2.3 million in cash outflows related to property, plant and equipment purchased for sale to co-manufacturers which were sold by the end of the second quarter of 2020. Net Cash Provided by Financing Activities In the six months endedJuly 3, 2021 , net cash provided by financing activities was$1,022.1 million primarily from the proceeds of the Notes of$1,066.1 million and$6.5 million in proceeds from stock option exercises, partially offset by repayment of revolving credit facility of$25.0 million , debt issuance costs of$23.6 million associated with the Notes,$1.8 million in payments of minimum withholding taxes on net share settlement of equity awards and payments under finance lease obligations. In the six months endedJune 27, 2020 , net cash provided by financing activities was$19.2 million primarily from proceeds from a net increase in borrowings on our revolving credit facility and proceeds from stock option exercises, partially offset by debt issuance costs of$1.2 million associated with our new revolving credit facility, early debt extinguishment costs of$1.2 million associated with our refinanced credit arrangements,$1.2 million in payments of minimum withholding taxes on net share settlement of equity awards, and payments under finance lease obligations. Contractual Obligations and Commitments There have been no significant changes during the six months endedJuly 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 51 -------------------------------------------------------------------------------- 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 . Although we are involved in the design of the tenant improvements of the Premises, we do not have title or possession of the assets during construction. In addition, we do not have the ability to control the leased Premises until each phase of the tenant improvements is complete. As ofJuly 3, 2021 , the tenant improvements associated with Phase 1-A had not been completed, and the underlying asset had not been delivered to us. Accordingly, there was no lease commencement during the quarter endedJuly 3, 2021 . Therefore, we have not recognized an asset or a liability for the Campus Lease in our condensed consolidated balance sheet as ofJuly 3, 2021 . We contributed$26.6 million in payments to a construction escrow account during the second quarter of 2021. These payments are recorded in "Prepaid lease costs, non-current" in our condensed consolidated balance sheet as ofJuly 3, 2021 , which will ultimately be recorded as a component of a right-of-use asset upon lease commencement. We anticipate further contributions as the Landlord continues to build out the Premises and anticipate that Phase-1A will be completed and the lease commencement date will occur during the fourth quarter of 2021 or the first quarter of 2022. Concurrent with the our execution of the Campus 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 we receive certain credit ratings; provided we are not then in default of our obligations under the Campus 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, we have 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 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 years. Renovations in the leased facility were substantially completed and trial production began in the first quarter of 2021. In the second quarter of 2021, several commercial trials of certain of our manufacturing processes were completed. Full-scale end-to-end production is expected by the end of 2021. In the second quarter of 2021, we received$0.2 million in subsidies for our investment in BYND JX from theJiaxing Economic Development Zone Finance Bureau . In the event that we and BYND JX determine, in our 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, we and BYND JX may determine, in our 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. 52 -------------------------------------------------------------------------------- Purchase of Real Property Subsequent to the quarter endedJuly 3, 2021 , onJuly 15, 2021 , we purchased 12.9 acres of real property inColumbia, Missouri containing approximately 142,317 square feet of office/warehouse space, from where we had been conducting warehousing activities under a lease, for cash consideration of$10.4 million , subject to adjustment for customary prorations, transfer taxes, escrow holdbacks and other adjustments. Transaction costs were not material. We have not completed our evaluation of the accounting for this transaction. Investment inThe PLANeT Partnership 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-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. For the six months endedJuly 3, 2021 , we recognized our share of the net losses inTPP in the amount of$0.6 million . No such amounts were recognized in the six months endedJune 27, 2020 . Purchase Commitments As ofJuly 3, 2021 , we had a commitment to purchase pea protein inventory totaling$124.1 million , approximately$44.9 million in the remainder of 2021 and$79.2 million in 2022. In addition, as ofJuly 3, 2021 , we had approximately$62.3 million in purchase order commitments for capital expenditures primarily to purchase machinery and equipment. Payments for these purchases will be due within twelve months fromJuly 3, 2021 . 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 six months endedJuly 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. 53
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