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," and "Note Regarding Forward-Looking Statements" included elsewhere in this report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report, as well as the information presented under "Selected Financial Data." 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 ofDecember 31, 2020 , our products were available at approximately 122,000 retail and foodservice outlets in more than 80 countries worldwide, across mainstream grocery, mass merchandiser, club, convenience store, and natural retailer channels, and various food-away-from-home channels, including restaurants, foodservice outlets and schools. To make plant-based meat accessible to more consumers, inAugust 2020 , we launched an e-commerce site and began offering our products direct to consumers in bulk packs, mixed product bundles, limited-time offers, and trial packs. OnMay 6, 2019 , we completed our IPO, in which we sold 11,068,750 shares. The shares began trading on the Nasdaq Global Select Market onMay 2, 2019 . The shares were sold at a public offering price of$25.00 per share for net proceeds of approximately$252.4 million , after deducting underwriting discounts and commissions of$19.4 million and issuance costs of approximately$4.9 million payable by us. Upon the closing of the IPO, all outstanding shares of our convertible preferred stock automatically converted into 41,562,111 shares of common stock on a one-for-one basis, and warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for 160,767 shares of common stock. OnAugust 5, 2019 , we completed our Secondary Offering, in which we sold 250,000 shares. The shares were sold at a public offering price of$160.00 per share for net proceeds to the Company of approximately$37.4 million , after deducting underwriting discounts and commissions of$1.5 million and issuance costs of approximately$1.1 million payable by us. Total Secondary Offering costs paid in 2019 were approximately$2.2 million , of which approximately$1.1 million was capitalized to reflect the costs associated with the issuance of new shares and offset against proceeds from the Secondary Offering. We did not receive any proceeds from the sale of common stock by the selling stockholders in the Secondary Offering. The consolidated financial statements for the year endedDecember 31, 2020 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. Subsequent to the year endedDecember 31, 2020 , onJanuary 25, 2021 , we entered intoThe PLANeT Partnership, LLC , a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack and 58 -------------------------------------------------------------------------------- beverage products made from plant-based protein. We believe the joint venture will allow us to reach more consumers by entering new product categories and distribution channels, increasing accessibility to plant-based protein around the world. Our primary production facilities are located inColumbia, Missouri , 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 commenced at the end of 2020 with trial production expected in the first quarter of 2021 and full-scale end-to-end production 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 for cash consideration of$14.5 million , subject to adjustment for customary prorations, transfer taxes, escrow holdbacks and other adjustments. Expenses related to this acquisition amounted to$1.0 million . As part of this transaction, we also acquired an assembled workforce of approximately 180 employees. We are using this manufacturing facility primarily for the production of our finished goods. See Note 5 , Asset Acquisition, to the Notes to Consolidated Financial Statements included elsewhere in this report. Subsequent to the year endedDecember 31, 2020 , onJanuary 14, 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 14 , Subsequent Events, to the Notes to Consolidated Financial Statements included elsewhere in this report. Our sales growth in 2020 was negatively impacted by COVID-19. Net revenues increased to$406.8 million in 2020 from$297.9 million in 2019 and$87.9 million in 2018, representing a 115% compound annual growth rate over a two-year period, compared to a 202% compound growth rate over a two-year period in 2019. We have generated losses from inception. Net loss in 2020, 2019 and 2018 was$52.8 million ,$12.4 million and$29.9 million , respectively, as we invested in innovation and growth of our business. 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 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. 59 -------------------------------------------------------------------------------- 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 our vaccines and implementing multi-step policies with the goal of re-opening certain markets, we are working to ensure our compliance 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 all being 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. COVID-19 had a significant negative impact on our foodservice channel net revenues in 2020. For the year endedDecember 31, 2020 , foodservice channel net revenues were$106.2 million compared to$153.1 million in the prior year. Various regions around the world implemented stay-at-home orders, social distancing measures and various restrictions on commercial operations, resulting in the closure or limited operations of many of our foodservice customers. Such closures or scaled back operations have also resulted in delays in tests or launches of our products among our foodservice customers and negatively impacted the rate of our growth. Although certain of these restrictions have been lifted pursuant to multi-step reopening plans and exceptions to allow for carry-out and delivery, which enabled certain of our customers to continue to generate business, we continue to experience a significant deterioration in sales to foodservice customers. 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. In response to the recent COVID-19 resurgence and the discovery of new COVID-19 variants 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. During 2020, we offered 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. While we began to see some improvement in demand in our foodservice channel during the third and fourth quarters of 2020, amid relaxed stay-at-home orders in some states, the environment remains highly uncertain given the ongoing pandemic and recent COVID-19 resurgence and the discovery of new COVID-19 variants. 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 negatively impacted in 2021. At the same time while foodservice channel net revenues declined, our retail channel net revenues increased. During the second quarter of 2020, we experienced a meaningful increase in retail demand as consumers shifted toward more at-home consumption. In response to the deterioration in the foodservice 60 -------------------------------------------------------------------------------- channel and the significant shift in consumer preferences to retail, beginning in the second quarter of 2020 and continuing into the beginning of the third quarter of 2020, we re-purposed and re-routed a certain portion of our existing foodservice inventory into retail SKUs. These activities led to increased net revenues in our retail channel but negatively impacted our gross profit and gross margin due to increased expenses associated with such activities, additional inventory reserves and the write-off of unrecoverable portions of the original foodservice inventory items. Following the retail surge in the second quarter of 2020 amid panic buying in response to COVID-19, the level of retail demand meaningfully slowed during the second half of 2020 consistent with broader market trends across grocery foodstuffs and the plant-based meat category as stay-at-home orders and commercial restrictions were relaxed. Our net revenues in the retail channel during the second half of 2020, as compared to the prior-year period, were primarily driven by our expansion in total retail outlets, higher sales velocity at existing retail outlets and new product introductions. We also continued to offer promotional and reduced pricing to certain of our retail customers and higher trade discounts in the second half of 2020 to encourage greater consumer trial and adoption of our products. As COVID-19 rates surge in numerous regions of the world, the environment is continuously evolving and remains highly uncertain. It is therefore difficult to predict the level of retail demand going forward. For the year endedDecember 31, 2020 , our retail and foodservice channels accounted for approximately 73.9% and 26.1% of our net revenues, respectively. For the year endedDecember 31, 2019 , our retail and foodservice channels accounted for approximately 48.6% and 51.4% of our net revenues, respectively. For the year endedDecember 31, 2020 , ourU.S. and international channels accounted for approximately 79.9% and 20.1% of our net revenues, respectively. For the year endedDecember 31, 2019 , ourU.S. and international channels accounted for approximately 67.1% and 32.9% of our net revenues, respectively. The change in mix of our distribution channels has been significant since the start of the COVID-19 pandemic, which is likely to continue to cause fluctuation in our quarterly results pending its duration, magnitude and effects. In response to the COVID-19 pandemic, in the second quarter of 2020 we undertook our Feed A Million+ campaign, where we, with the support of our brand ambassadors and other partners, donated and distributed more than one million Beyond Burgers and nourishing meals at no cost to food banks, healthcare workers, frontline responders and communities in need across the country. AtDecember 31, 2020 , our inventory balances increased 49% compared to the levels atDecember 31, 2019 , primarily due to a 127% increase in raw materials and packaging, specifically our core pea protein isolate received pursuant to agreed-upon delivery schedules to meet our anticipated product demand which did not materialize as expected. We also incurred$4.8 million in costs attributable to COVID-19 from inventory write-offs and reserves associated with foodservice products determined to be unsalable. We source ingredients from multiple suppliers from around the world. We also maintain inventory positions near our manufacturing operations, as well as floor stock agreements with many of our vendors. With respect to pea protein, given the nature of our contractual commitments, our volume deliveries are front loaded during the year in anticipation of higher demand levels during the summer season. Given that we scaled back our production in response to COVID-19 and to reduce our existing finished goods and work in process inventory levels, we have seen an increase in our pea protein stocks. However, in light of the expected shelf life of our pea protein raw materials, we do not believe there is a risk of inventory obsolescence of these raw materials at this time. 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. We also are unable to predict whether the increase in demand by our retail 61 -------------------------------------------------------------------------------- customers will resume at the levels experienced in the second quarter of 2020 or continue to be subject to the downward pressure seen in the second half of 2020. 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 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 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. In 2020, we focused on navigating these recent challenges presented by COVID-19 through offensive measures, such as switching foodservice production lines over to retail products, selling retail value packs and offering aggressive pricing with a strategic opportunity to encourage consumer trials, as well as defensive measures focused on reducing or delaying discretionary spending in areas where effectiveness has been impeded by the pandemic, and streamlining operations, including furloughs and headcount reductions in light of inventory levels, demand shifts and company-wide capacity planning. In 2021, we may take similar actions, if necessary, which will continue to negatively impact our gross margins and profitability into 2021. Future events and effects related to COVID-19 cannot be determined with precision and actual results could significantly differ from estimates or forecasts. 62 -------------------------------------------------------------------------------- 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, and various food-away-from-home channels, including restaurants, foodservice outlets and schools, mainly inthe United States . To make plant-based meat accessible to more consumers, inAugust 2020 , we launched an e-commerce site and began offering our products direct to consumers in bulk packs, mixed product bundles, limited-time offers, and trial packs. EffectiveJanuary 1, 2020 , we began presenting 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, including
Canada International Foodservice Net revenues from restaurant and foodservice sales to international markets, includingCanada ____________
(1) Includes net revenues from direct-to-consumer sales.
Net revenues from sales to the Canadian market, previously included with net revenues from sales to the U.S. market, have been reclassified to International net revenues. Prior period amounts have been recast to conform to the current period presentation. The foregoing change in presentation had no impact on our net revenues, results of operations or cash flows. EffectiveJanuary 1, 2020 , we also eliminated the presentation of net revenues by platform as it is no longer material to an understanding of our financial results. Previously, we presented net revenues by platform for our "ready-to-cook" or fresh platform, and "ready-to-heat" or frozen platform. Gross revenues from sales of products in our frozen platform were 5.5% of gross revenues in the year endedDecember 31, 2019 , as compared to 16.3% of gross revenues in the year endedDecember 31, 2018 . The following table presents our 2019 quarterly net revenues by channel (unaudited): Three Months Ended March 30, June 29, September 28, December 31, (in thousands) 2019 2019 2019 2019U.S. : Retail$ 19,461 $ 30,531 $ 44,170 $ 35,221 Foodservice 8,834 16,504 18,359 26,675 U.S. net revenues 28,295 47,035 62,529 61,896 International: Retail 118 3,589 6,295 5,424 Foodservice 11,793 16,627 23,137 31,159 International net revenues 11,911 20,216 29,432 36,583 Net revenues$ 40,206 $ 67,251 $ 91,961 $ 98,479 63
-------------------------------------------------------------------------------- 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 ultimate duration, magnitude and effects of COVID-19: •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; •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 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, across our plant-based platforms that appeal to a broad range of consumers, including 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 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, and 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; •overall market trends, including growing consumer awareness and demand for nutritious, convenient and high protein plant-based foods; and •increased production levels as we 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 ultimate duration, magnitude and effects of COVID-19: •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 pursuing additional 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 ofDecember 31, 2020 . In addition to our own production facilities, we use co-manufacturers in various locations inthe United States ,Canada andthe Netherlands . International net revenues decreased 16.5% in the year endedDecember 31, 2020 , as compared 2019, 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 inthe United States and abroad in an effort to curb the spread of the virus, all of which are uncertain 64 -------------------------------------------------------------------------------- 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 ourManhattan Beach Project Innovation Center in response to COVID-19, 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 into 2021. 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, buy-one-get-one-free programs, 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. 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. 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. Our growth has also significantly increased facility and warehouse utilization rates. We intend to continue to increase our production capabilities at our two in-house manufacturing facilities inColumbia, Missouri , while expanding our co-manufacturing capacity and exploring additional production facilities domestically and abroad. 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. 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 65 -------------------------------------------------------------------------------- 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 commenced at the end of 2020 with trial production expected in the first quarter of 2021 and full-scale end-to-end production 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. We are using this manufacturing facility for the production of our finished goods. See Note 5 , Asset Acquisition, to the Notes to Consolidated Financial Statements included elsewhere in this report. 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. In addition, in response to the deterioration in the foodservice channel and the significant shift in consumer preferences to retail, beginning in the second quarter of 2020 and continuing into the beginning of the third quarter of 2020, we re-purposed and re-routed a certain portion of our existing foodservice inventory into retail SKUs. In the third and fourth quarters of 2020, we wrote off inventory associated with foodservice products determined to be unsalable. These activities increased our costs of goods sold and negatively impacted our gross profit and gross margin in 2020. Although our anticipated cost reductions didn't materialize in 2020 primarily due to the impact of COVID-19, 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, 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. Margin improvement may, however, may continue to be negatively impacted by our focus on 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. 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 consumers who typically eat animal-based meats. Over time and subject to the ultimate duration, magnitude and effects of COVID-19, 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. 66 -------------------------------------------------------------------------------- Selling, General and Administrative ("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 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 and incur costs related to our status as a public company. In response to COVID-19, we expect to continue to undertake measures focused on reducing or delaying discretionary spending in areas where effectiveness has been impeded by the pandemic, and streamlining operations, including potential furloughs and headcount reductions, in light of inventory levels, demand shifts and company-wide capacity planning. We have historically had a very small sales force, with only nine full-time sales employees as ofDecember 31, 2017 growing to 36 full-time sales employees as ofDecember 31, 2020 . As we continue to grow, including internationally, we expect to expand our sales force to address additional opportunities, which would substantially increase our selling 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. For a discussion of these expenses, see Note 3 , Restructuring, and Note 11 , Commitments and Contingencies, to the Notes to 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, and in each of 2019 and 2018, the strong net revenue growth compared to the previous year, 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 statements of operations for the periods presented: Year Ended December 31, (in thousands) 2020 2019 2018 Net revenues$ 406,785 $ 297,897 $ 87,934 Cost of goods sold 284,510 198,141 70,360 Gross profit 122,275 99,756 17,574 Research and development expenses
31,535 20,650 9,587
Selling, general and administrative expenses 133,655 74,726 34,461 Restructuring expenses 6,430 4,869 1,515 Total operating expenses 171,620 100,245 45,563 Loss from operations$ (49,345) $ (489) $ (27,989) 67
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The following table presents selected items in our statements of operations as a percentage of net revenues for the respective periods presented:
Year Ended December 31,
2020 2019 2018
Net revenues 100.0 % 100.0 % 100.0 %
Cost of goods sold 69.9 66.5 80.0
Gross profit 30.1 33.5 20.0
Research and development expenses 7.7 6.9 10.9
Selling, general and administrative expenses 32.9 25.1 39.2
Restructuring expenses 1.6 1.6 1.7
Total operating expenses 42.2 33.7 51.8
Loss from operations (12.1) % (0.2) % (31.8) %
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net Revenues
Year Ended December 31, Change
(in thousands) 2020 2019 Amount %
U.S.:
Retail $ 264,111 $ 129,383 $ 134,728 104.1 %
Foodservice 60,763 70,372 (9,609) (13.7) %
U.S. net revenues 324,874 199,755 125,119 62.6 %
International:
Retail $ 36,472 $ 15,426 $ 21,046 136.4 %
Foodservice 45,439 82,716 (37,277) (45.1) %
International net revenues 81,911 98,142 (16,231) (16.5) %
Net revenues $ 406,785 $ 297,897 $ 108,888 36.6 %
Net revenues in the year ended December 31, 2020 increased by $108.9 million , or
36.6%, as compared to the prior year 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
distribution gains both domestically and abroad, 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 ongoing COVID-19 pandemic and the impact of
widespread domestic and international stay-at-home orders, social distancing
measures and various restrictions on commercial operations, resulting in the
closure or limited operations of many of our foodservice customers. Our
foodservice channel has broad exposure to, among others, hotels, academic
institutions, amusement parks, sports arenas, movie theaters, convention
centers, corporate catering services and bars and pubs, all of which have been
disproportionately impacted by COVID-19.
Net revenues from U.S. retail sales in the year ended December 31, 2020
increased $134.7 million , or 104.1%, primarily due to increases in sales of
Beyond Beef, Beyond Burger and Beyond Sausage.
68
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Approximately 7.7% of the increase in U.S. retail sales in the year ended
December 31, 2020 was due to the introduction of Beyond Breakfast Sausage during
the second quarter of 2020.
Net revenues from U.S. foodservice sales in the year ended December 31, 2020
decreased $9.6 million , or 13.7%, primarily due to decreases in sales of Beyond
Burger, Beyond Sausage, Beyond Beef Crumble and Beyond Meatball, primarily due
to the impact of COVID-19, partially offset by increases in sales of Beyond
Breakfast Sausage and Beyond Beef. Our products were available at approximately
28,000 U.S. retail outlets and 42,000 U.S. foodservice outlets as of December
31, 2020 .
Net revenues from international retail sales in the year ended December 31, 2020
increased $21.0 million , or 136.4%, primarily due to increases in sales of
Beyond Burger, Beyond Sausage and Beyond Beef, and to a lesser extent, due to
increases in sales of Beyond Breakfast Sausage, Beyond Meatballs and Beyond Beef
Crumble. Net revenues from international foodservice sales in the year ended
December 31, 2020 decreased $37.3 million , or 45.1%, primarily due to the impact
of COVID-19. Our products were available at approximately 52,000 international
retail and foodservice outlets as of December 31, 2020 .
The following table presents volume of our products sold in pounds:
Year Ended December 31, Change
(in thousands) 2020 2019 Amount %
U.S.:
Retail 45,706 21,347 24,359 114.1 %
Foodservice 10,860 11,845 (985) (8.3) %
International:
Retail 6,684 2,816 3,868 137.4 %
Foodservice 9,281 15,364 (6,083) (39.6) %
Volume of products sold 72,531 51,372 21,159 41.2 %
Cost of Goods Sold
Year Ended December 31, Change
(in thousands) 2020 2019 Amount %
Cost of goods sold $ 284,510 $ 198,141 $ 86,369 43.6 %
Cost of goods sold increased by $86.4 million , or 43.6%, in 2020 as compared to
the prior year, primarily due to the increase in the sales volume of our
products. The increase in cost of goods sold was also due to lower absorption of
fixed overhead costs as we scaled back production to reduce inventory levels.
Cost of goods sold in 2020 included $10.8 million in write off of excess and
obsolete inventories related to the impact of COVID-19 including product
repacking activities to repurpose certain foodservice inventory, and charges and
write offs associated with foodservice products determined to be unsalable. Cost
of goods sold in 2019 included $6.4 million in write off of excess and obsolete
inventories.
Gross Profit and Gross Margin
Year Ended December 31, Change
(in thousands) 2020 2019 Amount %
Gross profit $ 122,275 $ 99,756 $ 22,519 22.6 %
Gross margin 30.1 % 33.5 % N/A N/A
69-------------------------------------------------------------------------------- Gross profit in 2020 was$122.3 million , or 30.1% of net revenues, as compared to gross profit of$99.8 million , or 33.5% of net revenues, in the prior year, an improvement of$22.5 million . The improvement in gross profit was primarily due to an increase in the volume of products sold. The decrease in gross margin was primarily due to lower absorption of fixed overhead production costs as we scaled back production to reduce inventory levels in response to the lower than anticipated customer demand in the foodservice channel due to the impact of COVID-19. Additionally, lower net price realization resulting from higher trade discounts also contributed to the decrease in gross margin. As disclosed in Note 2 , Summary of Significant Accounting Policies-Shipping and Handling Costs, in the Notes to Consolidated Financial Statements included elsewhere in this report, we include outbound shipping and handling costs within SG&A expenses. As a result, our gross profit and gross margin may not be comparable to other entities that present all shipping and handling costs as a component of cost of goods sold. Research and Development Expenses Year Ended December 31, Change (in thousands) 2020 2019 Amount % Research and development expenses$ 31,535 $ 20,650 $ 10,885 52.7 % Research and development expenses increased$10.9 million , or 52.7%, in 2020, as compared to the prior year. Research and development expenses increased primarily due to higher headcount of approximately 69 more employees,$4.0 million in higher scale-up expenses and$1.2 million in higher depreciation and amortization expense compared to the prior year. SG&A Expenses Year Ended December 31, Change (in thousands) 2020 2019 Amount % Selling, general and administrative expenses$ 133,655 $ 74,726 $ 58,929 78.9 % SG&A expenses increased by$58.9 million , or 78.9%, in 2020, as compared to the prior year. The increase was primarily due to$16.1 million in higher share-based compensation expense,$14.1 million in higher salaries and related expenses resulting from a higher headcount,$9.2 million in higher marketing-related expenses,$3.9 million in higher legal expenses,$3.2 million in higher broker and distributor commissions,$2.9 million in higher general insurance costs,$2.7 million in higher expense related to product donations for our Feed A Million+ campaign attributable to COVID-19 relief efforts,$2.0 million in higher consulting expenses,$1.4 million in higher public company-related expenses,$1.1 million in higher postage and delivery expenses,$1.0 million in higher outbound shipping and handling expenses, and$1.0 million in higher information technology-related expenses. The increase in share-based compensation expense in the year endedDecember 31, 2020 was primarily due to appreciation in our stock price as well as substantially higher staffing levels versus the prior years. 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$6.4 million and$4.9 million in 2020 and 2019, respectively, primarily related to legal and other expenses associated with the dispute. As ofDecember 31, 2020 and 2019, there were$0.8 million and$1.1 million , respectively, in accrued unpaid liabilities associated with this contract termination representing legal fees. We continue to incur legal fees in connection with our ongoing efforts to resolve this dispute. See Note 3 , Restructuring and Note 11 , Commitments and Contingencies, to the Notes to Consolidated Financial Statements, included elsewhere in this report. 70 -------------------------------------------------------------------------------- Loss from Operations Loss from operations in 2020 was$49.3 million compared to loss from operations of$0.5 million in the prior year. This increase in loss from operations was driven by the year-over-year increase in cost of goods sold, higher operating expenses to support our expanded manufacturing and supply chain operations, higher share-based compensation expense, higher administrative costs associated with being a public company, higher restructuring expenses, and continued investment in innovation and marketing capabilities, partially offset by the improvement in gross profit. Total Other Expense, Net Total other expense, net in the year endedDecember 31, 2020 primarily includes interest expense on our debt balances, loss on extinguishment of debt and foreign currency transaction losses, partially offset by interest income. Total other expense, net in the year endedDecember 31, 2019 primarily includes interest expense on our debt balances and expense associated with the remeasurement of our preferred stock warrant liability and common stock warrant liability, partially offset by interest income. OnMay 6, 2019 , in connection with the IPO, our then outstanding warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for common stock. We remeasured and reclassified the common stock warrant liability to additional-paid-in-capital in connection with the IPO and recorded$12.5 million in expense associated with the remeasurement of warrant liability in 2019. Subsequent to the closing of the IPO, all outstanding warrants to purchase shares of common stock were cashless exercised. No warrants were outstanding as ofDecember 31, 2020 . Other, net was a net expense of$0.8 million in 2020 as compared to net income of$3.6 million in 2019. Other, net in 2020 included$1.5 million in loss on extinguishment of our refinanced credit arrangements, partially offset by interest income from invested cash balances. Interest income decreased to$0.8 million in the year endedDecember 31, 2020 from$3.9 million in the prior year. Income Tax Expense For 2020 and 2019, we recorded income tax expense of$72,000 and$9,000 , respectively. These amounts primarily consist of income taxes for state jurisdictions which have minimum tax requirements. No tax benefit was provided for losses incurred because those losses were offset by a full valuation allowance. Net Loss Net loss was$52.8 million in 2020 compared to a net loss of$12.4 million in the prior year. This increase in net loss was driven by the year-over-year increase in operating expenses to support our expanded manufacturing and supply chain operations, higher share-based compensation expense, higher administrative costs associated with being a public company, higher restructuring expenses, and continued investment in innovation and marketing capabilities, partially offset by the improvement in gross profit. During 2020, net loss included$14.1 million in costs attributable to COVID-19 including$6.6 million in product repacking costs,$4.8 million in inventory write-offs and charges associated with foodservice products determined to be unsalable and$2.7 million in product donation costs related to our COVID-19 relief efforts, and$1.5 million of debt extinguishment costs associated with our refinanced credit arrangements. 71 -------------------------------------------------------------------------------- Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Net Revenues Year Ended December 31, Change (in thousands) 2019 2018 Amount % U.S.: Retail$ 129,383 $ 49,772 $ 79,611 160.0 % Foodservice 70,372 20,717 49,655 239.7 % U.S. net revenues 199,755 70,489 129,266 183.4 % International: Retail$ 15,426 $ 1,007 $ 14,419 1,431.9 % Foodservice 82,716 16,438 66,278 403.2 % International net revenues 98,142 17,445 80,697 462.6 % Net revenues$ 297,897 $ 87,934 $ 209,963 238.8 % Net revenues increased by$210.0 million , or 238.8%, in 2019 as compared to 2018 primarily due to strong growth in sales volumes of products across both our retail and our foodservice channels, driven by expansion in the number of retail and foodservice outlets, including new strategic customers, new international customers, higher sales velocities from our existing customers and contribution from new products introduced in 2019. Net revenues from retail channel increased$94.0 million , or 185.2%, primarily due to expansion in the number of retail outlets, increased sales of the Beyond Burger and Beyond Sausage, as well as the introduction of Beyond Beef. Net revenues from foodservice channel increased$115.9 million , or 312.0%, primarily due to expansion in the number of foodservice outlets, including new strategic customers and international customers, increases in sales of the Beyond Burger, as well as due to increased sales of Beyond Sausage and the introduction of Beyond Beef. The following table presents volume of our products sold in pounds: Year Ended December 31, Change (in thousands) 2019 2018 Amount % U.S.: Retail 21,347 8,565 12,782 149.2 % Foodservice 11,845 3,559 8,286 232.8 % International: Retail 2,816 147 2,669 1,815.6 % Foodservice 15,364 2,971 12,393 417.1 % Volume of products sold 51,372 51372000 15,242 36,130 237.0 % Cost of Goods Sold Year Ended December 31, Change (in thousands) 2019 2018 Amount Percentage Cost of goods sold$ 198,141 $ 70,360 $ 127,781 181.6 % 72
-------------------------------------------------------------------------------- Cost of goods sold increased by$127.8 million , or 181.6%, in 2019 as compared to the prior year, primarily due to the increase in the sales volume of our products. Cost of goods sold in 2019 and 2018 included$6.4 million and$0.8 million , respectively, in write off of excess and obsolete inventories. Gross Profit and Gross Margin Year Ended December 31, Change (in thousands) 2019 2018 Amount
Percentage
Gross profit$ 99,756 $ 17,574 $ 82,182 467.6 % Gross margin 33.5 % 20.0 % N/A
N/A
Gross profit in 2019 was$99.8 million , or 33.5% of net revenues, as compared to gross profit of$17.6 million , or 20% of net revenues, in the prior year, an improvement of$82.2 million . The improvement in gross profit and gross margin was primarily due to an increase in the volume of products sold, with resulting operating leverage, and improved production efficiencies. The greater proportion of net revenues from products with higher net selling price per pound also contributed to the increase in gross profit. The increase in gross margin was partially offset by temporary disruptions related to capacity expansion projects at two co-manufacturing partners' plants in the fourth quarter of 2019. As disclosed in Note 2 , Summary of Significant Accounting Policies-Shipping and Handling Costs, in the Notes to Consolidated Financial Statements included elsewhere in this report, we include outbound shipping and handling costs within SG&A expenses. As a result, our gross profit and gross margin may not be comparable to other entities that present all shipping and handling costs as a component of cost of goods sold. Research and Development Expenses Year EndedDecember 31 ,
Change
(in thousands) 2019 2018 Amount Percentage Research and development expenses$ 20,650 $ 9,587
Research and development expenses increased
Year Ended December 31, Change
(in thousands) 2019 2018 Amount Percentage
Selling, general and administrative
expenses $ 74,726 $ 34,461 $ 40,265 116.8 %
SG&A expenses increased by $40.3 million , or 116.8%, in 2019, as compared to the
prior year. The increase was primarily due to $12.4 million in higher salaries,
bonuses and related expenses due to higher headcount, $10.4 million in higher
share-based compensation expense, including $3.2 million relating to equity
awards made to brand ambassadors, $4.8 million in higher outbound shipping and
handling expenses, $3.1 million in higher broker and distributor commissions,
$2.4 million in higher legal expenses primarily due to the Secondary Offering
and costs associated with being a public company, $1.9 million in higher
insurance costs, and continued investment in marketing capabilities.
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 $4.9
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million and $1.5 million in 2019 and 2018, respectively, primarily related to
legal and other expenses associated with the dispute. As of December 31, 2019
and 2018, there were $1.1 million and $0 , respectively, in accrued unpaid
liabilities associated with this contract termination representing legal fees.
We continue to incur legal fees in connection with our ongoing efforts to
resolve this dispute. See Note 3 , Restructuring and Note 11 , Commitments
and Contingencies, to the Notes to Consolidated Financial Statements, included
elsewhere in this report.
Total Other Expense, Net
Total other expense, net primarily includes interest expense on the Company's
debt balances and expense associated with the remeasurement of our preferred
stock warrant liability and common stock warrant liability, partially offset by
interest income. On May 6, 2019 , in connection with the IPO, our then
outstanding warrants exercisable for convertible preferred stock were
automatically converted into warrants exercisable for common stock. We
remeasured and reclassified the common stock warrant liability to
additional-paid-in-capital in connection with the IPO and recorded $12.5 million
in expense associated with the remeasurement of warrant liability in 2019.
Interest income in 2019 increased due to interest income from invested proceeds
from the IPO and Secondary Offering.
Subsequent to the closing of the IPO, all outstanding warrants to purchase
shares of common stock were cashless exercised. No warrants were outstanding as
of December 31, 2019 .
Other, net was $3.6 million in 2019 as compared to $0.4 million in 2018
primarily due to increased interest income resulting from investment of proceeds
from the IPO and Secondary Offering.
Loss from Operations
Loss from operations in 2019 was $0.5 million compared to loss from operations
of $28.0 million in the prior year. This improvement was driven entirely by the
year-over-year increase in gross profit, partially offset by higher operating
expenses to support our expanded manufacturing and supply chain operations,
higher share-based compensation expense, higher administrative costs associated
with being a public company, higher restructuring expenses, and continued
investment in innovation and marketing capabilities.
Income Tax Expense
For 2019 and 2018, we recorded income tax expense of $9,000 and $1,000 ,
respectively. These amounts primarily consist of income taxes for state
jurisdictions which have minimum tax requirements. No tax benefit was provided
for losses incurred because those losses were offset by a full valuation
allowance.
Net Loss
Net loss was $12.4 million in 2019 compared to a net loss of $29.9 million in
the prior year. The decrease in net loss was primarily the result of the higher
gross profit in 2019 and interest income, partially offset by higher operating
expenses, higher share-based compensation expense, expenses associated with the
remeasurement of our preferred stock warrant liability and common stock warrant
liability in connection with the IPO, and higher interest expense.
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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) 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 investment 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 rather
than net (loss) income, which is the 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 investment 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.
75
--------------------------------------------------------------------------------The following table presents the reconciliation of Adjusted EBITDA to its most comparable GAAP measure, net loss, as reported (unaudited):
Year Ended December 31,
(in thousands) 2020 2019 2018
Net loss, as reported $ (52,752) $ (12,443) $ (29,886)
Income tax expense 72 9 1
Interest expense 2,576 3,071 1,128
Depreciation and amortization expense 13,299 8,106 4,921
Restructuring expenses(1) 6,430 4,869 1,515
Share-based compensation expense 27,279 12,807 2,241
Expenses attributable to COVID-19(2) 14,137 - -
Remeasurement of warrant liability - 12,503 1,120
Other, net(3) 759 (3,629) (352)
Adjusted EBITDA $ 11,800 $ 25,293 $ (19,312)
Net loss as a % of net revenues (13.0) % (4.2) % (33.9) %
Adjusted EBITDA as a % of net revenues 2.9 % 8.5 % (22.0) %
_____________
(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 May 2017.See
Note 3 , Restructuring, and Note 11 , Commitments and Contingencies, to the Notes
to Consolidated Financial Statements, included elsewhere in this report.
(2) In 2020, comprised of
charges associated with foodservice products determined to be unsalable and
million in product donation costs related to our COVID-19 relief efforts. Expenses
attributable to COVID-19 in the twelve months ended
million in product donation costs related to the Company's COVID-19 relief efforts in
the first quarter of 2020, which were not previously included in the Company's Adjusted
EBITDA calculation for the three months ended
immaterial to its first quarter 2020 financial results. Given the significant increase
in COVID-19-related expenses in the subsequent quarters of 2020, and to facilitate
better comparison from period to period, management determined that it was appropriate
to recast its previous first quarter 2020 Adjusted EBITDA calculation to include these
costs.
(3) Includes
2020.
Liquidity and Capital Resources
Liquidity
Our primary cash needs are for operating expenses, working capital and capital
expenditures to support the growth in our business. Prior to our IPO, we
financed our operations through private sales of equity securities and through
sales of our products. Since our inception and through our IPO, we raised a
total of $199.5 million from the sale of convertible preferred stock, including
through sales of convertible notes which were converted into preferred stock,
net of costs associated with such financings. In connection with our IPO, we
sold an aggregate of 11,068,750 shares of our common stock at a public offering
price of $25.00 per share and received approximately $252.4 million in net
proceeds.
In connection with the Secondary Offering we sold 250,000 shares of our common
stock. The shares were sold at a public offering price of $160.00 per share and
we received net proceeds of approximately $37.4 million . We did
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not receive any proceeds from the sale of common stock by the selling
stockholders in the Secondary Offering. We have also entered into the credit
facilities described below with J.P. Morgan Chase ("Revolving Credit Facility").
As of December 31, 2020 , we had $159.1 million in cash and cash equivalents. We
believe that our cash and cash equivalents, cash flow from operating activities
and available borrowings under our credit facilities 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
COVID-19; the number and characteristics of any additional products or
manufacturing processes we develop or acquire to serve new or existing markets;
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; our investment
in our new headquarters campus; any lawsuits related to our products or
commenced against us, including the costs associated with our current litigation
with a former co-manufacturer, 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.
Revolving Credit Facility
On April 21, 2020 , we entered into a $150 million five-year secured revolving
credit agreement ("2020 Credit Agreement") by and among the Company, the lenders
party thereto (the "Lenders") and JPMorgan Chase Bank, N.A ., as the
administrative agent (the "Administrative Agent"). JPMorgan Chase Bank, N.A . and
Silicon Valley Bank acted as joint bookrunners and joint lead arrangers under
the 2020 Credit Agreement. The 2020 Credit Agreement includes an accordion
feature for up to an additional $200 million . We incurred debt issuance costs,
net of amortization, of $1.1 million in the year ended December 31, 2020 in
connection with the new revolving credit facility. The revolving credit facility
matures on April 21, 2025. See Note 8 , Debt, to the Notes to
Consolidated Financial Statements included elsewhere in this report.
Concurrently with the effectiveness of the 2020 Credit Agreement, on April 21,
2020 , we terminated the $6.0 million revolving credit line and $20.0 million
term loan facility with Silicon Valley Bank (the "SVB Credit Facilities"), and
the $5.0 million equipment loan facility with Structural Capital Investments II,
LP , as Lender, and Ocean II, PLC, LLC , as collateral agent and administrative
agent (the "Equipment Loan Facility"), and incurred an aggregate of $1.2 million
of termination, prepayment, and related fees in connection with such
terminations.
As of December 31, 2020 , we had outstanding borrowings of $25.0 million and no
excess availability under the revolving credit facility. The interest rate on
outstanding borrowings at December 31, 2020 was 3.5%. We exceeded the maximum
permitted total leverage ratio financial covenant in the 2020 Credit Agreement
for the fiscal quarter and year ended December 31, 2020 . Subsequent to the year
ended December 31, 2020 , on February 25, 2021 , we paid down our outstanding
borrowings and had no borrowings outstanding under the revolving credit
facility. Subsequent to the year ended December 31, 2020 , concurrent with our
execution of the campus headquarters lease, as a security deposit, we delivered
to the landlord a letter of credit under the revolving credit facility in the
amount of $12.5 million . See Note 14 , Subsequent Events, to the Notes to
Consolidated Financial Statements included elsewhere in this report.
Cash Flows
In the year ended December 31, 2020 , approximately $114.3 million in aggregate
expenditures to purchase inventory and property, plant and equipment, acquire
assets from our former co-manufacturer, and pay loan payments net of borrowings
(including extinguishing prior credit facilities) of $6.0 million , were funded
by $116.7 million of existing cash, and approximately $3.7 million from other
operating, investing and financing activities.
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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.
Year Ended December 31,
(in thousands) 2020 2019 2018
Cash (used in) provided by:
Operating activities $ (39,995) $ (46,995) $ (37,721)
Investing activities $ (74,900) $ (26,164) $ (23,242)
Financing activities $ (1,762) $ 294,876 $ 76,199
Net Cash Used in Operating Activities
For the year ended December 31, 2020 , we incurred a net loss of $52.8 million ,
which was the primary reason for net cash used in operating activities of $40.0
million . Net cash used in operating activities also included $32.2 million in
net cash outflows from changes in our operating assets and liabilities,
primarily due to increase in inventory, and prepaid expenses and other current
assets, partially offset by an increase in accounts payable and a decrease in
accounts receivable. Increase in inventories, primarily due to the increase in
raw materials inventory resulting from pea protein isolate received pursuant to
agreed-upon delivery schedules to meet our anticipated product demand,
negatively impacted cash flows from operations because due to the impact of
COVID-19 the anticipated sales and the resulting cash inflows did not
materialize as expected. Net loss for the year ended December 31, 2020 , included
$44.9 million in non-cash expenses primarily comprised of share-based
compensation expense, depreciation and amortization expense, non-cash lease
expense and loss on extinguishment of debt.
For the year ended December 31, 2019 , we incurred a net loss of $12.4 million .
The primary reason for net cash used in operating activities of $47.0 million
was the $68.2 million in net cash outflows from changes in our operating assets
and liabilities, primarily due to increases in inventory to meet growth in
anticipated sales and to accommodate longer lead times for international
shipments, and increases in accounts receivable, partially offset by $33.7
million in non-cash expenses primarily comprised of share-based compensation
expense, change in warrant liability and depreciation and amortization expense.
For the year ended December 31, 2018 , we incurred a net loss of $29.9 million ,
which was the primary reason for net cash used in operating activities of $37.7
million . Net cash used in operating activities also included $16.3 million in
net cash outflows from changes in our operating assets and liabilities,
partially offset by $8.5 million in non-cash expenses primarily comprised of
depreciation and amortization expense, share-based compensation expense and
change in warrant liability.
Depreciation and amortization expense was $13.3 million , $8.1 million and $4.9
million , in 2020, 2019 and 2018, 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.
For the year ended December 31, 2020 , net cash used in investing activities was
$74.9 million and consisted of $57.7 million in 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, including the acquisition of a
manufacturing facility in Europe located in Enschede, the Netherlands , $15.5
million for the acquisition of assets from a former co-manufacturer,
$2.3 million in cash outflows related to property, plant and equipment purchased
for sale to co-manufacturers, and security deposits, partially offset by
proceeds from sale of assets held for sale.
For the year ended December 31, 2019 , net cash used in investing activities was
$26.2 million and consisted of $23.8 million in cash outflows for purchases of
property, plant and equipment, primarily for manufacturing facility improvements
and manufacturing equipment, $2.1 million in cash outflows related to property,
plant and equipment purchased for sale to co-manufacturers, and security
deposits, partially offset by proceeds from sale of assets held for sale.
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For the year ended December 31, 2018 , net cash used in investing activities was
$23.2 million and consisted of $22.2 million in cash outflows for the purchases
of property, plant and equipment, manufacturing facility improvements and
manufacturing equipment, $1.0 million in cash outflows related to property,
plant and equipment purchased for sale to co-manufacturers, and security
deposits, partially offset by proceeds from sale of fixed assets.
Net Cash Provided by Financing Activities
For the year ended December 31, 2020 , net cash used by financing activities was
$1.8 million primarily due to $31.0 million in extinguishment of prior credit
facilities, debt issuance costs of $1.2 million associated with our new
revolving credit facility and debt extinguishment costs of $1.2 million
associated with our refinanced credit arrangements, partially offset by $25.0
million in net proceeds to us from our revolving credit facility. Cash flows
from financing activities included $9.0 million in proceeds from stock option
exercises, partially offset by $2.3 million in payments of minimum withholding
taxes on net share settlement of equity awards, and $70,000 in payments of
finance lease obligations.
For the year ended December 31, 2019 , net cash provided by financing activities
was $294.9 million primarily as a result of $254.9 million in net proceeds from
our IPO, net of issuance costs, $37.4 million in net proceeds to us from the
Secondary Offering, net of issuance costs, and $2.7 million in proceeds from
stock option exercises, partially offset by $55,000 in payments toward finance
lease obligations.
For the year ended December 31, 2018 , financing activities provided $76.2
million in cash as a result of $51.3 million of proceeds from the issuance of
our Series G and H preferred stock, net of issuance costs, $20.0 million in
borrowings under our term loan facility, $6.0 million in borrowings under our
revolving credit line, $5.0 million in borrowings under an equipment loan
facility, and $1.4 million in proceeds from stock option exercises, partially
offset by cash outflows for repayment of a note with the Missouri Department of
Economic Development , and borrowings under our 2016 Revolving Credit Facility
and 2016 Term Loan Facility. The proceeds from the borrowings were used to
finance our operations.
Contractual Obligations and Commitments
Revolving Credit Facility
On April 21, 2020 , we entered into the 2020 Credit Agreement. Concurrently with
the effectiveness of the 2020 Credit Agreement, on April 21, 2020 , we terminated
the SVB Credit Facilities and the Equipment Loan Facility, paying off an
aggregate of $31.0 million in loan balances. See Note 8 , Debt, to the Notes
to Consolidated Financial Statements included elsewhere in this report.
Leases
On January 1, 2020 , we adopted Accounting Standards Update ("ASU") No. 2016-02,
"Leases" (Topic 842) ("ASU 2016-02") using the modified retrospective approach,
which permits application of this new guidance at the beginning of the period of
adoption, with comparative periods continuing to be reported under Accounting
Standards Codification ("ASC") No. 840 ("ASC 840"). Upon adoption of ASU
2016-02, we recognized operating lease right-of-use assets of $11.9 million
adjusted for $0.3 million previously recorded as deferred rent and $0.2 million
previously recorded as prepaid rent on our consolidated balance sheets. We also
recorded $1.4 million in current operating lease liabilities and $10.6 million
in operating lease liabilities, net of current portion.
As part of this adoption, we elected to not record operating lease right-of-use
assets or operating lease liabilities for leases with an initial term of 12
months or less. We elected to separate the lease and non-lease components on all
new or modified operating leases for the co-manufacturing class of assets for
the purpose of recording operating lease right-of-use assets and operating lease
liabilities and to combine lease and non-lease components on all new or modified
operating leases into a single lease component for all other classes of assets.
Short-term lease payments for the year ended December 31, 2020 totaled
$0.3 million .
As of December 31, 2020 , we had recorded $14.6 million in operating lease
right-of-use assets, $3.1 million in current operating lease liabilities and
$11.8 million in operating lease liabilities, net of current portion.
During the year ended December 31, 2020 , we amended two operating leases for our
manufacturing facilities in Columbia, Missouri , one to extend the lease term by
two years and another to include land adjacent to the
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facility upon which the landlord will construct a parking lot. We also assumed
an operating lease under which we are leasing certain real property and a
building consisting of approximately 142,317 square feet in Columbia, Missouri ,
for a term expiring on April 30, 2023 with no renewal options. See Note 4 ,
Leases, to the Notes to Consolidated Financial Statements included elsewhere in this report. Subsequent to the year endedDecember 31, 2020 , onJanuary 14, 2021 , we entered into a 12-year lease with two 5-year renewal options to house our corporate headquarters, lab and innovation space in El Segundo, California. See Note 14 , Subsequent Events, to Notes to Consolidated Financial Statements included elsewhere in this report.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. 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 onSeptember 11, 2020 with an affiliate of the JX Committee, pursuant to which BYND JX has agreed to lease and renovate a facility in the JXEDZ for a minimum of two (2) years. 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 invest$30.0 million 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 invest an additional$10.0 million to obtain a second state-owned land plot in the JXEDZ in order to construct an additional facility thereon. See Note 1 1 , Commitments and Contingencies, to the Notes to Consolidated Financial Statements included elsewhere in this report. Purchase Commitments OnJanuary 10, 2020 , we andRoquette Frères ("Roquette") entered into a multi-year sales agreement pursuant to which Roquette will provide us with plant-based protein. The agreement expires onDecember 31, 2022 ; however it can be terminated after 18 months under certain circumstances. This agreement increases the amount of plant-based protein to be supplied by Roquette in each of 2020, 2021 and 2022 compared to the amount supplied 2019. The plant-based protein sourced under the supply agreement is secured on a purchase order basis regularly, per specified minimum monthly and semi-annual quantities, throughout the term. We are not required to purchase plant based protein in amounts in excess of such specified minimum quantities; however the Company has the option to increase such minimum quantities for delivery in each of 2021 and 2022. The total annual amount purchased each year by us must be at least the minimum amount specified in the agreement, which totals in the aggregate$154.1 million over the term of the agreement. We also have the right to be indemnified by Roquette in certain circumstances. As ofDecember 31, 2020 , we had committed to purchase pea protein inventory totaling$141.9 million , approximately$83.4 million in 2021 and$58.5 million in 2022. In addition, as ofDecember 31, 2020 , we had approximately$19.5 million in purchase order commitments for capital expenditures primarily to purchase machinery and equipment. Payments for these purchases will be due within twelve months. 80 -------------------------------------------------------------------------------- The following table summarizes our significant contractual obligations as ofDecember 31, 2020 : Payments Due by Period Less Than More Than (in thousands) Total One Year 1-3 Years 3-5 Years Five Years Operating lease obligations(1)(2)$ 16,325 $
3,455
238 80 128 30 -
Revolving Credit Facility(4) 25,887 25,887 - - -
Purchase commitments-inventory(5) 141,863 83,362 58,501 - -
Purchase commitments-assets(6) 19,477 19,477 - - -
Total $ 203,790 $ 132,261 $ 64,622 $ 2,993 $ 3,914
___________________
(1)Includes lease payments for our Manhattan Beach Project Innovation Center and
corporate offices in El Segundo, California , and our manufacturing facilities in
Columbia, Missouri .
(2)Excludes El Segundo Campus lease agreement entered into subsequent to the
year ended December 31, 2020. See Note 14 , Subsequent Events, to the
Notes to Consolidated Financial Statements included elsewhere in this report.
(3)Consists of payments under various financing leases for certain equipment.
(4)Includes principal and interest accrued at a floating rate under the
Revolving Credit Facility. Subsequent to the year ended December 31, 2020 , on
February 25, 2021 , we paid down our outstanding borrowings and had no borrowings
outstanding under the revolving credit facility.
(5)Consists of commitments to purchase pea protein inventory.
(6)Consists of commitments to purchase property, plant and equipment.
Segment Information
We have one operating segment and one reportable segment, as our CODM, who is
our Chief Executive Officer, reviews financial information on an aggregate basis
for purposes of allocating resources and evaluating financial performance.
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.
We believe that the estimates, assumptions and judgments involved in the
accounting policies described below have the greatest potential impact on our
financial statements because they involve the most difficult, subjective or
complex judgments about the effect of matters that are inherently uncertain.
Therefore, we consider these to be our critical accounting policies.
Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our
actual results may differ from these estimates and assumptions. See Note 2.
Summary of Significant Accounting Policies, to the Notes to Consolidated
Financial Statements included elsewhere in this report for information about
these critical accounting policies as well as a description of our other
accounting policies.
Revenue Recognition
While our revenue recognition does not involve significant judgment, it
represents an important accounting policy. Our revenues are generated through
sales of our products to distributors or customers. Revenue is recognized at the
point in which the performance obligation under the terms of a contract with the
customer have been satisfied and control has transferred. The Company's
performance obligation is typically defined as the accepted purchase order, or
the contract, with the customer which requires the Company to deliver the
requested
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products at agreed upon prices at the time and location of the customer's
choice. The Company does not offer warranties or a right to return on the
products it sells except in the instance of a product recall.
Revenue is measured as the amount of consideration the Company expects to
receive in exchange for fulfilling the performance obligation. Sales and other
taxes the Company collects concurrent with the sale of products are excluded
from revenue. The Company's normal payment terms vary by the type and location
of its customers and the products offered. The time between invoicing and when
payment is due is not significant. None of the Company's customer contracts as
of December 31, 2020 contains a significant financing component.
The Company routinely offers sales discounts and promotions through various
programs to its customers and consumers. These programs include rebates,
temporary on shelf price reductions, off invoice discounts, retailer
advertisements, product coupons and other trade activities. Provision for
discounts and incentives are recorded in the same period in which the related
revenues are recognized. At the end of each accounting period, the Company
recognizes a liability for estimated sales discounts that have been incurred but
not paid. The offsetting charge is recorded as a reduction of revenues in the
same period when the expense is incurred.
The Company recognizes the incremental costs of obtaining contracts as an
expense when incurred if the amortization period of the assets that the Company
otherwise would have recognized is one year or less. The incremental cost to
obtain contracts was not material.
Asset Acquisition and Purchase Price Allocation
We follow the guidance in ASC 805, Business Combinations, for determining
whether an acquisition meets the definition of a business combination or asset
acquisition. ASC 805-10-55-5A through 5C provides a practical screen test to
determine if substantially all the fair value of the assets acquired, generally
90% of the total fair value of assets acquired, is concentrated in a single
asset or group of similar assets. If the initial screening test is met, the
transaction is considered an asset acquisition and not a business combination.
If the initial screening test is not met, further assessment is necessary to
determine if the following are present-outputs, inputs and substantive
processes, an organized workforce to convert existing inputs into output. Based
on the results of this analysis and conclusion on an acquisition's
classification of a business combination or asset acquisition, the accounting
treatment is determined. We use considerable judgment in determining whether the
acquisition of a pool of assets is an acquisition of assets or of a business.
Because acquisition costs are expensed for an acquisition of a business and
capitalized for an acquisition of assets, results of operations could be
materially different based on our determination.
For acquisitions that are accounted for as acquisitions of assets, we record the
acquired tangible and intangible assets and assumed liabilities, if any, based
on each asset's and liability's relative fair value at the acquisition date to
the total purchase price plus capitalized acquisition costs.
Emerging Growth Company Status
Effective December 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.
Recently Adopted Accounting Pronouncements
Please refer to Note 2 , Summary of Significant Accounting Policies, to the
Notes to Consolidated Financial Statements included elsewhere in this report for
a discussion of recently adopted accounting pronouncements and new accounting
pronouncements that may impact us.
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