Welcome to the Beyond Meat, Inc. 2021 First Quarter Conference Call. During the presentation all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Fitzhugh Taylor of ICR.

Please go ahead..

Thank you. Good afternoon, and welcome. On today's call are Ethan Brown, Founder, President and Chief Executive Officer of Beyond Meat; and Lubi Kutua, the company's Vice President of FP&A and Investor Relations.

By now, everyone should have access to the company's first quarter earnings press release and investor presentation filed today after market close. These documents are available on the Investor Relations section of Beyond Meat's website at www.beyondmeat.com.

Before we begin, please note that all of the information presented on today's call is unaudited. And during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws.

These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold.

Please refer to today's press release, the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, the company's quarterly report on Form 10-Q for the quarter ended April 3, 2021, to be filed with the SEC and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Please also note that on today's call, management will refer to adjusted EBITDA and adjusted net income or loss, which are non-GAAP financial measures.

While we believe these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's press release or the investor presentation for a reconciliation of adjusted EBITDA and adjusted net income or loss to their most comparable GAAP measures. And with that, I would like to turn the call over to Ethan Brown.

Ethan?.

the establishment of more localized production within close proximity of our highest priority markets; more integrated end-to-end production processes across a greater proportion of our manufacturing network; scale-driven efficiencies in procurement and fixed cost absorption; further diversification of our core protein ingredient supply chain; continued improvements in throughput across our manufacturing network; certain product and process innovations and reformulations; and packaging optimization.

Clearly, a critical component of our cost-down effort is scale, and I'll take a moment here to elaborate more fully on our strategic investments in capacity in the U.S. and abroad.

We are continuing to optimize commercial production at the Pennsylvania plant we acquired late last year and in support of strategic QSR customers in our retail business, we are adding new lines in our Columbia, Missouri facilities. As recently announced, we've commenced full commercial production at our new facility in Jiaxing, China.

This new plant represents our first end-to-end production facility outside of the U.S., coming just one year after our initial entry into Mainland China. I'm extremely proud of our operations team and our China management who worked so hard to achieve the significant milestone despite travel constraints and other COVID-related barriers.

We expect the Jiaxing facility to significantly speed our path to market while improving our cost structure and the sustainability of our operations in China. As discussed, we are pursuing the same playbook in the EU, where the construction phase of our new facility in The Netherlands is largely complete.

We have been conducting production trial runs over the past several weeks and look forward to full commercial production in the near future. As in China, we expect this local production to make a strong contribution to our cost down and sustainability objectives for the EU.

And in both economies, the EU and China, we are making investments in strong local teams to further accelerate and help manage our growth therein.

As noted, these forward investment and activities have an impact on today's operating expenses and where we are growing into infrastructure gross margin but are important pillars in support of long-term cost down and growth alike. Finally, in early March, we completed, under highly attractive terms, our largest capitalization transaction yet.

We closed $1 billion convertible senior notes offering with a final aggregate principal amount of $1.15 billion after the exercise of the greenshoe option. Net of fees and a simultaneously capped call transaction we entered into, the deal raised $1.04 billion in net proceeds for Beyond Meat.

We see a rapidly growing global market for plant-based meats. We recognize our first mover position, and we will leverage these proceeds to accelerate our capture of market share. I've touched on many of these initiatives today, thematically or specifically.

Given their importance to our investment strategy and future growth, I'll take a moment to summarize seven core buckets of activities. First, we will further our capacity expansion goals, both at existing and new production sites here in the U.S. and abroad. Second, we will expand the Manhattan Beach project here in the U.S.

and establish innovation centers in the EU and China with the goal of advancing the sensory performance of our existing platforms toward their animal protein equivalents, exploring longer-term disruptive technologies and approaches, accelerating and broadening our product pipeline for retail and foodservice customers and supporting our cost-down program through ingredients and process innovation.

Third, we will continue the build out of our new campus here in L.A., which will house along, with our headquarter operations, the Manhattan Beach project and its customer-focused innovation centers.

Fourth, we will further scale up and expand our commercialization activities including our first fully dedicated pilot production facility here in the Los Angeles area. Fifth, we are launching our most aggressive cost-down initiatives yet, with the goal of realizing a step change reduction in unit production costs within the next two to three years.

Sixth, we'd be investing more heavily in our marketing activities around the taste and health attributes of our product lines. And seventh, we will continue to bring in talent required to strengthen critical areas in our business operations, both domestically and abroad.

In summary, we believe we are well poised to embark on our mission of driving the next phase of Beyond Meat's growth as we cross the bridge to mainstream consumption. With that, I'll turn it over to Lubi to walk through our first quarter financial results in a bit more detail..

Thank you, Ethan, and good afternoon, everyone. We achieved net revenues of $108.2 million in the first quarter of 2021, representing an increase of 11.4% compared to the first quarter of 2020. Growth in net revenues in the first quarter was driven by a 14% increase in volume sold, partially offset by lower net price realization.

The latter was mainly driven by increased trade discounts relative to the prior year and, to a lesser extent, by product mix shifts as we sold a greater proportion of large pack items in retail, which carry a lower net price per unit volume. Overall, net price per pound was $5.70 in the first quarter of 2021 compared to $5.83 in Q1 2020.

Looking at our distribution channels in aggregate, retail net revenues increased 45% year-over-year, while foodservice net revenues were down 34% versus the first quarter of 2020. In retail, our volume of products sold increased 52% year-over-year driven by growth in the number of distribution points and contribution from new products.

Overall, across U.S. and international retail, net revenue per pound was lower by approximately 5% year-over-year due to increased trade discounts and product mix shifts. In foodservice, net revenues declined 34% year-over-year as we continued to experience weaker demand due to the ongoing impact of COVID-19.

We will face an easier year-over-year comparison in the second quarter of 2021, however, and therefore, expect to see year-over-year growth in our sales to foodservice customers. On a sequential basis, in the first quarter of 2021, sales to foodservice customers continued their steady, albeit moderate recovery from the Q2 2020 trough.

Although we generally expect continued sequential improvement in our foodservice business as more of the population gets vaccinated and economic activity reopens, we still anticipate that recovery in our foodservice business will generally lag the broader foodservice sector given our exposure to certain channels that have been disproportionately impacted by COVID-19.

Gross profit during the quarter was $32.7 million or 30.2% of net revenues compared to $37.7 million or 38.8% of net revenues in the first quarter of 2020.

The year-over-year decrease in gross margin was primarily driven by higher transportation and warehousing costs, which reduced gross margin by approximately 350 basis points; lower net realized price, which represented a 150 basis point drag; higher depreciation expense, a 140 basis point drag; and increased fixed overhead costs, roughly a 100 basis point drag.

With regard to transportation and warehousing costs, the year-over-year increase was driven by higher lane rates as well as higher inventory levels, particularly for pea protein as we aggregated larger quantities of pea protein due to 2020 volume shortfalls, primarily in our foodservice business.

As we have mentioned before, we do not foresee any inventory obsolescence issues related to pea protein given its long shelf life, and we are gradually beginning to drive down these inventory levels as our revenue growth recovers.

As for the increases in depreciation and fixed overhead expenses, the year-over-year increase was primarily attributable to our three newest production sites in Pennsylvania, China and The Netherlands.

Operating expenses totaled $57.4 million or 53% of net revenues in the first quarter of 2021 as compared to $35.9 million or 37% of net revenues in the year ago period.

The year-over-year increase in operating expenses primarily reflects a significant increase in production trial activities; increased head count levels as we continue to build out our R&D capabilities and support our international expansion plans; higher customer freight costs, which are included in selling expenses; and higher share-based compensation expense.

Net loss in the first quarter of 2021 was $27.3 million or $0.43 per common share as compared to net income of $1.8 million or $0.03 per common share in the first quarter of 2020.

Adjusted net loss, which excludes $1 million in expenses attributable to the early extinguishment of our former credit agreement, was $26.2 million or $0.42 per common share in the first quarter of 2021.

Adjusted EBITDA was a loss of $10.8 million or 10% of net revenues in the first quarter of 2021 compared to adjusted EBITDA of $13.9 million or 14.3% of net revenue in Q1 2020. Turning to our balance sheet and cash flow highlights.

Our cash and cash equivalent balance as well as our total debt outstanding was approximately $1.1 billion as of April 3, 2021. During the quarter, we completed a convertible senior notes offering with an aggregate principal amount of $1.15 billion after taking into account the exercise of a $150 million greenshoe option.

The convertible notes, which carry a 0% coupon, have a six-year maturity and a conversion price of approximately $206 per share of common stock.

In conjunction with the convertible notes offering, we also entered into a privately negotiated capped call transaction, which is generally expected to reduce potential dilution to our common stock up to a price of approximately $279.32 per share.

Net of transaction fees and the capped call, the convertible senior notes offering generated approximately $1.04 billion in net proceeds for Beyond Meat. With respect to cash flow, for the three months ended April 3, 2021, net cash used in operating activities was $30.7 million compared to $17.2 million for the prior year period.

Capital expenditures totaled $23.4 million for the three months ended April 3, 2021, compared to $12.4 million for the prior year period. The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to capacity expansion initiatives, primarily in China and The Netherlands.

Finally, with respect to our outlook for 2021, variability of customer demand levels, particularly in foodservice channels remains elevated as a result of COVID-19-induced disruption. Therefore, given low visibility beyond a limited time horizon, we are continuing to refrain from providing full year financial guidance at this time.

However, in order to provide some degree of visibility into our near-term outlook, we will now provide, on an interim basis, limited quarterly guidance for net revenues.

To this end, for the second quarter of 2021, we expect net revenues to be in the range of $135 million to $150 million, representing a year-over-year increase of 19% to 32% compared to the second quarter of 2020. As a reminder, recall that our second and third quarters are typically our strongest revenue quarters due to the summer grilling season.

However, softer aggregate demand levels and foodservice channels may partially offset this typical seasonality. I'll also remind you that we intend to continue our aggressive investment agenda in 2021, laying the foundation for our longer-term growth by advancing our most critical strategic initiatives.

As such, we continue to expect minimal operating expense leverage this year.

While production trial costs tend to be highly variable from one period to another, keep in mind that sequentially, we typically step up our marketing activity in the second quarter as we enter the summer grilling season, and we will, of course, support the launch of our new 3.0 burger with a robust campaign.

With that, I'll turn the call back over to the operator to open it up for your questions. Thank you..

Thank you. [Operator Instructions] And our first question is from the line of Bryan Spillane with Bank of America. Please go ahead..

Hi. Good afternoon, everyone. I guess just two questions for me. One, in terms of the launch of the 3.0, Ethan, I think you said that it would -- it's hitting store shelves now.

So would you expect it to be fully in stock, I guess, for Labor Day -- or Memorial Day and Labor Day so that the big sort of grilling holidays? And will you be doing a lot more merchandising than maybe you normally do around that period?.

Hi, Bryan, good to hear your voice, and I appreciate the question up here and talk about 3.0. Yes, I mean we certainly planned this launch to make sure that we were locked in for the summer grilling season. So those dates were very meaningful to us as we push the team to finalize.

You will see enhanced activity from us from a shopper marketing perspective. One of the things that's been challenging about COVID is the inability to do the robust sampling programs that we usually do. And in this case, we have such high confidence in this 3.0 version that we'd love to be doing that.

But we'll get at folks in other ways, but you'll see promotional activity around 3.0, you'll see social media activity around it and other means of drawing consumer attention toward it. It's a great advance in terms of the overall sensory experience as well as nutrition where we're lowering the total amount of fat.

We keep the saturated fat at 35% less than 80/20, added B vitamins and other micronutrients. So it's a similar profile to beef. Of course, no cholesterol and no GMO.

So it's a very strong product, both living up to our promise to continue to improve toward the North Star of making an indistinguishable from animal protein as well as offering health advantages to the consumer. So excited to hear reactions from it. And so far, it has been very positive..

All right. Thanks for that. And I guess just to follow, I know you gave some -- there was some guidance around 2Q, but just there's going to be a lot of focus on profit -- on gross margins. I don't -- forgetting about absolute EBITDA levels because there's some investments.

So maybe Lubi, could you give us a little bit of perspective on how we should look at the first quarter as sort of maybe a benchmark for gross margins? Would they improve maybe off of that as we move through the year because you're going to have more of the sort of capacity in market in Europe and in China? And you're working through some of the inventory.

I'm just trying under -- just trying to get a sense for whether or not -- how we should look at the first quarter gross margins maybe as a benchmark for the balance of the year? Thank you..

So Bryan, I'll let Lubi give more detail on this, but I wanted to set some context around margin. So what we're doing now is we're continuing to expand the business for the opportunity ahead. And that relates to all of our strategic partners. It relates to the fact that we're in retail work, we're doing very well, the total points of distribution, etc.

So we are running the business according to a plan that has not changed. It's only accelerated. Yet we're doing that in an environment where the volume and throughput is contracted due to COVID. And so you're going to see the impact on margin there.

But what's interesting about this is, as we continue to expand both infrastructure and personnel to get at some of the scale-driven efficiencies and margin gains, there's obviously a temporary movement in the other direction, right? That's normal, and that's something that we're very comfortable with.

But I don't think it's something that is representative of the future in terms of where we'll go on margin. Lubi is going to unpack kind of where those costs are, whether it's in warehousing or fixed overhead or depreciation, etc. But that's the general picture that exists..

Yes. Sure, Bryan.

So as it relates to our gross margin performance in Q1, right? Part of the reason why we are not offering specific -- we don't want to get too specific with guidance around gross margins for Q2 is there's still a lot of uncertainty around the foodservice side of our business, right? And that obviously can have a potentially significant impact on volumes, which is a large driver of the just volume leverage that we get through our facilities, right? And so without getting too specific, look, there are some things that impacted our margins in Q1 like the warehousing, for instance.

We talked about that being impacted by the levels of pea protein that we have on hand. We talked about transportation costs being impacted. I think some of that will continue into the second quarter.

Of course, with the 3.0 product coming out in the second quarter as well, we are looking to support that with some robust marketing and promotional activity. And so there's a couple of puts and takes in there. And like I said, we don't want to get too specific on margins.

But I think looking at the first quarter and sort of layering on top of those few things that I mentioned is how you should generally be thinking about it..

All right. Thanks, Lubi. Thanks, Ethan. Very helpful..

Yes. Sure..

Our next question is from the line of Robert Moskow with Credit Suisse. Please go ahead..

Hi. Thank you for the question. I want to know if you could give us a little -- I hope you can hear me. Yes, I hope you can give us a little more color on the distribution losses in Europe and how quickly can you regain placement? You're going to switch to a new distributor.

Does that take several quarters? And in -- along with that, when you look at your ramp-up from first quarter to second quarter in terms of your sales guide, how much of that assumes that you get a big pickup in foodservice demand, related either to Europe or even in the U.S.? It looked like you lost some outlets in the U.S.

also, I think, about 2,000.

So maybe you can tell us what's in that assumption sequentially?.

Sure. Good to hear from you, and good questions. So the distribution losses of EU are entirely related to the switching from a distributor and sales partner over there to a new system, including in personnel of our own in Europe, and this is part of the larger program that we have.

I think it's indicative of our ambition for not only the EU, but for China, we are setting up our own operations. These are very large markets. Obviously, they're very favorable for our products and value proposition.

And so what we're doing is switching from the model we've had to kind of fuel these things out and get a sense of how well we'll do over there to one where we're putting in very significant management and facilities and our own sales team. And so this is just a natural progression kind of maturing of how we're approaching the EU market.

And so I don't view this at all as something that's enduring. It is -- it will be a short-term reduction in outlets. And I think even since the last quarter, since the quarter ended, I think we've added globally about 2,400 new spots and those have occurred also in Europe.

I don't know if you saw, I think you heard in the script that we've won a really prestigious award in Germany. And then in the consumer, I think the -- I think they surveyed 10,000 German representative consumers for most innovative brands in the market, and I think Beyond was within the top five next to Tesla.

I think we have a very strong brand resonance with the German consumer. So this was simply a transactional adjustment as we begin to invest more and more in our own team in the EU. On the -- you mentioned something about in the U.S. Those -- that adjustment on our distribution in the U.S. is really just driven by COVID impact.

And those were independent operators that either have been closed or struggling in one way or the other. Did pick up really good partners in the U.S., had a terrific conversation this morning with one that I can't name, but a very compelling partner. So we will continue to see growth in the foodservice points of distribution in the U.S. and globally.

There was a question on ramping up from Q1 to Q2 and how we thought about that relative to foodservice. I think just take a look at the foodservice contribution over the last, I'd say, three quarters. We're not expecting some massive uptick in activity there. So you can start to sort of back out what the retail impact might be.

And what's so exciting, I think, for us, and it should be for shareholders, investors, is the numbers that we're committing ourselves to for the second quarter do not reflect any kind of massive onboarding by one of our strategic partners in the quick-serve restaurant space.

So this continues to be very good growth with the both foodservice and retail partners that we have today and the products we have out today..

Okay. So the bulk of it then is a ramp-up at retail. Does that also include new stores that you're getting into at Walmart and Target? I think there was a press release a few weeks back about that.

Is that in those numbers? And is there may be an inventory build related to that?.

Yes. So you have seen -- I appreciate you picked it up on that, too. We have gotten some really good distribution wins across the first quarter, both in terms of getting new products placed at existing partners as well as opening up just new stores in general, so whether it's Walmart, Kroger, Target, Wegmans, etc., here in the U.S.

And then, of course, the CVS one that we had. But then even international, we continue to grow Migros, and Albert Heijn and Sainsbury's and things like that. So overall, you see this good expansion in retail. And I think the numbers year-over-year speak to that, 45% year-over-year in our U.S. and international retail combined.

The fact that international is up 189% and we're just kind of getting started speaks, I think, to -- or should speak to why we're making on-the-ground investments in the EU and in China..

Yes. Okay. Thank you..

Yes. Thank you..

Our next question is from the line of Adam Samuelson with Goldman Sachs. Please go ahead..

Yes. Thanks. Good afternoon, everyone..

Hi, Adam..

Hi. So I guess my first question, Ethan, is thinking about the recent capital raise that you did, the $1.1 billion from the convert. I guess I'm trying to wrap my head around what you're going to be using the cash for? Because -- I mean you've been burning a little bit of cash.

There's still some investment in the business, but the business model to date has been fairly capital light in terms of how much of your manufacturing and supply chain you actually bring in-house.

And the amount of investment that implies with the amount of capital you brought in would imply there's a big step change about how you're structuring your production, your supply chain. And would just love to dive into that a little bit, if you can provide any more color..

Yes. No, thank you. It's a very good question. And I'll walk through kind of the key buckets, but I also want to walk through set context for the overall philosophy of why we did this. This is truly a moment in time for our industry and for our brand.

It's an opportunity to continue to lead the sector, continue to grow and push this value proposition out into the world. And we wanted to be as well capitalized as we could within reason and position, etc. So what this does is it gives us the opportunity to continue to move at a pace that matches the opportunity.

And so if you look at the relationships we just signed with McDonald's and with Yum! Brands, if you look at a lot of the names that we've been active with even before COVID and particularly before COVID in the QSR space, none of those have gone away as relationships.

And so I wanted to be in a position where I had the personnel, the facilities and the research and development to be the best partner they can possibly have, even as we continue to grow in our retail space. So that was the reason we had a large part for gaining the capital.

But if you look at the very specific spend, it is, as we articulated in the sense of we are continuing to expand our capacity. And that's -- if you look at some of these opportunities, even a single QSR has a potential impact on us of adding many, many, many more lines, both downstream and upstream.

So we want to continue to have capital available to respond to their needs. We're also continuing to add new sites over the years into our production network. The facility we built in China is a state-of-the-art facility, but it won't suffice to feed the market that we envision there. So we'll be building another one as a follow-on item. Our L.A.

campus, we put a state-of-the-art innovation center in as well as headquarters, and that's not only for us, but it's for our key customers. They'll be able to come and use our innovation facility and participate in what we're trying to do. Cost down is enormously important to us.

We want to spend there to continue to drive cost out of our system, and that gets back a little bit to this kind of strange position that we're in today, where we're continuing to expand our production capacity and personnel to be in a position to serve our customers and to serve consumption in retail, which is burdening margin a little bit.

But it will come back and pay us back quite a bit as throughput starts to increase throughout those facilities. So we want to continue to cost down and build the right facilities in the right locations to get local market access, things like that. That's why you've seen us invest in The Netherlands and invest in Jiaxing, and we'll keep doing that.

Regarding marketing, we have a story to tell. We -- there's still a lot of noise out there about the ingredient, things like that. So we want to get out there and be very, very focused on making sure the consumer understands that the products are healthy and a way to continue to advance some of their own health goals.

I think the work we're doing with Stanford over the next three years is representative of that. We're not looking to hand wave and amplify that. We're looking to get data that allows us to help the consumer understand just how powerful this tool can be in their own personal health. And in talent, we keep building out talent.

We keep investing in the best people in the market. The innovation group we have here is going to expand dramatically over the next several years. In Asia and in the EU, we're putting in innovation groups.

So we kind of -- we're ready to go and the market is ready for us, and we just got to get through this COVID period, and you'll see those funds, I think, very well deployed from a shareholder perspective..

That's really helpful color. And if I could just follow up on something you talked about in terms of cost down and it kind of follows on to Bryan's question earlier. As we think about the capacity that you have in place today, clearly, you're running well below your full capacity utilization.

If we thought about your kind of unit cost per pound, just at the COGS level, if you were running more like a 90%, 95% capacity utilization, what would your unit cost per pound be today? And I guess the point there isn't so much the percent gross margin.

I'm just trying to think about how much room does that give you to drive price lower to try to broaden out the potential addressable market with consumers?.

That's a very good question. And we certainly do a lot of modeling over different volume scenarios. That's not something that we can answer on this line, but would be happy to kind of maybe walk through the overall reasoning and then how we're thinking about it on a percentage basis.

But we'd be wary of putting a number out there that people hold us to for right now.

I don't know, Lubi, do you want to add to that?.

No..

Figured I'd try. I appreciate it. I'll pass it on..

Lubi, you were more succinct than I was..

Our next question is from Ken Goldman with JPMorgan. Please go ahead..

Hi, everybody. Thank you. Ethan, thanks for the clarity on the Germany situation, that's helpful. On a related note, I think your slide deck is indicating that you have around 3,000 fewer U.S. foodservice locations now than you did a quarter ago.

So that's right -- is it mainly because of your customers closing all together? Are they independent operators? Or is there a business loss for Beyond in there in particular?.

Yes. It's absolutely COVID related, and these are very small independent operators that I know -- I'm sure you've seen this in your community, where after a certain point, folks are having trouble continuing to make a go at it. But those -- as I mentioned, they're picking back up.

I mean we picked up about 2,400, as I mentioned, right after the quarter -- to the end of the quarter and today. So we're -- it's, I think, just very much a COVID-related phenomenon..

You're assuming I ever leave my home. That's not a fair assumption to make at this point. And then I wanted to ask, your main competitor at retail, their share gains were decelerating for a couple of months there, then their product price got slashed in March, at least what we're seeing in Scanner and then their share gains reaccelerated.

So I know you've said not to expect your pricing to be reactive to competitors. I totally get that.

But just seeing the share trends, does it make you any less likely to stand your ground here? Or are you still sort of saying, look, we're going to produce to our costs and produce and price -- priced -- and price to our costs rather and face it mainly on what we're seeing in our business rather than competitors?.

Yes. No, it's a great question. Thank you. And I believe so strongly in running this business for the long term and not reacting to any short-term issues.

And I think our reaction to COVID has been somewhat painful to the business in that regard and then I've been continuing to invest even though the revenue is contracted, but it's the only way to do things in my view. So same thing on pricing. Like it's really interesting to see what's going on with competition. And you mentioned one of our competitors.

But we will continue to outgrow the category. I think we're up 16%, category is up 6%, gaining market share. The most recent market data actually went up quite a bit, 18.7%, I think, in April. So gaining all these different points of distribution, 46% over last year.

And yet all this competition is occurring, right? And so kind of things I look at, and I'll get to your question, but the buyer rates, the frequency rates, the repeat rates and household penetration, all those are going in the right direction. And buyer rates are highest in the category, plant-based meats.

And so that's a really gratifying number for us. And yes, there's this competition and there's just massive discounting. And yet we're still the number one product as the last four-week data. Beyond Burger is still in a more product four of the top six, there's all this discounting. And so -- and the discounting is deep.

If you look at the competitor that you mentioned, they're discounting, 65% of their sales are done on discount, right? So that's like 2/3. We're about 1/3, which is consistent with the category, right? And so I'm not going to react and get into some sort of discounting war with them. And what's interesting about our category and our products.

We just did some comparative data analysis that we looked at their consumer and our consumer and takeaway and things of that nature, and what's really interesting is while they're doing a really good job building category in terms of bringing new people into the category, they're not sourcing a lot of our consumers.

There's tremendous brand loyalty to Beyond. And so it's a really small number actually in terms of the amount of share that they're sourcing from us. So all in all, it's pretty good, right? They're spending a lot of money. They're marketing a lot.

We're keeping a pretty consistent price point and continuing to grow in distribution and continuing to grow in market share. So -- so far, so good. We'll keep looking at it..

Thank you for the color..

Yes..

Our next question is from Rob Dickerson with Jefferies. Please go ahead..

Great. Thanks so much. I guess first question, Ethan, I just saw the release, I think it was maybe last week, a couple of weeks ago, a lot of releases. It's just incremental distribution of retail in Europe. It sounds like that's healthy.

And then your commentary today kind of implicitly saying kind of more of that bump coming in Q2 maybe in Q3 is more retail driven.

So I'm just curious, like if we think regionally, should we be expecting a little bit more of a bump, let's say, in international off of some increased distribution in Europe relative to what we're seeing in the U.S.? That's the first question. Thanks..

Yes. I mean I think we're going to continue to see some strong growth out of Europe for sure. There were some statistics that I was looking at the other day, where our international in this first quarter alone was like it's half of our 2020 number -- half of our 2020 number in total.

So international, as you can see, is very strong for us, and that's why I'm putting so much money behind Europe and China and trying to get market share as quick as I can over there. So yes, I do think you'll see a relative uptick. But we're also gaining distribution here in the U.S. So it's hard to predict what level of relative gain we'll see..

All right. Cool. And then I guess, just kind of the standard pricing question, realize obviously investing an effort to reduce costs to reduce price.

If we think about kind of the cadence of that pricing decline, and I'm speaking just to beef because I feel like that's kind of what you've spoken to before, would you say that the rate of that price decline potentially tracks more closely to the rate of that reduction in costs, so therefore, there could be some price reduction this year, but if I'm thinking forward three years, right, there could be even more or more of that price reduction would maybe come later as you continue to bring manufacturing in-house?.

Absolutely right. I mean so -- and I don't want to imply that we're not going to discount this year. I mean it's the summer months, come on, you'll see us do what any brand would really do. We'll increase activity there. But overall, our approach to pricing is to try to do in more lockstep.

And I think you'll see whether it's some of these long-term initiatives working on around the alignment of our production, and as you mentioned, bringing more in-house, but also integrated production lines and continuous production lines and then go and compare to local sourcing and some ingredient innovation, things like that.

Those do tend to kick on towards the latter part of that three-year period. So my expectation is you'll see the greater step change during that period than [indiscernible]..

Okay. Makes sense. And I guess just lastly, obviously, appreciate the Q2 revenue guide and all the color around that. And then Lubi, thank you for all the comments you made just in terms of kind of trying to piece the different moving parts of the expense line together.

But I guess, just to kind of ask more directly, if I'm just thinking about EBITDA, right, in Q2, I feel like normally, you do tend to guide EBITDA, not guiding to EBITDA this time.

Is there anything kind of in those expense lines that could face more volatility that just caused you to refrain from guiding to EBITDA? Or frankly, you're just not guiding to EBITDA because optically, it doesn't always look great if expenses are up even though you are investing for the future? So I'm just trying to kind of gauge kind of any of that variability just in the near term and kind of how you're spending.

And that's R&D advertising, what have you, net debt..

No, sure. So I'll let Lubi expand on the details, but we are doing it for the former reason, but of course, enjoy the benefit of the latter..

I get it..

So yes, I mean, there's a lot of scaling and expansion going on, and that is that does -- we can't always -- like for example, putting China, standing that up while we couldn't fly over there, things of that nature.

You just -- it's really hard to provide exact budgets in environment like this when it's being sponsored to opportunity and large capital projects and things like that. So that's the primary reason. But Lubi can expand on it..

Yes, sure, Rob. So if you look at our operating expenses, right, and the change that we've seen from -- going from the first quarter of 2020 to the first quarter of this year, obviously, the increase is fairly substantial, but roughly half of that is just due to increase in head count alone, right? So we are a growing organization.

We're adding additional capabilities internationally, domestically, etc. So half of that is just related to head count.

Another big portion of that is all of this scale up commercialization activity that we are doing, right, to be able to get products out the door, whether it's to some of the large QSR partners that we obviously hope to do business with in the future or whether it's potentially readying products for the retail channel.

And that particular expense bucket, namely the scale-up, there is variability in that, right? So we are scaling up some products that have never been commercialized yet.

And so we definitely wanted to err on the side of caution and not provide an EBITDA target because we know that we're still -- there's still a ton of commercialization activity that needs to be done and that can be relatively variable..

All right. Perfect. Thanks so much, guys. I appreciate it..

Yes. Thank you..

Our next question is from the line of Michael Lavery with Piper Sandler. Please go ahead..

Good afternoon. Thank you. Just wanted to come back to U.S. foodservice, just to make sure I can understand this a little bit better because the trajectory over the course of 2020 for the outlet build was pretty positive, even really in the worst of COVID, going from like a 34,000 to 39,000 to 42,000 and 42,000 and now down to 39,000.

I know New York isn't typical of the country, but I mean it's fun again here. And if anything, everything is opening or reopening, exactly the kind of independent operators, it seems like, you would be referring to.

So just curious if you can really help us understand what happened now that those places would all be closing?.

My sense is it's probably kind of a catch-up number in a sense that this isn't the most real-time information we're getting. So we will distribute through distributors, and these are broad non-distributors.

And so I don't think it's March 31, all these guys closed down or decided to skinny their menus or things like that, that happened over a period of time. But again, as I mentioned, we're gaining distribution back very quickly. We do feel this thawing that's occurring.

It is still -- the mix of our business continues to really be disproportionate right over into retail. I think we're 75-25 retail to foodservice base. If you look back kind of to the really pre-COVID, it was so much stronger on the foodservice side, 50-50, and even before that, it was even higher on foodservice.

So it's just a period where we have to let this thawing occur. I mean as an example, we sell at a lot of stadiums and institutions. And I've down at one of the Laker game tonight, and it's 20% capacity, right? You got to show all this proof that you've been vaccinated.

So it's still a very sticky environment in terms of going out and using the type of venues that Beyond Meat sells into. So I don't know, I mean, New York may be different, but that's kind of the feeling we still have out here. But that doesn't concern me, that number at all.

In fact, this morning, as I mentioned -- I usually like to get ready for this call, but I had two very important customer calls, they were new customers in this space. And so we feel pretty optimistic..

Okay. That's helpful. And just a question on international, looking at some of the same metrics with the outlets on sales, those sales per outlet are around half of what you see in the U.S.

Should we expect that gap to narrow? Or is it more maybe a little bit of a burger, which is obviously your main product, is just a more culturally relevant occasion in the U.S.? Or how do you think about that? And is it the nature of those outlets or is it the consumer? And should that evolve over time?.

Yes. So I think the -- I mean, first, the consumer -- the EU is so -- I don't want to say advanced, but the consumer has an appetite for these types of products in a way that's really recognizable and strong. Our challenge has been just getting over there quickly enough with enough product. So we're so small in terms of our overall distribution there.

But these things like I mentioned in Germany, they're so reassuring because, again, people were saying, very large CPGs in Europe and globally, they're going to really create issues for Beyond, yet here we are in some of their home turf and beating them and beating them with a product that we are still importing.

So as we get production up there and begin to really invest in our own team there, I'm really excited about what we're going to see out there. But right now, it's simply a function of how small we are relative to what's going on here in the U.S., and that's something that we look to correct over the next year..

Okay. That's helpful. Thanks a lot..

Thank you..

Our next question is from Jon Andersen with William Blair. Please go ahead..

All right. Good afternoon..

Hi, Jon..

I have a couple of quick questions. Given that you're on the kind of we're launching 3.0, the new burger at present, I'm wondering if there's anything we can take from the introduction of 2.0, which was a big move forward in terms of taste and other sensorial aspects.

And I'm just thinking here, are there any learnings around potential acceleration in the business that drove either through household penetration, spend rate, opening up new distribution opportunities, etc.?.

That's a good question. To give you real insight onto that, I have to go back and look at that period, but that's a really insightful question. So I think what it does for us, one, it is just a better product. Like so we did extensive CLT, which is central location testing with statistically significant population of consumers.

Did it against 80/20 beef, did it against our 2.0 product and did it against competitors. And the results were obviously strong enough for us to launch it. And what I like the most about this product is that it gets closer from a sensory experience to 80/20 beef.

It is probably a bit of a more neutral taste to it because the underlying flavor chemistry is just better. I have talked about a lot, there's over 4,000 molecules that make meat taste like meat and we have chemists here that are trying to isolate those molecules and then find them in plants and then put those into the right flavor.

And they're getting better at doing that. And so -- but to your question, what this allows us to do and what 2.0 allows us to do is to create another moment to bring the consumer into the brand, right? So it gives us something to really market around as we head into our most important months of the year and bring in new consumers into the space.

We've got some terrific earned social media recently. I mean it's fantastic that people that have been willing to post and talk about us, not as an ambassador but just as a partner to the brand from a consumer perspective.

And I think with the 3.0, you'll see us get really active in that area because we want much broader swath of consumers to experience this product, it's better..

Yes, that's helpful. Thank you. Also, if we think about the EU and Asia, I'm really interested to get your perspective on how the -- to what extent there are differences in those markets relative to the U.S.? And I'm thinking about things like consumer awareness and receptiveness to plant-based meats.

Is there more or less education you think required or more marketing required to prime a pump on awareness and trial? Is it more or less competitive in terms of fragmentation and players? It would be really interesting to kind of just understand kind of what's your -- what and how you're going to need to play in those two markets relative to the way things have developed in the U.S..

Yes. So good question. And so here's how I think we see it. So Europe very well developed; consumer understanding, very high; competitive environment also high. So all of this is a much more mature market.

And by the way, some of the technology in Europe, one of the reasons I want to do innovation over there is that they've got some pretty good technologies and some big universities working on things and stuff that we'd like to get a hold of. And so that, I think, is a European market.

In China, it's kind of maybe a little bit different in the sense that the awareness is -- in the general population is not as high.

Now of course, the Asian markets have a long history of using kind of plant-based meat like products, but this new generation that we're part of a plant-based meat, I would say, there's not as much recognition and a lot of education required.

One of the reasons we picked the general manager that we did for China, just came out of [indiscernible] and was a very high placed executive there, but she had a marketing background. And I wanted to make sure that we understood the China market well and could help capture the imagination and opportunity there.

And so from a competitive perspective, it's more like start-ups. I think Cargill is also over there, doing some things. But it's a different environment. It's not as mature from an understanding perspective or competitive. And so our spend there is going to be different than it is in the EU..

That's really helpful. And if I can squeeze one more in.

On the McDonald's partnership, are there any lines you can draw for us with respect to the approach that you expect that customer to take to introducing the McPlant? I'm just trying to, again, get a sense for -- is it big bang versus very phased? Who's dictating it? Is it centralized? Or is it going to be really determined by the operators in each region and how that can ramp for you?.

First of all, I'm superstitious, since I was very worried that we'd have one analyst call where McDonald's wasn't mentioned. So thank you for mentioning McDonald's. So it's -- they're going to -- really, it's like -- it's such an important customer to us. It's an important partner to us. Our relationship with them has been great for a long time.

We had to just keep reassuring people that was the case. I'm glad that they finally allowed us to talk about that publicly. And what I don't want to do is speak for them. I mean they're going to take an approach that fits their style of introduction.

And so I think you'll see some test go on, but it's really up to them and nothing good can come from me commenting on how they want to roll things out..

Okay, great. I appreciate it. Good luck on the quarter..

Thank you..

Thank you. Thanks so much..

And speakers, I would like to return the call back to you. You may continue with your presentation or closing remarks..

Yes. I'd just like to close it up and, listen, I appreciate everybody's patience. This has obviously been a difficult time for a lot of businesses, including Beyond Meat. But as I said, we have not deterred from continuing to invest in the opportunity that everybody sees and that we have a special position as a first mover on.

So like everybody else, we're very much looking forward to COVID being a thing of the past, and look forward to rejoining with you guys in the next call and, hopefully, reporting some good results. So look forward to it. And thanks, again..

Thank you..

And that does conclude the conference call for today. We thank you all for your participation, and kindly ask that you please disconnect your lines. Have a great day..