UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended April 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-38879
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address, including zip code, of principal executive offices)
(866 ) 756-4112
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 11, 2022, the registrant had 63,542,426 shares of common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS | |||||
Page | |||||
i
Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties concerning the business, products and financial results of Beyond Meat, Inc. (including its subsidiaries unless the context otherwise requires, “Beyond Meat,” “we,” “us,” “our” or the “Company”). We have based these forward-looking statements largely on our current opinions, expectations, beliefs, plans, objectives, assumptions and projections about future events and financial trends affecting the operating results and financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
•the effects of the COVID-19 pandemic on our business, financial condition, cash flows and results of operations, including on our supply chain, the demand for our products, our product and channel mix, labor needs at the Company as well as in the supply chain and at customers, the timing and level of retail purchasing, the timing and level of foodservice purchasing, our manufacturing and co-manufacturing facilities and operations, our inventory levels, our ability to expand and produce in new geographic markets or the timing of such expansion efforts, the pace and success of new product introductions, the timing of new foodservice launches, and on overall economic conditions and consumer confidence and spending levels;
•the impact of uncertainty in our domestic and international supply chain, including labor shortages and disruption and shipping delays and disruption;
•a resurgence of COVID-19 and the impact of variants of the virus that causes COVID-19, which could slow, halt or reverse the reopening process, or result in the reinstatement of social distancing measures, business closures, restrictions on operations, quarantines and travel bans;
•the impact of uncertainty as a result of doing business in China and Europe;
•government or employer mandates requiring certain behaviors from employees due to COVID-19, including COVID-19 vaccine mandates, which could result in employee attrition at the Company, suppliers and customers as well as difficulty securing future labor and supply needs;
•the impact of adverse and uncertain economic and political conditions in the U.S. and international markets;
•the volatility of capital markets and other macroeconomic factors, including due to geopolitical tensions or the outbreak of hostilities or war;
•our ability to effectively manage our growth in the United States and abroad;
•our ability to streamline operations and improve cost efficiencies, which could result in the contraction of our business and the implementation of significant cost cutting measures;
•our ability to identify and execute cost-down initiatives intended to achieve price parity with animal protein;
•the success of operations conducted by joint ventures, such as the Planet Partnership, LLC (“TPP”) with PepsiCo, Inc., where we share ownership and management of a company with one or more parties who may not have the same goals, strategies or priorities as we do and where we do not receive all of the financial benefit;
•the effects of increased competition from our market competitors and new market entrants;
•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 purchases, buying rates (amount spent per buyer) and purchase frequency, and our ability to maintain and increase sales velocity of our products;
•changes in the foodservice landscape, including the timing and level of marketing and other financial incentives to assist in the promotion of our products, our ability to grow market share and attract and
ii
retain new foodservice customers or retain existing foodservice customers, and our ability to introduce and sustain offering of our products on menus;
•the timing and success of distribution expansion and new product introductions in increasing revenues and market share;
•the timing and success of strategic Quick Service Restaurant (“QSR”) partnership launches and limited time offerings resulting in permanent menu items;
•our estimates of the size of our market opportunities and ability to accurately forecast market growth;
•our ability to effectively expand our manufacturing and production capacity, including effectively managing capacity for specific products;
•our ability to accurately forecast our future results of operations, including fluctuations in demand for our products and any increased competition;
•our ability to accurately forecast demand for our products and manage our inventory, including the impact of customer orders ahead of holidays and shelf reset activities, and supply chain and labor disruptions;
•our operational effectiveness and ability to fulfill orders in full and on time;
•variations in product selling prices and costs, and the mix of products sold;
•our ability to successfully enter new geographic markets, manage our international expansion and comply with any applicable laws and regulations, including risks associated with doing business in foreign countries, substantial investments in our manufacturing operations in China and the Netherlands, and our ability to comply with the U.S. Foreign Corrupt Practices Act (“FCPA”) or other anti-corruption laws;
•the effects of global outbreaks of pandemics or contagious diseases or fear of such outbreaks, such as COVID-19;
•the success of our marketing initiatives and the ability to grow brand awareness, maintain, protect and enhance our brand, attract and retain new customers and grow our market share;
•our ability to attract, maintain and effectively expand our relationships with key strategic foodservice partners;
•our ability to attract and retain our suppliers, distributors, co-manufacturers and customers;
•our ability to procure sufficient high-quality raw materials at competitive prices to manufacture our products, especially those impacted by the conflict in the Ukraine or problems in the global supply chain exacerbated by COVID-19 lockdowns in China;
•the availability of pea and other proteins that meets our standards;
•our ability to diversify the protein sources used for our products;
•our ability to differentiate and continuously create innovative products, respond to competitive innovation and achieve speed-to-market;
•our ability to successfully execute our strategic initiatives;
•the volatility associated with ingredient, packaging, transportation and other input costs;
•the impact of inflation across the economy, including higher food, grocery, raw materials, transportation, energy, labor and fuel costs;
•reduced consumer confidence and consumer spending, including spending to purchase our products; and negative trends in consumer purchasing patterns due to consumers’ disposable income, credit availability, debt levels and inflation;
•real or perceived quality or health issues with our products or other issues that adversely affect our brand and reputation;
•our ability to accurately predict consumer taste preferences, trends and demand and successfully innovate, introduce and commercialize new products and improve existing products, including in new geographic markets;
•significant disruption in, or breach in security of our information technology systems and resultant interruptions in service and any related impact on our reputation, including related to data privacy;
iii
•the ability of our transportation providers to ship and deliver our products in a timely and cost effective manner;
•management and key personnel changes, the attraction, training and retention of qualified employees and key personnel and our ability to maintain our company culture;
•risks related to use of a professional employer organization to administer human resources, payroll and employee benefits functions for certain of our international employees, and use of certain third party service providers for the performance of several business operations including payroll and human capital management services;
•the effects of natural or man-made catastrophic or severe weather events particularly involving our or any of our co-manufacturers’ manufacturing facilities or our suppliers’ facilities;
•the impact of marketing campaigns aimed at generating negative publicity regarding our products, brand and the plant-based industry category;
•the effectiveness of our internal controls;
•accounting estimates based on judgment and assumptions that may differ from actual results;
•the requirements of being a public company and effects of increased administration costs related to compliance and reporting obligations;
•our significant indebtedness and ability to repay such indebtedness;
•risks related to our debt, including limitations on our cash flow from operations and our ability to satisfy our obligations under the convertible senior notes; our ability to raise the funds necessary to repurchase the convertible senior notes for cash, under certain circumstances, or to pay any cash amounts due upon conversion; provisions in the indenture governing the convertible senior notes delaying or preventing an otherwise beneficial takeover of us; and any adverse impact on our reported financial condition and results from the accounting methods for the convertible senior notes;
•estimates of our expenses, future revenues, capital expenditures, capital requirements and our needs for additional financing;
•our ability to meet our obligations under our campus innovation and headquarters lease (“Campus Lease”), the timing of occupancy and completion of the build-out of our space, cost overruns, delays and the impact of COVID-19 on our space demands;
•our ability to meet our obligations under leases for our corporate offices, manufacturing facilities and warehouses;
•changes in laws and government regulation affecting our business, including the U.S. Food and Drug Administration (“FDA”) and the U.S. Federal Trade Commission (“FTC”) governmental regulation, and state, local and foreign regulation;
•new or pending legislation, or changes in laws, regulations or policies of governmental agencies or regulators, both in the U.S. and abroad, affecting plant-based meat, the labeling or naming of our products, or our brand name or logo;
•the failure of acquisitions and other investments to be efficiently integrated and produce the results we anticipate;
•risks inherent in investment in real estate;
•the financial condition of, and our relationships with our suppliers, co-manufacturers, distributors, retailers, and foodservice customers, and their future decisions regarding their relationships with us;
•our ability and the ability of our suppliers and co-manufacturers to comply with food safety, environmental or other laws or regulations;
•seasonality, including increased levels of purchasing by customers ahead of holidays, customer shelf reset activity and the timing of product restocking by our retail customers;
•the sufficiency of our cash and cash equivalents to meet our liquidity needs, and service our indebtedness and our ability to access capital markets upon favorable terms, including due to rising interest rates;
•economic conditions and the impact on consumer spending;
iv
•the impact of increased scrutiny from stakeholders, institutional investors and governmental bodies on environmental, social and governance (“ESG”) practices, including expanding mandatory and voluntary reporting, diligence and disclosure on ESG matters;
•the outcomes of legal or administrative proceedings, or new legal or administrative proceedings filed against us;
•our, our suppliers’ and our co-manufacturers’ ability to protect our proprietary technology, intellectual property and trade secrets adequately;
•the impact of tariffs and trade wars;
•the impact of changes in tax laws;
•foreign exchange rate fluctuations; and
•the risks discussed in Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 2, 2022 (the “2021 10-K”), Part II, Item 1A, “Risk Factors,” included herein, and those discussed in other documents we file from time to time with the SEC.
In some cases, you can identify forward-looking statements by the use of words such as “believe,” “may,” “will,” “will continue,” “could,” “will likely result,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “predict,” “project,” “expect,” “potential” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. These forward-looking statements are based on our current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those anticipated or implied in the forward-looking statements.
This report also contains estimates and other statistical data obtained from independent parties and by us relating to market size and growth and other data about our industry and ultimate consumers. The number of retail and foodservice outlets are derived from data through March 2022. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates and data.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date of this report. You should not put undue reliance on any forward-looking statements. We assume no obligation to publicly update or revise any forward-looking statements because of new information, future events, changes in assumptions or otherwise, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
“Beyond Meat,” “Beyond Burger,” “Beyond Beef,” “Beyond Sausage,” “Beyond Breakfast Sausage,” “Beyond Meatballs,” “Beyond Chicken,” the Caped Steer Logo, and “Eat What You Love,” are registered or pending trademarks of Beyond Meat, Inc. in the United States and, in some cases, in certain other countries. All other brand names or trademarks appearing in this report are the property of their respective holders. Solely for convenience, the trademarks and trade names contained herein are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
v
Part I. Financial Information
ITEM I. FINANCIAL STATEMENTS
| BEYOND MEAT, INC. AND SUBSIDIARIES | |||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||
| (In thousands, except share and per share data) | |||||||||||
| (unaudited) | |||||||||||
| April 2, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventory | |||||||||||
Prepaid expenses and other current assets | |||||||||||
| Total current assets | $ | $ | |||||||||
| Property, plant, and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Prepaid lease costs, non-current | |||||||||||
| Other non-current assets, net | |||||||||||
| Investment in unconsolidated joint venture | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity: | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Wages payable | |||||||||||
| Accrued bonus | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
Accrued expenses and other current liabilities | |||||||||||
| Short-term finance lease liabilities | |||||||||||
| Total current liabilities | $ | $ | |||||||||
| Long-term liabilities: | |||||||||||
| Convertible senior notes, net | $ | $ | |||||||||
Operating lease liabilities, net of current portion | |||||||||||
| Finance lease obligations and other long term liabilities | |||||||||||
| Total long-term liabilities | $ | $ | |||||||||
| Commitments and Contingencies (Note 10) | |||||||||||
| (continued on the next page) | |||||||||||
1
| BEYOND MEAT, INC. AND SUBSIDIARIES | |||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||
| (In thousands, except share and per share data) | |||||||||||
| (unaudited) | |||||||||||
| April 2, 2022 | December 31, 2021 | ||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, par value $ | $ | $ | |||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | $ | $ | |||||||||
Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
| Three Months Ended | ||||||||||||||
| April 2, 2022 | April 3, 2021 | |||||||||||||
| Net revenues | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||
| Gross profit | ||||||||||||||
| Research and development expenses | ||||||||||||||
Selling, general and administrative expenses | ||||||||||||||
| Restructuring expenses | ||||||||||||||
| Total operating expenses | ||||||||||||||
| Loss from operations | ( | ( | ||||||||||||
| Other (expense) income, net: | ||||||||||||||
| Interest expense | ( | ( | ||||||||||||
| Other, net | ( | ( | ||||||||||||
| Total other expense, net | ( | ( | ||||||||||||
| Loss before taxes | ( | ( | ||||||||||||
| Income tax expense | ||||||||||||||
| Equity in losses of unconsolidated joint venture | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Net loss per share available to common stockholders—basic and diluted | $ | ( | $ | ( | ||||||||||
| Weighted average common shares outstanding—basic and diluted | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(unaudited)
| Three Months Ended | ||||||||||||||
| April 2, 2022 | April 3, 2021 | |||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Other comprehensive loss, net of tax: | ||||||||||||||
| Foreign currency translation loss, net of tax | ( | ( | ||||||||||||
| Comprehensive loss, net of tax | $ | ( | $ | ( | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BEYOND MEAT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net | — | — | — | |||||||||||||||||||||||||||||||||||
| Purchase of capped calls related to convertible senior notes | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Share-based compensation for equity classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at April 3, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation for equity classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at April 2, 2022 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
BEYOND MEAT, INC. AND SUBSIDIARIES | ||||||||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||||||||
| (In thousands) | ||||||||||||||
| (unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| April 2, 2022 | April 3, 2021 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Non-cash lease expense | ||||||||||||||
| Share-based compensation expense | ||||||||||||||
| Loss on sale of fixed assets | ||||||||||||||
| Amortization of debt issuance costs | ||||||||||||||
| Loss on extinguishment of debt | ||||||||||||||
| Equity in losses of unconsolidated joint venture | ||||||||||||||
| Net change in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Inventories | ( | ( | ||||||||||||
| Prepaid expenses and other assets | ( | ( | ||||||||||||
| Accounts payable | ( | |||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||
| Prepaid lease costs, non-current | ( | |||||||||||||
| Operating lease liabilities | ( | ( | ||||||||||||
| Net cash used in operating activities | $ | ( | $ | ( | ||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Purchases of property, plant and equipment | $ | ( | $ | ( | ||||||||||
| Return (payment) of security deposits | ( | |||||||||||||
| Net cash used in investing activities | $ | ( | $ | ( | ||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Proceeds from issuance of convertible senior notes | $ | $ | ||||||||||||
| Purchase of capped calls related to convertible senior notes | ( | |||||||||||||
| Debt issuance costs | ( | |||||||||||||
| Repayment of revolving credit facility | ( | |||||||||||||
| Principal payments under finance lease obligations | ( | ( | ||||||||||||
| Proceeds from exercise of stock options | ||||||||||||||
| Payments of minimum withholding taxes on net share settlement of equity awards | ( | ( | ||||||||||||
| Net cash provided by financing activities | $ | $ | ||||||||||||
| (continued on the next page) | ||||||||||||||
6
BEYOND MEAT, INC. AND SUBSIDIARIES | ||||||||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||||||||
| (In thousands) | ||||||||||||||
| (unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| April 2, 2022 | April 3, 2021 | |||||||||||||
| Net (decrease) increase in cash and cash equivalents | $ | ( | $ | |||||||||||
| Effect of exchange rate changes on cash | ||||||||||||||
| Cash and cash equivalents at the beginning of the period | ||||||||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest | $ | $ | ||||||||||||
| Taxes | $ | $ | ||||||||||||
Non-cash investing and financing activities: | ||||||||||||||
| Issuance costs of convertible senior notes, accrued not yet paid | $ | $ | ||||||||||||
Non-cash additions to property, plant and equipment | $ | $ | ||||||||||||
| Non-cash additions to financing leases | $ | $ | ||||||||||||
Operating lease right-of-use assets obtained in exchange for lease liabilities | $ | $ | ||||||||||||
(concluded) | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Introduction
The Company
Beyond Meat, Inc., a Delaware corporation (including its subsidiaries unless the context otherwise requires, the “Company”), is a leading plant-based meat company offering a portfolio of revolutionary plant-based meats. The Company builds 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 the Company’s plant-based meat products. The Company’s 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 protein, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare.
As of April 2, 2022, approximately 89.5 % of the Company’s assets were located in the United States.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The global spread and unprecedented impact of COVID-19 continues to create significant volatility, uncertainty and economic disruption. The Company’s operations and its financial results including net revenues, gross profit, gross margin and operating expenses were negatively impacted by COVID-19 in 2020, 2021 and the first quarter of 2022. The extent of COVID-19’s effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), the impact of variants of the virus that causes COVID-19, the wide distribution and public acceptance of COVID-19 vaccines, labor needs at the Company as well as in the supply chain and at customers, compliance with government or employer COVID-19 vaccine mandates and the resulting impact on available labor, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business, results of operations, financial condition or liquidity. While the ultimate health and economic impact of COVID-19 continues to be highly uncertain, the Company expects that the adverse impact of COVID-19 on its business and results of operations, including its net revenues, gross profit, gross margin, earnings and cash flows, will continue into 2022. Future events and effects related to the COVID-19 pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.
Note 2. Summary of Significant Accounting Policies
A detailed description of the Company's significant accounting policies can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 2, 2022 (“2021 10-K”). There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2021 10-K, except as noted below.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in
8
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Foreign Currency
Foreign currency translation losses, net of tax, reported as cumulative translation adjustments through “Other comprehensive loss” were $0.7 million and $1.3 million for the three months ended April 2, 2022 and April 3, 2021, respectively. Realized and unrealized foreign currency transaction losses, net included in “Other, net” were $1.1 million and $0.3 million during the three months ended April 2, 2022 and April 3, 2021, respectively.
Fair Value of Financial Instruments
The Company had no financial instruments measured at fair value on a recurring basis as of April 2, 2022 and December 31, 2021.
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2 or Level 3 for the three months ended April 2, 2022.
Revenue Recognition
At the end of each accounting period, the Company recognizes a contra asset to accounts receivable for estimated sales discounts that have been incurred but not paid which totaled $4.3 million and
9
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Presentation of Net Revenues by Channel
The following table presents the Company’s net revenues by channel:
| Three Months Ended | ||||||||||||||
| (in thousands) | April 2, 2022 | April 3, 2021 | ||||||||||||
| U.S.: | ||||||||||||||
| Retail | $ | $ | ||||||||||||
| Foodservice | ||||||||||||||
| U.S. net revenues | ||||||||||||||
| International: | ||||||||||||||
| Retail | ||||||||||||||
| Foodservice | ||||||||||||||
| International net revenues | ||||||||||||||
| Net revenues | $ | $ | ||||||||||||
One customer and one distributor accounted for approximately 12 % and 10 % of the Company’s gross revenues, respectively, in the three months ended April 2, 2022; and one customer accounted for approximately 11 % of the Company’s gross revenues in the three months ended April 3, 2021. No other customer or distributor accounted for more than 10% of the Company’s gross revenues in the three months ended April 2, 2022 and April 3, 2021.
Investment in Joint Venture
The Company uses the equity method of accounting to record transactions associated with its joint venture when the Company shares in joint control of the investee. Investment in joint venture is not consolidated but is recorded in “Investment in unconsolidated joint venture” in the Company’s condensed consolidated balance sheets. The Company recognizes its portion of the investee’s results in “Equity in losses of unconsolidated joint venture” in its condensed consolidated statements of operations. The Company eliminates its proportionate interest in any intra-entity profits or losses in the inventory of the investee at the end of the reporting period and recognizes its portion of the profit and losses when realized by the investee.
Recently Adopted Accounting Pronouncements
None.
Note 3. Restructuring
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 4. Leases
Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification 842. The Company has operating leases for its corporate offices, including its Manhattan Beach Project Innovation Center where the Company’s research and development facility is located, its manufacturing facilities, commercialization center, warehouses and vehicles, and to a lesser extent, certain equipment and finance leases. Such leases generally have original lease terms between two years and 12 years, and often include one or more options to renew. Some leases also include early termination options, which can be exercised under specific conditions. The Company includes options to extend the lease term if the options are reasonably certain of being exercised. The Company currently considers its renewal options to be reasonably certain to be exercised. The Company does not have residual value guarantees or material restrictive covenants associated with its leases.
On January 14, 2021, the Company entered into the Campus Lease, a 12 -year lease with two 5 -year renewal options to house its corporate headquarters, lab and innovation space in El Segundo, California. The Company has not recognized an asset or a liability for the Campus Lease in its consolidated balance sheet as of April 2, 2022 because there was no lease commencement during the three months ended April 2, 2022. Therefore, the Campus Lease is not included in the tables below.
Lease costs for operating and finance leases were as follows:
| Three Months Ended | ||||||||||||||||||||
| (in thousands) | Statement of Operations Location | April 2, 2022 | April 3, 2021 | |||||||||||||||||
| Operating lease cost: | ||||||||||||||||||||
| Lease cost | Cost of goods sold | $ | $ | |||||||||||||||||
| Lease cost | Research and development expenses | |||||||||||||||||||
| Lease cost | Selling, general and administrative expenses | |||||||||||||||||||
Variable lease cost(1) | Cost of goods sold | |||||||||||||||||||
| Operating lease cost | $ | $ | ||||||||||||||||||
| Short-term lease cost | Selling, general and administrative expenses | $ | $ | |||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||
| Amortization of right-of use assets | Cost of goods sold | $ | $ | |||||||||||||||||
| Interest on lease liabilities | Interest expense | |||||||||||||||||||
| Finance lease cost | $ | $ | ||||||||||||||||||
Total lease cost(2) | $ | $ | ||||||||||||||||||
____________
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
11
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Supplemental balance sheet information as of April 2, 2022 and December 31, 2021 related to leases are as follows:
| (in thousands) | Balance Sheet Location | April 2, 2022 | December 31, 2021 | |||||||||||||||||
Assets(1) | ||||||||||||||||||||
| Operating leases | Operating lease right-of-use assets | $ | $ | |||||||||||||||||
| Finance leases, net | ||||||||||||||||||||
| Total lease assets | $ | $ | ||||||||||||||||||
Liabilities(1) | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Operating lease liabilities | Current portion of operating lease liabilities | $ | $ | |||||||||||||||||
| Finance lease liabilities | Short-term finance lease liabilities | |||||||||||||||||||
| Long-term: | ||||||||||||||||||||
| Operating lease liabilities | Operating lease liabilities, net of current portion | |||||||||||||||||||
| Finance lease liabilities | ||||||||||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||||||||
___________
The following is a schedule by year of the maturities of lease liabilities with original terms in excess of one year, as of April 2, 2022:
April 2, 2022 | ||||||||||||||
| (in thousands) | Operating Leases(1) | Finance Leases | ||||||||||||
| Remainder of 2022 | $ | $ | ||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total undiscounted future minimum lease payments | ||||||||||||||
| Less imputed interest | ( | ( | ||||||||||||
| Total discounted future minimum lease payments | $ | $ | ||||||||||||
___________
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Weighted average remaining lease terms and weighted average discount rates were:
April 2, 2022 | ||||||||||||||
Operating Leases(1) | Finance Leases | |||||||||||||
| Weighted average remaining lease term (years) | ||||||||||||||
| Weighted average discount rate | % | % | ||||||||||||
___________
Note 5. Inventories
Major classes of inventory were as follows:
| (in thousands) | April 2, 2022 | December 31, 2021 | |||||||||
| Raw materials and packaging | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
Note 6. Property, Plant and Equipment
Property, plant, and equipment are stated at cost and finance lease assets are included. A summary of property, plant, and equipment as of April 2, 2022 and December 31, 2021, is as follows:
| (in thousands) | April 2, 2022 | December 31, 2021 | ||||||||||||
| Manufacturing equipment | $ | $ | ||||||||||||
| Research and development equipment | ||||||||||||||
| Leasehold improvements | ||||||||||||||
| Building | ||||||||||||||
| Finance leases | ||||||||||||||
| Software | ||||||||||||||
| Furniture and fixtures | ||||||||||||||
| Vehicles | ||||||||||||||
| Land | ||||||||||||||
| Assets not yet placed in service | ||||||||||||||
| Total property, plant and equipment | $ | $ | ||||||||||||
| Less: accumulated depreciation and amortization | ||||||||||||||
| Property, plant and equipment, net | $ | $ | ||||||||||||
Depreciation and amortization expense for the three months ended April 2, 2022 and April 3, 2021 was $7.1 million and $4.3 million, respectively. Of the total depreciation and amortization expense in the three months ended April 2, 2022 and April 3, 2021, $6.0 million and $3.4 million, respectively, were recorded in cost of goods sold, $1.0 million and $0.9 million, respectively, were recorded in research and development expenses, and $0.1 million and $0 , respectively, were recorded in SG&A expenses in the Company’s condensed consolidated statements of operations.
13
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 7. Debt
The following is a summary of debt balances as of April 2, 2022 and December 31, 2021:
| (in thousands) | April 2, 2022 | December 31, 2021 | |||||||||
| Convertible senior notes | $ | $ | |||||||||
| Debt issuance costs | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
Convertible Senior Notes
On March 5, 2021, the Company issued $1.0 billion aggregate principal amount of its 0 % Convertible Senior Notes due 2027 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. On March 12, 2021, the initial purchasers of the Convertible Notes exercised their option to purchase an additional $150.0 million aggregate principal amount of the Company’s 0 % Convertible Senior Notes due 2027 (the “Additional Notes,” and together with the Convertible Notes, the “Notes”), and such Additional Notes were issued on March 16, 2021.
The total amount of debt issuance costs of $23.6 million was recorded as a reduction to “Convertible senior notes, net” in the condensed consolidated balance sheet and are being amortized as interest expense over the term of the Notes using the effective interest method. During the three months ended April 2, 2022 and April 3, 2021, the Company recognized $1.0 million and $0.3 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes.
The following is a summary of the Company’s Notes as of April 2, 2022:
| (in thousands) | Principal Amount | Unamortized Issuance Costs | Net Carrying Amount | Fair Value | ||||||||||||||||||||||||||||
| Amount | Leveling | |||||||||||||||||||||||||||||||
| $ | $ | $ | $ | Level 2 | ||||||||||||||||||||||||||||
The Notes are carried at face value less the unamortized debt issuance costs on the Company’s condensed consolidated balance sheets. As of April 2, 2022, the estimated fair value of the Notes was approximately $0.7 billion. The Notes are quoted on the Intercontinental Exchange and are classified as Level 2 financial instruments. The estimated fair value of the Notes was determined based on the actual bid price of the Notes on April 1, 2022, the last business day of the period.
As of April 2, 2022, the remaining life of the Notes is approximately 5.0 years.
Revolving Credit Facility
On March 2, 2021, the Company terminated its secured revolving credit agreement, dated as of April 21, 2020 (the “Credit Agreement”).
14
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company recorded debt issuance costs on the revolving credit facility in “Prepaid and other non-current assets, net” in the accompanying condensed consolidated balance sheet. Debt issuance costs associated with the revolving credit facility were amortized as interest expense over the term of the loan for which amortization of $0 and $40,800 , respectively, was recorded during the three months ended April 2, 2022 and April 3, 2021.
In the three months ended April 2, 2022 and April 3, 2021, the Company incurred $0 and $0.3 million, respectively, in interest expense related to its bank credit facilities.
Upon termination of the revolving credit facility, unamortized debt issuance costs of $1.0 million associated with the revolving credit facility were written off as “Loss on extinguishment of debt,” which is included in “Other, net” in the condensed consolidated statement of operations.
Note 8. Stockholders’ Equity
As of April 2, 2022, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,525,399 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no
As of December 31, 2021, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,400,899 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no
The Company has not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock.
Note 9. Share-Based Compensation
In 2019, the Company’s 2011 Equity Incentive Plan (“2011 Plan”) was amended, restated and re-named the 2018 Equity Incentive Plan (the “2018 Plan”), and the remaining shares available for issuance under the 2011 Plan were added to the shares reserved for issuance under the 2018 Plan. As of January 1, 2022, the maximum aggregate number of shares that may be issued under the 2018 Plan increased to 20,915,919 shares, which includes an increase of 2,144,521 shares effective January 1, 2022 under the terms of the 2018 Plan.
The following table summarizes the shares available for grant under the 2018 Plan:
| Shares Available for Grant | |||||
| Balance - December 31, 2021 | |||||
| Authorized | |||||
| Granted | ( | ||||
| Shares withheld to cover taxes | |||||
| Forfeited | |||||
| Balance - April 2, 2022 | |||||
15
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of April 2, 2022 and December 31, 2021, there were 4,407,683 and 3,956,364 shares, respectively, issuable under stock options outstanding, 948,684 and 608,175 shares, respectively, issuable under unvested RSUs outstanding, 7,869,381 and 7,730,884 shares, respectively, issued for stock option exercises, RSU settlement, and restricted stock grants, and 7,740,971 and 6,515,807 shares, respectively, available for grants under the 2018 Plan.
Stock Options
Following are the assumptions used in the Black-Scholes valuation model for options granted during the periods shown below:
| Three Months Ended | ||||||||||||||
| April 2, 2022 | April 3, 2021 | |||||||||||||
| Risk-free interest rate | ||||||||||||||
| Average expected term (years) | ||||||||||||||
| Expected volatility | ||||||||||||||
| Dividend yield | ||||||||||||||
Option grants to new employees in the three months ended April 2, 2022 and April 3, 2021 generally vest 25 3-year 25 % of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining 3 -year period, subject to continued employment through the vesting date. Option grants to continuing employees in the three months ended April 3, 2021 generally vest monthly over a 48-month period, subject to continued employment through the vesting date. Option grant to one executive officer in the three months ended April 3, 2021 vested over three months from the vesting commencement date.
The following table summarizes the Company’s stock option activity during the three months ended April 2, 2022:
| Number of Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (in thousands)(1) | ||||||||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | |||||||||||||||||||||
| Granted | $ | — | $ | — | |||||||||||||||||||
| Exercised | ( | $ | — | $ | |||||||||||||||||||
| Cancelled/Forfeited | ( | $ | — | $ | — | ||||||||||||||||||
| Outstanding at April 2, 2022 | $ | $ | |||||||||||||||||||||
| Vested and exercisable at April 2, 2022 | $ | $ | |||||||||||||||||||||
| Vested and expected to vest at April 2, 2022 | $ | $ | |||||||||||||||||||||
__________
16
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
During the three months ended April 2, 2022 and April 3, 2021, the Company recorded in aggregate $4.1 million and $3.4 million, respectively, of share-based compensation expense related to options. The share-based compensation expense is included in cost of goods sold, research and development expenses and SG&A expenses in the Company’s condensed consolidated statements of operations.
As of April 2, 2022, there was $32.5 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over a weighted average period of 1.6 years.
Restricted Stock Units
RSU grants to new and continuing employees in the three months ended April 2, 2022 generally vest 25 % of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining 3 years of the award, subject to continued employment through the vesting date. Some of the RSU grants to continuing employees in the three months ended April 2, 2022 vest 50 % of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining 4 quarters of the award, subject to continued employment through the vesting date. RSU awards to nonemployee ambassadors in the three months ended April 2, 2022 vest on varying dates, subject to continued service through the vesting date.
RSU grants to new employees in the three months ended April 3, 2021 vest 25 % of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining 3 years of the award, subject to continued employment through the vesting date. RSU grants to continuing employees in the three months ended April 3, 2021 generally vest quarterly over 16 quarters, subject to continued employment through the vesting date. RSU grants in the three months ended April 3, 2021 include fully vested RSUs granted to an executive officer issued in settlement of the obligation discussed below under Share-Settled Obligation. RSU grant to one executive officer in the three months ended April 3, 2021 vested 100 % over three months from the vesting commencement date. There were no RSU grants to nonemployee ambassadors in the three months ended April 3, 2021.
The following table summarizes the Company’s RSU activity during the three months ended April 2, 2022:
| Number of Units | Weighted Average Grant Date Fair Value Per Unit | |||||||||||||
| Unvested at December 31, 2021 | $ | |||||||||||||
| Granted | $ | |||||||||||||
Vested(1) | ( | $ | ||||||||||||
| Cancelled/Forfeited | ( | $ | ||||||||||||
| Unvested at April 2, 2022 | $ | |||||||||||||
________
(1) Includes 9,917 shares of common stock that were withheld to cover taxes on the release of vested RSUs and became available for future grants pursuant to the 2018 Plan.
During the three months ended April 2, 2022 and April 3, 2021, the Company recorded in aggregate $5.2 million and $2.9 million, respectively, of share-based compensation expense related to RSUs. The share-based compensation expense is included in cost of goods sold, research and development expenses and SG&A expenses in the Company’s condensed consolidated statements of operations.
17
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of April 2, 2022, there was $33.3 million in unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted average period of 1.5 years.
Share-Settled Obligation
Share-based compensation expense in the three months ended April 2, 2022 and April 3, 2021 includes $0 and $0.8 million, respectively, for a liability classified, share-settled obligation to an executive officer related to a sign-on award pursuant to the terms of the executive officer’s offer letter with the Company. The share-based compensation expense related to this share-settled obligation is included in SG&A expenses in the Company’s condensed consolidated statements of operations. Financing activities in the statement of cash flows for the three months ended April 2, 2022 and April 3, 2021 includes $0 and $0.8 million, respectively, noncash reclassification of the share-settled obligation from “Other current liabilities” to “Additional paid-in capital.”
In the first quarter of 2021, a quarterly tranche related to this obligation was earned, and the Company delivered to this executive officer 6,066 fully vested RSUs with a settlement date fair value of $0.8 million.
Restricted Stock to Nonemployees
As of April 2, 2022, no shares of restricted stock had been issued to nonemployee brand ambassadors.
During the three months ended April 2, 2022 and April 3, 2021, the Company recorded in aggregate $0 and $0.2 million, respectively, of share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors, which is included in SG&A expenses in the Company’s condensed consolidated statements of operations.
Employee Stock Purchase Plan
As of April 2, 2022, the maximum aggregate number of shares that may be issued under the 2018 Employee Stock Purchase Plan (“ESPP”) was 2,412,585 shares of common stock, including an increase of 536,130 shares effective January 1, 2022 under the terms of the ESPP. The ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The administrator has not yet approved an offering under the ESPP.
Note 10. Commitments and Contingencies
Leases
On January 14, 2021, the Company entered into the Campus Lease with HC Hornet Way, LLC, a Delaware limited liability company (the “Landlord”), to house the Company’s lab and innovation space and headquarters offices in El Segundo, California.
In the three months ended April 2, 2022, the Company paid $0.3 million in payments towards common area maintenance, parking, and insurance. No such payments were made in the three months ended April 3, 2021.
Although the Company is involved in the design of the tenant improvements of the Premises, the Company does not have title or possession of the assets during construction. In addition, the Company does not have the ability to control the leased Premises until each phase of the tenant improvements is complete. As of April 2, 2022, the tenant improvements associated with Phase 1-A had not been completed, and the underlying asset had not been delivered to the Company. Accordingly, there was no
18
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
lease commencement during the three months ended April 2, 2022. Therefore, the Company has not recognized an asset or a liability for the Campus Lease in its condensed consolidated balance sheets as of April 2, 2022 and December 31, 2021. The Company contributed $37.0 million and $59.2 million in payments to a construction escrow account in the three months ended April 2, 2022 and the year ended December 31, 2021, respectively. These payments are recorded in “Prepaid lease costs, non-current” in the Company’s condensed consolidated balance sheets as of April 2, 2022 and December 31, 2021, respectively, which will ultimately be recorded as a component of a right-of-use asset upon lease commencement.
Concurrent with the Company’s execution of the Campus Lease, as a security deposit, the Company delivered to the Landlord a letter of credit in the amount of $12.5 million which amount will decrease to: (i) $6.3 million on the fifth (5th) anniversary of the Rent Commencement Date (as defined in the Campus Lease); (ii) $3.1 million on the eighth (8th) anniversary of the Rent Commencement Date; and (iii) $0 in the event the Company receives certain credit ratings; provided the Company is not then in default of its obligations under the Campus Lease. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured.
China Investment and Lease Agreement
On September 22, 2020, the Company and its wholly-owned subsidiary, Beyond Meat (Jiaxing) Food Co., Ltd. (“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 the Company has agreed to guarantee certain repayment obligations of BYND JX under such agreement.
During Phase 1, the Company had agreed to invest $10.0 million in the JXEDZ through an intercompany investment in BYND JX and BYND JX has agreed to lease a facility in the JXEDZ for a minimum of two years . In connection with such agreement, BYND JX entered into a factory leasing contract with an affiliate of the JX Committee, pursuant to which BYND JX has agreed to lease and renovate a facility in the JXEDZ and lease it for a minimum of two years . In the event that the Company and BYND JX determine, in their sole discretion, to proceed with the Phase 2 development in the JXEDZ, BYND JX has agreed in the first stage of Phase 2 to increase its registered capital by $30.0 million and to acquire the land use right to a state-owned land plot in the JXEDZ to conduct development and construction of a new production facility. Following the first stage of Phase 2, the Company and BYND JX may determine, in their sole discretion, to permit BYND JX to obtain a second state-owned land plot in the JXEDZ in order to construct an additional facility thereon.
The Planet Partnership
On January 25, 2021, the Company entered into TPP, a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack and beverage products made from plant-based protein. For the three months ended April 2, 2022 and April 3, 2021, the Company recognized its share of the net losses in TPP, in the amount of $0.7 million and $0.4 million, respectively. See Note 2.
Purchase Commitments
As of April 2, 2022, the Company had committed to purchase pea protein inventory totaling $34.6 million in 2022.
19
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Litigation
Don Lee Farms
On May 25, 2017, Don Lee Farms, a division of Goodman Food Products, Inc., filed a complaint against the Company in the Superior Court of the State of California for the County of Los Angeles asserting claims for breach of contract, misappropriation of trade secrets, unfair competition under the California Business and Professions Code, money owed and due, declaratory relief and injunctive relief, each arising out of the Company’s decision to terminate an exclusive supply agreement between the Company and Don Lee Farms. The Company denied all of these claims and filed counterclaims on July 27, 2017, alleging breach of contract, unfair competition under the California Business and Professions Code and conversion. In October 2018, the former co-manufacturer filed an amended complaint that added one of the Company’s then current contract manufacturers as a defendant, principally for claims arising from the then current contract manufacturer’s alleged use of the former co-manufacturer’s alleged trade secrets, and for replacing the former co-manufacturer as one of the Company’s co-manufacturers. The then current contract manufacturer filed an answer denying all of Don Lee Farms’ claims and a cross-complaint against Beyond Meat asserting claims of total and partial equitable indemnity, contribution, and repayment. On March 11, 2019, Don Lee Farms filed a second amended complaint to add claims of fraud and negligent misrepresentation against the Company. On May 30, 2019, the judge denied the Company’s motion to dismiss the fraud and negligent misrepresentation claims, allowing the claims to proceed. On June 19, 2019, the Company filed an answer denying Don Lee Farms' claims.
On January 24, 2020, a writ judge granted Don Lee Farms a right to attach in the amount of $628,689 on the grounds that Don Lee Farms had established a “probable validity” of its claim that Beyond Meat owes Don Lee Farms money for a small batch of unpaid invoices. This determination was not made by the trial judge.
On January 27, 2020, Don Lee Farms filed a third amended complaint to add three individual defendants, all of whom are current or former employees of the Company, including Mark Nelson, the Company’s former Chief Financial Officer and Treasurer, to Don Lee Farms’ existing fraud claims alleging that those individuals were involved in the alleged fraudulent misrepresentations. On June 23, 2020, the judge denied Beyond Meat and the individual defendants’ motion to dismiss the fraud and negligent misrepresentation claims, allowing the claims to proceed. On July 6, 2020, the Company and the individual defendants filed an answer denying all of Don Lee Farms’ claims, including denying all allegations of fraud and negligent misrepresentation.
On August 11, 2020, the Company filed an amended cross-complaint against Don Lee Farms, its parent Goodman Food Products, Inc. and its owners and employees, Donald, Daniel, and Brandon Goodman. Among other claims, the amended cross-complaint alleges that Don Lee Farms defrauded Beyond Meat, misappropriated its trade secrets, and infringed its trademarks.
On January 28, 2021, Don Lee Farms filed a motion for summary adjudication on its breach of contract and money owed claims and on Beyond Meat’s breach of contract claims. On February 18, 2021, Don Lee Farms and Donald, Daniel and Brandon Goodman filed a motion for summary adjudication on Beyond Meat’s fraud, negligent misrepresentation, and conversion claims.
On February 16, 2021, the Court entered an order consolidating this action with an action that Don Lee Farms filed against CLW Foods, LLC, a current Beyond Meat contract manufacturer. On February 22, 2021, CLW Foods, LLC requested a continuance of the trial date, which the Court granted.
On March 19, 2021, Don Lee Farms requested the dismissal, without prejudice, of Don Lee Farms’ claims against the Company’s former contract manufacturer, ProPortion Foods, LLC and current contract manufacturer CLW Foods, LLC. On, March 23, 2021, ProPortion Foods, LLC requested that its claims
20
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
against the Company be dismissed without prejudice. On March 26, 2021, the Court granted Don Lee Farms’ request to dismiss its claims against ProPortion Foods, LLC and CLW Foods, LLC; and granted ProPortion Foods, LLC request to dismiss its claims against the Company.
On May 7, 2021, the Court ruled on Don Lee Farms’ motions for summary adjudication. The Court granted Don Lee Farms’ motion for summary adjudication on its breach of contract and money owed claims, and Beyond Meat’s negligent misrepresentation and conversion claims. The Court denied Don Lee Farms’ motion for summary adjudication on Beyond Meat’s breach of contract and fraud claims, allowing Beyond Meat’s claims to proceed to trial.
On June 11, 2021, former Beyond Meat employees Mark Nelson and Tony Miller, and current employee, Jessica Quetsch (collectively, the “individual defendants”), filed a motion for summary adjudication on Don Lee Farms’ fraud claim asserted against them. On June 11, 2021, the Company filed a motion for summary adjudication on Don Lee Farms’ fraud and negligent misrepresentation claims, misappropriation of trade secret claim, and unfair competition claim under the California Business and Professions Code. On August 27, 2021, the Court ruled on the individual defendants’ and the Company’s motions for summary adjudication. The Court denied the individual defendants’ motion for summary adjudication. The Court also denied the Company’s motion for summary adjudication on Don Lee Farms’ fraud and negligent misrepresentation claims. The Court granted the Company’s motion for summary adjudication on Don Lee Farms’ trade secret misappropriation and unfair competition claims. Don Lee Farms’ trade secret misappropriation and unfair competition claims will not proceed to trial.
On January 27, 2022, Don Lee Farms filed a motion for summary adjudication on Beyond Meat’s trade secret misappropriation claim. On April 19, 2022, the Court denied Don Lee Farms motion for summary adjudication on Beyond Meat’s trade secret misappropriation claim. Beyond Meat’s trade secret misappropriation claim will proceed to trial.
The previous trial date, May 16, 2022, was continued. Trial is currently set for September 26, 2022.
Don Lee Farms is seeking from Beyond Meat and the individual defendants unspecified compensatory and punitive damages, declaratory and injunctive relief, and attorneys’ fees and costs. The Company is seeking from Don Lee Farms monetary damages, restitution of monies paid to Don Lee Farms, injunctive relief, including the prohibition of Don Lee Farms’ use or disclosure of Beyond Meat’s trade secrets and the prohibition of Don Lee Farms’ infringing use of Beyond Meat’s trademarks, and attorneys’ fees and costs.
The Company believes it was justified in terminating the supply agreement with Don Lee Farms, that the Company is not liable for the fraud or negligent misrepresentation alleged in the third amended complaint, and that Don Lee Farms is liable for the conduct alleged in the Company’s amended cross-complaint. Conversely, as alleged in the Company’s amended cross-complaint, the Company believes Don Lee Farms misappropriated the Company’s trade secrets, defrauded the Company, and ultimately has infringed the Company’s trademarks.
The Company is currently in the process of litigating this matter and intends to vigorously defend itself and its current and former employees against the claims and to prosecute the Company’s own claims.
The Company cannot provide assurance that Don Lee Farms will not prevail in all or some of their claims against the Company or the individual defendants, or that the Company will prevail in some or all of its claims against Don Lee Farms. For example, if Don Lee Farms succeeds in the lawsuit, the Company could be required to pay damages, including but not limited to contract damages reasonably calculated at what the Company would have paid Don Lee Farms to produce the Company’s products through 2019, the end of the contract term. Based on the Company’s current knowledge, the Company
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Notes to Unaudited Condensed Consolidated Financial Statements (continued)
has determined that the amount of any material loss or range of any losses that is reasonably possible to result from this lawsuit is not estimable.
Securities Related Litigation
On January 30, 2020, Larry Tran, a purported shareholder of Beyond Meat, filed a putative securities class action lawsuit in the United States District Court for the Central District of California against Beyond Meat and two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s former Chief Financial Officer and Treasurer, Mark Nelson. As noted here and in previous filings, the Tran securities class action was dismissed with prejudice on October 27, 2020, except for the class allegations of absent putative class members, which were dismissed without prejudice.
On March 16, 2020, Eric Weiner, a purported shareholder of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court for the Central District of California, putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s former Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 10(b) and 21D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), claims of breaches of fiduciary duty as directors and/or officers of Beyond Meat, and claims of unjust enrichment and waste of corporate assets, all relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to March 16, 2020, and the Tran securities case brought against the Company.
On March 18, 2020, Kimberly Brink and Melvyn Klein, purported shareholders of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court for the Central District of California, putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s former Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 10(b) and 21D of the Exchange Act, claims of breaches of fiduciary duty as directors and/or officers of Beyond Meat, and claims of unjust enrichment and waste of corporate assets, all relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to March 18, 2020, and the Tran securities case brought against the Company.
On May 27, 2020, Kevin Chew, a purported shareholder of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court of the District of Delaware (the “Chew Derivative Action”), putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s former Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 10(b) and 21D of the Exchange Act and claims of breaches of fiduciary duty, relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to May 27, 2020. On June 16, 2020, the Court entered an order staying all proceedings in the derivative action until (1) the Tran securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the Tran securities class action is denied in whole or in part. On June 17, 2020, the Court entered an order administratively closing the derivative case based on the stay order. On July 29, 2021, the Court entered a Joint Stipulation to Continue the Stay of the Action, staying the case until the resolution of the California Derivative Action.
On April 1, 2020, the United States District Court for the Central District of California entered an order consolidating the Weiner action and the Brink/Klein action for all purposes and designated the
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Notes to Unaudited Condensed Consolidated Financial Statements (continued)
consolidated case In re: Beyond Meat, Inc. Derivative Litigation (the “California Derivative Action”). On April 13, 2020, the Court entered an order appointing co-lead counsel for the California Derivative Action. On June 23, 2020, the Court entered an order approving a Joint Stipulation Regarding Stay of Actions. Under the terms of the stay approval order, all proceedings in the California Derivative Action are stayed until (1) the Tran securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the Tran securities class action is denied in whole or in part. As noted herein and in previous filings, the Tran securities class action was dismissed with prejudice on October 27, 2020, except for the class allegations of absent putative class members, which were dismissed without prejudice. On April 20, 2021, the parties filed a joint stipulation regarding briefing schedule, and the Court entered a schedule on April 21, 2021.
On May 24, 2021, the plaintiffs in the California Derivative Action filed a First Amended Complaint (“FAC”). The FAC names the same defendants named in the originally-filed consolidated complaint and adds four additional defendants, including ProPortion Foods, LLC (“ProPortion”) and CLW Foods, LLC (“CLW”). The FAC asserts claims under Section 14(a) of the Exchange Act, claims of breach of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement against the individual defendants, and aiding and abetting claims against CLW and ProPortion. All of these claims relate to the Company’s dealings and ongoing litigation with Don Lee Farms, and related actions taken by Beyond Meat and the named individuals during the period of April 2016 to the present. On July 2, 2021, the Court entered a Joint Stipulation Regarding Extension of Briefing Schedule so that the parties could attempt to reach resolution of the lawsuit.
The parties have reached a settlement of the California and Chew Derivative Actions. The proposed settlement, which is subject to final Court approval, includes the Company enacting certain corporate governance reforms and paying plaintiffs’ attorney fees and costs in the amount of $515,000 515,000 for Plaintiffs’ attorneys’ fees and costs and on April 19, 2022, the Company filed proof of notice with the Court. Plaintiffs’ motion for final approval is due on June 13, 2022, objections to the proposed settlement are due on June 20, 2022, plaintiffs’ reply in support of final approval is due on July 1, 2022, and the Final Approval Hearing is scheduled for July 11, 2022.
Interbev
On March 13, 2022, the Company was served a summons by Interbev, a French trade association representing the cattle industry, to appear before the Commercial Court of Paris. The summons alleges that the Company misleads the French consumer with references to “plant based meat,” “plant based burger” and related descriptive names, and alleges that the Company is denigrating meat and meat products. The relief sought by Interbev includes (i) changing the presentation of Beyond Meat products to avoid any potential confusion with meat products, (ii) publication of the judgment of the court in the media
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Notes to Unaudited Condensed Consolidated Financial Statements (continued)
and (iii) damages of EUR 200,000 . The Company intends to vigorously defend against all claims asserted in the summons.
The Company is involved in various other legal proceedings, claims, and litigation arising in the ordinary course of business. Based on the facts currently available, the Company does not believe that the disposition of such matters that are pending or asserted will have a material effect on its financial statements.
Note 11. Income Taxes
For the three months ended April 2, 2022 and April 3, 2021, the Company recorded $10,000 and $48,000 in income tax expense, respectively, in its condensed consolidated statements of operations.
The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all deferred tax assets. If the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets will be made and the adjustment would have the effect of increasing net income in the period such determination is made.
As of April 2, 2022, the Company did not have any accrued interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal tax authority and U.S. state tax authority examinations for all years with respect to net operating loss and credit carryforwards.
In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security Act in March 2020 and on March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. These Acts include various income and payroll tax measures. The income tax and payroll tax measures did not materially impact the Company’s financial statements.
Note 12. Net Loss Per Share Available to Common Stockholders
The Company calculates basic and diluted net loss per share available to common stockholders in conformity with the two-class method required for companies with participating securities. Pursuant to Accounting Standards Update 2020-06, the Company applies the more dilutive of the if-converted method and the two-class method to its Notes.
Computation of net loss per share available to common stockholders for the three months ended April 2, 2022 excludes the dilutive effect of 4,407,683 shares issuable under stock options and 948,684 RSUs outstanding at April 2, 2022 because the Company incurred a net loss and their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three months ended April 2, 2022 also excludes the dilutive effect of the Notes because the Company recorded a net loss and their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three months ended April 3, 2021 excludes the dilutive effect of 4,097,076 shares issuable under stock options and 294,296 RSUs outstanding at April 3, 2021 because their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three months ended April 3, 2021 also excludes the dilutive effect of shares of common stock that were issuable to an officer in settlement of an obligation to deliver a variable number of shares based on a fixed monetary amount (see Note 9) because the shares to be delivered were not participating securities as they did not have voting rights and were not entitled to participate in dividends until they are issued.
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Notes to Unaudited Condensed Consolidated Financial Statements (continued)
| (in thousands, except share and per share amounts) | Three Months Ended | |||||||||||||
| April 2, 2022 | April 3, 2021 | |||||||||||||
| Numerator: | ||||||||||||||
| Net loss available to common stockholders | $ | ( | $ | ( | ||||||||||
| Net loss available to common stockholders—basic | ( | ( | ||||||||||||
| Denominator: | ||||||||||||||
| Weighted average common shares outstanding—basic | ||||||||||||||
| Dilutive effect of shares issuable under stock options | ||||||||||||||
| Dilutive effect of RSUs | ||||||||||||||
| Dilutive effect of share-settled obligation | ||||||||||||||
Dilutive effect of Notes, if converted(1) | ||||||||||||||
| Weighted average common shares outstanding—diluted | ||||||||||||||
| Net loss per share available to common stockholders—basic | $ | ( | $ | ( | ||||||||||
| Net loss per share available to common stockholders—diluted | $ | ( | $ | ( | ||||||||||
__________
(1) As the Company recorded a net loss for the three months ended April 2, 2022 and April 3, 2021, inclusion of shares from the conversion premium or spread would be anti-dilutive. The Company had $1.2 billion in Notes outstanding as of April 2, 2022.
Note 13. Related Party Transactions
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors,” of our 2021 10-K and Part II, Item 1A, “Risk Factors” and “Note Regarding Forward-Looking Statements” included in this report and those discussed in other documents we file from time to time with the SEC. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this quarterly report and our audited consolidated financial statements and notes thereto included in our 2021 10-K. Our historical results are not necessarily indicative of the results to be expected for any future periods and our operating results for the three months ended April 2, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year or period.
Overview
Beyond Meat is a leading plant-based meat company 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 protein, 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 meat products across the three main meat platforms of beef, pork and poultry. As of March 2022, our products were available at approximately 135,000 retail and foodservice outlets in more than 90 countries worldwide, across mainstream grocery, mass merchandiser, club store, convenience store and natural retailer channels, direct-to-consumer, and various food-away-from-home channels, including restaurants, foodservice outlets and schools.
The condensed consolidated financial statements for the period ended April 2, 2022 include the accounts of the Company and its foreign subsidiaries, Beyond Meat EU B.V., BYND JX and Beyond Meat Canada Inc. All inter-company balances and transactions have been eliminated.
We operate on a fiscal calendar year, and each interim quarter is comprised of one 5-week period and two 4-week periods, with each week ending on a Saturday. Our fiscal year always begins on January 1 and ends on December 31. As a result, our first and fourth fiscal quarters may have more or fewer days included than a traditional 91-day fiscal quarter.
For the first quarter ended April 2, 2022, our retail and foodservice channels accounted for approximately 77.1% and 22.9% of our net revenues, respectively. For the first quarter ended April 3, 2021, our retail and foodservice channels accounted for approximately 74.9% and 25.1% of our net revenues, respectively.
For the first quarter ended April 2, 2022, our U.S. and international channels accounted for approximately 76.5% and 23.5% of our net revenues, respectively. For the first quarter ended April 3, 2021, our U.S. and international channels accounted for approximately 74.5% and 25.5% of our net revenues, respectively.
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In the first quarter of 2022, net revenues from the international channels, both retail and foodservice, decreased from the prior year. Despite increased pounds of product sold, international net revenues decreased 6.9% in the first quarter of 2022 as compared to the same period in the prior year primarily due to decreased revenue per pound driven by increased trade discounts, recent pricing actions, mix to lower priced SKUs and a softening in the Euro vs the U.S. dollar. In the first quarter of 2022, U.S. foodservice channel net revenues declined but were more than offset by the increase in U.S. retail channel net revenues, resulting in a 4.0% increase in U.S. net revenues.
At April 2, 2022, our inventory balances increased 17.3% compared to the levels at December 31, 2021, primarily due to increases in finished goods and work-in-process inventories and to a lesser extent due to increases in raw materials and packaging inventory. The increase in finished goods inventory includes the effect of capitalized higher direct labor and production overhead costs.
In addition to the impact of COVID-19 on our business discussed below under “Impact of COVID-19 on Our Business,” our net revenues, gross profit, gross margin, earnings and cash flows may be adversely impacted in 2022 by the following:
•changes in our product mix including the launch of new products (especially Beyond Meat Jerky), which may carry lower margin profiles relative to existing products due in part to early cost of production inefficiencies;
•weak demand in the retail channel due to slower category growth and increased competitive activity;
•price reductions, primarily in the retail channel in Europe, intended to improve price competitiveness relative to competing products;
•increased unit cost of goods sold due to lower production volumes in response to weaker demand, which would adversely impact coverage of fixed production costs within our manufacturing facilities;
•increased unit cost of goods due to inflation, higher transportation, raw materials, energy, labor and supply chain costs;
•increased promotional programs and trade discounts to our retail and foodservice customers and shifts in product and channel mix resulting in negative impacts on our gross margins;
•potential disruption to our supply chain and the supply chain more generally caused by distribution and other logistical issues; and
•labor needs at the Company as well as in the supply chain and at customers.
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. In response to the COVID-19 pandemic, governments and other authorities around the world implemented significant measures intended to control the spread of the virus, including social distancing measures, business closures or restrictions on operations, quarantines and travel bans. While some of these restrictions were lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized and as various COVID-19 vaccines have become more widely available, a resurgence of COVID-19 and the impact of variants of the virus that causes COVID-19 in some markets has slowed the reopening process.
The COVID-19 pandemic continues to impact the global economy. 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. In response to COVID-19, we have taken, and continue to take measures to support the health and safety of our employees as well as the communities in which we operate.
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, spread and intensity of the COVID-19
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pandemic. While the ultimate health and economic impact of COVID-19 continues to be highly uncertain, our business operations and results of operations, including our net revenues, gross profit, gross margin, earnings and cash flows, may be adversely impacted in 2022, including as a result of:
•variability of demand in the foodservice channel due to the ongoing impact of COVID-19, including the resurgence of COVID-19 and the appearance of variants of the virus, despite the resumption of customer traffic in some foodservice establishments;
•potential disruption or closure of our facilities or those of our suppliers or co-manufacturers due to employee contraction of COVID-19;
•potential shortages in raw materials caused by the conflict in Ukraine, COVID-19 lockdowns in China or other factors;
•the timing and success of strategic QSR 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 spending to purchase our products; and negative trends in consumer purchasing patterns due to consumers’ disposable income, credit availability, debt levels and inflation;
•reduced confidence by our foodservice partners due to the resurgence of COVID-19, as well as reimplementation of safety measures in certain jurisdictions and its potential impact on customer demand levels;
•further foodservice customer closures (including re-closures in connection with resurgences of COVID-19) or further reduced operations;
•our ability to introduce new foodservice products as QSR and other partners look to simplify menu offerings as a result of the pandemic;