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 3, 2021
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 12, 2021, the registrant had 63,063,470 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 and results of operations, including on our supply chain, the demand for our products, and, in particular in our foodservice channel, our product and channel mix, the timing and level of retail purchasing, our 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 adverse and uncertain economic and political conditions in the U.S. and international markets;
•the volatility of capital markets and other macroeconomic factors;
•risks related to our debt, including limitations on our cash flow for 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 effectively manage our growth;
•the failure of acquisitions and other investments to be efficiently integrated and produce the results we anticipate;
•the success of operations conducted by joint ventures, such as The PLANeT Partnership, LLC 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 buying rates and purchase frequency, and our ability to maintain and increase sales velocity of our products;
•the success of distribution expansion and new product introductions in increasing revenues and market share;
•the timing and success of strategic partnership launches and limited time offerings resulting in permanent menu items;
•our estimates of the size of our market opportunities;
ii
•our ability to effectively expand our manufacturing and production capacity;
•our ability to accurately forecast demand for our products and manage our inventory;
•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 to manufacture our products;
•the availability of pea and other protein 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 and other input costs;
•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;
•the attraction, training and retention of qualified employees and key personnel and our ability to maintain our company culture as we continue to grow;
•the effects of natural or man-made catastrophic 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;
•our significant indebtedness and ability to repay such indebtedness;
•our ability to meet our obligations under our campus headquarters lease, the timing of occupancy and completion of the build-out of our space, cost overruns and the impact of COVID-19 on our space demands;
iii
•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 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;
•the sufficiency of our cash and cash equivalents to meet our liquidity needs and service our indebtedness;
•economic conditions and the impact on consumer spending;
•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;
•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, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021 (the “2020 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 2021. 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 Meatball,” the Caped Steer Logo, “Go Beyond,” “Eat What You Love” and “The Cookout Classic,” 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
iv
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 3, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Inventory | |||||||||||
Prepaid expenses and other current assets | |||||||||||
| Total current assets | $ | $ | |||||||||
| Property, plant, and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other non-current assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity: | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Wages payable | |||||||||||
| Accrued bonus | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Short-term borrowings under revolving credit facility | |||||||||||
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 3, 2021 | December 31, 2020 | ||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, par value $ | $ | $ | |||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income | |||||||||||
| 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 3, 2021 | March 28, 2020 | |||||||||||||
| Net revenues | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||
| Gross profit | ||||||||||||||
| Research and development expenses | ||||||||||||||
Selling, general and administrative expenses | ||||||||||||||
| Restructuring expenses | ||||||||||||||
| Total operating expenses | ||||||||||||||
| (Loss) income from operations | ( | |||||||||||||
| Other (expense) income, net: | ||||||||||||||
| Interest expense | ( | ( | ||||||||||||
| Other, net | ( | |||||||||||||
| Total other (expense) income, net | ( | |||||||||||||
| (Loss) income before taxes | ( | |||||||||||||
| Income tax expense (benefit) | ( | |||||||||||||
| Equity in losses of unconsolidated joint venture | ||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||
| Net (loss) income per share available to common stockholders—basic | $ | ( | $ | |||||||||||
| Weighted average common shares outstanding—basic | ||||||||||||||
| Net (loss) income per share available to common stockholders—diluted | $ | ( | $ | |||||||||||
Weighted average common shares outstanding—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) Income
(In thousands)
(unaudited)
| Three Months Ended | ||||||||||||||
| April 3, 2021 | March 28, 2020 | |||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||
| Other comprehensive loss, net of tax: | ||||||||||||||
| Foreign currency translation loss, net of tax | ( | |||||||||||||
| Comprehensive (loss) income, 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, 2019 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation for equity classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at March 28, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
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 3, 2021 | March 28, 2020 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||
| Adjustments to reconcile net (loss) income 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 | ( | |||||||||||||
Operating lease liabilities | ( | ( | ||||||||||||
Net cash used in operating activities | $ | ( | $ | ( | ||||||||||
| Cash flows from investing activities: | ||||||||||||||
Purchases of property, plant and equipment | $ | ( | $ | ( | ||||||||||
Purchases of property, plant and equipment held for sale | ( | |||||||||||||
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 3, 2021 | March 28, 2020 | |||||||||||||
| Net increase (decrease) 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 property, plant and equipment held for sale | $ | $ | ||||||||||||
| 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 (the “Company”), is one of the fastest growing food companies in the United States, 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 meat, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare.
On January 14, 2020, the Company registered its subsidiary, Beyond Meat EU B.V., in the Netherlands. On April 28, 2020, the Company registered its subsidiary, Beyond Meat (Jiaxing) Food Co., Ltd. (“BYND JX”), in the Zhejiang Province in China.
The Company’s primary production facilities are located in Columbia, Missouri, and Devault, Pennsylvania, and research and development and administrative offices are located in El Segundo, California. In addition to its own production facilities, the Company uses co-manufacturers in various locations in the United States, Canada and the Netherlands. In the second quarter of 2020, the Company acquired its first manufacturing facility in Europe located in Enschede, the Netherlands. This facility completed operational testing of dry blend production in late 2020 and is expected to begin commercial trial runs in the second quarter of 2021. In addition, in June 2020 the Company announced the official opening of a new co-manufacturing facility to be used for Beyond Meat production built by the Company’s distributor in the Netherlands. In the third quarter of 2020, the Company and BYND JX entered into an investment agreement and related factory leasing contract to design and develop manufacturing facilities in the Jiaxing Economic & Technological Development Zone to manufacture plant-based meat products under the Beyond Meat brand in China. Renovations in the leased facility have been substantially completed and trial production began in the first quarter of 2021. Full-scale end-to-end production is expected by the end of the second quarter of 2021.
The Company sells to a variety of customers in the retail and foodservice channels throughout the United States and internationally primarily through distributors who purchase, store, sell, and deliver the Company’s products. In addition, the Company sells directly to customers in the retail and foodservice channels who handle their own distribution. In the third quarter of 2020, the Company launched an e-commerce site to sell its products direct to consumers.
As of April 3, 2021, approximately 95.0 % 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 and the first quarter of 2021. 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), impact of the new COVID-19 variants and the rollout of COVID-19 vaccines, 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 considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on
8
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies
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 (the “Securities Act”). On March 12,
9
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Capped Call Transactions
Capped call transactions cover the aggregate number of shares of the Company’s common stock that will initially underlie the Notes, and generally reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company may make in excess of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the capped call transactions. The Company determined that the freestanding capped call option contracts qualify as equity under the accounting guidance on indexation and equity classification, and recognized the contract by recording an entry to “Additional paid-in capital” (“APIC”) in stockholders’ equity in its condensed consolidated balance sheet. The Company also determined that the capped call option contracts meet the definition of a derivative under Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”), but are not required to be accounted for as a derivative as they meet the scope exception outlined in ASC 815. Instead the capped call options are recorded in APIC and not remeasured.
Foreign Currency
Foreign currency translation losses, net of tax, reported as cumulative translation adjustments through “Other comprehensive loss” were $1.3 million and $0 , for the three months ended April 3, 2021 and March 28, 2020, respectively. Realized and unrealized foreign currency transaction losses included in “Other, net” were $0.3 million and $0 during the three months ended April 3, 2021 and March 28, 2020, respectively.
Fair Value of Financial Instruments
The fair value measurement accounting guidance creates a fair value hierarchy to prioritize the inputs used to measure fair value into three categories. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement, where Level 1 is the highest and Level 3 is the lowest.
The three levels are defined as follows:
•Level 1—Unadjusted quoted prices in active markets accessible by the reporting entity for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant value drivers are observable.
•Level 3—Valuations derived from valuation techniques in which significant value drivers are unobservable.
The Company’s financial instruments include cash equivalents, accounts receivable, accounts payable, and accrued expenses, for which the carrying amounts approximate fair value due to the short-term maturity of these financial instruments.
The Company had no financial instruments measured at fair value on a recurring basis as of April 3, 2021 and December 31, 2020, other than the the liability classified share-settled obligation to one of the Company’s executive officers (see Note 9) which represents a Level 1 financial instrument. There was no change in the fair value of the liability-classified share-settled obligation in the three months ended April 3, 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 3, 2021.
Revenue Recognition
The Company’s revenues are generated through sales of its products to distributors or customers. Revenue is recognized at the point in which the performance obligation under the terms of a contract with the customer have been satisfied and control has transferred. The Company’s performance obligation is typically defined as the accepted purchase order, the direct-to-consumer order, or the contract, with the customer which requires the Company to deliver the requested products at agreed upon prices at the time and location of the customer’s choice. The Company does not offer warranties or a right to return on the products it sells except in the instance of a product recall.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for fulfilling the performance obligation. Sales and other taxes the Company collects concurrent with the sale of products are excluded from revenue. The Company's normal payment terms vary by the type and location of its customers and the products offered. The time between invoicing and when payment is due is not significant. None of the Company's customer contracts as of April 3, 2021 contains a significant financing component.
The Company routinely offers sales discounts and promotions through various programs to its customers and consumers. These programs include rebates, temporary on shelf price reductions, buy-one-get-one-free programs, off invoice discounts, retailer advertisements, product coupons and other trade activities. Provision for discounts and incentives are recorded in the same period in which the related revenues are recognized. At the end of each accounting period, the Company recognizes a liability for estimated sales discounts that have been incurred but not paid which totaled $2.8 million and $3.6 million as of April 3, 2021 and December 31, 2020, respectively. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. The incremental cost to obtain contracts was not material.
11
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Presentation of Net Revenues by Channel
The Company presents net revenues by geography and distribution channel as follows:
| Distribution Channel | Description | |||||||
| U.S. Retail | Net revenues from retail sales to the U.S. market(1) | |||||||
| U.S. Foodservice | Net revenues from restaurant and foodservice sales to the U.S. market | |||||||
| International Retail | Net revenues from retail sales to international markets, including Canada | |||||||
| International Foodservice | Net revenues from restaurant and foodservice sales to international markets, including Canada | |||||||
____________
(1) Includes net revenues from direct-to-consumer sales.
The following table presents the Company’s net revenues by channel:
| Three Months Ended | ||||||||||||||
| (in thousands) | April 3, 2021 | March 28, 2020 | ||||||||||||
| Net revenues: | ||||||||||||||
| U.S.: | ||||||||||||||
| Retail | $ | $ | ||||||||||||
| Foodservice | ||||||||||||||
| U.S. net revenues | ||||||||||||||
| International: | ||||||||||||||
| Retail | ||||||||||||||
| Foodservice | ||||||||||||||
| International net revenues | ||||||||||||||
| Net revenues | $ | $ | ||||||||||||
One customer accounted for approximately 11 % of the Company’s gross revenues in the three months ended April 3, 2021; and two distributors accounted for approximately 13 % and 12 %, respectively, of the Company’s gross revenues in the three months ended March 28, 2020. No other distributor or customer accounted for more than 10% of the Company’s gross revenues in the three months ended April 3, 2021 and March 28, 2020.
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 “Other non-current assets” in the Company’s condensed consolidated balance sheet. The Company recognizes its portion of the investee’s results in “Equity in losses of unconsolidated joint venture” in its condensed consolidated statement of operations. Activity related to the joint venture during the three months ended April 3, 2021 was not material.
Shipping and Handling Costs
Outbound shipping and handling costs included in selling, general and administrative (“SG&A”) expenses in the three months ended April 3, 2021 and March 28, 2020 were $3.3 million and $1.6 million, respectively.
12
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Recently Adopted Accounting Pronouncements
On December 18, 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)” (“ASU 2019-12”). ASU 2019-12 eliminates the need for an organization to analyze whether the following apply in a given period (1) exceptions to the incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 beginning on January 1, 2021. Adoption of ASU 2019-12 did not result in any material changes to the way the tax provision is prepared and did not have a material impact on the Company’s financial position, results of operations or cash flows.
On August 5, 2020, the FASB issued ASU No. 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity” (“ASU 2020-06”). ASU 2020-06 simplifies accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity, by removing certain separation models that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. After adoption of ASU 2020-06 entities will not separately present in equity an embedded conversion feature in such debt. Instead entities will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible instrument was issued at a substantial premium. ASU 2020-06 also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments. Under ASU 2020-06, entities must apply the more dilutive of the if-converted method and the two-class method to all convertible instruments; the treasury stock method is no longer available. ASU 2020-06 eliminates an entity’s ability to overcome the presumption of share settlement, and as a result, the issuers of convertible debt that may be settled in any combination of cash or stock at the issuer’s option, must use the more dilutive among the if-converted method and the two-class method in computing diluted net income per share, which is typically more dilutive than the net share settlement under the treasury stock method. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. The Company early adopted ASU 2020-06 in the first quarter of 2021 concurrent with the issuance of its Notes. There were no changes to the Company’s previously issued financial statements since the Company had no existing convertible notes prior to issuance of the Notes in the first quarter of 2021. Upon adoption of ASU 2020-06, the Company recorded the issuance of the Notes at their face value net of issuance costs in long-term liabilities and the value of the capped call options in APIC.
Note 3. Restructuring
13
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 ASC 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, warehouses and vehicles, and finance leases for certain of the Company’s equipment. Such leases generally have original lease terms between and 10 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.
| Three Months Ended | ||||||||||||||||||||
| (in thousands) | Statement of Operations Location | April 3, 2021 | March 28, 2020 | |||||||||||||||||
| 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 | $ | $ | ||||||||||||||||||
____________
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
14
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Supplemental balance sheet information as of April 3, 2021 and December 31, 2020 related to leases are as follows:
| (in thousands) | Balance Sheet Location | April 3, 2021 | December 31, 2020 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Operating leases | Operating lease right-of-use assets | $ | $ | |||||||||||||||||
| Finance leases, net | Property, plant and equipment, net | |||||||||||||||||||
| Total lease assets | $ | $ | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| 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 3, 2021:
April 3, 2021 | ||||||||||||||
| (in thousands) | Operating Leases | Finance Leases | ||||||||||||
| Remainder of 2021 | $ | $ | ||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total undiscounted future minimum lease payments | ||||||||||||||
| Less imputed interest | ( | ( | ||||||||||||
| Total discounted future minimum lease payments | $ | $ | ||||||||||||
Weighted average remaining lease terms and weighted average discount rates were:
April 3, 2021 | ||||||||||||||
| Operating Leases | Finance Leases | |||||||||||||
| Weighted average remaining lease term (years) | ||||||||||||||
| Weighted average discount rate | % | % | ||||||||||||
15
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 5. Inventories
Major classes of inventory were as follows:
| (in thousands) | April 3, 2021 | December 31, 2020 | |||||||||
| 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 3, 2021 and December 31, 2020, is as follows:
| (in thousands) | April 3, 2021 | December 31, 2020 | ||||||||||||
| 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 | $ | $ | ||||||||||||
| Accumulated depreciation and amortization | ( | ( | ||||||||||||
| Property, plant and equipment, net | $ | $ | ||||||||||||
Depreciation and amortization expense for the three months ended April 3, 2021 and March 28, 2020 was $4.3 million and $2.6 million, respectively. Of the total depreciation and amortization expense in the three months ended April 3, 2021 and March 28, 2020, $3.4 million and $1.9 million, respectively, were recorded in cost of goods sold and $0.9 million and $0.7 million, respectively, were recorded in research and development expenses in the Company’s condensed consolidated statements of operations.
The Company had no 4.5 million, net of payments received, was recorded, of which $3.2 million is included in prepaid expenses and other current assets and $1.3 million is included in other non-current assets, net in the Company’s condensed consolidated balance sheet at April 3, 2021.
16
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 3, 2021 and December 31, 2020:
| (in thousands) | April 3, 2021 | December 31, 2020 | |||||||||
| Convertible senior notes | $ | $ | |||||||||
| Revolving credit facility | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Total debt outstanding | $ | $ | |||||||||
| Less: current portion of long-term debt | |||||||||||
| 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. 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 initial conversion price of the Notes is $206.00 , which represents a premium of approximately 47.5 % over the closing price of the Company’s common stock on March 2, 2021. The Notes will mature on March 15, 2027, unless earlier repurchased, redeemed or converted. The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 5, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Company used $84.0 million of the net proceeds from the sale of the Notes to fund the cost of entering into capped call transactions, described below. The proceeds from the issuance of the Notes were approximately $1.0 billion, net of capped call transaction costs of $84.0 million and debt issuance costs totaling $23.6 million.
The Notes are senior, unsecured obligations and are (i) equal in right of payment with the Company’s senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Notes do not bear regular interest, and the principal amount of the Notes do not accrete. However, special interest and additional interest may accrue on the Notes at a rate per annum not exceeding 0.50 % (subject to certain exceptions) upon the occurrence of certain events relating to the failure to file certain SEC reports or to remove certain restrictive legends from the Notes.
The initial conversion rate is 4.8544 shares of common stock per $1,000 principal amount of the Notes, which represents an initial conversion price of $206.00 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events as described in the Indenture.
The holder may convert the Notes during the five consecutive business days immediately after any ten consecutive trading day period, if the trading price per $1,000 principal amount of Notes, as determined following a request by a holder, for each trading day of the measurement period was less than ninety eight percent (98%) of the product of the last report sale price per share of common stock on such trading day and the conversion rate on such trading day.
The holder can convert its Notes during any calendar quarter, commencing after the calendar quarter ending on June 30, 2021, provided the last reported sale price of the common stock for at least 20 trading
17
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
days is greater than or equal to 130 % of the conversion price, during the 30 days consecutive trading days end the last trading day of a calendar quarter.
Before December 15, 2026, noteholders have the right to convert their Notes upon the occurrence of certain events. From and after December 15, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company has the right to elect to settle conversions either in cash, shares or in a combination of cash and shares of its common stock. However, upon conversion of any Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 20 trading days, will be paid in cash up to at least the principal amount of the Notes being converted.
The Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after March 20, 2024 and on or before the 20 th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Note for redemption will constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.
The Company must repay the note principal in cash, but may elect to settle the conversion value either in cash, shares or in a combination of cash and shares of its common stock.
If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to limited exceptions, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.
The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of special interest and additional interest on the Notes, are subject to a 30 -day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by the Company or any of its significant subsidiaries with respect to indebtedness for borrowed money of at least $100 million; and (vi) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries.
In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.
18
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Holders of the Company’s common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to the Company’s common stock. The rights, preferences and privileges of the holders of the Company’s common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that the Company may designate in the future.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and any accrued and unpaid special interest and additional interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of Notes then outstanding, may declare the principal amount of, and any accrued and unpaid special interest and additional interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 365 days at a specified rate per annum not exceeding 0.50 % on the principal amount of the Notes.
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 as of April 3, 2021 and are being amortized as interest expense over the term of the Notes using the effective interest method. During the three months ended April 3, 2021, the Company recognized $0.3 million 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 3, 2021:
| (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 3, 2021, the estimated fair value of the Notes was approximately $1.1 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 2, 2021, the last business day of the period.
As of April 3, 2021, the remaining life of the Notes is approximately 5.95 years.
Capped Call Transactions
On March 2, 2021, in connection with the pricing of the offering of the Convertible Notes, the Company entered into capped call transactions (the “Base Capped Call Transactions”) with the option counterparties and used $73.0 million in net proceeds from the sale of the Convertible Notes to fund the cost of the Base Capped Call Transactions. On March 12, 2021, in connection with the Additional Notes, the Company entered into capped call transactions (the “Additional Capped Call Transactions”) with the option counterparties and used $11.0 million of the net proceeds from the sale of the Additional Notes to fund the cost of the Additional Capped Call Transactions. The Base Capped Call Transactions and the Additional Capped Call Transactions (collectively, the “Capped Call Transactions”) cover, subject to customary adjustments, the aggregate number of shares of the Company’s common stock that will initially underlie the Notes, and are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company may make in excess
19
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is $279.32 , which represents a premium of 100 % over the last reported sale price of the Company’s common stock on March 2, 2021. The aggregate $84.0 million paid for the Capped Call Transactions was recorded as a reduction to APIC.
Revolving Credit Facility
On March 2, 2021, the Company terminated its secured revolving credit agreement, dated as of April 21, 2020 (the “Credit Agreement”), among the Company, as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as the administrative agent, and in connection with such termination: (i) all borrowings outstanding under the Credit Agreement were repaid in full by the Company; and (ii) all liens and security interests under the Credit Agreement in favor of the lenders thereunder were released.
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 $40,800 was recorded during the three months ended April 3, 2021. In the three months ended March 28, 2020, debt issuance costs of $57,000 related to the Company’s prior revolving credit facility and equipment loan were amortized to interest expense.
In the three months ended April 3, 2021 and March 28, 2020, the Company incurred $0.3 million and $0.4 million, respectively, in interest expense related to its bank credit facilities. In the three months ended March 28, 2020, the Company incurred $0.1 million in interest expense related to its equipment loan facility.
On February 25, 2021, the Company paid down the outstanding borrowings and had no borrowings outstanding under the revolving credit facility. As of December 31, 2020, the Company had $25.0 million in outstanding borrowings and had no excess availability under the revolving credit facility. The revolving credit facility was terminated on March 2, 2021. 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 3, 2021, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,008,534 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no
As of December 31, 2020, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 62,820,351 500,000 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.
20
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 9. Share-Based Compensation
In 2019, the Company’s 2011 Equity Incentive 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, 2021, the maximum aggregate number of shares that may be issued under the 2018 Plan increased to 18,771,398 shares, which includes an increase of 2,144,521 shares effective January 1, 2021 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, 2020 | |||||
| Authorized | |||||
| Granted | ( | ||||
| Shares withheld to cover taxes | |||||
| Forfeited | |||||
| Balance - April 3, 2021 | |||||
As of April 3, 2021 and December 31, 2020, there were 4,097,076 and 4,218,278 shares, respectively, issuable under stock options outstanding, 294,296 and 275,989 shares, respectively, issuable under unvested RSUs outstanding, 7,318,454 and 7,127,079 shares, respectively, issued for stock option exercises, RSU settlement, and restricted stock grants, and 7,081,618 and 5,021,270 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 3, 2021 | March 28, 2020 | |||||||||||||
| Risk-free interest rate | ||||||||||||||
| Average expected term (years) | ||||||||||||||
| Expected volatility | ||||||||||||||
| Dividend yield | ||||||||||||||
Option grants to new employees in the three months ended April 3, 2021 and March 28, 2020 generally vest 25 3-year 48-month three months from the vesting commencement date.
21
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table summarizes the Company’s stock option activity during the three months ended April 3, 2021:
| Number of Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (in thousands)(1) | ||||||||||||||||||||
| Outstanding at December 31, 2020 | $ | $ | |||||||||||||||||||||
| Granted | $ | — | $ | — | |||||||||||||||||||
| Exercised | ( | $ | — | $ | |||||||||||||||||||
| Cancelled/Forfeited | ( | $ | — | $ | — | ||||||||||||||||||
| Outstanding at April 3, 2021 | $ | $ | |||||||||||||||||||||
| Vested and exercisable at April 3, 2021 | $ | $ | |||||||||||||||||||||
| Vested and expected to vest at April 3, 2021 | $ | $ | |||||||||||||||||||||
__________
During the three months ended April 3, 2021 and March 28, 2020, the Company recorded in aggregate $3.4 million and $3.0 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 3, 2021, there was $18.3 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over a weighted average period of 1.8 years.
Restricted Stock Units
RSU grants to new employees in the three months ended April 3, 2021 and March 28, 2020 vest 25 3 100 three months
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table summarizes the Company’s RSU activity during the three months ended April 3, 2021:
| Number of Units | Weighted Average Grant Date Fair Value Per Unit | |||||||||||||
| Unvested at December 31, 2020 | $ | |||||||||||||
| Granted | $ | |||||||||||||
Vested(1) | ( | $ | ||||||||||||
| Cancelled/Forfeited | ( | $ | ||||||||||||
| Unvested at April 3, 2021 | $ | |||||||||||||
________
(1) Includes 21,643 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 3, 2021 and March 28, 2020, the Company recorded in aggregate $2.9 million and $1.6 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.
As of April 3, 2021, there was $16.8 million in unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted average period of 1.8 years.
Share-Settled Obligation
Share-based compensation expense in the three months ended April 3, 2021 and March 28, 2020 includes $0.8 million and $0.9 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. 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 3, 2021 and March 28, 2020 includes a $0.8 million and $0 , respectively, noncash reclassification of the share-settled obligation from “Other current liabilities” to APIC.
The Company is obligated to deliver a variable number of shares based on a fixed monetary amount on the first annual anniversary of the executive officer’s commencement date and on each quarterly anniversary thereafter through the second annual anniversary. The liability classified award is considered unearned until the requirements for issuance of the shares are met and is included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets as of April 3, 2021 and December 31, 2020 in the amount of $1.0 million. As of April 3, 2021, there was $1.6 million in unrecognized compensation expense related to this share-settled obligation which is expected to be recognized over approximately 6 months.
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.
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Restricted Stock to Nonemployees
The following table summarizes the Company’s restricted stock activity during the three months ended April 3, 2021:
| Number of Shares of Restricted Stock | Weighted Average Remaining Contractual Life (Years) | Weighted Average Grant Date Fair Value Per Share | |||||||||||||||
| Unvested at December 31, 2020 | $ | ||||||||||||||||
| Granted | — | $ | |||||||||||||||
| Vested/Released | ( | — | $ | ||||||||||||||
| Cancelled/Forfeited | — | $ | |||||||||||||||
| Unvested at April 3, 2021 | $ | ||||||||||||||||
As of April 3, 2021, 3,048 shares of restricted stock had been purchased by nonemployee brand ambassadors which remained subject to vesting requirements and repurchase pursuant to restricted stock purchase agreements.
During the three months ended April 3, 2021 and March 28, 2020, the Company recorded in aggregate $0.2 million and $0.4 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.
As of April 3, 2021, there was $34,064 in unrecognized compensation expense related to unvested restricted stock granted to nonemployee brand ambassadors, which is expected to be recognized over 0.1 years.
Employee Stock Purchase Plan
As of April 3, 2021, the maximum aggregate number of shares that may be issued under the 2018 Employee Stock Purchase Plan (“ESPP”) was 1,876,455 shares of common stock, including an increase of 536,130 shares effective January 1, 2021 under the terms of the ESPP. The 2018 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 2018 ESPP.
Note 10. Commitments and Contingencies
Leases
On January 14, 2021, the Company entered into a Lease (the “Campus Lease”) with HC Hornet Way, LLC, a Delaware limited liability company (the “Landlord”), to house the Company’s headquarters offices, lab and innovation space in El Segundo, California. The initial term of the Campus Lease is 12 years, commencing on the earlier of 210 days following substantial completion of the base building by the Landlord or the date the Company occupies any portion of the Premises (other than Phase I-A) for purposes of conducting business operations therein, subject to adjustment as provided in the Campus Lease. The Company has two renewal options, each for a period of five years .
Under the terms of the Campus Lease, the Company will lease an aggregate of approximately 281,110 rentable square feet in a portion of a building located at 888 Douglas Street, El Segundo, California (the “Premises”), to be built out by the Landlord and delivered to the Company in three phases over a 26-month period. Aggregate payments towards base rent for the Premises over the term of the lease will be approximately $159.3 million.
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company is involved in the design of the Premises during the construction phase incurring the cost of certain architectural services and design elements, and considers these as costs of tenant improvements to the Premises that the Company expects to ultimately lease pursuant to the terms of the Campus Lease. The Landlord is providing a tenant improvement allowance equal to $100.00 per rentable square foot for each Phase of the Premises (the “Tenant Improvement Allowance”) to be used towards the cost of the build-out of the Premises, with the Company responsible for any build-out costs in excess of the Tenant Improvement Allowance. Neither the Company nor the Landlord intend or expect that the costs of tenant improvements will be consideration paid to the Landlord for the right to use the Premises that would reduce the amount of future cash lease payments required after the Company takes possession of the Premises. The Company will recognize the lease assets and liabilities for each phase when the Landlord makes the underlying asset for each phase available to the Company. During the construction phase, the Company is expected to have access to the Premises to start to construct tenant improvements on the Base, Shell and Core (“BSC”) Completion Date, the date on which the Landlord is expected to make the Premises available to the Company to construct such tenant improvements. As of April 3, 2021, the BSC Completion Date had not yet occurred or been communicated to the Company. Therefore, the Company has not recognized an asset or a liability for the Campus Lease in its condensed consolidated balance sheet as of April 3, 2021.
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 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 has agreed to invest $10.0 million in the JXEDZ through an intercompany investment in BYND JX and BYND JX has agreed to lease a facility in the JXEDZ for a minimum of two (2 ) years. In connection with such agreement, BYND JX entered into a factory leasing contract with an affiliate of the JX Committee, pursuant to which BYND JX has agreed to lease and renovate a facility in the JXEDZ and lease it for a minimum of two (2) years. 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.
Purchase Commitments
As of April 3, 2021, the Company had a commitment to purchase pea protein inventory totaling $141.9 million, approximately $83.4 million in the remainder of 2021 and $58.5 million in 2022. In addition, as of April 3, 2021, the Company had approximately $21.7 million in purchase order commitments for capital expenditures primarily to purchase machinery and equipment. Payments for these purchases will be due within 12 months.
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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. The trial judge has yet to determine the legitimacy or merits of Don Lee Farms’ claims.
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 Farm’s 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 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.
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BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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.
The previous trial date, June 14, 2021, was continued. Trial is currently set for September 27, 2021.
Don Lee Farms is seeking from Beyond Meat and the individual defendants unspecified compensatory and punitive damages, declaratory and injunctive relief, including the prohibition of Beyond Meat’s use or disclosure of the alleged trade secrets, 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 did not misappropriate Don Lee Farms’ alleged trade secrets, 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 assure you 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, and Don Lee Farms could also claim some ownership in the intellectual property associated with the production of certain of the Company’s products or in the products themselves, and thus claim a stake in the value the Company has derived and will derive from the use of that intellectual property after the Company terminated its supply agreement with Don Lee Farms. Based on the Company’s current knowledge, the Company 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 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 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 ongo