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Beyond Burger v4 from Beyond Meat
Version 4 of the Beyond Burger features avocado oil (cutting the sat fat content to 2g) and 21g protein from peas, brown rice, red lentils and faba beans. Image credit: Beyond Meat

Experts question debt-laden Beyond Meat’s future in wake of grim Q1 figures

May 9, 2024

Beyond Meat has posted another lackluster set of quarterly results, blaming weak demand in US and international markets as it unveiled a net loss of $54.4 million on revenues down 18% to $75.6 million in Q1 2024. However, gross margins moved back into positive territory following aggressive cost-cutting.

“Together with measures we are exploring to bolster our balance sheet, we continue to work to position 2024 as a pivotal year as we strive to achieve sustainable and profitable operations,” said CEO Ethan Brown on the earnings call.

Q4 2023 by the numbers:

  • Net revenue: -18% year over year (YoY) to $75.6 million, volumes +8%
  • Net loss: $54.4 million
  • Margins: Gross profit was $3.7 million with a gross profit margin of 4.9% vs 6.7% in the year-ago period
  • US retail revenues: -16% YoY to $37.1 million
  • US foodservice revenues: -16.2% YoY to $12.3 million
  • International retail: -12% YoY to $12.6 million
  • International foodservice:  -28.7% YoY to $13.6 million
  • Full year 2024 outlook: Net revenues of $315-345 million, with gross margins in the mid to high teens
  • Balance sheet: As of March 30, 2024, Beyond Meat’s cash and cash equivalents balance was $173.5 million and total outstanding debt was $1.1 billion. Read more HERE.

Gross margins—at 4.9% in Q1 having been in negative territory for the previous two quarters—are expected to be in the mid-to-high teens for the full year, said Brown, who has been reducing headcount and inventory, and exiting co-manufacturing contracts over the past year. The company is also instituting price increases in the US to coincide with the rollout of the new and improved ‘Beyond IV’ platform.

Brown said he was “pleased with the positive though still anecdotal feedback [on Beyond IV] from consumers and the health and wellness community” in the US, and said he remained “very bullish about Europe and about some of our other international markets,” although Q1 sales were down double digits in international markets.

“We are addressing the fundamental issues around the business that are going to allow us to return to growth,” said Brown. “Whether it happens 12 months from now or 16 months from now, I can’t say.”

What’s next for Beyond Meat as the debt-laden firm looks to the future?

But what are Beyond Meat’s longer-term prospects and how will it manage its $1.1 billion+ debt?

According to a recent report from Bloomberg, Goldman Sachs is talking to private credit lenders to “help shore up the plant-based meat firm’s liquidity.”

According to Bloomberg, Goldman Sachs has been asking “private credit lenders” to commit about $250 million of capital to Beyond Meat. The money, which Bloomberg described as “senior secured debt” (debt backed by assets as collateral) could be used for “general corporate purposes,” and potentially to “repurchase some of Beyond Meat’s $1.15 billion convertible bond at a discount.”

Beyond Meat had $173.5 million in cash and cash equivalents on its balance sheet and debts of $1.1 billion as of March 30, thanks to a $1 billion+ offering of convertible notes made in March 2021 that will mature in early 2027.

In a March 18 SEC filing, the company said it may issue and sell securities worth up to $250 million, although that doesn’t necessarily indicate a sale has begun or will occur, noted Bloomberg.

Looming default?

One investment banking source told AgFunderNews: “The convertible notes were a cheap form of capital as they paid 0% interest in return for giving people the option of the upside to the equity. The problem is that when we get to 2027, the shares (now trading at $8 vs $140+ in March 2021) are going to be way below the conversion price, so Beyond Meat will have to pay up to the principal amount (over $1bn) in cash, which it won’t be able to do, barring a miraculous turnaround.”

If Beyond Meat can’t afford to pay noteholders, “it will be in default and you’ve got a bankruptcy situation, which is already baked into the price these notes are trading at now (under 25 cents on the dollar, according to Bloomberg),” he noted.

According to the firm’s latest 10-K filing with the SEC, Beyond Meat has primary production facilities in Columbia, Missouri; Devault, Pennsylvania; and Enschede, the Netherlands; and leases a manufacturing facility in China. It also works with co-manufacturers but has been steadily exiting co-manufacturing contracts over the past year or so.

‘Sounds like a tough sell’

One alt protein investor told AgFunderNews: “It may very well be that Beyond has hired Goldman Sachs [which ran the book on the plant-based meat company’s IPO in 2019 with Credit Suisse] to help it raise capital, but if I were an investor that would be a hard sell. Can Goldman Sachs pull this off by convincing investors that Beyond blew up its first debt issuance and now it promises to get it right? Sounds like a tough sell: ‘Lend me more money so I can buy back my distressed debt in the market at a huge discount.’ If Beyond were EBITDA positive maybe, but bleeding red ink quarter after quarter?”

A second alt protein investor added: “This could be a play for Beyond to buy back the notes at a severe discount. But Beyond would need the cash and that would require issuing new debt or more shares.”

Were a party to acquire all of the convertible notes, which are now trading at under 25 cents on the dollar in the secondary market according to Bloomberg, it could “effectively gain negative control of Beyond Meat for under $250 million,” the first alt protein investor told AgFunderNews.

“This would only make sense if you believe Beyond Meat is a viable ongoing concern, of course.”

If the debt is secured, the holders would have a claim to Beyond Meat’s assets used as security before other creditors, he said (although the initial filing describes the notes as unsecured senior convertible notes).

If you buy all the debt, that doesn’t give you ownership of the company, added the second alt protein investor. “But you would have control over the CEO selling more shares on the open market for example. You can’t make them do anything, but you can stop them from doing things. Then you sit back and wait for them to default, and then buy the company.”

He added: “The debt would have to be collateralized in some way. Maybe there is a big food company or a private equity firm that wants to operate the business. When Beyond defaults, the keys would effectively pass to these new noteholders that have bought this bad debt, and then they’ll likely fire everyone, go private, and restart the company.”

‘Anything could happen in three years’

But that assumes the company is worth $250 million, one venture capital source added: “Why would you want to pay $250 million if this is a failing company?”

The investment banking source added: “If somebody wants to buy all of those notes now, that’s fine, but they can’t force any real change. They’re going to have to wait for three years holding notes in a company that’s in financial distress. And why would you?”

He added: “The way that Bloomberg article read to me was that Goldman Sachs as a banker is just trying to bring people in to give more capital for the company, which has to raise cash anyway for everyday liquidity purposes.

“So if Beyond Meat raises $250 million, it could take some of that money, put it on the balance sheet to fund day-to-day operations and also take some of that money and go into the bond market and buy back some of its own debt for 25 cents on the dollar, and retire it. So it could spend say $100 million to acquire $400 million of debt, so when the bill comes due, it isn’t going to have to pay $1 billion-plus.”

‘There’s not a whole lot of downside from just staying the course right now’

And anything can happen in three years, he observed. “The market could improve, interest rates could fall, the funding environment could be better. If they can’t raise the money [to pay the debt], maybe they can restructure and work out some agreement with the noteholders where they reset the conversion price lower or start paying interest.

“But there’s nothing to gain by doing something now. The base case is they file Chapter 11 [bankruptcy protection] in 2027, and anything above that is upside.”

He added: “The environment you’re dealing with now for funding, for interest rates, for capital, it’s not very hospitable. So Beyond’s plan is to raise what it needs to keep the business operational, and hope for the best over the next three years.

“Worst case scenario is a bankruptcy, but the bonds are trading for next to nothing as it is, so that’s already priced in, so there’s not a whole lot of downside from just staying the course right now. Meanwhile, if another business were to try and acquire Beyond Meat now and there was a change of control, that $1.2 billion would come due immediately. So if you’re a strategic buyer, it’s not just a matter of paying $6 a share for Beyond Meat stock and calling it a day, you still owe another $1.2 billion for the debt.

“And that’s effectively a poison pill; it’s what’s keeping Ethan Brown in his job. If Beyond didn’t have that convert, you could very easily see an activist investor getting involved and he’d [Brown] be out of a job. But having that convert in the background is like job preservation.”

Goldman Sachs declined to comment while Beyond Meat did not respond to a request for comment.

Beyond Meat share price

Analyst: ‘Consumer skepticism about the taste profile of plant-based meat products remains the biggest barrier to trial’

Putting aside the issue of debt, how much money does Beyond Meat need in the next two to three years to keep the lights on?

The company will likely need to raise “around $260 million to compensate for cash burn over the next few years,” said analysts at TD Cowen in a recent note. “We also reduce our 2026 sales estimate to $290 million to reflect a -5.5% CAGR for the next three years.”

According to Cowen, “We expect $80 million – $100 million of free cash flow burn per year in 2024 and 2025.”

It added: “While management has taken steps to reduce the ‘going-concern’ risk of the business, we think that successfully executing their strategy in a challenging US backdrop will prove difficult.

“The strategy includes the launch of Beyond Meat IV (the latest version of its core recipe), an enhanced marketing push explaining the health and wellness benefits, and a pivot to higher prices. However, our research indicates that consumer skepticism about the taste profile of plant-based meat products remains the biggest barrier to trial (as opposed to health and wellness concerns) and that consumers tend to prefer Beyond’s competitor Impossible Burger in their taste tests.”

Bolstering liquidity

Beyond Meat told analysts on its Q4 earnings call in February that it planned to “bolster our liquidity and potentially restructure our balance sheet,” during 2024.

CFO Lubi Kutua did not provide any further information on the Q1 2024 call this afternoon. Asked by TD Cowen managing director Robert Moskow if the company was looking at debt or equity, he said: “Yes, we would consider all of those options that you mentioned.”

In a March 18 SEC filing, Beyond Meat said it may issue and sell securities worth up to $250 million.

Beyond Burger v4 from Beyond Meat
Version 4 of the Beyond Burger features avocado oil (cutting the sat fat content to 2g) and 21g protein from peas, brown rice, red lentils and faba beans. Image credit: Beyond Meat

Plant-based meat in focus

In the 52 weeks ending December 3, 2023, US retail sales of plant-based meat & seafood dropped 12% to $1.2 billion in 2023 with units down 19%, according to data from SPINS crunched by nonprofit The Good Food Institute (GFI).

For context, US retail sales of conventional meat are also down, but not to the same degree, with unit sales of packaged conventional meat and seafood falling by 6% over the past two years vs a 26% drop for plant-based meat and seafood, notes the GFI.

According to the GFI, lapsed consumers of plant-based meat “tend to point to taste and price as reasons they stopped purchasing,” two fairly major barriers, with plant-based meat carrying a whopping 77% price premium per pound, according to SPINS data for 2023. That said, such shoppers “remain very open to repurchasing if products more closely match the taste and texture of meat,” says the GFI.

“Around 50% of lapsed consumers claim they would buy a new plant-based meat product if they were offered a sample and found its taste and texture were exactly like conventional meat, and 43% would consider purchasing if it cost less than conventional meat.”

As to what is putting off those who have never tried plant-based meat, while Beyond Meat has blamed meat-industry-backed efforts to paint plant-based meat as ultra-processed for “poisoning the plant-based well,” most consumers “do not appear to be aware of or concerned by these claims,” claims the GFI. “Most consumers in 2023 who reported hearing media coverage of plant-based meats said the coverage was primarily positive or neutral.”

“US adults are most likely to rate plant-based meat as “better” (in the case of overall healthiness) or “equal to” (in the case of protein) animal-based meat.”

The basic challenge is more straightforward, says the GFI: “US adults are more likely to rate conventional meat as tasty, high-protein, affordable, good value, easy to find, and easy to cook.”

Further reading:

Plant-based by numbers (USA): Continued declines for alt meat, more positive news for alt dairy – GFI

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