Beyond Meat, Inc. (BYND)

FORM 10-Q | Quarterly Report
Jul. 29, 2019 4:11 PM
|
About: Beyond Meat, Inc. (BYND)View as PDF
BEYOND MEAT, INC. (Form: 10-Q, Received: 07/29/2019 16:12:30)
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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 AND EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
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
 
BEYONDMEAT2CRGB01.JPGClick to enlarge
BEYOND MEAT, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
26-4087597
(State or other jurisdiction of
Incorporation or organization)
(I.R.S. Employer
Identification No.)
119 Standard Street
El Segundo , CA 90245
(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
Common Stock, $0.0001 par value
 
BYND
 
The Nasdaq Stock Market, LLC
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, o r 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:
Large accelerated filer
 
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 July 26, 2019 , the registrant had 60,178,252 shares of common stock, $0.0001 par value per share, outstanding.
 




 
TABLE OF CONTENTS
 
Page
 
 
 
 


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Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the federal securities laws. We have based these forward-looking statements largely on our current expectations 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:
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
our estimates of the size of our market opportunities;
our ability to effectively manage our growth;
our ability to effectively expand our manufacturing and production capacity;
our ability to successfully enter new markets, manage our international expansion and comply with any applicable laws and regulations;
the effects of increased competition from our market competitors;
the success of our marketing efforts and the ability to grow brand awareness and maintain, protect and enhance our brand;
our ability to maintain and effectively expand our relationships with key strategic restaurant and 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 protein that meets our standards;
real or perceived quality or health issues with our products or other issues that adversely affect our brand and reputation;
changes in the tastes and preferences of our consumers;
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 and retention of qualified employees and key personnel;
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 effectiveness of our internal controls;
changes in laws and government regulation affecting our business, including Food and Drug Administration (“FDA”) governmental regulation and state regulation;
changes in laws, regulations or policies of governmental agencies or regulators relating to the labeling of our products;

ii



the impact of adverse economic conditions;
the financial condition of, and our relationships with our suppliers, co-manufacturers, distributors, retailers and foodservice customers;
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 their impact on consumer spending;
outcomes of legal or administrative proceedings;
our, our suppliers’ and our co-manufacturers’ ability to protect our proprietary technology and intellectual property adequately;
as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as “believe,” “may,” “will,” “will continue,” “could,” “will likely result,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “predict,” “project,” “expect,” “potential” and similar expressions, as they relate to our company, our business and our management. 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. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, including, without limitation, the risks discussed in Part II, Item 1A, "Risk Factors," and those discussed in other documents we file from time to time with the Securities and Exchange Commission (“SEC”).
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 update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, 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.
As used herein, the terms “Beyond Meat,” “we,” “us,” “our” and “the Company” refer to Beyond Meat, Inc., a Delaware corporation.
“Beyond Burger,” “Beyond Beef,” “Beyond Chicken,” “Beyond Meat,” “Beyond Sausage,” “Beyond Breakfast Sausage,” “The Cookout Classic,” “The Future of Protein” and “The Future of Protein Beyond Meat” and design are registered 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 Quarterly Report on Form 10-Q are the property of their respective holders. Solely for convenience, the trademarks and trade names contained herein are referred to without the ® and TM 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.


iii



Part I. Financial Information
ITEM I. FINANCIAL STATMENTS
BEYOND MEAT, INC.
Condensed Balance Sheets
(In thousands, except share and per share data)
(unaudited)
 
June 29,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
276,987

 
$
54,271

Accounts receivable
34,388

 
12,626

Inventory
42,695

 
30,257

Prepaid expenses and other current assets
7,726

 
5,672

Total current assets
361,796

 
102,826

Property, plant, and equipment, net
34,473

 
30,527

Other non-current assets, net
792

 
396

Total assets
$
397,061

 
$
133,749

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit):
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
27,383

 
$
17,247

Wages payable
1,208

 
1,255

Accrued bonus
2,157

 
2,312

Accrued expenses and other current liabilities
3,622

 
2,391

Short-term borrowings under revolving credit line
6,000

 

Short-term capital lease liabilities
33

 
44

Stock warrant liability

 
1,918

Total current liabilities
$
40,403

 
$
25,167

Long-term liabilities:
 
 
 
Revolving credit line
$

 
$
6,000

Long-term portion of bank term loan, net
19,543

 
19,388

Equipment loan, net
4,924

 
5,000

Capital lease obligations and other long-term liabilities
406

 
404

Total long-term liabilities
$
24,873

 
$
30,792

Commitments and Contingencies (Note 9)


 



1



 
June 29,
2019
 
December 31,
2018
Convertible preferred stock:
 
 
 
Series A convertible preferred stock, par value $0.0001 per share—no shares and 3,333,500 shares authorized, issued and outstanding as of June 29, 2019 and December 31, 2018
$

 
$
2,000

Series B convertible preferred stock, par value $0.0001 per share—no shares and 4,802,260 shares authorized; no shares and 4,680,565 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
4,999

Series C convertible preferred stock, par value $0.0001 per share—no shares and 8,076,643 shares authorized; no shares and 8,076,636 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
14,882

Series D convertible preferred stock, par value $0.0001 per share—no shares and 8,713,207 shares authorized; no shares and 8,713,201 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
24,948

Series E convertible preferred stock, par value $0.0001 per share—no shares and 4,740,531 shares authorized; no shares and 4,701,449 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
17,214

Series F convertible preferred stock, par value $0.0001 per share—no shares and 4,866,776 shares authorized; no shares and 4,866,758 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
29,840

Series G convertible preferred stock, par value $0.0001 per share—no shares and 5,140,257 shares authorized; no shares and 5,114,786 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
55,658

Series H convertible preferred stock, par value $0.0001 per share—no shares and 4,209,693 shares authorized; no shares and 2,075,216 shares issued and outstanding as of June 29, 2019 and December 31, 2018

 
49,999

Stockholders’ equity (deficit):
 
 
 
Preferred stock, par value $0.0001 per share—500,000 shares authorized, none issued and outstanding

 

Common stock, par value $0.0001 per share—500,000,000 shares and 58,669,600 shares authorized at June 29, 2019 and December 31, 2018, respectively; 60,167,521 and 6,951,350 shares issued and outstanding at June 29, 2019 and December 31, 2018, respectively
6

 
1

Additional paid-in capital
477,541

 
7,921

Accumulated deficit
(145,762
)
 
(129,672
)
Total stockholders’ equity (deficit)
$
331,785

 
$
(121,750
)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)
$
397,061

 
$
133,749

 
 
 
 

The accompanying notes are an integral part of these unaudited condensed financial statements.

2



BEYOND MEAT, INC.
Condensed Statements of Operations
(In thousands, except share and per share data)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net revenues
 
$
67,251

 
$
17,367

 
$
107,457

 
$
30,143

Cost of goods sold
 
44,510

 
14,755

 
73,945

 
25,474

Gross profit
 
22,741

 
2,612

 
33,512

 
4,669

 
 
 
 
 
 
 
 
 
Research and development expenses
 
4,212

 
2,497

 
8,710

 
4,102

Selling, general and administrative expenses
 
15,515

 
7,043

 
26,692

 
12,780

Restructuring expenses
 
847

 
348

 
1,241

 
642

Total operating expenses
 
20,574

 
9,888

 
36,643

 
17,524

Income (loss) from operations
 
2,167

 
(7,276
)
 
(3,131
)
 
(12,855
)
 
 
 
 
 
 
 
 
 
Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(741
)
 
(28
)
 
(1,474
)
 
(75
)
Remeasurement of warrant liability
 
(11,744
)
 
(130
)
 
(12,503
)
 
(259
)
Other income, net
 
898

 
38

 
1,039

 
97

Total other expense, net
 
(11,587
)
 
(120
)
 
(12,938
)
 
(237
)
 
 
 
 
 
 
 
 
 
Loss before taxes
 
(9,420
)
 
(7,396
)
 
(16,069
)
 
(13,092
)
Income tax expense
 
21

 

 
21

 

Net loss
 
$
(9,441
)
 
$
(7,396
)
 
$
(16,090
)
 
$
(13,092
)
Net loss per common share—basic and diluted
 
$
(0.24
)
 
$
(1.22
)
 
$
(0.69
)
 
$
(2.21
)
Weighted average common shares outstanding—basic and diluted
 
39,081,359

 
6,072,319

 
23,206,203

 
5,933,806

 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements.

3



BEYOND MEAT, INC.
Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share data)
(unaudited)

 
Preferred Stock
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Total
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balance at December 31, 2018
41,562,111

 
$
199,540

 
 
6,951,350

 
$
1

 
$
7,921

 
$
(129,672
)
 
$
(121,750
)
  Net loss

 

 
 

 

 

 
(6,649
)
 
(6,649
)
  Issuance of common stock through equity incentive plans

 

 
 
169,583

 

 
366

 

 
366

  Share-based compensation

 

 
 

 

 
855

 

 
855

Balance March 29, 2019
41,562,111

 
$
199,540

 
 
7,120,933

 
$
1

 
$
9,142

 
$
(136,321
)
 
$
(127,178
)
  Net loss

 

 
 

 

 

 
(9,441
)
 
(9,441
)
  Issuance of common stock pursuant to the initial public offering, net of issuance costs of $4.9 million

 

 
 
11,068,750

 
1

 
252,452

 

 
252,453

  Issuance of common stock upon conversion of convertible preferred stock
(41,562,111
)
 
(199,540
)
 
 
41,562,111

 
4

 
199,536

 

 
199,540

  Issuance of common stock upon exercise of common stock warrants

 

 
 
214,875

 

 

 

 

  Reclassification of warrant liability to additional paid-in capital in connection with the initial public offering

 

 
 

 

 
14,421

 

 
14,421

  Issuance of common stock through equity incentive plans

 

 
 
200,852

 

 
167

 

 
167

  Share-based compensation

 

 
 

 

 
1,823

 

 
1,823

Balance at June 29, 2019

 
$

 
 
60,167,521

 
$
6

 
$
477,541

 
$
(145,762
)
 
$
331,785

 
Preferred Stock
 
 
Common Stock
 
Additional Paid-in Capital
 
Loans to Related Parties
 
Accumulated Deficit
 
Total
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balance at December 31, 2017
39,361,211

 
$
148,194

 
 
5,724,506

 
$
1

 
$
4,823

 
$
(951
)
 
$
(99,786
)
 
$
(95,913
)
  Net loss

 

 
 

 

 

 

 
(5,696
)
 
(5,696
)
  Issuance of common stock through equity incentive plans

 

 
 
92,310

 

 
88

 

 

 
88

  Share-based compensation

 

 
 

 

 
260

 

 

 
260

  Issuance of Series G preferred stock, net of issuance costs of $7
112,945

 
1,228

 
 

 

 

 

 

 

Balance at March 31, 2018
39,474,156

 
$
149,422

 
 
5,816,816

 
$
1

 
$
5,171

 
$
(951
)
 
$
(105,482
)
 
$
(101,261
)
  Net loss

 

 
 

 

 

 

 
(7,396
)
 
(7,396
)
  Issuance of common stock through equity incentive plans

 

 
 
624,411

 

 
783

 

 

 
783

  Share-based compensation

 

 
 

 

 
450

 

 

 
450

  Issuance of Series G preferred stock, net of issuance costs of $19
12,739

 
121

 
 

 

 
.
 

 

 

Balance at June 30, 2018
39,486,895

 
$
149,543

 
 
6,441,227

 
$
1

 
$
6,404

 
$
(951
)
 
$
(112,878
)
 
$
(107,424
)
The accompanying notes are an integral part of these unaudited condensed financial statements.

4



BEYOND MEAT, INC.
Condensed Statements of Cash Flows
(In thousands)
(unaudited)

 
 
Six Months Ended
 
 
June 29,
2019
 
June 30,
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(16,090
)
 
$
(13,092
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
3,957

 
1,620

Share-based compensation expense
 
2,678

 
710

Amortization of debt issuance costs
 
78

 
35

Change in preferred and common stock warrant liabilities
 
12,503

 
259

Net change in operating assets and liabilities:
 
 
 
 
Accounts receivables
 
(21,762
)
 
(2,788
)
Inventories
 
(12,438
)
 
(6,178
)
Prepaid expenses and other assets
 
(2,131
)
 
(154
)
Accounts payable
 
9,799

 
6,623

Accrued expenses and other current liabilities
 
1,028

 
259

Long-term liabilities
 
12

 
39

Net cash used in operating activities
 
$
(22,366
)
 
$
(12,667
)
Cash flows used in investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
$
(7,502
)
 
$
(9,973
)
Proceeds from sale of fixed assets
 
232

 

Purchases of property, plant and equipment held for sale
 
(3,121
)
 

Payment of security deposits
 
(487
)
 
(60
)
Net cash used in investing activities
 
$
(10,878
)
 
$
(10,033
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of common stock pursuant to the initial public offering, net of issuance costs
 
$
255,448

 
$

Proceeds from Series G preferred stock offering, net of offering costs
 

 
1,350

Proceeds from bank term loan borrowing
 

 
10,000

Repayments on revolving credit line
 

 
(2,500
)
Repayment on term loan
 

 
(1,000
)
Repayment of Missouri Note
 

 
(1,450
)
Payments of capital lease obligations
 
(21
)
 
(117
)
Proceeds from exercise of stock options
 
533

 
871

Net cash provided by financing activities
 
$
255,960

 
$
7,154

Net increase (decrease) in cash and cash equivalents
 
$
222,716

 
$
(15,546
)
Cash and cash equivalents at the beginning of the period
 
54,271

 
39,035

Cash and cash equivalents at the end of the period
 
$
276,987

 
$
23,489

(continued on next page)

5



 
 
Six Months Ended
 
 
June 29,
2019
 
June 30,
2018
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
1,445

 
$
63

Taxes
 
$
21

 
$
3

Non-cash investing and financing activities:
 
 
 
 
Capital lease obligations for the purchase of property, plant and equipment
 
$

 
$
85

Issuance of convertible preferred stock warrants in connection with debt
 
$

 
$
248

Non-cash additions to property, plant and equipment
 
$
1,003

 
$
1,656

Deferred offering costs, accrued not yet paid
 
$
578

 
$
64

    Non-cash additions to property, plant and equipment held for sale
 
$
646

 
$

    Reclassification of warrant liability to additional paid-in capital in connection with the initial public offering
 
$
14,421

 
$

Conversion of convertible preferred stock to common stock upon initial public offering
 
$
199,540

 
$

(concluded)
The accompanying notes are an integral part of these unaudited condensed financial statements.

6


BEYOND MEAT, INC.
Notes to Unaudited Condensed 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 by eating the Company’s plant-based meats, consumers can enjoy more, not less, of their favorite meals, and by doing so, help address concerns related to human health, climate change, resource conservation and animal welfare.
The Company’s primary production facilities are located in Columbia, Missouri, 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 to manufacture its products. In May 2019, the Company partnered with one of its distributors to co-manufacture the Company’s products at a new manufacturing facility being constructed by this distributor in the Netherlands for estimated completion in 2020.
The Company sells to a variety of customers in the retail and foodservice channels throughout the United States and internationally through brokers and distributors. All of the Company’s long-lived assets are located in the United States.
Initial Public Offering
On May 6, 2019, the Company completed its initial public offering (“IPO”) of common stock, in which it sold 11,068,750 shares, including 1,443,750 shares pursuant to the underwriters’ over-allotment option. The shares began trading on the Nasdaq Global Select Market on May 2, 2019. The shares were sold at an IPO price of $25.00 per share for net proceeds of approximately $252.4 million , after deducting underwriting discounts and commissions of $19.4 million and offering expenses of approximately $4.9 million payable by the Company. Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock automatically converted into 41,562,111 shares of common stock on a one -for-one basis, and warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for a total of 160,767 shares of common stock.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“ SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2019 or for any other interim period or for any other future fiscal year. These condensed financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the prospectus dated May 1, 2019 filed with the SEC on May 3, 2019 (the “Prospectus”) . The condensed balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date. There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the Prospectus, except as noted below.

7


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

Fiscal Year
The Company operates on a fiscal calendar year, and each interim quarter is comprised of one 5-week period and two 4-week periods, with each week ending on a Saturday. The Company’s fiscal year always begins on January 1 and ends on December 31. As a result, the Company’s first and fourth fiscal quarters may have more or fewer days included than a traditional 91 -day fiscal quarter.
Management’s Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates made by the Company include trade promotion accruals; useful lives of property, plant and equipment; valuation of deferred tax assets; valuation of inventory; and the valuation of the fair value of common stock and preferred stock used to determine stock compensation expense and in the remeasurement of warrants and liabilities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates and such differences may be material to the condensed financial statements.
Reverse Stock Split
On January 2, 2019, the Company effected a 3 -to- 2 reverse stock split of its outstanding common stock and convertible preferred stock, including outstanding stock options and common and convertible preferred stock warrants. The reverse stock split did not result in an adjustment to par value. All references in the accompanying condensed financial statements and related notes to the number of shares of common stock, convertible preferred stock, warrants and options to purchase common stock and per share data reflect the effect of the reverse stock split.
Cash and Cash Equivalents
The Company maintains cash balances at one financial institution in the United States. The cash balances may, at times, exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation or FDIC up to $250,000 . The Company considers all highly liquid investments with original maturity dates of 90 days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts .
Deferred Offering Costs
Offering costs, consisting primarily of legal, accounting, printing and filing services, and other direct fees and costs related to the IPO, were capitalized and offset against proceeds upon the consummation of the IPO. Total IPO issuance costs were $4.9 million , of which $2.4 million was incurred and paid as of December 31, 2018 and an additional $1.9 million was incurred and paid as of June 29, 2019 .  Approximately $0.6 million of IPO issuance costs incurred in the six months ended June 29, 2019 remained unpaid in accounts payable as of June 29, 2019 .
Stock Warrant Liability
The Company accounts for freestanding warrants to purchase shares of its convertible preferred stock or common stock as a liability, as the underlying shares of convertible preferred stock and common stock are contingently redeemable and, therefore, may obligate the Company to transfer assets at some point in the future. The warrants were recorded at fair value upon issuance and are subject to remeasurement at each balance sheet date. Any change in fair value is recognized in the condensed statements of operations in Total other expense, net.

8


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

Prior to the IPO, the Company had outstanding warrants to purchase an aggregate of 60,002 shares of its common stock at an exercise price of $3.00 per share, 121,694 shares of its Series B convertible preferred stock at an exercise price of $1.07 per share and 39,073 shares of its Series E convertible preferred stock at an exercise price of $3.68 per share. On May 6, 2019, in connection with the IPO, the warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for a total of 160,767 shares of common stock at the same respective exercise price per share. Subsequent to the closing of the IPO, all outstanding warrants to purchase shares of common stock were cashless exercised.
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.
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. Based on the borrowing rates currently available to the Company for debt with similar terms, the carrying value of the line of credit, term debt with its bank, and equipment loan approximate fair value as well.
The Company had no financial instruments measured at fair value on a recurring basis as of June 29, 2019 . Prior to the IPO, the stock warrant liability was measured at fair value using Level 3 inputs upon issuance and at each reporting date. Inputs used to determine the estimated fair value of the warrant liability as of the valuation date included expected term of the warrants, the risk-free interest rate, volatility, and the fair value of underlying shares.
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis based on the fair value hierarchy as of December 31, 2018 (in thousands):
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Liabilities:
 
 
 
 
 
 
 
Preferred stock warrant liability
$

 
$

 
$
1,441

 
$
1,441

Common stock warrant liability

 

 
477

 
477

Total
$

 
$

 
$
1,918

 
$
1,918




9


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

The following table sets forth a summary of the changes in the fair value of the preferred and common stock warrant liabilities:
 
 
For the Six Months Ended
(in thousands)
 
June 29, 2019
 
June 30, 2018
Beginning balance
 
$
1,918

 
$
550

Fair value of warrants issued during the period
 

 
248

Change in fair value of warrant liability
 
12,503

 
259

Reclassification of warrant liability to additional paid-in capital in connection with the IPO
 
(14,421
)
 

Ending balance
 
$

 
$
1,057


The Company remeasured and reclassified the common stock warrant liability to additional paid-in-capital in connection with the IPO. Subsequent to the closing of the IPO, all outstanding warrants to purchase shares of common stock were cashless exercised and no warrants were outstanding as of June 29, 2019 .
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which, along with subsequent ASUs, amends the existing accounting standards for revenue recognition (“Topic 606”). This guidance is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled to receive when products are transferred to customers. ASU 2014-09 was effective for the Company beginning January 1, 2019. The majority of the Company’s contracts with customers generally consist of a single performance obligation to transfer promised goods. Based on the Company’s evaluation process and review of its contracts with customers, the timing and amount of revenue recognized based on ASU 2014-09 is consistent with the Company’s revenue recognition policy under previous guidance. The Company has therefore concluded that the adoption of ASU 2014-09 did not have a material impact on its financial position, results of operations, or cash flows.
Revenue is recognized at the point in which the performance obligation under the terms of a contract with the customer have been satisfied and control has transferred. The Company’s performance obligation is typically defined as the accepted purchase order, or the contract, with the customer which requires the Company to deliver the requested 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 contracts as of June 29, 2019 contain a significant financing component.
The Company routinely offers sales discounts and promotions through various programs to its customers and consumers. These programs include rebates, temporary on shelf price reductions, off invoice discounts, retailer advertisements, 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 $1.1 million and $0.8 million as of June 29, 2019 and December 31, 2018 , respectively. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.

10


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

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 .
The Company’s net revenues by platform and channel are included in the tables below:
 
 
For the Three Months Ended
 
For the Six Months Ended
(in thousands)
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net revenues:
 
 
 
 
 
 
 
 
Gross Fresh Platform
 
$
67,722

 
$
15,119

 
$
106,528

 
$
24,715

Gross Frozen Platform
 
5,639

 
4,506

 
10,151

 
9,254

Less: Discounts
 
(6,110
)
 
(2,258
)
 
(9,222
)
 
(3,826
)
Net revenues
 
$
67,251

 
$
17,367

 
$
107,457

 
$
30,143

 
 
For the Three Months Ended
 
For the Six Months Ended
(in thousands)
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net revenues:
 
 
 
 
 
 
 
 
Retail
 
$
34,120

 
$
11,684

 
$
53,699

 
$
20,972

Restaurant and Foodservice
 
33,131

 
5,683

 
53,758

 
9,171

Net revenues
 
$
67,251

 
$
17,367

 
$
107,457

 
$
30,143


Two distributors accounted for approximately 22% and 20% , respectively, of the Company’s gross revenues in the three months ended June 29, 2019 ; and three distributors accounted for approximately 39% , 15% and 15% , respectively, of the Company’s gross revenues in the three months ended June 30, 2018 . Two distributors accounted for approximately 22% and 21% , respectively, of the Company’s gross revenues in the six months ended June 29, 2019 ; and three distributors accounted for approximately 37% , 15% and 13% , respectively, of the Company’s gross revenues in the six months ended June 30, 2018 .
Approximately 12% of the Company’s net revenues in the three months ended June 29, 2019 was from international sales excluding sales in Canada as compared to approximately 3% in the three months ended June 30, 2018 . Approximately 13% of the Company’s net revenues in the six months ended June 29, 2019 was from international sales excluding sales in Canada as compared to approximately 2% in the six months ended June 30, 2018 . Net revenues from sales to the Canadian market are included with net revenues from sales to the United States market.
Shipping and Handling Costs
Outbound shipping and handling costs included in selling, general and administrative (“SG&A”) expenses in the three months ended June 29, 2019 and June 30, 2018 were $2.6 million and $1.8 million , respectively, and in the six months ended June 29, 2019 and June 30, 2018 were $3.9 million and $2.8 million , respectively.
Earnings (Loss) Per Share
Earnings (loss) per share (“EPS”) represents net income attributable to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of potential common shares outstanding during the period. Such potential common shares include options, restricted stock units (“RSUs”), warrants and

11


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

convertible preferred stock. In periods when the Company records net loss, potential common shares are excluded in the computation of EPS because their inclusion would be anti-dilutive. See  Note 11 .
Related-Party Transactions
Seth Goldman
The Company entered into a consulting agreement with Seth Goldman, the Company’s Executive Chair, on March 2, 2016, which was amended and restated on November 15, 2018 and further amended on April 8, 2019. Pursuant to the consulting agreement, the Company will pay Mr. Goldman $20,210.33 per month for services rendered under the consulting agreement and, on the date of each annual meeting of the Company’s stockholders after which Mr. Goldman’s non-employee service on the board of directors will continue, the Company has agreed to grant Mr. Goldman a restricted stock unit award under the 2018 Equity Incentive Plan (the “Plan”), having a grant date fair value of $105,000 . Each restricted stock unit grant will vest based on continued service in equal monthly installments over the 12 -month period following the grant date, provided it will vest in full immediately prior to, and contingent upon, a change in control of the company.
The consulting agreement may be terminated by either party at any time upon 120 business days’ written notice. In the event of a default in the performance of the consulting agreement or material breach of any obligations under the consulting agreement, the non-breaching party may terminate the consulting agreement immediately if the breaching party fails to cure the breach within 30 business days after having received written notice by the non-breaching party of the default or breach.
Bernhard van Lengerich
The Company first entered into an advisor agreement with Food System Strategies, LLC in October 2015. Bernhard van Lengerich. Ph.D., a member of the Company’s Board of Directors, is the Chief Executive Officer of Food System Strategies, LLC. Pursuant to this advisor agreement, the Company paid Food System Strategies, LLC $4,000 for each day Dr. van Lengerich provided services, provided the Company paid Food System Strategies, LLC for at least two days of services per month. In February 2016, the Company entered into a new advisor agreement with Food System Strategies, LLC, which superseded the original agreement and provided for a $25,000 monthly retainer and a non-qualified stock option covering 798,848 shares, which vested in equal monthly installments over three years in consideration of Dr. van Lengerich providing services as the Company’s interim Chief Technical Officer and head of research and development, and the increased time commitment associated with these roles. In December 2016, the advisor agreement was amended to provide for a $10,000 monthly retainer to reflect the fact that Dr. van Lengerich would only be providing advisory services five to six days a month going forward. The advisor agreement may be terminated at any time upon written notice to the other party.
Donald Thompson
In the six months ended June 30, 2018 , the Company incurred consulting costs payable to a company associated with Donald Thompson, a member of the Company’s Board of Directors, in the amount of $47,162 . The Company did not incur any such consulting costs in the six months ended June 29, 2019 .
Recently Adopted Accounting Pronouncements
In June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). Under ASU 2018-07, the measurement of equity-classified nonemployee awards will be fixed at the grant date, and nonpublic entities are allowed to account for nonemployee awards using certain practical expedients that are already available for employee awards. The amendments in ASU 2018-07 are effective for nonpublic business entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal

12


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

years beginning after December 15, 2020. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606. The Company early adopted ASU 2018-07 beginning January 1, 2019 along with its adoption of ASU 2014-09. Pursuant to ASU 2018-07, the measurement of equity classified nonemployee awards will be fixed at the grant date, as compared to the previous requirement to remeasure the awards through the performance completion date.
New Accounting Pronouncements
As an “emerging growth company,” the Jumpstart Our Business Startups Act, or the JOBS Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which makes amendments to the guidance in GAAP on the classification and measurement of financial instruments. ASU 2016-01 significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. For all entities other than public entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, including interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company expects to adopt and implement ASU 2016-01 for the year ending December 31, 2019 and for interim periods beginning January 1, 2020. The Company does not expect that adoption of ASU 2016-01 will have a material impact on the Company’s financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires lessees to generally recognize most operating leases on the balance sheets but record expenses on the income statements in a manner similar to current accounting. ASU 2016-02 along with subsequent ASU’s on Topic 842 is effective for nonpublic companies for the annual reporting period beginning after December 15, 2019, and, therefore, effective for the Company beginning January 1, 2020. Early application is permitted. The Company is currently evaluating the impact ASU 2016-02 will have on its financial statements and currently expects that most operating lease commitments will be subject to ASU 2016-02 and will be recognized as operating lease liabilities and right-of-use assets upon adoption. While the Company has not yet quantified the impact, adjustments resulting from the adoption of ASU 2016-02 will materially increase total assets and total liabilities relative to such amounts reported prior to adoption.
Note 3. Restructuring
In May 2017, management approved a plan to terminate the Company’s exclusive supply agreement (the “Agreement”) with one of its co-manufacturers, due to non-performance under the Agreement and on May 23, 2017, the Company notified the co-manufacturer of its decision to terminate the Agreement. In the three months ended June 29, 2019 and June 30, 2018 , the Company recorded $0.8 million and $0.3 million , respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. In the six months ended June 29, 2019 and June 30, 2018 , the Company recorded $1.2 million and $0.6 million , respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. See Note 9 for further information. As of June 29, 2019 and December 31, 2018 , there were no accrued unpaid liabilities associated with this contract termination.

13


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

Note 4. Inventories
Major classes of inventory were as follows:
(in thousands)
June 29,
2019
 
December 31,
2018
Raw materials and packaging
$
25,047

 
$
13,756

Work in process
5,635

 
2,517

Finished goods
12,013

 
13,984

Total
$
42,695

 
$
30,257


Note 5. Property, Plant and Equipment
Property, plant, and equipment are stated at cost and capital lease assets are included. A summary of property, plant, and equipment as of June 29, 2019 and December 31, 2018 , is as follows:
(in thousands)
 
June 29, 2019
 
December 31, 2018
Manufacturing equipment
 
$
29,783

 
$
25,314

Research and development equipment
 
7,373

 
6,088

Leasehold improvements
 
7,337

 
7,080

Capital leases
 
883

 
882

Software
 
183

 
60

Furniture and fixtures
 
364

 
195

Vehicles
 
210

 
210

Assets not yet placed in service
 
4,970

 
3,374

Total property, plant and equipment
 
$
51,103

 
$
43,203

Less: accumulated depreciation and amortization
 
16,630

 
12,676

Property, plant and equipment, net
 
$
34,473

 
$
30,527


Depreciation and amortization expense for the three months ended June 29, 2019 and June 30, 2018 , was $2.1 million and $0.9 million , respectively. Of the total depreciation and amortization expense in the three months ended June 29, 2019 and June 30, 2018 , $1.4 million and $0.7 million , respectively, were recorded in cost of goods sold and $0.6 million and $0.2 million , respectively, were recorded in research and development expenses, and $12,000 and $0 , respectively, were recorded in SG&A expenses, in the Company’s condensed statements of operations.
Depreciation and amortization expense for the six months ended June 29, 2019 and June 30, 2018 , was $4.0 million and $1.6 million , respectively. Of the total depreciation and amortization expense in the six months ended June 29, 2019 and June 30, 2018 , $2.8 million and $1.3 million , respectively, were recorded in cost of goods sold and $1.1 million and $0.3 million , respectively, were recorded in research and development expenses, and $22,000 and $0 , respectively, were recorded in SG&A expenses, in the Company’s condensed statements of operations.
The Company has $4.2 million and $1.0 million in property, plant and equipment concluded to meet the criteria for assets held for sale on the condensed balance sheets as of June 29, 2019 and December 31, 2018 , respectively. The Company expects to sell such assets in 2019 for amounts that approximate book value.

14


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

Note 6. Debt
The Company’s debt balances are detailed below:
(in thousands)
June 29, 2019
 
December 31, 2018
2018 Revolving Credit Facility (defined below)
$
6,000

 
$
6,000

2018 Term Loan Facility (defined below)
20,000

 
20,000

Equipment financing loan
5,000

 
5,000

Debt issuance costs
(533
)
 
(612
)
Total debt outstanding
$
30,467

 
$
30,388

Less: current portion of long-term debt
6,000

 

Long-term debt
$
24,467

 
$
30,388


The Company records debt issuance costs as a reduction of carrying value of the debt in the accompanying condensed balance sheets. Debt issuance costs, net of amortization, totaled $0.5 million and $0.6 million as of June 29, 2019 and December 31, 2018 , respectively. Debt issuance costs are amortized as interest expense over the term of the loan for which amortization of $20,000 and $26,000 was recorded during the three months ended June 29, 2019 and June 30, 2018 , respectively, and $78,000 and $35,000 was recorded during the six months ended June 29, 2019 and June 30, 2018 , respectively.
Amended and Restated Loan and Security Agreement
In June 2018, the Company refinanced its then existing revolving credit facility and term loan facility under a loan and security agreement with Silicon Valley Bank (“SVB”) (the “Amended LSA”). The Amended LSA includes a $6.0 million revolving credit facility (the “2018 Revolving Credit Facility”) and a term loan facility (the “2018 Term Loan Facility”) comprised of (i) a $10.0 million term loan advance at closing, (ii) a conditional $5.0 million term loan advance, if no event of default has occurred and is continuing through the borrowing date, and (iii) an additional conditional term loan advance of $5.0 million if no event of default has occurred and is continuing based upon a minimum level of gross profit for the trailing 12 -month period. The 2018 Term Loan Facility has a floating interest rate that is equal to 4.0% above the prime rate, with interest payable monthly and principal amortizing commencing on January 1, 2020, and will mature in June 2022. Borrowings under the 2018 Revolving Credit Facility carry a variable annual interest rate of prime rate plus 0.75% to 1.25% with an additional 5% on the outstanding balances in the event of a default. The 2018 Revolving Credit Facility matures in June 2020.
The 2018 Term Loan Facility and the 2018 Revolving Credit Facility (the “SVB Credit Facilities,”) contain customary negative covenants that limit the Company’s ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets and merge or consolidate. The SVB Credit Facilities are secured by a blanket lien on all of the Company’s personal property assets. The SVB Credit Facilities also contain customary affirmative covenants, including delivery of audited financial statements. The Company was in compliance with the covenants in the SVB Credit Facilities as of June 29, 2019 .
As of June 29, 2019 and December 31, 2018 , the Company had $6.0 million and $20.0 million in borrowings on the 2018 Revolving Credit Facility and 2018 Term Loan Facility, respectively, and had no availability to borrow under either of these loan facilities. In the three months ended June 29, 2019 and June 30, 2018 , the Company incurred $0.5 million and $22,000 , respectively, in interest expense related to the SVB credit facilities. In the six months ended June 29, 2019 and June 30, 2018 , the Company incurred $1.1 million and $40,000 , respectively, in interest expense related to the SVB credit facilities. The interest rates on the 2018 Revolving Credit Facility and the 2018 Term Loan Facility at June 29, 2019 were 6.25% and 9.50% , respectively.

15


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

Equipment Loan Facility
The Company had $5.0 million in borrowings outstanding as of June 29, 2019 and December 31, 2018 under the equipment loan facility. The interest rate on the equipment loan facility at June 29, 2019 and December 31, 2018 was 11.75% and 11.5% , respectively. For the three months ended June 29, 2019 and June 30, 2018 , the Company recorded $0.2 million and $0 , respectively, in interest expense related to the equipment loan facility. For the six months ended June 29, 2019 and June 30, 2018 , the Company recorded $0.3 million and $0 , respectively, in interest expense related to the equipment loan facility. The Company was in compliance with the covenants contained in the equipment loan facility as of June 29, 2019.
Warrant Liabilities
In connection with its financing arrangements, the Company issued warrants to purchase shares of its convertible preferred stock. For one of the financing arrangements, the Company issued warrants to purchase 121,694 shares of Series B convertible preferred stock at an exercise price of $1.07 per share. For a separate financing arrangement, the Company issued warrants to purchase 39,073 shares of Series E convertible preferred stock at an exercise price of $3.68 per share. In connection with the Company’s refinancing of its credit facilities with SVB, the Company issued to SVB and its affiliates warrants to purchase an aggregate of 60,002 shares of its common stock at an exercise price of $3.00 per share. Upon the closing of the IPO, the warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for a total of 160,767 shares of common stock at the same respective exercise price per share. Subsequent to the closing of the IPO, all outstanding warrants to purchase shares of common stock were cashless exercised and no warrants were outstanding as of June 29, 2019. See Note 2 for further information on the warrant liabilities.
Note 7. Stockholders’ Equity (Deficit) and Convertible Preferred Stock
Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock automatically converted into 41,562,111 shares of common stock on a one -for-one basis. On May 6, 2019, the Company filed an Amended and Restated Certificate of Incorporation authorizing the Company to issue 500,000,000 shares of common stock, $0.0001 par value per share, and 500,000 shares of undesignated preferred stock, $0.0001 par value per share, with rights and preferences determined by the Company’s Board of Directors at the time of issuance of such shares. As of June 29, 2019 , the Company had 60,167,521 shares of common stock issued and outstanding.
As of December 31, 2018 , the Company’s shares consisted of 58,669,600  authorized shares of common stock, par value $0.0001 per share, of which 6,951,350 shares were issued and outstanding, and 43,882,867 authorized shares of preferred stock, par value $0.0001 per share, of which 3,333,500  shares of Series A Preferred Stock, 4,680,565  shares of Series B Preferred Stock, 8,076,636  shares of Series C Preferred Stock, 8,713,201  shares of Series D Preferred Stock, 4,701,449 shares of Series E Preferred Stock, 4,866,758 shares of Series F Preferred Stock, 5,114,786 shares of Series G Preferred Stock and 2,075,216 shares of Series H Preferred Stock were issued and outstanding.
The Company has not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock.

Note 8. Share-Based Compensation
On April 11, 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”), and most recently amended the 2011 Plan on April 10, 2019. The 2011 Plan was amended, restated and re-named the 2018 Equity Incentive Plan (“2018 Plan”), which became effective as of April 30, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO.

16


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

The remaining shares available for issuance under the 2011 Plan were added to the shares reserved for issuance under the 2018 Plan.
The 2018 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to the Company’s employees, directors, and consultants. The maximum aggregate number of shares that may be issued under the 2018 Plan is 14,482,356 shares of the Company’s common stock. In addition, the number of shares reserved for issuance under the 2018 Plan will be increased automatically on the first day of each fiscal year beginning with the 2020 fiscal year, by a number equal to the least of: (i) 2,144,521 shares; (ii) 4.0% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such number of shares determined by the Company’s Board of Directors.
The 2018 Plan may be amended, suspended or terminated by the Company’s Board of Directors at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the 2018 Plan as required by applicable law or listing requirements. Unless sooner terminated by the Company’s Board of Directors, the 2018 Plan will automatically terminate on November 14, 2028.
The following grants were made pursuant to the 2018 Plan in the six months ended June 29, 2019 : (i) options to purchase 264,033 shares of common stock were granted to certain employees on April 3, 2019, having an exercise price of $20.02 per share, (ii) options to purchase (A) 1,000,000 shares of common stock were granted to executive officers on April 18, 2019, (B) 48,999 shares of common stock were granted to certain employees on April 29, 2019, and (C) 50,000 shares of common stock were granted to certain executive officers on May 1, 2019, in each case to be effective upon and subject to the effectiveness of the registration statement relating to the Company’s IPO and having an exercise price equal to the IPO price of $25.00 per share, (iii) awards covering 99,433 shares of restricted stock were granted to nonemployees on April 18, 2019 at a purchase price of $0.01 per share to be issued upon payment of the purchase price, (iv) an option to purchase 125,000 shares of common stock was granted to an executive officer on June 10, 2019, having an exercise price of $168.10 per share, and (v) 70,360 RSUs with a grant date fair value of $168.10 were granted to certain employees on June 10, 2019.
As of June 29, 2019 and December 31, 2018 , there were 6,245,103 and 5,120,293 shares, respectively, issuable under stock options outstanding, 70,360 and 0 shares, respectively, issuable under RSUs outstanding, 4,705,766 and 4,335,331 shares, respectively, issued for stock option exercises and restricted stock grants, and 3,437,794 and 6,859 shares, respectively, available for grants under the 2018 Plan.
Stock Options
Option grants in the six months ended June 29, 2019 vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period.

17


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

The following table summarizes the Company’s stock option activity during the six months ended June 29, 2019 :
 
Number
of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (in thousands) (1)
Outstanding at December 31, 2018
5,120,293

 
$
3.13

 
7.3
 
$
81,371

Granted
1,488,032

 
$
36.14

 
 
$

Exercised
(294,335
)
 
$
1.81

 
 
$
7,328

Cancelled/Forfeited
(68,887
)
 
$
7.02

 
 
$

Outstanding at June 29, 2019
6,245,103

 
$
11.01

 
7.5
 
$
935,616

Vested and exercisable at June 29, 2019
3,091,340

 
$
1.26

 
5.8
 
$
492,807

Vested and expected to vest at June 29, 2019
4,419,185

 
$
5.48

 
6.7
 
$
686,118

__________
(1) Aggregate intrinsic value is calculated as the difference between the value of common stock on the transaction date and the exercise price multiplied by the number of shares issuable under the stock option.
During the three months ended June 29, 2019 and June 30, 2018 , the Company recorded in aggregate $1.2 million and $0.5 million , respectively, of share-based compensation expense related to options issued to employees and nonemployees. During the six months ended June 29, 2019 and June 30, 2018 , the Company recorded in aggregate $1.8 million and $0.7 million , respectively, of share-based compensation expense related to options issued to employees and nonemployees. The share-based compensation expense is included in cost of goods sold and SG&A expenses in the Company’s condensed statements of operations.
As of June 29, 2019 and December 31, 2018, there was $9.5 million and $2.4 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over 3.5 years and 2.9 years , respectively.
Restricted Stock Units
RSU grants in the six months ended June 29, 2019 vest 25% of the total award on the first anniversary of the grant date, and thereafter ratably vesting quarterly over the remaining three years of the award.
The following table summarizes the Company’s RSU activity during the six months ended June 29, 2019 :
 
 
Number of Shares
 
Weighted
Average
Grant Date Fair Value Per Share
Unvested at January 1, 2019
 

 
$

Granted
 
70,360

 
$
168.10

Unvested at June 29, 2019
 
70,360

 
$
168.10


During the three months ended June 29, 2019 and June 30, 2018 , the Company recorded in aggregate $89,000 and $0 , respectively, of share-based compensation expense related to RSUs granted

18


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

to employees. During the six months ended June 29, 2019 and June 30, 2018 , the Company recorded in aggregate $89,000 and $0 , respectively, of share-based compensation expense related to RSUs granted to employees. The share-based compensation expense is included in cost of goods sold and SG&A expenses in the Company’s condensed statements of operations.
As of June 29, 2019 and December 31, 2018, there was $2.9 million and $0 in unrecognized compensation expense related to nonvested RSUs which is expected to be recognized over 3.9 years .
Restricted Stock to Nonemployees
In April 2019, the Company’s Board of Directors approved the issuance of 99,433  shares of restricted stock with a fair value of $20.02 per share and a purchase price of $0.01 per share to nonemployees serving as the Company’s brand ambassadors. The Company has the right to repurchase the unvested shares upon a voluntary or involuntary termination of a brand ambassador’s service; however, as shares vest monthly over 24 months , they are being released from the repurchase option (and all such shares will be released from the repurchase option by May 18, 2021).
In October 2018, the Company’s Board of Directors approved the issuance of 135,791  shares of restricted stock with a fair value of $17.03 per share and a purchase price of $0.02 per share to nonemployees serving as the Company’s brand ambassadors. The Company has the right to repurchase the unvested shares upon a voluntary or involuntary termination of a brand ambassador’s service; however, as shares vest monthly over 12 to 24 months , they are being released from the repurchase option (and all such shares will be released from the repurchase option by November 1, 2020).
The following table summarizes the Company’s restricted stock activity during the six months ended June 29, 2019 :
 
Number
of Shares of
Restricted Stock
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2018
100,127

 
1.6
 
$
17.03

Granted
99,433

 
 
$
20.02

Vested/Released
(35,667
)
 
 
$

Unvested at June 29, 2019
163,893

 
1.8
 
$
19.46


As of June 29, 2019,  140,560  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 and six months ended June 29, 2019 , the Company recorded in aggregate $0.5 million and $0.8 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 statements of operations. During the three and six months ended June 30, 2018 , the Company recorded no share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors.
As of June 29, 2019 , there was $3.0 million in unrecognized compensation expense related to nonvested restricted stock, which is expected to be recognized over 1.8 years .
Employee Stock Purchase Plan
On November 15, 2018, the Company’s Board of Directors adopted its 2018 Employee Stock Purchase Plan (“2018 ESPP”), which was subsequently approved by the Company’s stockholders and

19


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

became effective on April 30, 2019, the day immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2018 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”) for U . S . employees. In addition, the 2018 ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component for non-U.S. employees and certain non-U.S. service providers. The Company has reserved 804,195 shares of common stock for issuance under the 2018 ESPP. In addition, the number of shares reserved for issuance under the 2018 ESPP will be increased automatically on the first day of each fiscal year for a period of up to ten years , starting with the 2020 fiscal year, by a number equal to the least of: (i) 536,130 shares; (ii) 1% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such lesser number of shares determined by the Company’s Board of Directors. 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 9. Commitments and Contingencies
Leases
Effective March 1, 2019, the Company entered into a lease for its principal executive offices in El Segundo, California, for an initial term of 5 years . The aggregate lease amount for the five-year term is $2.7 million . The future minimum lease payments required under noncancelable lease obligations related to this lease are $2.6 million due through 2023 (approximately $0.5 million annually) and $0.1 million thereafter.
Purchase Commitments
As of June 29, 2019 , the Company had committed to purchase pea protein inventory totaling $28.4 million .
Litigation
On May 25, 2017, a former co-manufacturer of the Company filed a complaint against the Company in the Superior Court of the State of California for the County of Los Angeles asserting claims for (1) breach of contract, (2) misappropriation of trade secrets, (3) unfair competition under California Business & Professions Code Section 17200 Et. Seq., (4) money owed and due, (5) declaratory relief, and (6) injunctive relief, each arising out of the Company’s decision to terminate an exclusive agreement dated December 2, 2014 between the Company and the former co-manufacturer, pursuant to its terms (see Note 3 ). The Company denies these claims, filed counter-claims on July 27, 2017, alleging (1) breach of contract, (2) unfair competition under California Business & Professions Code Section 17200 Et. Seq., and (3) conversion, and is in the process of litigating this matter.
In October 2018, the former co-manufacturer filed an amended complaint that added one of the Company’s current contract manufacturers as a defendant, principally for claims arising from the 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 current co-manufacturers. T he current co-manufacturer filed an answer denying all of the former co-manufacturer’s claims, and a cross-complaint against Beyond Meat asserting claims of total and partial equitable indemnity, contribution, and repayment. On March 11, 2019, the former co-manufacturer 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 the former co-manufacturer’s claims.  A trial date has been set for May 18, 2020. At this time the Company cannot reasonably estimate the potential liability associated with this litigation, but believes the final resolution of this litigation will not have a material adverse effect on its financial position, results of operations, or cash flows.

20


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

The Company is involved in various legal proceedings, claims, and litigation arising in the ordinary course of business. Based on the facts currently available, the Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its financial statements.

Note 10. Income Taxes
For the six months ended June 29, 2019 and June 30, 2018 , the Company recorded $21,000 and $0 in income tax expense in its condensed statements of operations.
The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.     
As of June 29, 2019 , the Company does no t have any accrued interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal tax authority and U.S. state tax authority examinations for all years with respect to net operating loss and credit carryforwards.

Note 11. Net Loss Per Share Attributable to Common Stockholders
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considers all series of convertible preferred stock issued and outstanding prior to the IPO to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of convertible preferred stock issued and outstanding prior to the IPO do not have a contractual obligation to share in losses.
The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, RSUs, common stock warrants and securities such as convertible preferred stock and convertible preferred stock warrants that were issued and outstanding before the Company’s IPO, are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. Basic and diluted net loss per common share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been antidilutive. At June 29, 2019 and June 30, 2018, 6,559,565 shares and 5,296,339 shares, respectively, were excluded from the dilution calculation because their inclusion would have been antidilutive.

21


BEYOND MEAT, INC.
Notes to Unaudited Condensed Financial Statements (continued)
 
 
 

(in thousands, except share and per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Numerator:
 
 
 
 
 
 
 
 
Net loss
 
$
(9,441
)
 
$
(7,396
)
 
$
(16,090
)
 
$
(13,092
)
Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
 
39,081,359

 
6,072,319

 
23,206,203

 
5,933,806

Dilutive effect of stock equivalents resulting from stock options, RSUs, common stock warrants, preferred stock warrants and convertible preferred stock (as converted)
 

 

 

 

Weighted average common shares outstanding—diluted
 
39,081,359

 
6,072,319

 
23,206,203

 
5,933,806

Net loss per common share—basic and diluted
 
$
(0.24
)
 
$
(1.22
)
 
$
(0.69
)
 
$
(2.21
)




22



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” and “ Note Regarding Forward-Looking Statements” included elsewhere in this report. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and the related notes and other financial information included elsewhere in this quarterly report and our audited financial statements and notes thereto included in the prospectus dated May 1, 2019 filed with the Securities and Exchange Commission (“SEC”) on May 3, 2019 (the “Prospectus”) . The interim results for the three and six months ended June 29, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2019 or for any other interim period or for any other future fiscal year.
Overview
Beyond Meat is one of the fastest growing food companies in the United States, offering a portfolio of revolutionary plant-based meats. We build meat directly from plants, an innovation that enables consumers to experience the taste, texture and other sensory attributes of popular animal-based meat products while enjoying the nutritional and environmental benefits of eating our plant-based meat products. Our brand commitment, “Eat What You Love ,” represents a strong belief that by eating our plant-based meats, consumers can enjoy more, not less, of their favorite meals, and by doing so help address concerns related to human health, climate change, resource conservation, and animal welfare. The success of our breakthrough innovation model and products has allowed us to appeal to a broad range of consumers, including those who typically eat animal-based meats, positioning us to compete directly in the $1.4 trillion global meat industry.
We sell a range of plant-based products across the three main meat platforms of beef, pork and poultry. They are offered in ready-to-cook formats (primarily merchandised in the meat case), which we refer to as our “fresh” platform, and ready-to-heat formats (merchandised in the freezer), which we refer to as our “frozen” platform. Our products are currently available in approximately 53,000 points of distribution primarily in the United States and Canada as well as several other countries, across mainstream grocery, mass merchandiser and natural retailer channels, and various food-away-from-home channels, including restaurants, foodservice outlets and schools.
On May 6, 2019, we completed our initial public offering (“IPO”) of common stock, in which we sold 11,068,750 shares, including 1,443,750 shares pursuant to the underwriters’ over-allotment option. The shares began trading on the Nasdaq Global Select Market on May 2, 2019. The shares were sold at an IPO price of $25.00 per share for net proceeds of approximately $252.4 million, after deducting underwriting discounts and commissions of $19.4 million and offering expenses of approximately $4.9 million payable by us. Upon the closing of the IPO, all outstanding shares of our convertible preferred stock automatically converted into 41,562,111 shares of common stock on a one-for-one basis, and warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for 160,767 shares of common stock.
We operate on a fiscal calendar year, and each interim quarter is comprised of one 5-week period and two 4-week periods, with each week ending on a Saturday. Our fiscal year always begins on January 1 and ends on December 31. As a result, our first and fourth fiscal quarters may have more or fewer days included than a traditional 91-day fiscal quarter.

Components of Our Results of Operations and Trends and Other Factors Affecting Our Business
Net Revenues
We generate net revenues primarily from sales of our products, including the Beyond Burger, Beyond Sausage and other plant-based meat products to our customers, which include mainstream grocery, mass

23



merchandiser and natural retailers, as well as restaurants and other foodservice outlets mainly in the United States.
We continue to experience substantial growth in net revenues over the prior periods. The following factors and trends in our business have driven net revenue growth over this period and are expected to be key drivers of our net revenue growth for the foreseeable future:
increased penetration across our retail channel, including mainstream grocery, mass merchandiser and natural retailer customers, and our restaurant and foodservice channel, including restaurants, foodservice outlets and schools;
increased velocity of our fresh product sales across our channels, by which we mean that the volume of our products sold per outlet has generally increased period-over-period due to greater adoption of and demand for our products;
our continued innovation, including enhancing existing products and introducing new products that appeal to a broad range of consumers, including those who typically eat animal-based meat;
impact of marketing efforts as we continue to build our brand and drive consumer adoption of our products; and
overall market trends, including growing consumer demand for nutritious, convenient and high protein plant-based foods.
In addition to the factors and trends above, we expect the following to positively impact net revenues going forward:
increased production levels as we scale production to meet demand for our products across our distribution channels both domestically and internationally, including Australia, Europe, Hong Kong, Israel, South Africa, South Korea and parts of the Middle East; and
increased desire by restaurant and foodservice establishments to add plant-based products to their menus and to highlight these offerings.
Net revenues from sales in our retail channel increased by 192.0% in the three months ended June 29, 2019 to $34.1 million from $11.7 million in the three months ended June 30, 2018 . Net revenues from sales in our restaurant and foodservice channel increased by 483.0% in the three months ended June 29, 2019 to $33.1 million from $5.7 million in the three months ended June 30, 2018 .
Net revenues from sales in our retail channel increased by 156.1% in the six months ended June 29, 2019 to $53.7 million from $21.0 million in the six months ended June 30, 2018 . Net revenues from sales in our restaurant and foodservice channel increased by 486.2% in the six months ended June 29, 2019 to $53.8 million from $9.2 million in the three months ended June 30, 2018 . We expect further growth in both channels as we increase our production capacity in response to demand and add new customers.
We distribute our products internationally, using distributors in Australia, Chile, the European Union, Hong Kong, Ireland, Israel, the Middle East, New Zealand, the Philippines, Singapore, South Africa, South Korea, Taiwan and the United Kingdom. Our international net revenues (excluding revenues from Canada) are included in our restaurant and foodservice channel and were approximately 12% and 3% , respectively, of our net revenues in the three months ended June 29, 2019 and June 30, 2018 and were approximately 13% and 2% , respectively, of our net revenues in the six months ended June 29, 2019 and June 30, 2018 . All of our long-lived assets are in the United States and we have no long-lived assets in any international locations. Net revenues from sales to the Canadian market are included with net revenues from sales to the United States market.
Over the next few years, the main driver of growth in our net revenues is expected to be sales of our fresh products, primarily the Beyond Burger, in both our retail channel and our restaurant and foodservice channel predominantly in the United States, as well as internationally. We also expect net revenues and gross margin to

24



benefit from increased sales of our fresh products due to the higher net selling price per pound of our fresh platform products compared to our frozen platform products.
As we seek to continue to rapidly grow our net revenues, we face several challenges. In 2017, continuing into 2018, demand for our products exceeded our expectations and production capacity, significantly constraining our net revenue growth relative to our total demand opportunity. While we have significantly expanded our production capacity to address production shortfall, we may experience a lag in production relative to customer demand if our growth rate exceeds our expectations.
We routinely offer sales discounts and promotions through various programs to customers and consumers. These programs include rebates, temporary on-shelf price reductions, off-invoice discounts, retailer advertisements, product coupons and other trade activities. The expense associated with these discounts and promotions is estimated and recorded as a reduction in total gross revenues in order to arrive at reported net revenues. We anticipate that these promotional activities could impact our net revenues and that changes in such activities could impact period-over-period results.
In addition, because we do not have any purchase commitments from our distributors or customers, the amount of net revenues we recognize will vary from period to period depending on the volume and mix of our products sold, particularly between products in our fresh and frozen platforms, and the channels through which our products are sold, causing variability in our results.  
Gross Profit
Gross profit consists of our net revenues less cost of goods sold. Our cost of goods sold primarily consists of the cost of raw materials and ingredients for our products, direct labor and certain supply costs, co-manufacturing fees, in-bound and internal shipping and handling costs incurred in manufacturing our products, plant and equipment overhead, depreciation and amortization expense, as well as the cost of packaging our products. In order to keep pace with demand, we had to very quickly scale production and we have not always been able to meet all demand for our products. As a result, we have had to quickly expand our sources of supply for our core protein inputs such as pea protein. Our growth has also significantly increased facility and warehouse utilization rates. We intend to continue to increase our production capabilities at our two in-house manufacturing facilities in Columbia, Missouri. As a result, we expect our cost of goods sold to increase in absolute dollars to support our growth. However, we expect such expenses to decrease as a percentage of net revenues over time as we continue to scale our business.
Gross margin improved by 1,880 basis points to 33.8% in the three months ended June 29, 2019 from 15.0% in the three months ended June 30, 2018 . Gross margin improved by 1,570 basis points to 31.2% in the six months ended June 29, 2019 from 15.5% in the six months ended June 30, 2018 . Gross margin benefited from an increase in the amount of products sold, improved production efficiencies and from a greater proportion of revenues from products in our fresh platform which have a higher net selling price per pound. As we continue to expand production and are able to increase manufacturing efficiency and leverage the cost of our fixed production and staff costs, we expect to increase our gross margin. We also expect to continue to increase gross margin through ingredient cost savings achieved through scale of purchasing and through expanding our co-manufacturing network and negotiating lower tolling fees.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses, and share-based compensation. Our research and development efforts are focused on enhancements to our product formulations and production processes in addition to the development of new products. We expect to continue to invest substantial amounts in research and development, as most recently evidenced in the build-out of our state-of-the-art Manhattan Beach Project Innovation Center. Research and development and innovation are core elements of our business strategy, as we believe they represent a critical competitive advantage for us. We believe that we need to continue to rapidly

25



innovate in order to be able to continue to capture a larger market share of consumers who typically eat animal-based meats. We expect these expenses to increase somewhat in absolute dollars, but to decrease as a percentage of net revenues as we continue to scale production.
SG&A Expenses
SG&A expenses consist primarily of marketing, selling and administrative expenses, including personnel and related expenses, share-based compensation, outbound shipping and handling costs, non-manufacturing rent expense, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Marketing and selling expenses include advertising costs, costs associated with consumer promotions, product samples and sales aids incurred to acquire new customers, retain existing customers and build our brand awareness. Administrative expenses include the expenses related to management, accounting, IT, and other office functions. We expect SG&A expenses to increase in absolute dollars as we increase our domestic and international expansion efforts to meet our product demand and incur costs related to our status as a public company.
Our selling and marketing expense is expected to increase, both through a greater focus on marketing and through additions to our sales organizations. We expect to significantly expand our marketing efforts to achieve greater brand awareness, attract new customers and increase market penetration. We have historically had a very small sales force, with only nine full-time sales employees as of December 31, 2017 growing to 28 full-time sales employees as of June 29, 2019 . As we continue to grow, we expect to expand our sales force to address additional opportunities, which could substantially increase our selling expense. Our administrative expenses are expected to increase as a public company with increased personnel cost in accounting, IT and compliance-related expenses.
Restructuring Expenses
In May 2017, management approved a plan to terminate an exclusive supply agreement with one of our co-manufacturers. See “—Results of Operations—Three and Six Months Ended June 29, 2019 Compared to Three and Six Months ended June 30, 2018 —Restructuring Expenses” for a discussion of these expenses.
Seasonality
Generally, we expect to experience greater demand for certain of our products during the summer grilling season. As our business continues to grow, we expect to see additional seasonality effects, with revenue growth tending to be greater in the second and third quarters of the year.


26



Results of Operations
The following table sets forth selected items in our condensed statements of operations for the periods presented:
 
 
Three Months Ended
 
Six Months Ended
(in thousands)
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net revenues
 
$
67,251

 
$
17,367

 
$
107,457

 
$
30,143

Cost of goods sold
 
44,510

 
14,755

 
73,945

 
25,474

Gross profit
 
22,741

 
2,612

 
33,512

 
4,669

Research and development expenses
 
4,212

 
2,497

 
8,710

 
4,102

Selling, general and administrative expenses
 
15,515

 
7,043

 
26,692

 
12,780

Restructuring expenses
 
847

 
348

 
1,241

 
642

Total operating expenses
 
20,574

 
9,888

 
36,643

 
17,524

Income (loss) from operations
 
$
2,167

 
$
(7,276
)
 
$
(3,131
)
 
$
(12,855
)
The following table presents selected items in our condensed statements of operations as a percentage of net revenues for the respective periods presented:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net revenues
 
100.0
%
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of goods sold
 
66.2

 
85.0

 
68.8

 
84.5

Gross profit
 
33.8

 
15.0

 
31.2

 
15.5

Research and development expenses
 
6.3

 
14.4

 
8.1

 
13.6

Selling, general and administrative expenses
 
23.1

 
40.6

 
24.8

 
42.4

Restructuring expenses
 
1.3

 
2.0

 
1.2

 
2.1

Total operating expenses
 
30.6

 
56.9

 
34.1

 
58.1

Income (loss) from operations
 
3.2
%
 
(41.9
)%
 
(2.9
)%
 
(42.6
)%

27



Three and Six Months Ended June 29, 2019 Compared to Three and Six Months Ended June 30, 2018
Net Revenues
 
 
Three Months Ended
 
Change
 
Six Months Ended
 
Change
(in thousands)
 
June 29,
2019
 
June 30,
2018
 
Amount
 
%
 
June 29,
2019
 
June 30,
2018
 
Amount
 
%
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Fresh Platform
 
$
67,722

 
$
15,119

 
$
52,603

 
347.9
%
 
$
106,528

 
$
24,715

 
$
81,813

 
331.0
%
Gross Frozen Platform
 
5,639

 
4,506

 
1,133

 
25.1
%
 
10,151

 
9,254

 
897

 
9.7
%
Less: Discounts
 
(6,110
)
 
(2,258
)
 
(3,852
)
 
170.6
%
 
(9,222
)
 
(3,826
)
 
(5,396
)
 
141.0
%
Net revenues
 
$
67,251

 
$
17,367

 
$
49,884

 
287.2
%
 
$
107,457

 
$
30,143

 
$
77,314

 
256.5
%
 
 
Three Months Ended
 
Change
 
Six Months Ended
 
Change
(in thousands)
 
June 29,
2019
 
June 30,
2018
 
Amount
 
%
 
June 29,
2019
 
June 30,
2018
 
Amount
 
%
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
 
$
34,120

 
$
11,684

 
$
22,436

 
192.0
%
 
$
53,699

 
$
20,972

 
$
32,727

 
156.1
%
Restaurant and Foodservice
 
33,131

 
5,683

 
27,448

 
483.0
%
 
53,758

 
9,171

 
44,587

 
486.2
%
Net revenues
 
$
67,251

 
$
17,367

 
$
49,884

 
287.2
%