Initial Public Offering (IPO): Pre-Effective Amendment to Registration Statement (General Form) — Form S-1 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: S-1/A Pre-Effective Amendment to Registration Statement HTML 1.60M (General Form)
2: EX-5.1 Opinion re: Legality HTML 11K
3: EX-23.1 Consent of Experts or Counsel HTML 5K
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the 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
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
o
Emerging
growth company
x
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 to Section 7(a)(2)(B) of the Securities Act. ¨
CALCULATION OF REGISTRATION FEE
Title of each class of
securities
to be registered
Amount to be registered(1)
Proposed maximum offering price per share
Proposed maximum aggregate
offering price(1)(2)
Amount of registration fee(3)
Common Stock, par value $0.0001 per share
11,068,750
$25.00
$276,718,750
$33,539
(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(2)
Includes 1,443,750 shares of common stock issuable upon exercise of the Underwriters’ option to purchase additional shares. See “Underwriting.”
(3)
The
registrant previously paid a total of $25,612 in connection with previous filings of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
This is the initial public offering of shares of common stock of Beyond Meat, Inc. Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $23.00 and $25.00 per share.
We have applied to list our common stock on the Nasdaq Global Market under the symbol “BYND.”
We
are an “emerging growth company,” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our common stock involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 16 to read about factors you should consider before buying shares of our common stock.
Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share
Total
Initial public offering price
$
$
Underwriting
discounts and commissions(1)
$
$
Proceeds, before expenses
$
$
___________________
(1)
See
“Underwriting” for additional disclosure regarding underwriting discounts and commissions and estimated offering expenses.
We have granted the underwriters a 30-day option to purchase up to 1,443,750 additional shares of common stock from us at the initial public offering price less the underwriting discounts and commissions, solely to cover the underwriters’ option to purchase additional shares.
The underwriters expect to deliver the shares of common stock to purchasers on or about , 2019.
Neither
we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Through and including , (the 25th day after the date of this prospectus), all dealers that buy, sell or trade in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition
to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
For investors outside of the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.
INDUSTRY AND MARKET DATA
This prospectus contains estimates, projections and other
information concerning our industry, our business and the markets for our products. Some market data and statistical information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources listed below, our internal research and knowledge of the meat industry and plant-based protein market. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from
those expressed in the projections and estimates made by the independent third parties and us.
Unless otherwise expressly stated, we obtained industry, business, market and other data from the reports, publications and other materials and sources listed below. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.
•
Fitch Solutions Macro Research, a division of Fitch Solutions (“Fitch
Research”), research data, August 6, 2018;
Mintel Group Ltd., US Non-Dairy Milk Market Report, September 2017 (the “Mintel Report”);
•
The
World Resources Institute, Creating a Sustainable Food Future, 2013 (the “WRI Report”);
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The Organisation for Economic Cooperation and Development (“OECD”), Meat consumption (indicator). doi: 10.1787/fa290fd0-en (Accessed on 13 October 2018);
•
The World Health Organization (“WHO”), Q&A on the carcinogenicity of the consumption of red meat and processed meat, October 2015;
•
Climate
Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)). Intergovernmental Panel on Climate Change (“IPCC”), Geneva, Switzerland, 151 pp. (the “IPCC Report”);
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Livestock’s Long Shadow-Environmental Issues and Options, Food and Agriculture Organization (“FAO”), 2006;
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Key, Timothy J. et al., Diet, nutrition and the prevention of cancer, Scientific
background papers of the joint WHO/FAO expert consultation, Geneva, 28 January - 1 February 2002, Public Health Nutrition, Vol 7, No. 1(A), Supplement 1001, February 2004;
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Plant Based Foods Association, 2018 Retail Sales Data for Plant-Based Foods (the “PBFA Report”);
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Plant Based Diet Associated with Less Heart Failure Risk Report, presented at the American Heart Association scientific meeting, November 13, 2017;
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U.S.
Bureau of Labor Statistics, Unemployment Rate for Columbia, Missouri (January 2019);
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Heller, Martin C. and Keoleian, Gregory A. (2018) “Beyond Meat’s Beyond Burger Life Cycle Assessment: A detailed comparison between a plant-based and an animal-based protein source.” CSS Report no.18-10, University of Michigan: Ann Arbor 1-38; and
•
Reprinted
from Water Resources and Industry, Volumes 1–2, March–June 2013, P.W. Gerbens-Leenes, M.M. Mekonnen, A.Y. Hoekstra, The water footprint of poultry, pork and beef: A comparative study in different countries and production systems, Page No. 26, Copyright (2013), with permission from Elsevier (the “WRI Water Report”).
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PROSPECTUS SUMMARY
This summary highlights certain significant aspects of our business and this offering and is a summary of information contained elsewhere in this prospectus. This summary does not contain all the information that
you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations,”“Business” and our financial statements and related notes thereto included in this prospectus, before making an investment decision.
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 benefits of eating our plant-based meat products. Our brand commitment, “Eat What You Love,”
represents our 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.
To capture this broad market opportunity, we have developed three core plant-based product platforms that align with the largest meat categories globally: beef, pork and poultry. We create our plant-based products using proprietary scientific processes that determine the architecture of the animal-based meat we are seeking to replicate and then we assemble it using plant-derived amino acids, lipids, trace minerals and water. We are
focused on continually improving our products so that they are, to the human sensory system, indistinguishable from their animal-based counterparts.
Our flagship product is The Beyond Burger, the world’s first 100% plant-based burger merchandised in the meat case of grocery stores. The Beyond Burger is designed to look, cook and taste like traditional ground beef. Our products are currently available in approximately 30,000 points of distribution primarily in the United States 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. We enjoy a strong base of well-known retail and foodservice customers that continues to grow.
Research, development and innovation are core elements
of our business strategy, and we believe they represent a critical competitive advantage for us. Through our Rapid and Relentless Innovation Program, our team of scientists and engineers focuses on making continuous improvements to our existing product formulations and developing new products across our plant-based beef, pork and poultry platforms. Our state-of-the-art Manhattan Beach Project Innovation Center in El Segundo, California brings together leading scientists from chemistry, biology, material science, food science and biophysics disciplines who work together with process engineers and culinary specialists to pursue our vision of perfectly building plant-based meat.
We have experienced strong sales growth over the past few years, increasing our net revenues from $16.2 million in 2016 to $87.9 million in 2018, representing a 133% compound annual growth rate.
In 2018, our net revenues were $87.9 million, a 170% increase from $32.6 million in 2017. We have generated losses since inception. Net loss in 2016, 2017 and 2018 was $25.1 million, $30.4 million and $29.9 million, respectively, as we invested in innovation and growth of our business. Going forward, we intend to continue to invest in innovation, supply chain capabilities, manufacturing and marketing initiatives as we believe the demand for our products will continue to accelerate across both retail and foodservice channels as well as internationally.
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The
Beyond Meat Strategic Difference
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Unique Approach to the Product
We employ a revolutionary and unique approach to create our products, with a goal of delivering the same satisfying taste, texture and aroma as the animal-based meats we seek to replicate. In our Manhattan Beach Project Innovation Center, our scientists and engineers continuously improve our products to replicate the sensory experience of animal-based meat. Through our investment in innovation, we have pioneered products like The Beyond Burger and Beyond Sausage, which we believe closely replicate
the sensory experience of meat—from the look of the package and raw product, to the sizzle on the grill, to the juicy and protein-packed satisfaction of biting into a “meaty” burger or sausage.
•
Unique Approach to the Market
Our breakthrough product innovations have enabled a paradigm shift in both marketing and target audience—tapping into the curious and enthusiastic pull from mainstream consumers for delicious and satisfying yet better-for-you plant-based meats. At one of the nation’s largest conventional grocers, Kroger, 93% of Beyond Burger buyers over the 26-week period ended June
30, 2018 also purchased animal protein during the same period, which evidences Beyond Meat’s appeal to meat-loving consumers.
Instead of marketing and merchandising The Beyond Burger to vegans and vegetarians (who represent less than 5% of the U.S. population), we request that the product be sold in the meat case at grocery retailers, where meat-loving consumers are accustomed to shopping for center-of-plate proteins. We believe merchandising in the meat case in the retail channel has helped drive greater brand awareness with our end consumers. The Beyond Burger is now carried by approximately 15,000 of our 17,000 grocery store customers across the United States.
Reflecting the strength and value of the Beyond Meat brand to its partners, many of our restaurant, hotel and other foodservice customers choose to prominently feature our brand name on their menu and within item descriptions,
in addition to displaying Beyond Meat branded signage throughout their venue. We believe that we have established our brand as one with “halo” benefits to our partners, as evidenced by the speed of adoption by key partners. For example, Beyond Meat was the fastest new-product launch in the history of both A&W Canada and TGI Fridays, and a number of our key partners are investing their own resources to tap into our brand and product awareness. Our products are now carried by approximately 12,000 restaurant and foodservice outlets across the United States and Canada.
Our recent success with A&W Canada illustrates the growing international demand for our products. We launched in Europe in August 2018 through contracts with three major distributors and have also received strong expressions of interest
from some of Europe’s largest grocery and restaurant chains. We intend to establish production capabilities in Europe in 2020. Additionally, for several years we have maintained a presence and generated brand awareness in Hong Kong through our local distributor and expect further expansion in Asia over time.
•
Unique Approach to Our Brand
Our mission is to create nutritious plant-based meats that taste delicious and deliver a consumer experience indistinguishable from that provided by animal-based meats. We believe our brand commitment, “Eat What You Love,” encourages consumers to eat more, not less, of the traditional dishes they enjoy by using our products, while feeling great about the
health, sustainability, and animal welfare benefits associated with consuming plant-based protein. Consumers and the media are enthusiastic about the concept of an authentically meaty tasting plant-based burger and drove more than 4.0 billion earned media impressions in 2017, 9.9 billion earned media impressions in 2018, and 4.0 billion earned media impressions from January to March 2019. See “Business—The Beyond Meat Strategic Difference—Unique Approach to Our Brand” for more information on “earned media impressions” and the limitations of this metric.
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Our Industry and Market Opportunity
We
operate in the large and global meat industry, which is comprised of fresh and packaged animal-based meats for human consumption. According to data from Fitch Solutions Macro Research, the meat industry is the largest category in food and in 2017 generated estimated sales across retail and foodservice channels of approximately $270 billion in the United States and approximately $1.4 trillion globally.
We believe that consumer awareness of the perceived negative health, environmental and animal-welfare impacts of animal-based meat consumption has resulted in a surge in demand for viable plant-based protein alternatives. A key analogy for both the approach to and the scale of our opportunity is the strategy by which the plant-based dairy industry captured significant market share of the dairy industry. In the United States, the current size of the non-dairy
milk category is equivalent to approximately 13% of the size of the dairy milk category. According to the Mintel Report, the non-dairy milk category in the United States was estimated to be approximately $2 billion in 2017. The success of the plant-based dairy industry was based on a strategy of creating plant-based dairy products that tasted better than previous non-dairy substitutes, packaged and merchandised adjacent to their dairy equivalents. We believe that by applying the same strategy to the plant-based meat category, it can grow to be at least the same proportion of the approximately $270 billion meat category in the United States, which over time would represent a category size of $35 billion in the United States alone. As a market leader in the plant-based meats category, we believe we are well-positioned to capture
and drive a significant amount of this category growth. We also believe there is a significant international market opportunity for our products.
Our Competitive Strengths
We believe that the following strengths position us to generate significant growth and pursue our objective to become a leader in the global meat category.
Dedicated Focus on Innovation. We invest significant resources in our innovation capabilities to develop plant-based meat alternatives to popular animal-based meat products. Our innovation team, comprised of approximately 63 scientists, engineers, researchers, technicians and chefs, as of March 30, 2019, has delivered several unique plant-based meat breakthroughs, as well as continuous improvements to existing products.
We are able to leverage what we learn about taste, texture and aroma across our platform and apply this knowledge to each of our product offerings. In addition, we recently opened our 30,000-square-foot Manhattan Beach Project Innovation Center in El Segundo, California, which is 10 times the size of our previous lab space. In our new innovation center, we have a strong pipeline of products in development and can more rapidly transition our research from benchtop to scaled production. As our knowledge and expertise deepens, our pace of innovation is accelerating, allowing for reduced time between new product launches. After taking multiple years to develop the first Beyond Burger, it took us less than a year to develop a new version with improved taste, texture and aroma attributes. This newer version of The Beyond Burger is already being sold by A&W Canada and Carl’s
Jr., generating enthusiastic comparisons to traditional beef. We expect this faster pace of product introductions and meaningful enhancements to existing products to continue as we innovate within our core plant-based platforms of beef, pork and poultry. Recently, in March 2019, we introduced our newest product, Beyond Beef, which is designed to have the meaty taste and texture of ground beef and replicate the versatility of ground beef.
Brand Mission Aligned with Consumer Trends. Our brand is uniquely positioned to capitalize on growing consumer interest in great-tasting, nutritious, convenient, higher protein content and plant-based foods. We have also tapped into growing public awareness of major issues connected to animal protein, including human health, climate change, resource conservation and animal welfare. Simply put, our products aim to enable consumers to “Eat What You Love” without
the downsides of conventional animal protein. We have built a powerful brand with broad demographic appeal and a passionate consumer base. Our brand awareness is driven by strong social marketing, with over 1.2 million combined social media and newsletter followers as of March 2019, more than 9.9 billion earned media impressions in
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2018 and 4.0 billion earned media impressions from January to March 2019. Our audience continues to grow from the attention generated by our large following of celebrities, influencers and brand ambassadors who identify with our mission.
Product Portfolio Generates Significant Demand from
Retail and Restaurant Customers. Rapidly growing sales of our products by both our retail and restaurant partners have helped us foster strong relationships in a relatively short period of time. We provide our retailers with exciting new products in the meat case, where innovation rarely occurs. Many of our retail customers have experienced increasing levels of velocity of our products, measured by units sold per month per store, as well as repeat purchases. Our restaurant customers are excited by the opportunity to differentiate their menu offering and attract new customers by partnering with Beyond Meat and are seeking new ways to further promote our product. In summer 2018, A&W Canada, the country’s second largest burger chain, ran an advertising campaign promoting The Beyond Burger as an exciting new product offering to drive consumer traffic. We believe their choice
to feature The Beyond Burger demonstrates the marketing power of our brand and overall consumer excitement for our product.
Experienced and Passionate Executive Management Team. We are led by a proven and experienced executive management team. Ethan Brown, our founder, President and Chief Executive Officer, has significant experience in clean tech and a natural appreciation for animal agriculture. Seth Goldman, our Executive Chair, has extensive experience working at fast-growing brands in the food and beverage industry. The other members of our executive management team have an average of 21 years of industry experience, having driven growth at both consumer packaged goods companies and high growth businesses. We believe this blend of talent gives us tremendous insights and capabilities to create demand
and fulfill it in a scalable, profitable and sustainable way.
Our Growth Strategy
Pursue Top-line Growth Across our Distribution Channels. We believe there is a significant opportunity to expand Beyond Meat well beyond our current retail and restaurant and foodservice footprint of approximately 30,000 points of distribution across the United States and abroad.
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Retail: We have a significant opportunity to grow our sales within U.S. retail by focusing on increasing sales at our existing points of distribution, as well as increasing sales of new products. We also expect to grow our U.S.
retail distribution by establishing commercial relationships with new customers.
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Restaurant and Foodservice: Our products are currently being served in approximately 12,000 restaurant and foodservice outlets in the United States and Canada. As a result of our recent partnership with Carl’s Jr., The Beyond Burger is currently being sold at more than 1,100 Carl’s Jr. locations nationwide. We plan to continue to aggressively expand our network of restaurant and foodservice partners.
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International:
We believe there is significant demand for our products across the globe in retail and restaurant and foodservice channels. We launched in Europe in August 2018 through contracts with three major distributors. We are increasing production for sales in Canada and Europe and have established and seek to establish additional relationships with distributors in other geographies for future expansion.
Invest in Infrastructure and Capabilities. We are committed to prioritizing investment in our infrastructure and capabilities in order to support our strategic expansion plans. In 2018, we commenced production at a new state-of-the-art manufacturing facility and entered into relationships with several co-manufacturers to significantly increase our production capacity. In
the first quarter of 2019, our monthly production capacity was triple our monthly capacity at the end of the second quarter of 2018.
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We have plans to unlock additional capacity both domestically and internationally in 2019. We are continuing to hire experienced employees in our sales, marketing, operations, innovation and finance teams to support our rapid growth.
Expand Our Product Offerings. The successes of The Beyond Burger and Beyond Sausage products have confirmed our belief that there is significant demand for additional plant-based meat products. We intend to strengthen our product offering by improving the formulations for our existing portfolio of products,
and by creating new products that expand the portfolio. We are continuously refining our products to improve their taste, texture and aroma. In addition, we are committed to increasing our investment in research and development to continue to innovate within our core plant-based platforms of beef, pork and poultry to create exciting new product lines and improve the formulations for our existing portfolio of products. In 2018, we developed a new version of The Beyond Burger with improved taste, texture and aroma attributes. In March 2019, we introduced our Beyond Beef which is designed to replicate the versatility of ground beef. Also in March 2019, we launched the Beyond Sausage patty at A&W (Canada).
Continue to Grow Our Brand. We plan to continue to create relevant content with our network of celebrities, influencers and brand ambassadors, who have successfully built significant
brand awareness for us by supporting our mission and products. We also intend to expand our field marketing efforts to sample products directly with consumers in stores and at relevant events.
Remain Mission Focused and True to Our Values. We are a mission-driven business with long-standing core values. We strive to operate in an honest, socially responsible and environmentally sustainable manner and are committed to help solve the major health and global environmental issues which we believe are caused by an animal-based protein diet and existing meat industry practices. We believe our authentic and long-standing commitment to these causes better positions us to build loyalty and trust with current consumers and helps attract new ones. Our corporate culture embodies these values and, as a result, we enjoy a highly motivated and
skilled work force committed to our mission and our enterprise.
Risks Associated with Our Business
Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are several risks related to our business that are described under “Risk Factors” elsewhere in this prospectus. Among these important risks are the following:
•
We have a history of losses, and we may be unable to achieve or sustain profitability. We have experienced net losses in each year since our inception and we may therefore not be able to achieve or sustain profitability in the future.
•
If
we fail to effectively expand our manufacturing and production capacity, our business and operating results and our brand reputation could be harmed.
•
Because we rely on a limited number of raw materials to create our products and a limited number of third-party suppliers to supply our raw materials, we may not be able to obtain raw materials on a timely basis, at cost effective pricing or in sufficient quantities to produce our products and we may not be able to produce our products or meet the demand for our products.
•
Our
future business, results of operations and financial condition may be adversely affected by reduced or limited availability of pea protein that meets our standards.
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We use a limited number of distributors for the substantial majority of our sales, and if we experience the loss of one or more such distributors and cannot replace them in a timely manner or at all, our results of operations may be adversely affected.
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•
We
do not currently have any written contracts with co-manufacturers. The loss of these co-manufacturers or the inability of these co-manufacturers to fulfill our orders would adversely affect our ability to make timely deliveries of our products and would have a material adverse effect on our business.
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We face intense competition in our market from our competitors, including manufacturers of animal-based meat products and other brands that produce plant-based protein products.
•
We
may require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce or terminate our product manufacturing and development, and other operations.
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Our brand and reputation may be diminished due to real or perceived quality or health issues with our products, which could have an adverse effect on our business, reputation, operating results and financial condition.
•
Food safety and food-borne illness
incidents or advertising or product mislabeling may materially adversely affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings.
•
Failure by our suppliers of raw materials or co-manufacturers to comply with food safety, environmental or other laws and regulations, or with the specifications and requirements of our products, may disrupt our supply of products and adversely affect our business.
•
Sales
of The Beyond Burger contribute a significant portion of our revenue. A reduction in sales of The Beyond Burger would have an adverse effect on our financial condition.
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The primary components of all of our products are manufactured in our two Columbia, Missouri facilities and any damage or disruption at these facilities may harm our business. Moreover, Columbia, Missouri has a tight labor market and we may be unable to hire and retain employees at these facilities.
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We may not successfully ramp up operations at
our new Columbia, Missouri facility or this facility may not operate in accordance with our expectations.
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Failure to introduce new products or successfully improve existing products may adversely affect our ability to continue to grow. In addition, if we fail to cost-effectively acquire new customers or retain our existing customers, or if we fail to derive revenue from our existing customers consistent with our historical performance, our business could be materially adversely affected.
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If we fail to manage our
future growth effectively, our business could be materially adversely affected. We may also face difficulties as we expand our operations into countries in which we have no prior operating experience.
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Our operations are subject to U.S. Food and Drug Administration, or FDA, regulation and state regulation, and there is no assurance that we will be in compliance with all regulations. Any changes in applicable laws, regulations or policies of the FDA or U.S. Department of Agriculture, or USDA, that relate to the use of the word “meat” in connection with plant-based protein products could adversely affect our business, prospects, results of operations or financial condition.
•
We
are or will be subject to international regulations that could adversely affect our business and results of operations.
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Recent Developments
This recent developments section includes forward-looking statements. All statements contained herein other than statements of historical facts, including, without limitation, statements regarding our expectations regarding our financial and operating results for the three months ended March 30, 2019, and our future financial and business performance, are forward-looking statements. The words “anticipate,”“believe,”“continue,”“estimate,”“expect,”“intend,”“may,”“will” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our rapid growth and ability to sustain our revenue growth rate, competition in the markets in which we operate, market growth and our ability to innovate and manage our growth. For additional information regarding the various risks and uncertainties inherent in estimates of this type, see “Special Note Regarding Forward-Looking Statements” and “Risk Factors” elsewhere in this prospectus.
Preliminary
Financial Results for the Three Months Ended March 30, 2019
The following preliminary financial information for the three months ended March 30, 2019 is based upon our estimates and subject to completion of our financial closing procedures. Moreover, these data have been prepared solely on the basis of currently available information by, and are the responsibility of, Beyond Meat. This information should be read in conjunction with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for prior periods included elsewhere in this prospectus. Our independent registered public accounting firm, Deloitte
& Touche LLP, has not audited or reviewed, and does not express an opinion with respect to, these data. This summary is not a comprehensive statement of our financial results for this period, and our actual results may differ from these estimates due to the completion of our financial closing procedures and final adjustments and other developments that may arise between now and the time our final quarterly financial statements are completed. Our actual results for the three months ended March 30, 2019 will not be available until after this offering is completed. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within our control.
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We
have prepared estimates of the following preliminary financial data for the three months ended March 30, 2019 (in thousands).
We
look at our gross revenues by platform (fresh versus frozen) and our Net Revenues by distribution channel (retail versus foodservice). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2017 Compared to Year Ended December 31, 2018—Net Revenues” for more information on these measures.
(2)
BPs denotes the basis point change in gross margin, with 890 BPs indicating an improvement in gross margin from 16.1% to 25%.
Total Net Revenues
The increase in
our preliminary estimated total net revenues for the three months ended March 30, 2019 compared to the three months ended March 31, 2018 was driven primarily by increased sales of The Beyond Burger as we expanded the number of retail and foodservice points of distribution in which our flagship product was sold, and as we increased our production capacity. We discontinued our frozen chicken strips product line during the first quarter of 2019, which caused net revenues (frozen) to decline as we continue to concentrate more on our fresh product lines.
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Gross Profit and Gross Margin
Our preliminary
estimated gross profit for the three months ended March 30, 2019 compared to the three months ended March 31, 2018 improved by about $7.5 million to $8.5 million. The improvement in gross profit and gross margin was primarily due to improved production processes and capacity and an increase in the amount of product sold, resulting in the ability to leverage our fixed costs across a greater amount of revenue. The greater proportion of product revenues from our fresh platform also contributed to the improvement in margin, due to a higher net selling price per pound of products in our fresh platform as compared to our frozen platform.
Loss from Operations
Our preliminary estimated loss from operations for the three months ended March 30,
2019 compared to the three months ended March 31, 2018 increased by about $1 to $2 million, primarily due to increased expenses across our business to support our growth, partially offset by the improvement in our gross profit. The increased expenses included increases in selling, general and administrative expenses as we prepared to become a public company and support our expanded operations, as well as continued increases in our research and development budget as we continued to focus on innovation.
Net cash used in operating activities increased during the three months ended
March 30, 2019 as compared to the three months ended March 31, 2018 due to increases in accounts receivable and inventory, in addition to higher payments of our accounts payable.
Our Corporate Information
Beyond Meat, Inc. was incorporated in Delaware on April 8, 2011 originally under the name “J Green Natural Foods Co.” On October 5, 2011, we changed our corporate name to “Savage River, Inc.,” with “Beyond Meat” being our “doing business as” name. On September 7, 2018, we changed our corporate name to “Beyond Meat, Inc.” Our principal executive offices are located at 119 Standard St., El Segundo,
CA90245, and our telephone number is (866) 756-4112. Our website address is www.beyondmeat.com. The information contained on or accessible through our website is not part of this prospectus or the registration statement of which this prospectus forms a part, and potential investors should not rely on such information in making a decision to purchase our common stock in this offering.
In
this prospectus, the terms “Beyond Meat,”“we,”“us,”“our” and “the company” refer to Beyond Meat, Inc., a Delaware corporation. We refer to our Series A convertible preferred stock, Series B convertible preferred stock, Series C convertible preferred stock, Series D convertible preferred stock, Series E convertible preferred stock, Series F convertible preferred stock, Series G convertible preferred stock and Series H convertible preferred stock as our “convertible preferred stock” in this prospectus. In this prospectus, we refer to our outstanding warrants as either warrants to purchase shares of convertible preferred stock or warrants to purchase shares of common stock.
“The Beyond Burger,””Beyond Beef,”“Beyond Chicken,”“Beyond Meat,”“Beyond
Sausage,”“The Cookout Classic” and “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 prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus 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.
9
Implications of
Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including:
•
presenting only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;
•
reduced
disclosure about our executive compensation arrangements;
•
exemption from the requirements to hold non-binding advisory votes on executive compensation;
•
extended transition periods for complying with new or revised accounting standards;
•
exemption from the auditor attestation requirement
in the assessment of our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and
•
exemption from complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis).
We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth
company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting obligations in this prospectus. Further, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock, and our financial
statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. See “Risk Factors—Risks Related to Being a Public Company” which describes that we are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
10
The Offering
Common
stock offered by us
9,625,000 shares
Option to purchase additional shares of common stock
1,443,750 shares
Common stock to be outstanding after the offering
58,308,044 shares (59,751,794 shares if the option to purchase additional shares is exercised in full.)
Use
of proceeds
We intend to use the net proceeds from this offering to invest in current and additional manufacturing facilities and expand our research and development and our sales and marketing capabilities, as well as for working capital and general corporate purposes. See “Use of Proceeds” for more information.
Directed share program
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons. If these persons purchase reserved shares, it will reduce
the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. For further information regarding our directed share program, see “Underwriting.”
Risk factors
Investing in our common stock involves a high degree of risk. You should carefully read and consider the information set forth under “Risk Factors” and all other information in this prospectus before investing in our common stock.
Listing
We
have applied to list our common stock on the Nasdaq Global Market under the symbol “BYND.”
The number of shares of our common stock to be outstanding after this offering includes the number of shares of common stock outstanding as of March 30, 2019, after giving effect to the automatic conversion on a one-for-one basis of all outstanding shares of convertible preferred stock into 41,562,111 shares of common stock upon the closing of this offering. Except as otherwise indicated, all information in this prospectus is based upon 7,120,933 shares of our common stock (including 87,181 unvested shares of restricted common stock subject to our repurchase right) outstanding as of March
30, 2019. This number excludes:
•
warrants to purchase 121,694 shares of our Series B convertible preferred stock at $1.07 per share and 39,073 shares of our Series E convertible preferred stock at $3.68 per share, all of which will automatically convert into warrants to purchase an aggregate of 160,767 shares of common stock upon the closing of this offering;
•
warrants to purchase 60,002 shares of common stock at $3.00 per share;
•
4,900,328 shares
of common stock issuable upon exercise of stock options outstanding as of March 30, 2019, having a weighted-average exercise price of $3.15 per share;
11
•
as of March 30, 2019, (a) 4,577,114 shares of common stock reserved for future grant or issuance under our 2018 Equity Incentive Plan, or the 2018 Plan, from which (i) options
to purchase 264,033 shares of our common stock were granted on April 3, 2019, having an exercise price of $20.02 per share, (ii) options to purchase (A) 1,000,000 shares of our common stock were granted on April 18, 2019, (B) 51,999 shares of our common stock were granted on April 29, 2019, and (C) 50,000 shares of our common stock will be granted, in each case to be effective upon and subject to the effectiveness of the registration statement of which this prospectus forms a part and having an exercise price equal to the initial public offering price of our common stock in this offering, and (iii) awards covering 99,433 shares of restricted stock were granted on April 18, 2019 at a purchase price of $0.01 per share and which will be issued upon
payment of the purchase price, plus (b) shares that will automatically be added to the share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans”; and
•
804,195 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, plus shares that will automatically be added to the share reserve each year, as more fully described in “Executive Compensation—Employee Stock Purchase Plan.”
Except as otherwise indicated, all information in this prospectus reflects and assumes:
•
a
3-for-2 reverse stock split of our capital stock on January 2, 2019 pursuant to which (i) every share of outstanding capital stock was converted and reconstituted into 0.6667 of a share of capital stock; (ii) the number of shares of common stock for which each outstanding option to purchase common stock is exercisable was proportionally decreased on a 0.6667-for-one basis; and (iii) the exercise price of each outstanding option to purchase common stock and warrant to purchase convertible preferred stock or common stock was proportionately increased on a one-for-0.6667 basis;
•
the automatic conversion upon the closing of this offering of all outstanding shares of convertible preferred stock
on a one-for-one basis into an aggregate of 41,562,111 shares of common stock, as described above;
•
the automatic conversion of warrants to purchase an aggregate of 160,767 shares of convertible preferred stock into warrants to purchase an aggregate of 160,767 shares of common stock upon the closing of this offering;
•
no exercise or termination of outstanding stock options or warrants after March 30, 2019;
•
the
filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering; and
•
no exercise by the underwriters of their option to purchase up to an additional 1,443,750 shares of our common stock from us in this offering.
12
Summary
Financial Data
The following tables set forth summary financial data for the periods and at the dates indicated. The statement of operations data for the years ended December 31, 2016, 2017 and 2018 and the summary balance sheet data as of December 31, 2018 have been derived from our audited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future periods. You should read the following financial information together with the information under “Capitalization,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations,”“Selected Financial Data” and our financial statements and
related notes included elsewhere in this prospectus.
Year Ended December 31,
(in thousands, except per share data)
2016
2017
2018
Statements
of Operations Data:
Net revenues
$
16,182
$
32,581
$
87,934
Cost
of goods sold
22,494
34,772
70,360
Gross (loss) profit
(6,312
)
(2,191
)
17,574
Restructuring
expenses
—
3,509
1,515
Total operating expenses
18,454
26,374
45,563
Loss
from operations
(24,766
)
(28,565
)
(27,989
)
Total other expense
(380
)
(1,814
)
(1,896
)
Loss
before income taxes
(25,146
)
(30,379
)
(29,885
)
Income tax expense
3
5
1
Net
loss
(25,149
)
(30,384
)
(29,886
)
Net
loss per share attributable to common stock:
Basic and diluted(1)
$
(5.51
)
$
(5.57
)
$
(4.75
)
Pro
forma net loss per share attributable to common stock:
Basic and diluted(1)
$
(0.64
)
___________________
(1)
For
the calculation of basic and diluted income (loss) per share and pro forma basic and diluted net income per share, see note 11 to our financial statements included elsewhere in this prospectus. All common and per share amounts have been adjusted retrospectively to reflect the 3-for-2 reverse stock split on January 2, 2019.
The pro forma balance sheet gives effect to (i) the conversion of all outstanding preferred stock to common stock on a one-for-one basis at the closing of this offering, and (ii) the resulting reclassification of warrant liability to additional paid-in capital with respect to a convertible Series B preferred stock warrant.
(2)
The pro forma as adjusted balance sheet gives effect to (i) the items reflected in footnote (1) above and (ii) to the sale of shares of
common stock by us in this offering at an assumed initial public offering price of $24.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)
Each $1.00 increase or decrease in the assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease our cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $9.0 million, assuming that the number of shares of our common stock offered by us, as set forth
on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease the amount of our cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $22.3 million, assuming an initial public offering price of $24.00 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions payable by us. The pro forma as adjusted information reflects the reclassification of deferred offering costs recorded in prepaid expenses and other current assets on the balance sheet as of December 31, 2018 to additional paid-in capital. The pro forma as adjusted information discussed above is illustrative only and will
be adjusted based on the actual public offering price and other terms of our initial public offering that will be determined at pricing.
(4)
Working capital is defined as total current assets minus total current liabilities.
Year Ended December
31,
Non-GAAP Financial Data:
2016
2017
2018
Adjusted EBITDA(1)
$
(21,957
)
$
(17,557
)
$
(19,312
)
___________________
(1)
Adjusted
EBITDA is a financial measure that is not calculated in accordance with GAAP. We define adjusted EBITDA as net loss adjusted to exclude, when applicable, income tax expense, interest expense, depreciation and amortization expense, restructuring expenses, share-based compensation expense, inventory losses from termination of an exclusive supply agreement with a co-manufacturer and costs of termination of an exclusive supply agreement with the same co-manufacturer.
Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net loss, which is the most directly comparable GAAP measure. Some of these limitations are:
•
adjusted
EBITDA excludes depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future increasing our cash requirements;
14
•
adjusted EBITDA does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us;
•
adjusted
EBITDA does not reflect income tax payments that reduce cash available to us;
•
adjusted EBITDA does not reflect restructuring expenses that reduce cash available to us;
•
adjusted EBITDA does not reflect share-based compensation expenses and, therefore, does not include all of our compensation costs;
•
adjusted
EBITDA does not reflect other income (expense) that may increase or decrease cash available to us; and
•
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, we consider, and you should consider, adjusted EBITDA together with other operating and financial performance measures presented in accordance with U.S. GAAP. Below we have provided a reconciliation of adjusted EBITDA to net loss, as reported, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, for each of the periods presented.
Year
Ended December 31,
(in thousands)
2016
2017
2018
Net loss, as reported
$
(25,149
)
$
(30,384
)
$
(29,886
)
Income
tax expense
3
5
1
Interest expense
380
1,002
1,128
Depreciation
and amortization expense
2,074
3,181
4,921
Restructuring expenses(a)
—
3,509
1,515
Inventory
losses from termination of exclusive supply agreement(b)
—
2,440
—
Costs of termination of exclusive supply agreement(c)
—
1,213
—
Share-based
compensation expense
735
665
2,241
Other, net(d)
—
812
768
Adjusted
EBITDA
$
(21,957
)
$
(17,557
)
$
(19,312
)
___________________
(a)
In
connection with the termination of an exclusive supply agreement with a co-manufacturer in May 2017, we recorded restructuring expenses related to the impairment write-off of long-lived assets, primarily comprised of certain unrecoverable equipment located at the co-manufacturer’s site and company-paid leasehold improvements to the co-manufacturer’s facility, and legal and other expenses associated with the dispute with the co-manufacturer. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business—Legal Proceedings” elsewhere in this prospectus.
(b)
Consists of additional charges related to inventory losses incurred as a result of termination of an exclusive supply agreement with
a co-manufacturer and is recorded in cost of goods sold.
(c)
Consists of additional charges incurred as a result of termination of an exclusive supply agreement with a co-manufacturer and is recorded in selling, general and administrative expenses.
(d)
Includes expenses primarily associated with the conversion of our convertible notes and remeasurement of our preferred stock warrant liability and common stock warrant liability.
15
RISK
FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks actually occurs, our business, results of operations and financial condition could be materially adversely affected. In this case, the trading price of our common stock would likely decline and you might lose part or all your investment in our common stock.
Risks Related to Our Business, Our Brand, Our Products and Our Industry
We have a history of losses, and we may be unable to achieve or sustain profitability.
We have experienced net losses in each year since our inception. In the years ended December 31,
2016, 2017 and 2018 we incurred net losses of $25.1 million, $30.4 million and $29.9 million, respectively. We anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest to increase our customer base, supplier network and co-manufacturing partners, expand our marketing channels, invest in our distribution and manufacturing facilities, hire additional employees and enhance our technology and production capabilities. Our expansion efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenues and margins sufficiently to offset the anticipated higher expenses. We incur significant expenses in developing our
innovative products, building out our manufacturing facilities, obtaining and storing ingredients and other products and marketing the products we offer. In addition, many of our expenses, including the costs associated with our existing and any future manufacturing facilities, are fixed. Accordingly, we may not be able to achieve or sustain profitability, and we may incur significant losses for the foreseeable future.
If we fail to effectively expand our manufacturing and production capacity, our business and operating results and our brand reputation could be harmed.
We currently do not have sufficient capacity to meet our customers’ demands and to satisfy increased demand, we need to expand our operations, supply and manufacturing capabilities. However, there is risk in our ability to effectively scale production processes and effectively manage our supply chain requirements.
We must accurately forecast demand for our products in order to ensure we have adequate available manufacturing capacity. Our forecasts are based on multiple assumptions which may cause our estimates to be inaccurate and affect our ability to obtain adequate manufacturing capacity (whether our own manufacturing capacity or co-manufacturing capacity) in order to meet the demand for our products, which could prevent us from meeting increased customer demand and harm our brand and our business and in some cases may result in fines we must pay customers or distributors if we are unable to fulfill orders placed by them in a timely manner or at all.
However, if we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and may experience reduced margins. If we do not accurately align our manufacturing capabilities with demand, if we experience disruptions or delays
in our supply chain, or if we cannot obtain raw materials of sufficient quantity and quality at reasonable prices and in a timely manner, our business, financial condition and results of operations may be materially adversely affected.
Because we rely on a limited number of third-party suppliers, we may not be able to obtain raw materials on a timely basis or in sufficient quantities to produce our products or meet the demand for our products.
We rely on a limited number of vendors to supply us with raw materials. Our financial performance depends in large part on our ability to arrange for the purchase of raw materials in sufficient quantities at competitive prices. We are not assured of continued supply or pricing of raw materials. Any of our suppliers could discontinue or seek to alter their relationship with us.
16
We
currently have two suppliers for the pea protein used in our fresh products. We have in the past experienced interruptions in the supply of pea protein from one supplier that resulted in delays in delivery to us. We could experience similar delays in the future from either or both suppliers. Any disruption in the supply of pea protein from these suppliers would have a material adverse effect on our business if we cannot replace these suppliers in a timely manner or at all. For more information regarding contract terms, see the section of this prospectus captioned “Business—Supply Agreements.”
In addition, our pea protein suppliers manufacture their products at a limited number of facilities. A natural disaster, fire, power interruption, work stoppage or other calamity affecting any of these facilities, or any interruption in
their operations, could negatively impact our ability to obtain required quantities of pea protein in a timely manner, or at all, which could materially reduce our net product sales and have a material adverse effect on our business and financial condition.
Events that adversely affect our suppliers of pea protein and other raw material could impair our ability to obtain raw material inventory in the quantities that we desire. Such events include problems with our suppliers’ businesses, finances, labor relations, ability to import raw materials, costs, production, insurance and reputation, as well as natural disasters, fires or other catastrophic occurrences. We continuously seek alternative sources of protein to use in our products, but we may not be successful in diversifying the raw materials we use in our products.
If we need to replace an existing supplier, there can be no
assurance that supplies of raw materials will be available when required on acceptable terms, or at all, or that a new supplier would allocate sufficient capacity to us in order to meet our requirements, fill our orders in a timely manner or meet our strict quality standards. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our profit margins could decrease.
Our future business, results of operations and financial condition may be adversely affected by reduced or limited availability of pea protein that meets our standards.
Our ability to ensure a continuing supply of ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow certain crops such as Canadian and European yellow peas, the vagaries of these
farming businesses (including poor harvests impacting the quality of the peas grown), changes in national and world economic conditions and our ability to forecast our ingredient requirements. The high quality ingredients used in many of our products are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and pestilence. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply of, or increase the price of, quality ingredients. In addition, we purchase some ingredients offshore, and the availability of such ingredients may be affected by events in other countries, including France and Canada. We also compete with other food producers in the procurement of ingredients, and this competition may increase in the future if consumer demand for plant-based protein products increases. If supplies of quality ingredients
are reduced or there is greater demand for such ingredients from us and others, we may not be able to obtain sufficient supply that meets our strict quality standards on favorable terms, or at all, which could impact our ability to supply products to distributors and retailers and may adversely affect our business, results of operations and financial condition.
We use a limited number of distributors for the substantial majority of our sales, and if we experience the loss of one or more distributors and cannot replace them in a timely manner, our results of operations may be adversely affected.
Many retailers purchase our products through food distributors which purchase, store, sell, and deliver our products to retailers. For 2017, our largest distributors in terms of their respective percentage of our gross revenues included the
following: United Natural Foods, Inc., or UNFI, 38%; KeHE Distributors, LLC, or KeHE, 10%; and DOT Foods, Inc., or DOT, 10%. For 2018, our largest distributors in
17
terms of their respective percentage of our gross revenues included the following: UNFI, 32%; DOT, 21%; and Sysco Merchandising and Supply Chain Services, Inc., or Sysco, 13%. We expect that most of our sales will be made through a core number of distributors for the foreseeable future. Since these distributors act as intermediaries between us and the retail grocers or restaurants and foodservice providers, we do not have short-term or long-term commitments or minimum purchase volumes in our contracts
with them that ensure future sales of our products. If we lose one or more of our significant distributors and cannot replace the distributor in a timely manner or at all, our business, results of operation and financial condition may be materially adversely affected.
Consolidation of customers or the loss of a significant customer could negatively impact our sales and profitability.
Supermarkets in North America and the European Union, continue to consolidate. This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying power that are able to resist price increases, as well as operate with lower inventories, decrease the number of brands that they carry and increase their emphasis on private label products, all of which could negatively impact our business. The consolidation of retail customers also increases the risk that a significant
adverse impact on their business could have a corresponding material adverse impact on our business.
The loss of any large customer, the reduction of purchasing levels or the cancellation of any business from a large customer for an extended length of time could negatively impact our sales and profitability.
Furthermore, as retailers consolidate, they may reduce the number of branded products they offer in order to accommodate private label products and generate more competitive terms from branded suppliers. Consequently, our financial results may fluctuate significantly from period to period based on the actions of one or more significant retailers. A retailer may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived
quality of our products. Despite operating in different channels, our retailers sometimes compete for the same consumers. Because of actual or perceived conflicts resulting from this competition, retailers may take actions that negatively affect us.
We do not currently have any written contracts with our co-manufacturers. Loss of one or more of our co-manufacturers or our failure to timely identify and establish relationships with new co-manufacturers could harm our business and impede our growth.
A significant amount of our revenue is derived from products manufactured at manufacturing facilities owned and operated by our co-manufacturers. We do not currently have written manufacturing contracts
with our co-manufacturers, including CLW Foods LLC and FLP Food LLC that co-manufacture our top selling products. Because of the absence of such contracts, any of our co-manufacturers could seek to alter or terminate its relationship with us at any time, leaving us with periods during which we have limited or no ability to manufacture our products. If we need to replace a co-manufacturer, there can be no assurance that additional capacity will be available when required on acceptable terms, or at all.
An interruption in, or the loss of operations at, one or more of our co-manufacturing facilities, which may be caused by work stoppages, disease outbreaks or pandemics, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters at one or more of these facilities, could delay, postpone or reduce production of some of
our products, which could have a material adverse effect on our business, results of operations and financial condition until such time as such interruption is resolved or an alternate source of production is secured.
We believe there are a limited number of competent, high-quality co-manufacturers in the industry that meet our strict quality and control standards, and as we seek to obtain additional or alternative co-manufacturing arrangements in the future, there can be no assurance that we would be able to do so on satisfactory terms, in a timely manner, or at all. Therefore, the loss of one or more co-manufacturers, any disruption or delay at a co-manufacturer or any failure to identify and engage co-manufacturers for new
18
products
and product extensions could delay, postpone or reduce production of our products, which could have a material adverse effect on our business, results of operations and financial condition.
We may not be able to compete successfully in our highly competitive market.
We operate in a highly competitive market. Numerous brands and products compete for limited retailer shelf space, foodservice and restaurant customers and consumers. In our market, competition is based on, among other things, product quality and taste, brand recognition and loyalty, product variety, interesting or unique product names, product packaging and package design, shelf space, reputation, price, advertising, promotion and nutritional claims.
We compete with conventional animal-protein companies such as Cargill, Hormel, JBS, Tyson and WH Group (including its Smithfield
division), who may have substantially greater financial and other resources than us and whose animal-based products are well-accepted in the marketplace today. They may also have lower operational costs, and as a result may be able to offer conventional animal meat to customers at lower costs than plant-based meat. This could cause us to lower our prices, resulting in lower profitability or, in the alternative, cause us to lose market share if we fail to lower prices.
We also compete with other food brands that develop and sell plant-based protein products, including, but not limited to, Boca Foods, Field Roast Grain Meat Co., Gardein, Impossible Foods, Lightlife, Morningstar Farms and Tofurky, and with companies which may be more innovative, have more resources and be able to bring new products to market faster and to more quickly exploit and serve niche markets such as lab-grown or “clean meat.” We compete with these
competitors for foodservice and restaurant customers, retailer shelf space and consumers.
Generally, the food industry is dominated by multinational corporations with substantially greater resources and operations than us. We cannot be certain that we will successfully compete with larger competitors that have greater financial, sales and technical resources. Conventional food companies may acquire our competitors or launch their own plant-based protein products, and they may be able to use their resources and scale to respond to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities, among other things. Retailers also market competitive products under their own private labels, which are generally sold at lower prices and compete with some of our products. Similarly, retailers could change the merchandising of our products and we may be unable
to retain the placement of our products in meat cases to effectively compete with animal-protein products. Competitive pressures or other factors could cause us to lose market share, which may require us to lower prices, increase marketing and advertising expenditures, or increase the use of discounting or promotional campaigns, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability. See “Business—Competition.”
We may require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce or terminate our product manufacturing and development, and other operations.
Since our inception, substantially all of our resources have been dedicated to the development of our three core plant-based product platforms
of beef, pork and poultry. Net cash used in operating activities in 2016, 2017 and 2018 was $23.5 million, $25.3 million and $37.7 million, respectively. As of December 31, 2017 and 2018, we had working capital of $39.8 million and $77.7 million, respectively, and cash and cash equivalents of $39.0 million and $54.3 million, respectively. Net cash used in investing activities was $5.0 million,
$8.1 million and $23.2 million in 2016, 2017 and 2018, respectively. Net cash used in investing activities in 2016 related to purchases of property, plant and equipment, principally to support the development and production of The Beyond Burger, and with respect to 2017, related to the build-out and equipping of our Manhattan Beach Project Innovation Center. Net cash used in investing activities in 2018 was related primarily to manufacturing facility improvements and purchases of manufacturing equipment.
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Net cash provided by financing activities in 2016, 2017 and 2018 was $31.9 million,
$55.4 million and $76.2 million, respectively, primarily due to the net proceeds from our issuance of convertible preferred stock and net borrowings under a revolving credit facility and a term loan facility.
We believe that we will continue to expend substantial resources for the foreseeable future as we expand into additional markets we may choose to pursue. These expenditures are expected to include costs associated with research and development, manufacturing and supply, as well as marketing and selling existing and new products. In addition, other unanticipated costs may arise.
After giving effect to the anticipated net proceeds from this offering, we expect that our existing cash will be sufficient to fund our planned operating expenses, capital expenditure requirements and debt
service payments through at least the next 12 months. However, our operating plan may change because of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Our future capital requirements depend on many factors, including:
•
the
number and characteristics of any additional products or manufacturing processes we develop or acquire to serve new or existing markets;
•
the scope, progress, results and costs of researching and developing future products or improvements to existing products or manufacturing processes;
•
any lawsuits related to our products or commenced against us, including the costs associated with our current litigation with a former co-manufacturer;
•
the
expenses needed to attract and retain skilled personnel;
•
the costs associated with being a public company;
•
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and
•
the
timing, receipt and amount of sales of, or royalties on, any future approved products, if any.
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:
•
delay, limit, reduce or terminate our manufacturing, research and development activities; or
•
delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other
activities that may be necessary to generate revenue and achieve profitability.
Our brand and reputation may be diminished due to real or perceived quality or health issues with our products, which could have an adverse effect on our business, reputation, operating results and financial condition.
We believe our consumers rely on us to provide them with high-quality plant-based protein products. Therefore, real or perceived quality or food safety concerns or failures to comply with applicable food regulations and requirements, whether or not ultimately based on fact and whether or not involving us (such as incidents involving our competitors), could cause negative publicity and reduced confidence in our company, brand or products, which could in turn harm our reputation and sales,
and could materially adversely affect our business, financial condition and operating results. Although we believe we have a
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rigorous quality control process, there can be no assurance that our products will always comply with the standards set for our products. For example, although we strive to keep our products free of pathogenic organisms, they may not be easily detected and cross-contamination can occur. In addition, in 2017, before our products were shipped to distributors or customers, we discovered, through our quality control process, that certain of our products manufactured by a former co-manufacturer were contaminated with salmonella. There is no assurance that this health risk will always be preempted by our quality control processes.
We
have no control over our products once purchased by consumers. Accordingly, consumers may prepare our products in a manner that is inconsistent with our directions or store our products for long periods of time, which may adversely affect the quality and safety of our products. If consumers do not perceive our products to be safe or of high quality, then the value of our brand would be diminished, and our business, results of operations and financial condition would be adversely affected.
Any loss of confidence on the part of consumers in the ingredients used in our products or in the safety and quality of our products would be difficult and costly to overcome. Any such adverse effect could be exacerbated by our position in the market as a purveyor of high-quality plant-based protein products and may significantly reduce our brand value. Issues regarding the safety of any of our products, regardless of the cause, may have
a substantial and adverse effect on our brand, reputation and operating results.
The growing use of social and digital media by us, our consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative publicity about us, our brands or our products on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our sales and profits could be negatively impacted.
Food safety and food-borne illness incidents or advertising or product mislabeling may materially adversely affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings.
Selling food for human consumption involves inherent legal
and other risks, and there is increasing governmental scrutiny of and public awareness regarding food safety. Unexpected side effects, illness, injury or death related to allergens, food-borne illnesses or other food safety incidents caused by products we sell, or involving our suppliers, could result in the discontinuance of sales of these products or our relationships with such suppliers, or otherwise result in increased operating costs, regulatory enforcement actions or harm to our reputation. Shipment of adulterated or misbranded products, even if inadvertent, can result in criminal or civil liability. Such incidents could also expose us to product liability, negligence or other lawsuits, including consumer class action lawsuits. Any claims brought against us may exceed or be outside the scope of our existing or future insurance policy coverage or limits. Any judgment against us that is more than our policy limits or not covered by our policies or not subject to
insurance would have to be paid from our cash reserves, which would reduce our capital resources.
The occurrence of food-borne illnesses or other food safety incidents could also adversely affect the price and availability of affected ingredients, resulting in higher costs, disruptions in supply and a reduction in our sales. Furthermore, any instances of food contamination or regulatory noncompliance, whether or not caused by our actions, could compel us, our suppliers, our distributors or our customers, depending on the circumstances, to conduct a recall in accordance with FDA regulations, and comparable state laws. Food recalls could result in significant losses due to their costs, the destruction of product inventory, lost sales due to the unavailability of the product for a period of time and potential loss of existing distributors or customers and a potential negative impact on our ability to attract new customers due
to negative consumer experiences or because of an adverse impact on our brand and reputation. The costs of a recall could exceed or be outside the scope of our existing or future insurance policy coverage or limits.
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In addition, food companies have been subject to targeted, large-scale tampering as well as to opportunistic, individual product tampering, and we, like any food company, could be a target for product tampering. Forms of tampering could include the introduction of foreign material, chemical contaminants and pathological organisms into consumer products as well as product substitution. Recently issued FDA regulations will require companies like us to analyze, prepare and implement mitigation strategies specifically to address tampering designed
to inflict widespread public health harm. If we do not adequately address the possibility, or any actual instance, of product tampering, we could face possible seizure or recall of our products and the imposition of civil or criminal sanctions, which could materially adversely affect our business, financial condition and operating results.
Sales of The Beyond Burger contribute a significant portion of our revenue. A reduction in sales of The Beyond Burger would have an adverse effect on our financial condition.
The Beyond Burger accounted for approximately 48% and 70% of our gross revenues in 2017 and 2018, respectively. The Beyond Burger is our flagship product and has been the focal point of our development and marketing efforts, and we believe that sales of The Beyond Burger will continue to constitute a significant portion of our revenues, income and cash flow for the foreseeable
future. We cannot be certain that we will be able to continue to expand production and distribution of The Beyond Burger, or that customer demand for our other existing and future products will expand to allow such products to represent a larger percentage of our revenue than they do currently. Accordingly, any factor adversely affecting sales of The Beyond Burger could have a material adverse effect on our business, financial condition and results of operations.
The primary components of all of our products are manufactured in our two Columbia, Missouri facilities and any damage or disruption at these facilities may harm our business. Moreover, Columbia, Missouri has a tight labor market and we may be unable to hire and retain employees at these facilities.
A significant portion of our operations are located in our two Columbia, Missouri facilities. A natural disaster, fire, power
interruption, work stoppage or other calamity at one or both of these facilities would significantly disrupt our ability to deliver our products and operate our business. If any material amount of our machinery or inventory were damaged, we would be unable to meet our contractual obligations and cannot predict when, if at all, we could replace or repair such machinery, which could materially adversely affect our business, financial condition and operating results.
Our plans for addressing our rapid growth include expanding operations at our Columbia, Missouri facilities. In this tight labor market, we may be unable to hire and retain skilled employees, which will severely hamper our expansion plans, product development and manufacturing efforts. As of January 2019, the Columbia area had an unemployment rate of 2.7%. As a result of this tight labor market, we currently rely on temporary workers in addition to full-time employees,
and in the future, we may be unable to attract and retain employees with the skills we require, which could impact our ability to expand our operations.
We may not successfully ramp up operations at our new Columbia, Missouri facility or this facility may not operate in accordance with our expectations.
In June 2018, we commenced manufacturing operations in our new Columbia, Missouri facility and expect to add more production capacity through 2021. Any substantial delay in bringing this facility up to full production on our current schedule may hinder our ability to produce all of the product needed to meet orders and/or achieve our expected financial performance. Opening this facility has required, and will continue to require, additional capital expenditures and the efforts and attention of our management and other personnel, which has and will continue to divert resources from
our existing business or operations. In addition, we will need to hire and retain more skilled employees to operate the expanded facility in this tight labor market. Even if our new Columbia, Missouri facility is brought up to full production according to
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our current schedule, it may not provide us with all of the operational and financial benefits we expect to receive.
Our Columbia, Missouri facilities and the manufacturing equipment we use to produce our products is costly to replace or repair and may require substantial lead-time to do so. For example, our estimate of throughput or our extrusion capacity may be impacted by disruption from extruder lead-in time, calibration, maintenance and unexpected
delays. In addition, our ability to procure new extruders may face more lengthy lead times than is typical. We may also not be able to find suitable alternatives with co-manufacturers to replace the output from such equipment on a timely basis and at a reasonable cost. In the future, we may also experience plant shutdowns or periods of reduced production because of regulatory issues, equipment failure or delays in raw material deliveries. Any such disruption or unanticipated event may cause significant interruptions or delays in our business and the reduction or loss of inventory may render us unable to fulfill customer orders in a timely manner, or at all. We have property and business disruption insurance in place for our Columbia, Missouri facility; however, such insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.
Failure
to introduce new products or successfully improve existing products may adversely affect our ability to continue to grow.
A key element of our growth strategy depends on our ability to develop and market new products and improvements to our existing products that meet our standards for quality and appeal to consumer preferences. The success of our innovation and product development efforts is affected by our ability to anticipate changes in consumer preferences, the technical capability of our innovation staff in developing and testing product prototypes, including complying with applicable governmental regulations, and the success of our management and sales and marketing teams in introducing and marketing new products. Our innovation staff are continuously testing alternative plant-based proteins to the proteins we currently use in our products, as they seek to find additional protein options to our current ingredients that
are more easily sourced, and which retain and build upon the quality and appeal of our current product offerings. Failure to develop and market new products that appeal to consumers may lead to a decrease in our growth, sales and profitability.
Additionally, the development and introduction of new products requires substantial research, development and marketing expenditures, which we may be unable to recoup if the new products do not gain widespread market acceptance. If we are unsuccessful in meeting our objectives with respect to new or improved products, our business could be harmed.
If we fail to cost-effectively acquire new customers or retain our existing customers, or if we fail to derive revenue from our existing customers consistent with our historical performance, our business could be materially adversely affected.
Our success,
and our ability to increase revenue and operate profitably, depends in part on our ability to cost-effectively acquire new customers, to retain existing customers, and to keep existing customers engaged so that they continue to purchase products from us. If we are unable to cost-effectively acquire new customers, retain our existing customers or keep existing customers engaged, our business, financial condition and operating results would be materially adversely affected. Further, if customers do not perceive our product offerings to be of sufficient value and quality, or if we fail to offer new and relevant product offerings, we may not be able to attract or retain customers or engage existing customers so that they continue to purchase products from us. We may lose loyal customers to our competitors if we are unable to meet customers’ orders in a timely manner.
If we fail to manage our future growth effectively, our business
could be materially adversely affected.
We have grown rapidly since inception and anticipate further growth. For example, our net revenues increased from $16.2 million at December 31, 2016 to $32.6 million at December 31, 2017 to
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$87.9 million at December 31, 2018. The number of our full-time employees increased from 142 (which included 44 contract employees) at December 31, 2016, to 184 (which included 52 contract
employees) at December 31, 2017 and to 383 (which included 104 contract employees) at March 30, 2019. This growth has placed significant demands on our management, financial, operational, technological and other resources. The anticipated growth and expansion of our business and our product offerings will place significant demands on our management and operations teams and require significant additional resources to meet our needs, which may not be available in a cost-effective manner, or at all. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality product offerings, any of which could harm our business, brand,
results of operations and financial condition.
We face intense competition in our market from our competitors, including manufacturers of animal-based meat products and other brands that produce plant-based protein products, and potential competitors and may lack sufficient financial or other resources to compete successfully.
Our future success depends, in large part, on our ability to implement our growth strategy of expanding supply and distribution, improving placement of our products, attracting new consumers to our brand and introducing new products and product extensions. Our ability to implement this growth strategy depends, among other things, on our ability to:
•
manage
relationships with various suppliers, co-manufacturers, distributors, customers and other third parties, and expend time and effort to integrate new suppliers, co-manufacturers and customers into our fulfillment operations;
•
continue to compete in the retail channel and the restaurant and foodservice channel;
•
secure placement in the meat case for our products;
•
increase
our brand recognition;
•
expand and maintain brand loyalty; and
•
develop new product lines and extensions.
We may not be able to implement our growth strategy successfully. Our sales and operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.
We may face difficulties as we expand our operations
into countries in which we have no prior operating experience.
We intend to continue to expand our global footprint in order to enter into new markets. This may involve expanding into countries other than those in which we currently operate. It may also involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. In addition, it may be difficult for us to understand and accurately predict taste preferences and purchasing habits of consumers in these new geographic markets. It is costly to establish, develop and maintain international operations and develop and promote our brands in international markets. As we expand our business into new countries, we may encounter regulatory, legal, personnel, technological and other difficulties that increase our expenses and/or delay our ability to become profitable in such countries, which
may have a material adverse effect on our business and brand.
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We are or will be subject to international regulations that could adversely affect our business and results of operations.
We are or will be subject to extensive regulations internationally where we manufacture, distribute and/or will sell our products. Our products are subject to numerous food safety and other laws and regulations relating to the sourcing, manufacturing, storing, labeling, marketing, advertising and distribution of these products. For example, in early 2018, we received an inquiry from Canadian officials about the labeling and composition of products that we export to Canada. We responded promptly to that
inquiry, identifying minor formulation changes that we made under Canadian regulations and have not heard more from regulators in Canada. We have continued to export to Canada without further inquiry from Canadian officials. However, if regulators determine that the labeling and/or composition of any of our products is not in compliance with Canadian law or regulations, or if we or our co-manufacturers otherwise fail to comply with applicable laws and regulations in Canada or other jurisdictions, we could be subject to civil remedies or penalties, such as fines, injunctions, recalls or seizures, warning letters, restrictions on the marketing or manufacturing of the products, or refusals to permit the import or export of products, as well as potential criminal sanctions. In addition, enforcement of existing laws and regulations, changes in legal requirements and/or evolving interpretations of existing
regulatory requirements may result in increased compliance costs and create other obligations, financial or otherwise, that could adversely affect our business, financial condition or operating results.
In addition, with our expanding international operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, or FCPA, and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials or other third parties for the purpose of obtaining or retaining business. While our policies mandate compliance with these anti-bribery laws, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations,
cash flows and financial condition.
Ingredient and packaging costs are volatile and may rise significantly, which may negatively impact the profitability of our business.
We purchase large quantities of raw materials, including ingredients derived from Canadian and European yellow peas, mung beans, sunflower seeds, rice, canola oil and coconut oil. In addition, we purchase and use significant quantities of cardboard, film and plastic to package our products. Costs of ingredients and packaging are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, weather conditions, consumer demand and changes in governmental trade and agricultural programs. Volatility in the prices of raw materials and other supplies we purchase could increase our cost of sales and reduce our profitability. Moreover, we may not be able to implement
price increases for our products to cover any increased costs, and any price increases we do implement may result in lower sales volumes. If we are not successful in managing our ingredient and packaging costs, if we are unable to increase our prices to cover increased costs or if such price increases reduce our sales volumes, then such increases in costs will adversely affect our business, results of operations and financial condition.
If we fail to develop and maintain our brand, our business could suffer.
We have developed a strong and trusted brand that has contributed significantly to the success of our business, and we believe our continued success depends on our ability to maintain and grow the value of the Beyond Meat brand. Maintaining, promoting and positioning our brand and reputation will depend on, among other factors, the success of our plant-based
product offerings, food safety, quality assurance, marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience. Any negative publicity, regardless of its accuracy, could materially adversely affect our business. Brand value is based on perceptions of subjective qualities, and any incident that erodes the loyalty of our customers, suppliers or co-manufacturers, including adverse publicity or a governmental
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investigation or litigation, could significantly reduce the value of our brand and significantly damage our business.
Consumer preferences for our products are difficult to predict and may change, and, if we are unable to respond quickly to new trends, our
business may be adversely affected.
Our business is focused on the development, manufacture, marketing and distribution of a line of branded plant-based protein products as alternatives to meat-based protein products. Consumer demand could change based on a number of possible factors, including dietary habits and nutritional values, concerns regarding the health effects of ingredients and shifts in preference for various product attributes. If consumer demand for our products decreased, our business and financial condition would suffer. In addition, sales of plant-based protein or meat-alternative products are subject to evolving consumer preferences that we may not be able to accurately predict or respond to. Consumer trends that we believe favor sales of our products could change based on a number of possible factors, including a shift in preference from plant-based protein to animal-based protein products, economic factors
and social trends. A significant shift in consumer demand away from our products could reduce our sales or our market share and the prestige of our brand, which would harm our business and financial condition.
Our revenues and earnings may fluctuate as a result of our promotional activities.
We routinely offer sales discounts and promotions through various programs to customers and consumers which may occasionally result in reduced margins. These programs include rebates, temporary on shelf price reductions, off-invoice discounts, retailer advertisements, product coupons and other trade activities. We anticipate that, at times, these promotional activities may adversely impact our net revenues and results of operations.
Litigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation
or business.
From time to time, we may be party to various claims and litigation proceedings. We evaluate these claims and litigation proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we may establish reserves, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our assessments and estimates.
For example, on May 25, 2017, following our termination of our supply agreement with Don Lee Farms, a co-manufacturer, Don Lee Farms filed a lawsuit against us in California state court claiming that we wrongfully terminated the parties’ contract
and that we misappropriated their trade secrets principally by sharing with subsequent co-manufacturers the processes for manufacturing our products—processes which they claim to have developed. On July 27, 2017 we filed a cross-complaint, alleging that Don Lee Farms (1) breached the supply agreement, including by failing to provide saleable product, as certain of our products manufactured by Don Lee Farms were contaminated with salmonella and other foreign objects, and that Don Lee Farms did not take appropriate actions to address these issues; (2) engaged in unfair competition in violation of California’s Unfair Competition Law; and (3) unlawfully converted certain Beyond Meat property, including certain pieces of equipment. In October 2018, Don Lee Farms filed an amended complaint that added ProPortion Foods, LLC (one of Beyond Meat’s current contract
manufacturers) as a defendant, principally for claims arising from ProPortion’s alleged use of Don Lee Farms’ alleged trade secrets, and for replacing Don Lee Farms as Beyond Meat’s co-manufacturer. ProPortion filed an answer denying all of Don Lee Farms’ claims and a cross-complaint against Beyond Meat asserting claims of total and partial equitable indemnity, contribution, and repayment. On March 11, 2019, Don Lee Farms filed a second amended complaint to add claims of fraud and negligent misrepresentation against us. Trial is currently set for May 18, 2020.
Don Lee Farms is seeking from us and ProPortion unspecified compensatory and punitive damages, declaratory and injunctive relief, including the prohibition of our use or disclosure of the alleged trade
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secrets,
and attorneys’ fees and costs. We are seeking from Don Lee Farms monetary damages, restitution of monies paid to Don Lee Farms, and attorneys’ fees and costs. ProPortion is seeking indemnity, contribution, or repayment from us of any or all damages that ProPortion may be found liable to Don Lee Farms, and attorney’s fees and costs. We believe we were justified in terminating the supply agreement with Don Lee Farms, that we did not misappropriate their alleged trade secrets, that we are not liable for the fraud or negligent misrepresentation alleged in the proposed second amended complaint, that Don Lee Farms is liable for the conduct alleged in our cross-complaint, and that we are not liable to ProPortion for any indemnity, contribution, or repayment, including for any damages or attorney’s fees and costs.
We intend to vigorously
defend ourselves against the claims and prosecute our own. However, we cannot assure you that Don Lee Farms or ProPortion will not prevail in all or some of their claims against us, or that we will prevail in some or all of our claims against Don Lee Farms. For example, if Don Lee Farms succeeds in the lawsuit, we could be required to pay damages, including but not limited to contract damages reasonably calculated at what we would have paid Don Lee Farms to produce our products through 2019, the end of the contract term, and Don Lee Farms could also claim some ownership in the intellectual property associated with the production of certain of our products or in the products themselves, and thus claim a stake in the value we have derived and will derive from the use of that intellectual
property after we terminated our supply agreement with Don Lee Farms. As another example, we also could be required to pay attorney’s fees and costs incurred by Don Lee Farms or ProPortion.
Even when not merited, the defense of these lawsuits may divert our management’s attention, and we may incur significant expenses in defending these lawsuits. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial position, cash flows or results of operations. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.
Furthermore,
while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to recovery for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our recovery.
Legal claims, government investigations or other regulatory enforcement actions could subject us to civil and criminal penalties.
We operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Consequently, we are subject to heightened risk of legal claims, government investigations or other regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliance with
existing laws and regulations, there can be no assurance that our employees, temporary workers, contractors or agents will not violate our policies and procedures. Moreover, a failure to maintain effective control processes could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims, government investigations or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition and operating results. In addition, the costs and other effects of defending potential and pending litigation and administrative actions against us may be difficult to determine and could adversely affect our financial condition and operating results.
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Failure
by our transportation providers to deliver our products on time, or at all, could result in lost sales.
We currently rely upon third-party transportation providers for a significant portion of our product shipments. Our utilization of delivery services for shipments is subject to risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes and inclement weather, which may impact the ability of providers to provide delivery services that adequately meet our shipping needs. We periodically change shipping companies, and we could face logistical difficulties that could adversely affect deliveries. In addition, we could incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those we receive from the third-party transportation providers that we currently use, which in turn would increase our costs and thereby adversely
affect our operating results.
The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. For example, several of the reports rely on or employ projections of consumer adoption and incorporate data from secondary sources such as company websites as well as industry, trade and government publications. While our estimates of market size and expected growth of our market were made in good faith and are based on assumptions and
estimates we believe to be reasonable, these estimates may not prove to be accurate. Even if the market in which we compete meets the size estimates and growth forecast in this prospectus, our business could fail to grow at the rate we anticipate, if at all.
Fluctuations in our results of operations for our second and third quarters may impact, and may have a disproportionate effect on our overall financial condition and results of operations.
Our business is subject to seasonal fluctuations that may have a disproportionate effect on our results of operations. Historically, we have realized a higher portion of our net revenues, net income and operating cash flows in our second and third quarters due to weather and related increase in outdoor activities such as barbecues. Any factors that harm our second and third quarters operating results, including disruptions in our supply chain,
adverse weather or unfavorable economic conditions, may have a disproportionate effect on our results of operations for the entire year.
Historical quarter-to-quarter and period-over-period comparisons of our sales and operating results are not necessarily indicative of future quarter-to-quarter and period-over-period results. You should not rely on the results of a single quarter or period as an indication of our annual results or our future performance.
Failure to retain our senior management may adversely affect our operations.
Our success is substantially dependent on the continued service of certain members of our senior management, including Ethan Brown, our Chief Executive Officer. These executives have been primarily responsible for determining the strategic
direction of our business and for executing our growth strategy and are integral to our brand, culture and the reputation we enjoy with suppliers, co-manufacturers, distributors, customers and consumers. The loss of the services of any of these executives could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause the price of our common stock to decline. We do not currently carry key-person life insurance for our senior executives.
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If we are unable to attract, train and retain employees, we may not be able to grow or successfully operate
our business.
Our success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and can represent our brand effectively and establish credibility with our business partners and consumers. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.
Our employees are employed by a professional employer organization.
We contract with a professional employer organization, or PEO, that administers our human
resources, payroll and employee benefits functions. Although we recruit and select our personnel, each of our employees is also an employee of record of the PEO. As a result, our personnel are compensated through the PEO, receive their W-2s from the PEO and are governed by the personnel policies created by the PEO. This relationship permits management to focus on operations and profitability rather than human resource administration, but this relationship also exposes us to some risks. Among other risks, if the PEO fails to adequately withhold or pay employer taxes or to comply with other laws, such as the Fair Labor Standards Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act or state and federal anti-discrimination laws, each of which is outside of our control, we would be liable for such violations, and indemnification provisions with the PEO, if applicable, may not be sufficient to insulate us from those liabilities. Court and administrative
proceedings related to these matters could distract management from our business and cause us to incur significant expense. If we were held liable for violations by the PEO, such amounts may adversely affect our profitability and could negatively affect our business and results of operations.
We rely on information technology systems and any inadequacy, failure, interruption or security breaches of those systems may harm our ability to effectively operate our business.
We are dependent on various information technology systems, including, but not limited to, networks, applications and outsourced services in connection with the operation of our business. A failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies and loss of sales, causing our business to suffer. In addition, our
information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, viruses and security breaches. Any such damage or interruption could have a material adverse effect on our business.
A cybersecurity incident or other technology disruptions could negatively impact our business and our relationships with customers.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and other online activities to connect with our employees, suppliers, co-manufacturers, distributors, customers and consumers. Such uses give rise to cybersecurity risks, including security breaches, espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive
and/or confidential information and intellectual property, including customers’ and suppliers’ information, private information about employees and financial and strategic information about us and our business partners. Further, as we pursue a strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we will also be expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Additionally, while we have implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or
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confidential
information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability and competitive disadvantage all of which could have a material adverse effect on our business, financial condition or results of operations.
Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition.
Adverse and uncertain economic conditions may impact distributor, retailer, foodservice and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, co-manufacturers, distributors, retailers, foodservice consumers and creditors may suffer. Consumers may shift purchases to lower-priced
or other perceived value offerings during economic downturns. In particular, consumers may reduce the amount of plant-based food products that they purchase where there are conventional animal-based protein offerings, which generally have lower retail prices. In addition, consumers may choose to purchase private label products rather than branded products because they are generally less expensive. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing distributors, retailer and foodservice customers, our ability to attract new consumers, the financial condition of our consumers and our ability to provide products that appeal to consumers at the right price. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.
A
major earthquake, tsunami, tornado or other natural disaster could seriously disrupt our entire business.
Our corporate offices and research and development functions are located in El Segundo, California, and our industrial manufacturing facilities are located in Columbia, Missouri. The impact of a major earthquake or tsunami, or both, or other natural disasters in the Los Angeles area, or a tornado or other natural disaster in the Columbia area, on our facilities and overall operations is difficult to predict, but such a natural disaster could seriously disrupt our entire business. Our insurance may not adequately cover our losses and expenses in the event of such a natural disaster. As a result, natural disasters, such as a major earthquake, tsunami or tornado in the Los Angeles or Columbia areas or in areas where our co-manufacturers are located, could lead to substantial losses.
We
may be subject to significant liability that is not covered by insurance.
Although we believe that the extent of our insurance coverage is consistent with industry practice, any claim under our insurance policies may be subject to certain exceptions, may not be honored fully, in a timely manner, or at all, and we may not have purchased sufficient insurance to cover all losses incurred. If we were to incur substantial liabilities or if our business operations were interrupted for a substantial period of time, we could incur costs and suffer losses. Such inventory and business interruption losses may not be covered by our insurance policies. Additionally, in the future, insurance coverage may not be available to us at commercially acceptable premiums, or at all.
Climate change may negatively affect our business and operations.
There is
concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. If such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as Canadian and European yellow peas, mung beans, sunflowers, rice, canola oil and coconut oil. Due to climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations.
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Regulatory Risks
Our
operations are subject to FDA governmental regulation and state regulation, and there is no assurance that we will be in compliance with all regulations.
Our operations are subject to extensive regulation by the FDA, and other federal, state and local authorities. Specifically, we are subject to the requirements of the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, packaging, labeling and safety of food. Under this program the FDA requires that facilities that manufacture food products comply with a range of requirements, including hazard analysis and preventative controls regulations, current good manufacturing practices, or cGMPs, and supplier verification requirements. Our processing facilities, including those of our co-manufacturers, are subject to periodic inspection
by federal, state and local authorities. We do not control the manufacturing processes of, and rely upon, our co-manufacturers for compliance with cGMPs for the manufacturing of our products that is conducted by our co-manufacturers. If we or our co-manufacturers cannot successfully manufacture products that conform to our specifications and the strict regulatory requirements of the FDA or others, we or they may be subject to adverse inspectional findings or enforcement actions, which could materially impact our ability to market our products, could result in our co-manufacturers’ inability to continue manufacturing for us, or could result in a recall of our product that has already been distributed. In addition, we rely upon our co-manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority determines that we or these co-manufacturers have not complied with the applicable regulatory
requirements, our business may be materially impacted.
We seek to comply with applicable regulations through a combination of employing internal experience and expert personnel to ensure quality-assurance compliance (i.e., assuring that our products are not adulterated or misbranded) and contracting with third-party laboratories that conduct analyses of products to ensure compliance with nutrition labeling requirements and to identify any potential contaminants before distribution. Failure by us or our co-manufacturers to comply with applicable laws and regulations or maintain permits, licenses or registrations relating to our or our co-manufacturers’ operations could subject us to civil remedies or penalties, including fines, injunctions, recalls or seizures, warning letters, restrictions on the marketing or manufacturing of products, or refusals to permit the import or export of products, as well as potential criminal sanctions,
which could result in increased operating costs resulting in a material effect on our operating results and business. See “Business—Government Regulation.”
Changes in existing laws or regulations, or the adoption of new laws or regulations may increase our costs and otherwise adversely affect our business, results of operations and financial condition.
The manufacture and marketing of food products is highly regulated. We, our suppliers and co-manufacturers are subject to a variety of laws and regulations. These laws and regulations apply to many aspects of our business, including the manufacture, packaging, labeling, distribution, advertising, sale, quality and safety of our products, as well as the health and safety of our employees and the protection of the environment.
In the United States, we are subject to regulation by various
government agencies, including the FDA, Federal Trade Commission, or FTC, Occupational Safety and Health Administration and the Environmental Protection Agency, as well as various state and local agencies. We are also regulated outside the United States by various international regulatory bodies. In addition, we are subject to certain standards, such as Global Food Safety Initiative, or GFSI, standards and review by voluntary organizations, such as the Council of Better Business Bureaus’ National Advertising Division. We could incur costs, including fines, penalties and third-party claims, because of any violations of, or liabilities under, such requirements, including any competitor or consumer challenges relating to compliance with such requirements. For example, in connection with the marketing and advertisement of our products, we
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could
be the target of claims relating to false or deceptive advertising, including under the auspices of the FTC and the consumer protection statutes of some states.
The regulatory environment in which we operate could change significantly and adversely in the future. Any change in manufacturing, labeling or packaging requirements for our products may lead to an increase in costs or interruptions in production, either of which could adversely affect our operations and financial condition. New or revised government laws and regulations could result in additional compliance costs and, in the event of non-compliance, civil remedies, including fines, injunctions, withdrawals, recalls or seizures and confiscations, as well as potential criminal sanctions, any of which may adversely affect our business, results of operations and financial condition. In particular, recent federal and state attention to the naming of plant-based meat products
could result in standards or requirements that mandate changes to our current labeling.
Any changes in applicable laws, regulations or policies of the FDA or U.S. Department of Agriculture, or USDA, or state regulators that relate to the use of the word “meat” in connection with plant-based protein products could adversely affect our business, prospects, results of operations or financial condition.
The FDA and the USDA or state regulators could take action to impact our ability to use the term “meat” or similar words (such as “beef”) to describe our products. For example, the state of Missouri recently passed a law prohibiting any person engaged in advertising, offering for sale, or sale of food products from misrepresenting a product as meat that is not derived from harvested production livestock or poultry. While the state of Missouri Department of Agriculture
clarified its interpretation that products which include prominent disclosure that the product is “made from plants,” or comparable disclosure such as through the use of the phrase “plant-based,” are not misrepresented under the Missouri law, other regulators could always take a different position.
In addition, a food may be deemed misbranded if its labeling is false or misleading in any particular way, and the FDA or other regulators could interpret the use of the term “meat” or any similar phrase(s) to describe our plant-based protein products as false or misleading. Recently, the FDA announced that it will reexamine its enforcement of the standard of identity for milk, the official definition of which involves “lacteal secretion,” which may result in the restriction of the use of the term “milk” to only those products that are animal-based (we note there is no comparable FDA standard of
identity for “meat” or other terms that we use to label our products). The USDA has also received a petition from industry requesting that the USDA exclude products not derived from the tissue or flesh of animals that have been harvested in the traditional manner from being labeled and marketed as “meat,” and exclude products not derived from cattle born, raised and harvested in the traditional manner from being labeled and marketed as “beef.” The USDA has not yet responded substantively to this petition, but has indicated that the petition is being considered as a petition for a policy change under the USDA’s regulations. We do not believe that USDA has the statutory authority to regulate plant-based products under the current legislative framework. However, should regulatory authorities take action with respect to the use of the term “meat” or similar terms, such that we are unable to use those terms with respect to our plant-based products,
we could be subject to enforcement action or recall of our products marketed with these terms, we may be required to modify our marketing strategy, and our business, prospects, results of operations or financial condition could be adversely affected.
Failure by our suppliers of raw materials or co-manufacturers to comply with food safety, environmental or other laws and regulations, or with the specifications and requirements of our products, may disrupt our supply of products and adversely affect our business.
If our suppliers or co-manufacturers fail to comply with food safety, environmental or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. Additionally, our co-manufacturers are required to maintain the quality of our products and to comply with our product specifications. In the event of actual or alleged non-compliance,
we might be forced to find an alternative supplier or co-manufacturer and we may be subject to lawsuits related to such non-compliance by our
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suppliers and co-manufacturers. As a result, our supply of raw materials or finished inventory could be disrupted or our costs could increase, which would adversely affect our business, results of operations and financial condition. The failure of any co-manufacturer to produce products that conform to our standards could adversely affect our reputation in the marketplace and result in product recalls, product liability claims and economic loss. For example, some of our co-manufacturers also process products with textured vegetable protein, a GMO product, and while we require them to process our products in separate
designated quarters in their facilities, cross-contamination may occur and result in genetically modified organisms in our supply chain. Additionally, actions we may take to mitigate the impact of any disruption or potential disruption in our supply of raw materials or finished inventory, including increasing inventory in anticipation of a potential supply or production interruption, may adversely affect our business, results of operations and financial condition.
Risks Related To Our Intellectual Property
We may not be able to protect our proprietary technology adequately, which may impact our commercial success.
Our commercial success depends in part on our ability to protect our intellectual property and proprietary technologies. We rely on a combination of patent protection, where appropriate and available, copyrights, trade secrets
and trademarks laws, as well as confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our proprietary technology or permit us to gain or keep any competitive advantage. As of March 30, 2019, we had one issued U.S. patent and 21 pending patent applications, including eight in the United States and 13 international patent applications.
We cannot offer any assurances about which, if any, patents will issue from these applications, the breadth of any such patents, or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or, if applicable in the future, licensed to us could deprive us of rights necessary for the successful commercialization
of products that we may develop. Since patent applications in the United States and most other countries are confidential for a period of time after filing (in most cases 18 months after the filing of the priority application), we cannot be certain that we were the first to file on the technologies covered in several of the patent applications related to our technologies or products. Furthermore, a derivation proceeding can be provoked by a third party, or instituted by the U.S. Patent and Trademark Office, or USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.
Patent law can be highly uncertain and involve complex legal and factual questions for which important principles remain unresolved. In the United States and in many international jurisdictions, policy regarding the breadth of claims allowed in patents can be inconsistent and/or unclear. The U.S.
Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, international courts and governments have made, and will continue to make, changes in how the patent laws in their respective countries are interpreted. We cannot predict future changes in the interpretation of patent laws by U.S. and international judicial bodies or changes to patent laws that might be enacted into law by U.S. and international legislative bodies.
Moreover, in the United States, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, enacted in September 2011, brought significant changes to the U.S. patent system, including a change from a “first to invent” system to a “first to file” system. Other changes in the Leahy-Smith Act affect the way patent applications are prosecuted, redefine prior art and
may affect patent litigation. The USPTO developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act became effective on March 16, 2013. The Leahy-Smith Act and its implementation could increase the uncertainties and costs
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surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, which could have a material adverse effect on our business and financial condition.
We may not be able to protect our intellectual property adequately, which may harm the value of our brand.
We
believe that our intellectual property has substantial value and has contributed significantly to the success of our business. Our trademarks, including The Beyond Burger, Beyond Beef, Beyond Chicken, Beyond Meat, Beyond Sausage, The Cookout Classic, The Future of Protein and The Future of Protein Beyond Meat, are valuable assets that reinforce our brand and consumers’ favorable perception of our products. We also rely on unpatented proprietary expertise, recipes and formulations and other trade secrets and copyright protection to develop and maintain our competitive position. Our continued success depends, to a significant degree, upon our ability to protect and preserve our intellectual property, including our trademarks, trade dress, trade secrets and copyrights. We rely on confidentiality agreements and trademark, trade secret and copyright law to protect our intellectual property rights.
Our confidentiality agreements
with our employees and certain of our consultants, contract employees, suppliers and independent contractors, including some of our co-manufacturers who use our formulations to manufacture our products, generally require that all information made known to them be kept strictly confidential. Nevertheless, trade secrets are difficult to protect. Although we attempt to protect our trade secrets, our confidentiality agreements may not effectively prevent disclosure of our proprietary information and may not provide an adequate remedy in the event of unauthorized disclosure of such information. In addition, others may independently discover our trade secrets, in which case we would not be able to assert trade secret rights against such parties. Further, some of our formulations have been developed by or with our suppliers and co-manufacturers. As a result, we may not be able to prevent
others from using similar formulations.
We cannot assure you that the steps we have taken to protect our intellectual property rights are adequate, that our intellectual property rights can be successfully defended and asserted in the future or that third parties will not infringe upon or misappropriate any such rights. In addition, our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could prevent us in the future from challenging third parties who use names and logos similar to our trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of our brand and products. In addition, if we do not keep our trade secrets confidential, others may produce products with our recipes or formulations. Moreover, intellectual property disputes and proceedings and infringement claims may result in a
significant distraction for management and significant expense, which may not be recoverable regardless of whether we are successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others. Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition.
Risks Related To Being a Public Company
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce
accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. The rapid growth of our operations and the planned initial public offering has created a need for additional resources within the accounting and finance functions due to the increasing need to produce timely financial information and to ensure the level of segregation of duties customary for a U.S. public company. We have hired additional resources in the accounting and finance
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function and continue to reassess the sufficiency of finance personnel in response to these increasing demands and expectations.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.
Commencing with our second annual
report on Form 10-K that we will file after becoming a public reporting company, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes Oxley Act. We expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404. We cannot be certain that the actions we will be taking to improve our internal controls over financial reporting will be sufficient, or that we will be able to implement our planned processes and procedures in a timely manner. In addition, if we are unable to produce accurate financial statements on a timely basis, investors could lose confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and
make it more difficult for us to finance our operations and growth.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that have not made this election.
For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions
from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (i) the last day of the year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of the year following the fifth anniversary of the date of
the closing of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform
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and Consumer Protection Act, or the Dodd-Frank Act,
the listing requirements of the Nasdaq Global Market on which our common stock will be traded and other applicable securities rules and regulations. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. We will need to institute a comprehensive compliance function and establish internal policies to ensure we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis and establish an investor relations function. Compliance with these rules and regulations may
cause us to incur additional accounting, legal and other expenses that we did not incur as a private company. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under securities laws, as well as rules and regulations implemented by the SEC and the Nasdaq Global Market, particularly after we are no longer an “emerging growth company.” We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, while also diverting some of management’s time and attention from revenue-generating activities. Furthermore, these rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Risks Related to this Offering and Ownership of Our Common Stock
No public market for our common stock currently exists, and an active trading market may not develop or be sustained following this offering.
Prior to this offering, there has been no public market for our common stock. Although we have applied to list our common stock on the Nasdaq Global Market, an active trading market may not develop following the closing of this offering
or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. The initial public offering price was determined by negotiations between us and the underwriters and may not be indicative of the future prices of our common stock.
Our share price may be volatile, and you may be unable to sell your shares at or above the offering price.
The market price of our common stock is likely to be volatile and could be subject to wide fluctuations in response to many
risk factors listed in this section, and others beyond our control, including:
•
actual or anticipated fluctuations in our financial condition and operating results, including fluctuations in our quarterly and annual results;
•
announcements of innovations by us or our competitors;
•
overall conditions in
our industry and the markets in which we operate;
•
market conditions or trends in the packaged food sales industry or in the economy as a whole;
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•
addition or loss of significant customers or other developments with respect to significant customers;
•
changes
in laws or regulations applicable to our products;
•
actual or anticipated changes in our growth rate relative to our competitors;
•
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
•
additions or departures
of key personnel;
•
competition from existing products or new products that may emerge;
•
issuance of new or updated research or reports by securities analysts;
•
fluctuations in the valuation of companies perceived by investors to be comparable to us;
•
disputes
or other developments related to proprietary rights, including patents, and our ability to obtain intellectual property protection for our products;
•
litigation matters;
•
announcement or expectation of additional financing efforts;
•
sales of our common stock by us or our stockholders;
•
share
price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
•
the expiration of contractual lock-up agreements with our executive officers, directors and stockholders; and
•
general economic and market conditions.
Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have
been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Future
sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause the stock price of our common stock to decline.
We may issue additional securities following the closing of this offering. In the future, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. We also expect to issue common stock to employees, consultants and directors pursuant to our equity incentive plans. If we sell common stock, convertible securities or other equity securities in subsequent transactions, or common stock is issued pursuant to equity incentive plans, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges
senior to those of holders of our common stock.
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Future sales of our common stock in the public market could cause our share price to fall.
Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Based on 48,683,044 shares of common stock outstanding as of March 30, 2019, which assumes the automatic conversion of all of our preferred stock on a one-for-one basis upon the
closing of this offering into 41,562,111 shares of common stock, upon the closing of this offering, we will have 58,308,044 shares of common stock outstanding (or 59,751,794 shares if the option to purchase additional shares is exercised in full).
All of the common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act and any shares sold to our directors or officers pursuant to our directed share program. The remaining shares of common stock outstanding after this offering will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus, subject to certain extensions. See also the section of this prospectus
captioned “Shares Eligible For Future Sale.”
The underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements with the underwriters prior to expiration of the lock-up period. For more information regarding the lock-up agreements with the underwriters see the section of this prospectus captioned “Underwriting.”
The holders of 41,562,111 shares of common stock, or 71% (or 70% if the option to purchase additional shares is exercised in full) of shares of common stock outstanding upon the closing of this offering (based on shares outstanding as of March 30, 2019 and after giving effect to the automatic conversion of all of our preferred stock upon the closing of this offering into shares of common stock on a one-for-one basis) will be entitled to rights with respect
to registration of such shares under the Securities Act pursuant to a registration rights agreement between such holders and us. See “Description of Capital Stock—Registration Rights” below. If such holders, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our common stock. We intend to file a registration statement on Form S-8 under the Securities Act to register the shares subject to outstanding stock options and unvested restricted stock under the 2011 Plan and shares of common stock reserved for issuance under our 2018 Plan and 2018 Employee Stock Purchase Plan, which as of March 30, 2019 totaled 10,368,818 shares. The 2018 Plan and the 2018 Employee Stock Purchase Plan will provide for automatic increases in the shares reserved for grant or issuance
under the plan which could result in additional dilution to our stockholders. Once we register the shares under these plans, they can be freely sold in the public market upon issuance and vesting, subject to a 180-day lock-up period and other restrictions provided under the terms of the applicable plan and/or the award agreements entered into with participants.
Our management has broad discretion in the use of the net proceeds from this offering and may not use the net proceeds effectively.
Our management will have broad discretion in the application of the net proceeds of this offering. We cannot specify with certainty the uses to which we will apply these net proceeds. The failure by our management to apply these funds effectively could adversely affect our ability to continue maintaining and expanding our business.
If securities
or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets,
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which in turn could cause our stock price or trading volume to decline. Moreover, if our operating results do not meet the expectations of the investor community,
one or more of the analysts who cover our company may change their recommendations regarding our company, and our stock price could decline.
If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution.
The offering price of our common stock is substantially higher than the net tangible book value per share of our common stock, which on a pro forma basis was $1.63 per share of our common stock as of December 31, 2018. As a result, you will incur immediate and substantial dilution in net tangible book value when you buy our common stock in this offering. This means that you will pay a higher price per share than
the amount of our total tangible assets, less our total liabilities, divided by the number of shares of common stock outstanding. In addition, you may also experience additional dilution if options or other rights to purchase our common stock that are outstanding or that we may issue in the future are exercised or converted or we issue additional shares of our common stock at prices lower than our net tangible book value at such time. See “Dilution.”
We have never paid dividends on our capital stock and we do not intend to pay dividends for the foreseeable future. Consequently, any gains from an investment in our common stock will likely depend on whether the price of our common stock increases.
We have never declared or paid any dividends on our common stock and do not intend to pay any dividends in the foreseeable future. We anticipate that we will retain all of our future
earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. Furthermore, we are party to a credit agreement with Silicon Valley Bank which contains negative covenants that limit our ability to pay dividends. For more information, see the section of this prospectus captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
Our amended and restated certificate
of incorporation and our amended and restated bylaws will contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
•
providing for a classified board of directors with staggered, three-year terms;
•
authorizing
our board of directors to issue preferred stock with voting or other rights or preferences that could discourage a takeover attempt or delay changes in control;
•
prohibiting cumulative voting in the election of directors;
•
providing that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
•
prohibiting
the adoption, amendment or repeal of our amended and restated bylaws or the repeal of the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors without the required approval of at least 66.67% of the shares entitled to vote at an election of directors;
•
prohibiting stockholder action by written consent;
•
limiting
the persons who may call special meetings of stockholders; and
39
•
requiring advance notification of stockholder nominations and proposals.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, the provisions of Section 203 of the Delaware General Corporate Law, or the DGCL, govern
us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent of our board of directors.
These and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the price investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions. For more information, see the section of this prospectus captioned “Description of Capital Stock—Anti-Takeover Effects of Certain
Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and Our Amended and Restated Bylaws.”
Insiders have substantial control over us and will be able to influence corporate matters.
Our directors and executive officers and their affiliates will beneficially own, in the aggregate, approximately 16% of our outstanding capital stock upon the closing of this offering (based upon shares outstanding as of March 30, 2019 and assuming the conversion of preferred stock into common stock upon the closing of this offering and excluding any shares purchased in our directed share program).
As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit stockholders’ ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.
Our amended and restated certificate of incorporation that will become effective immediately prior to the closing of this offering provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for
substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation that will become effective immediately prior to the closing of this offering provides that the Court of Chancery of the State of Delaware is the exclusive forum for:
•
any derivative action or proceeding brought on our behalf;
•
any
action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers, employees or agents or our stockholders;
•
any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws; and
•
any
action asserting a claim against us that is governed by the internal-affairs doctrine;
provided, that with respect to any derivative action or proceeding brought on our behalf to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder, the exclusive forum will be the federal district courts of the United States of America. Our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
40
These
exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. For example, the Court of Chancery of the State of Delaware recently determined that the exclusive forum provision of federal district courts of the United States of America for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However,
this decision may be reviewed and ultimately overturned by the Delaware Supreme Court. If the Court of Chancery’s decision were to be overturned, we would enforce the federal district court exclusive forum provision in our amended and restated certificate of incorporation.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case
to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:
•
we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the
registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;
•
we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
•
we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person
is not entitled to indemnification;
•
we will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification;
•
the rights conferred in our amended and restated bylaws
are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
•
we may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
Our ability to utilize our federal net operating loss and tax credit carryforwards may be limited under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code.
The limitations
apply if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. If we have experienced an ownership change at any time since our incorporation, we may already be subject to limitations on our ability to utilize our existing net operating losses and other tax attributes to offset taxable income. In addition, future changes in our stock ownership, which may be
41
outside of our control, may trigger an ownership change and, consequently, Section 382 and 383 limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, if we earn net taxable
income, our ability to use our pre-change net operating loss carryforwards and other tax attributes to offset such taxable income may be subject to limitations, which could potentially result in increased future income tax liability to us.
42
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus 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, statements about:
•
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 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 FDA governmental regulation and state regulation;
•
changes in laws, regulations or policies of governmental agencies or regulators relating to the labeling of our products;
•
the impact of adverse economic conditions;
43
•
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; and
•
our, our suppliers’ and our co-manufacturers’ ability to protect our proprietary
technology and intellectual property adequately.
In addition, in this prospectus, the words “believe,”“may,”“will,”“estimate,”“continue,”“anticipate,”“intend,”“expect,”“predict,”“potential” and similar expressions, as they relate to our company, our business and our management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
Forward-looking statements speak only as of the date of this prospectus. 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.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
44
USE
OF PROCEEDS
We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $ 210.0 million, assuming an initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease our net proceeds from this offering by approximately $9.0
million, assuming that the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease our net proceeds from this offering by approximately $22.3 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions payable by us. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.
We currently
estimate that we will use the net proceeds from this offering, plus cash on hand, as follows:
•
$40 million to $50 million to invest in current and additional manufacturing facilities;
•
$50 million to $60 million to expand our research and development and our sales and marketing capabilities; and
•
Any
proceeds not applied to the foregoing will be used for working capital and general corporate purposes, including funding our operations and to potentially repay indebtedness.
A portion of our net proceeds may also be used to fund potential acquisitions of, or investments in, complementary technologies or businesses, although we have no present commitments or agreements to enter into any such acquisitions or to make any such investments.
This expected use of the net proceeds from this offering and our existing cash and our cash equivalents and short-term investments represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the proceeds to be received upon the closing
of this offering or the actual amounts that we will spend on the uses set forth above. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
45
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business
and do not anticipate paying any cash dividends in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, and other factors that our board of directors may deem relevant. In addition, the terms of our current credit facilities contain restrictions on our ability to declare and pay cash dividends.
46
CAPITALIZATION
The following table sets forth our cash and capitalization as of December
31, 2018, after giving effect to the 3-for-2 reverse stock split of our capital stock on January 2, 2019, on:
•
an actual basis;
•
a pro forma basis, to give effect to (i) the conversion of all outstanding shares of our convertible preferred stock on a one-for-one basis into 41,562,111 shares of our common stock upon the closing of this offering; (ii) the resulting reclassification of warrant liability to additional
paid-in capital with respect to a convertible Series B preferred stock warrant; and (iii) the effectiveness of our amended and restated certificate of incorporation prior to the closing of this offering; and
•
a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of shares of our common stock by us in this offering, based upon the assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting
estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering. You should read this table together with the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”“Use of Proceeds,”“Selected Financial Data,” and our audited financial statements for the years ended December 31, 2016, 2017 and 2018 and related notes included elsewhere in this prospectus.
Convertible preferred stock, par value $0.0001 per share (43,882,867 shares authorized; 41,562,111 shares issued and outstanding; pro forma and
pro forma as adjusted: no shares authorized, issued and outstanding)
$
199,540
$
—
$
—
Stockholders’ (deficit) equity:
Preferred
stock, par value $0.0001 per share (no shares authorized, issued and outstanding; pro forma and pro forma as adjusted: 500,000 shares authorized and no shares issued and outstanding)
—
—
—
Common stock par value $0.0001 per share (58,669,600 shares authorized, 6,951,350 shares issued and outstanding; pro forma: 500,000,000 shares authorized, 48,513,461 shares
issued and outstanding; and pro forma as adjusted: 58,308,044 shares issued and outstanding):
1
5
6
Additional paid-in capital
7,921
208,607
417,891
Accumulated
deficit
(129,672
)
(129,672
)
(129,672
)
Total stockholders’ (deficit) equity
$
(121,750
)
$
78,940
$
288,225
Total
capitalization
$
110,096
$
110,096
$
319,381
___________________
(1)
Each $1.00 increase or decrease in the assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our cash, cash equivalents and short-term investments, working capital, total assets and total stockholders’ equity and total capitalization by approximately $9.0 million, assuming that the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease the amount of our cash, total assets and total stockholders’ equity by approximately $22.3 million, assuming an initial public offering price
of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions payable by us.
The total number of shares of our common stock reflected in the discussion and table above excludes:
•
warrants to purchase 121,694 shares of our Series B convertible preferred stock at $1.07 per share and 39,073 shares of our Series E convertible preferred stock at $3.68 per share, all of which will automatically convert into warrants to purchase an aggregate of 160,767 shares of common stock upon the closing of this offering;
•
warrants
to purchase 60,002 shares of common stock at $3.00 per share;
•
4,900,328 shares of common stock issuable upon exercise of stock options outstanding as of March 30, 2019, having a weighted-average exercise price of $3.15 per share;
48
•
as of March
30, 2019, (a) 4,577,114 shares of common stock reserved for future grant or issuance under our the 2018 Plan, from which (i) options to purchase 264,033 shares of our common stock were granted on April 3, 2019, having an exercise price of $20.02 per share, (ii) options to purchase (A) 1,000,000 shares of our common stock were granted on April 18, 2019, (B) 51,999 shares of our common stock were granted on April 29, 2019, and (C) 50,000 shares of our common stock will be granted, in each case to be effective upon and subject to the effectiveness of the registration statement of which this prospectus forms a part and having an exercise price equal to the initial public offering price of our common stock in this offering, and (iii) awards covering
99,433 shares of restricted stock were granted on April 18, 2019 at a purchase price of $0.01 per share and which will be issued upon payment of the purchase price, plus (b) shares that will automatically be added to the share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans”; and
•
804,195 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, plus shares that will automatically be added to the share reserve each year, as more fully described in “Executive Compensation—Employee Stock Purchase Plan.”
49
DILUTION
If
you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our historical net tangible book value (deficit) as of December 31, 2018 was $(121.8) million, or $(17.52) per share of common stock. Our net tangible book value per share represents total tangible assets less total liabilities and convertible preferred stock, divided by the number of shares of common stock outstanding as of December 31, 2018 after giving effect to the 3-for-2 reverse stock split of our capital stock on January 2, 2019. Our pro forma net tangible book value at December
31, 2018, before giving effect to this offering but after giving effect to the 3-for-2 reverse stock split of our capital stock on January 2, 2019, was $78.9 million, or $1.63 per share of our common stock. Our pro forma net tangible book value before the issuance of shares in this offering gives effect to (i) the conversion of our outstanding convertible preferred stock into our common stock upon the closing of this offering, and (ii) the related reclassification of warrant liability to additional paid-in capital with respect to a convertible Series B preferred stock warrant.
After giving effect to our sale of 9,625,000 shares of our common stock in this offering at an assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering
price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions payable by us, our pro forma as adjusted net tangible book value as of December 31, 2018, after giving effect to the 3-for-2 reverse stock split of our capital stock on January 2, 2019, would have been $292.1 million, or $5.01 per share. This represents an immediate increase in net tangible book value of $3.38 per share to our existing stockholders and an immediate dilution of $18.99 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution on a per share basis:
Assumed
initial public offering price per share
$
24.00
Historical net tangible book value (deficit) per share as of December 31, 2018
$
(17.52
)
Pro
forma increase in net tangible book value per share attributable to conversion of convertible preferred stock and preferred warrants and proceeds from additional preferred stock financing
19.15
Pro forma net tangible book value per share as of December 31, 2018 before giving effect to this offering
1.63
Increase
in net tangible book value per share attributable to new investors purchasing shares in this offering
3.38
Pro forma as adjusted net tangible book value per share after giving effect to this offering
5.01
Dilution in pro forma net tangible book value per share to new
investors in this offering
$
18.99
Each $1.00 increase or decrease in the assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $9.0 million, or approximately $ 0.15 per share, and would increase
or decrease, as applicable, dilution per share to new investors in this offering by $ 0.85 , assuming that the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $22.3 million, or approximately $0.29 per share, and would increase or decrease, as applicable, dilution per share to new investors in this offering by approximately $(0.29) per share, assuming an initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover
page
50
of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share would be $ 5.43 per share, and the dilution per share to new investors in this offering would be $ 18.57 per share.
The following table summarizes the pro forma on an as
adjusted basis as described above, as of December 31, 2018, the differences between the existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid or to be paid to us at an assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares
purchased
Total consideration
Weighted Average price per share
Number
Percent
Amount
Percent
Existing
stockholders
48,513,461
83.4%
$
206,233,630
47.2%
$
4.25
New
investors
9,625,000
16.6
231,000,000
52.8
24.00
Total
58,138,461
100.0
%
$
437,233,630
100.0
%
If the underwriters exercise their option to purchase additional shares in full, the percentage of shares of our common stock held by existing stockholders would be 81.4% and the percentage of shares of our common stock held by new investors would be 18.6%.
Each $1.00 increase or decrease in the assumed initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid to us by new investors and total consideration paid to us by all stockholders by $9.0 million, assuming that the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting
estimated underwriting discounts and commissions payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease the total consideration paid to us by new investors and total consideration paid to us by all stockholders by $22.3 million, assuming an initial public offering price of $24.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us.
Assuming the exercise of all of our options outstanding as of December 31, 2018, the amounts set forth in the table immediately above would change as follows:
Shares
purchased
Total consideration
Weighted Average price per share
Number
Percent
Amount
Percent
Existing
stockholders
53,633,754
84.8%
$
222,250,442
49.0%
$
4.14
New
investors
9,625,000
15.2
231,000,000
51.0
24.00
Total
63,258,754
100.0
%
$
453,250,442
100.0
%
If the underwriters exercise their option to purchase additional shares in full, the percentage of shares of our common stock held by existing stockholders would be 82.9% and the percentage of shares of our common stock held by new investors would be 17.1%.
51
The total number of shares of our common stock reflected in the discussion and tables above excludes:
•
warrants to purchase 121,694 shares of our Series B convertible preferred stock at $1.07 per share and 39,073 shares of our Series E convertible
preferred stock at $3.68 per share, all of which will automatically convert into warrants to purchase an aggregate of 160,767 shares of common stock upon the closing of this offering;
•
warrants to purchase 60,002 shares of common stock at $3.00 per share;
•
as of March 30, 2019, (a) 4,577,114 shares of common stock reserved for future grant or issuance under the 2018 Plan, from which
(i) options to purchase 264,033 shares of our common stock were granted on April 3, 2019, having an exercise price of $20.02 per share, (ii) options to purchase (A) 1,000,000 shares of our common stock were granted on April 18, 2019, (B) 51,999 shares of our common stock were granted on April 29, 2019, and (C) 50,000 shares of our common stock will be granted, in each case to be effective upon and subject to the effectiveness of the registration statement of which this prospectus forms a part and having an exercise price equal to the initial public offering price of our common stock in this offering, and (iii) awards covering 99,433 shares of restricted stock were granted on April 18, 2019 at a purchase price of $0.01 per share
and which will be issued upon payment of the purchase price, plus (b) shares that will automatically be added to the share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans”; and
•
804,195 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, plus shares that will be automatically added to the share reserve each year, as more fully described in “Executive Compensation—Employee Stock Purchase Plan.”
To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans
or we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering.
52
SELECTED FINANCIAL DATA
The following tables set forth our selected financial data for the periods and at the dates indicated. The statement of operations data for the years ended December 31, 2016, 2017 and 2018 and the balance sheet data as of December 31, 2017
and 2018 have been derived from our audited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future periods. You should read the following financial information together with the information under “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
Year
Ended December 31,
(in thousands, except share and per share data)
2016
2017
2018
Statements of Operations Data:
Net
revenues
$
16,182
$
32,581
$
87,934
Cost of goods sold
22,494
34,772
70,360
Gross
(loss) profit
(6,312
)
(2,191
)
17,574
Research and development expenses
5,782
5,722
9,587
Selling,
general and administrative expenses
12,672
17,143
34,461
Restructuring expenses
—
3,509
1,515
Total
operating expenses
18,454
26,374
45,563
Loss from operations
(24,766
)
(28,565
)
(27,989
)
Other
expense:
Interest expense
(380
)
(1,002
)
(1,128
)
Other,
net
—
(812
)
(768
)
Total other expense, net
(380
)
(1,814
)
(1,896
)
Loss
before income taxes
(25,146
)
(30,379
)
(29,885
)
Income tax expense
3
5
1
Net
loss
$
(25,149
)
$
(30,384
)
$
(29,886
)
Net loss per common share—basic and diluted(1)
$
(5.51
)
$
(5.57
)
$
(4.75
)
Weighted
average shares of common stock outstanding—basic and diluted(2)
4,566,757
5,457,629
6,287,172
Balance Sheet Data:
December
31,
(in thousands)
2017
2018
Cash and cash equivalents
$
39,035
$
54,271
Working capital(3)
39,819
77,659
Property,
plant and equipment, net
14,118
30,527
Total assets
66,463
133,749
Total debt
4,915
30,388
Stock
warrant liability
550
1,918
Convertible preferred stock
148,194
199,540
Stockholders’ deficit
(95,913
)
(121,750
)
53
___________________
(1)
For
the calculation of basic and diluted income (loss) per share, see note 11 to our financial statements included elsewhere in this prospectus. All common and per share amounts have been adjusted retrospectively to reflect the reverse split.
(2)
All common share amounts have been adjusted retrospectively to reflect the reverse split.
(3)
Working capital is defined as total current assets, including cash, minus total current liabilities.
Other Financial Data:
Year
Ended December 31,
(in thousands, except percentages)
2016
2017
2018
Adjusted EBITDA(1)
$
(21,957
)
$
(17,557
)
$
(19,312
)
Depreciation
and amortization
$
2,074
$
3,181
$
4,921
Capital expenditures
$
(4,955
)
$
(7,908
)
$
(22,228
)
Gross
margin
(39.0
)%
(6.7
)%
20.0
%
___________________
(1)
Adjusted EBITDA is a financial measure that is not calculated in accordance with U.S. GAAP.
We define adjusted EBITDA as net loss adjusted to exclude, when applicable, income tax expense, interest expense, depreciation and amortization expense, restructuring expenses, share-based compensation expense, inventory losses from termination of exclusive supply agreement with a co-manufacturer and costs of termination of an exclusive supply agreement with the same co-manufacturer.
Non-GAAP Financial Measures
We include adjusted EBITDA in this prospectus because it is an important measure upon which our management assesses our operating performance. We use adjusted EBITDA as a key performance measure because we believe this measure facilitates operating performance comparison from period-to-period by excluding potential differences primarily caused by the impact of restructuring, asset depreciation and amortization, non-cash share-based compensation and non-operational
charges including the impact to cost of goods sold and selling, general and administrative expenses related to the termination of an exclusive co-manufacturing agreement, early extinguishment of convertible notes and remeasurement of warrant liability. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use it for our business planning purposes. In addition, we believe adjusted EBITDA is widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of our operational performance.
Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. There are a number of limitations related to the use
of adjusted EBITDA rather than net loss, which is the most directly comparable U.S. GAAP measure. Some of these limitations are:
•
adjusted EBITDA excludes depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future increasing our cash requirements;
•
adjusted EBITDA does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us;
•
adjusted
EBITDA does not reflect income tax payments that reduce cash available to us;
•
adjusted EBITDA does not reflect restructuring expenses that reduce cash available to us;
•
adjusted EBITDA does not reflect share-based compensation expenses and therefore does not include all of our compensation costs;
54
•
adjusted
EBITDA does not reflect other income (expense) that may increase or decrease cash available to us; and
•
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, we consider, and you should consider, adjusted EBITDA with other operating and financial performance measures presented in accordance with U.S. GAAP. Below we have provided a reconciliation of adjusted EBITDA to net loss, as reported, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP,
for each of the periods presented.
The following table presents the reconciliation of adjusted EBITDA to its most comparable U.S. GAAP measure, net loss, as reported:
Year Ended December 31,
(in thousands)
2016
2017
2018
Net
loss, as reported
$
(25,149
)
$
(30,384
)
$
(29,886
)
Income tax expense
3
5
1
Interest
expense
380
1,002
1,128
Depreciation and amortization expense
2,074
3,181
4,921
Restructuring
expenses(1)
—
3,509
1,515
Inventory losses from termination of exclusive supply agreement(2)
—
2,440
—
Costs
of termination of exclusive supply agreement(3)
—
1,213
—
Share-based compensation expense
735
665
2,241
Other,
net(4)
—
812
768
Adjusted EBITDA
$
(21,957
)
$
(17,557
)
$
(19,312
)
___________________
(1)
In
connection with the termination of an exclusive supply agreement with a co-manufacturer in May 2017, we recorded restructuring expenses related to the impairment write-off of long-lived assets, primarily comprised of certain unrecoverable equipment located at the co-manufacturer’s site and company-paid leasehold improvements to the co-manufacturer’s facility, and legal and other expenses associated with the dispute with the co-manufacturer. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business—Legal Proceedings” elsewhere in this prospectus.
(2)
Consists of additional charges related to inventory losses incurred as a result of termination of an exclusive supply agreement with
a co-manufacturer and is recorded in cost of goods sold.
(3)
Consists of additional charges incurred as a result of termination of an exclusive supply agreement with a co-manufacturer and is recorded in selling, general and administrative expenses.
(4)
Includes expenses primarily associated with the conversion of our convertible notes and remeasurement of our preferred stock warrant liability and common stock warrant liability.
55
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 “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus, as well as the information presented under “Selected Financial Data.”
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 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 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.
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 (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.
We have experienced strong sales growth over the past few years, increasing our net revenues from $16.2 million in 2016 to $87.9 million in 2018, representing a 133% compound
annual growth rate. The Beyond Burger is our flagship product and has been the focal point of our development and marketing efforts. In 2018, the Beyond Burger represented 70% of our gross revenues. We believe that sales of The Beyond Burger will continue to constitute a significant portion of our revenues, income and cash flow for the foreseeable future.
We have generated losses from inception. Net loss in 2016, 2017 and 2018 was $25.1 million, $30.4 million and $29.9 million, respectively, as we invested in innovation and growth of our business.
Going forward, we intend to continue to invest in innovation, supply chain capabilities, manufacturing and marketing initiatives as we believe
the demand for our products will continue to accelerate across both retail and foodservice channels as well as internationally.
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 merchandiser and natural retailers, as well as restaurants and other foodservice outlets mainly in the United States.
56
We
have experienced substantial growth in net revenues in the past three years. 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 106.5% in 2017 from $12.3 million in 2016 to $25.5 million in 2017 and by 99.2% to $50.8 million in 2018. Net revenues from sales in our restaurant and foodservice channel increased by 84.7% in 2017 from $3.8 million in 2016 to $7.1 million in 2017 and by 424.0% to $37.1 million in 2018. We expect
further growth in both channels as we increase our production capacity in response to demand.
We distribute our products internationally, using distributors in Australia, Chile, the European Union, Hong Kong, Ireland, Israel, the Middle East, New Zealand, South Korea, Taiwan and the United Kingdom. In 2017 and 2018, our international sales represented approximately 1% and 7%, respectively, of our gross revenues. 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 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.
57
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 (Loss) Profit
Gross (loss) profit consists of our net revenues less costs 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 have had to very quickly scale production and we have not 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 32.3 points from (39.0)% in 2016 to (6.7)% in 2017 and by 26.7 points to 20.0% in 2018. Gross margin benefited from an increase in the amount of product sold 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 substantially 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 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.
58
Selling, General and Administrative Expenses
Selling, general and administrative 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.
Selling, general and administrative expenses increased $4.5 million, or 35.3% from 2016 to 2017 primarily due to an increase in outbound freight expenses and an increase in headcount. Selling, general and administrative expenses increased $17.3 million,
or 101.0%, from 2017 to 2018 primarily due to increases in headcount, outbound freight, supply chain expenses, marketing and other professional services, travel and broker commissions. As a percentage of net revenues, selling, general and administrative expenses decreased from 78.3% in 2016 to 52.6% in 2017 and 39.2% in 2018. We expect selling, general and administrative 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 22 full-time sales employees as of March 30, 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 when we operate 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—Year Ended December 31, 2016 Compared to Year Ended December 31, 2017—Restructuring Expenses” for a discussion of these expenses.
Other, Net
Other, net includes expense primarily associated with the conversion of our convertible notes and remeasurement of our preferred stock warrant liability and common stock warrant liability. Our convertible notes have been fully converted into shares of our preferred stock.
59
Results
of Operations
The following table sets forth selected items in our statements of operations for the periods presented:
Year Ended December 31,
(in thousands)
2016
2017
2018
Net
revenues
$
16,182
$
32,581
$
87,934
Cost of goods sold
22,494
34,772
70,360
Gross
(loss) profit
(6,312
)
(2,191
)
17,574
Research and development expenses
5,782
5,722
9,587
Selling,
general and administrative expenses
12,672
17,143
34,461
Restructuring expenses
—
3,509
1,515
Total
operating expenses
18,454
26,374
45,563
Loss from operations
$
(24,766
)
$
(28,565
)
$
(27,989
)
The
following table presents selected items in our statements of operations as a percentage of net revenues for the respective periods presented:
Total
net revenues increased by $55.4 million, or 169.9%, from 2017 to 2018 primarily due to strong growth in sales volumes of products in our fresh platform across both our retail and our restaurant and foodservice channels, partially offset by a decrease in net revenues from the frozen platform.
Revenues from sales of products in our fresh platform increased $63.6 million, or 351.1%, primarily due to increases in sales of The Beyond Burger and Beyond Sausage. Net revenues from retail sales increased $25.3 million, or 99.2%, primarily due to increase in sales of The Beyond Burger. Net revenues from sales through our restaurant and foodservice channel
increased $30.1 million, or 424.0%, primarily due to increased sales of The Beyond Burger, which was being served in approximately 11,000 restaurant and foodservice outlets at the end of 2018, and due to increased sales of Beyond Sausage in 2018.
The following tables present volume of our products sold in pounds:
Year Ended December 31,
Change
(in
thousands)
2017
2018
Amount
Percentage
Retail:
Fresh
Platform
1,837
6,025
4,188
228.0
%
Frozen Platform
3,123
2,687
(436
)
(14.0
)
Total
4,960
8,712
3,752
75.6
%
Year
Ended December 31,
Change
(in thousands)
2017
2018
Amount
Percentage
Restaurant and foodservice:
Fresh
Platform
637
5,801
5,164
810.7
%
Frozen Platform
754
729
(25
)
(3.3
)
Total
1,391
6,530
5,139
369.4
%
61
Cost
of Goods Sold
Year Ended December 31,
Change
(in thousands)
2017
2018
Amount
Percentage
Cost
of goods sold
$
34,772
$
70,360
$
35,588
102.3
%
Total
cost of goods sold increased by $35.6 million, or 102.3%, from 2017 to 2018, primarily due to the increase in the sales volume of our products and from a 103% increase in manufacturing-related headcount to handle increased demand for our products. Cost of goods sold in 2017 includes $2.4 million in write-off of unrecoverable inventory related to the termination of an exclusive agreement with our co-manufacturer at the time. See “Business—Legal Proceedings” and Note 3 to our financial statements included in this prospectus for a description of the termination of this exclusive agreement.
Gross (Loss) Profit and Gross Margin
Year
Ended December 31,
Change
(in thousands)
2017
2018
Amount
Percentage
Gross (loss) profit
$
(2,191
)
$
17,574
$
19,765
N/A
Gross
margin
(6.7
)%
20.0
%
N/A
N/A
Gross loss in 2017 was $2.2 million compared to gross profit of $17.6 million in 2018, an improvement
of $19.8 million. The improvement in gross profit and gross margin was primarily due to an increase in the amount of product sold, resulting in the ability to leverage our fixed costs across a greater amount of revenue. The greater proportion of product revenues from our fresh platform also contributed to the improvement in margin, due to a higher net selling price per pound of products in our fresh versus frozen platform. As disclosed in Note 2 to our financial statements, elsewhere in this prospectus, we include outbound shipping and handling costs within selling, general and administrative expense. As a result, our gross profit and gross margin may not be comparable to other entities that present all shipping and handling costs as a component of cost of goods sold.
Research and Development Expenses
Year
Ended December 31,
Change
(in thousands)
2017
2018
Amount
Percentage
Research and development expenses
$
5,722
$
9,587
$
3,865
67.5
%
Research
and development expenses increased $3.9 million, or 67.5%, from 2017 to 2018. Research and development expenses increased primarily due to higher scale-up expenses and depreciation and amortization expense.
Selling, General and Administrative Expenses
Year Ended December 31,
Change
(in
thousands)
2017
2018
Amount
Percentage
Selling, general and administrative expenses
$
17,143
$
34,461
$
17,318
101.0
%
Selling,
general and administrative expenses increased by $17.3 million, or 101.0%, from 2017 to 2018. The increase was primarily due to $6.8 million in higher salaries and related expenses due to a 224% increase in headcount, $2.7 million in higher outbound freight expenses, $1.9 million in higher
62
supply chain expenses, $1.8 million in higher consulting and professional fees, $1.3 million in higher marketing services, $0.9 million in higher travel expenses, and $0.7 million in higher broker commissions in the year ended December 31, 2018 compared to the prior year. Selling,
general and administrative expenses in 2017 include $1.2 million primarily related to disputed fees resulting from the co-manufacturer’s failure to meet agreed upon minimum production and expedited outbound freight expenses we incurred for alternative arrangements after we terminated the exclusive supply agreement with this co-manufacturer.
Restructuring Expenses
As a result of the termination in May 2017 of an exclusive supply agreement with one of our co- manufacturers due to non-performance under the agreement, we recorded restructuring expenses of $3.5 million in 2017, of which $2.3 million were related to the impairment write-off of long-lived assets, comprised of certain unrecoverable equipment located at the co-manufacturer’s site and company-paid leasehold improvements to the
co-manufacturer’s facility pursuant to the agreement, and $1.2 million primarily related to legal and other expenses associated with the dispute. See Note 9 to the financial statements included elsewhere in this prospectus. In addition, we recorded $2.4 million in write-off of unrecoverable inventory held at the co-manufacturer’s site, which is included in cost of goods sold, and $1.2 million primarily related to disputed fees for not meeting the agreed upon minimum production and expedited outbound freight expenses, which are included in selling, general and administrative expenses in our statement of operations for the year ended December 31, 2017. In 2018, we recorded $1.5 million in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. See Note 3 to the financial statements included elsewhere in this prospectus. As of December
31, 2017 and 2018, there were no accrued unpaid liabilities associated with this contract termination, although we continue to incur legal fees in connection with our ongoing efforts to resolve this dispute. See “Business—Legal Proceedings” included elsewhere in this prospectus.
Income Tax Expense
For 2017 and 2018, we recorded income tax expense of $5,000 and $1,000, respectively. These amounts primarily consist of income taxes for state jurisdictions which have minimum tax requirements. No tax benefit was provided for losses incurred because those losses are offset by a full valuation allowance.
Total
net revenues increased by $16.4 million, or 101.3%, from 2016 to 2017 primarily due to strong growth in sales volumes of products in our fresh platform across both our retail and our restaurant and foodservice channels. Revenues from sales of products in our fresh platform increased $17.3 million, or 2,127.4%, primarily due to increases in sales of The Beyond Burger, which was first available commercially in the second quarter of 2016. Net revenues from retail sales increased by $13.1 million, or 106.5%, due primarily to the increase in sales of The Beyond Burger and modest growth in sales of products in our frozen platform. Net revenues from sales through our restaurant and foodservice channel increased $3.3 million, or 84.7%, primarily due to the national launch of The Beyond Burger, which resulted in it being served in approximately 10,000 restaurant and foodservice outlets.
The
following tables present volume of our products sold in pounds:
Year Ended December 31,
Change
(in thousands)
2016
2017
Amount
Percentage
Retail:
Fresh
Platform
90
1,837
1,747
1,941.1
%
Frozen Platform
2,940
3,123
183
6.2
Total
3,030
4,960
1,930
63.7
%
Year
Ended December 31,
Change
(in thousands)
2016
2017
Amount
Percentage
Restaurant and foodservice:
Fresh
Platform
18
637
619
3,438.9
%
Frozen Platform
932
754
(178
)
(19.1
)
Total
950
1,391
441
46.4
%
64
Cost
of Goods Sold
Year Ended December 31,
Change
(in thousands)
2016
2017
Amount
Percentage
Cost
of goods sold
$
22,494
$
34,772
$
12,278
54.6
%
Total
cost of goods sold increased by $12.3 million, or 54.6%, from 2016 to 2017, primarily due to the increase in the sales volume of our products. Cost of goods sold includes the write-off of discontinued product inventories totaling $1.2 million in 2016, principally from the discontinuation of one line of frozen products after production began, but before formal commercial launch. Cost of goods sold in 2017 includes $2.4 million in write-off of unrecoverable inventory related to the termination of an exclusive agreement with our co-manufacturer at the time. See “Business—Legal Proceedings” and Note 3 to our financial statements included in this prospectus for a description of the termination of this exclusive agreement.
Gross Loss
and Gross Margin
Year Ended December 31,
Change
(in thousands)
2016
2017
Amount
Percentage
Gross
loss
$
(6,312
)
$
(2,191
)
$
4,121
N/A
Gross margin
(39.0
)%
(6.7
)%
N/A
N/A
Gross
loss in 2016 was $6.3 million compared to gross loss of $2.2 million in 2017, an improvement of $4.1 million. The improvement in gross loss and gross margin was primarily due to an increase in the amount of product sold, resulting in the ability to leverage our fixed costs across a greater amount of revenue. The greater proportion of product revenues from our fresh platform also contributed to the improvement in margin, due to a higher net selling price per pound of products in our fresh versus frozen platform.
Research and Development Expenses
Year
Ended December 31,
Change
(in thousands)
2016
2017
Amount
Percentage
Research and development expenses
$
5,782
$
5,722
$
(60
)
(1.0
)%
Research
and development expenses from 2016 to 2017 were essentially flat, decreasing by $60,000 or 1.0%. Although research and development was flat, there were significant decreases in spend due to product development costs associated with the launch and scale-up of The Beyond Burger in 2016 which were absent in 2017, offset by significant expenses related to our investment in our Manhattan Beach Project Innovation Center and the hiring of new research scientists in 2017 to support our innovation program. Research and development headcount increased approximately 24.2% from 2016 to 2017.
Selling, General and Administrative Expenses
Year
Ended December 31,
Change
(in thousands)
2016
2017
Amount
Percentage
Selling, general and administrative expenses
$
12,672
$
17,143
$
4,471
35.3
%
Selling,
general and administrative expenses increased by $4.5 million, or 35.3%, from 2016 to 2017. The increase was primarily due to $1.2 million in higher outbound freight expenses, $1.9 million in higher
65
salaries and related expenses due to a 18.5% increase in headcount, $0.3 million in higher rent expense from additional facilities and $0.3 million in higher professional fees in 2017 compared to 2016. Selling, general and administrative expenses in 2016 included $2.9 million in costs to transition certain manufacturing and packaging operations from our manufacturing facility in Columbia, Missouri to a third-party co-manufacturer. Selling,
general and administrative expenses in 2017 include $1.2 million primarily relating to disputed fees resulting from a co-manufacturer’s failure to meet agreed upon minimum production and expedited outbound freight expenses we incurred for alternative arrangements after we terminated the exclusive supply agreement with this co-manufacturer.
Restructuring Expenses
As a result of the termination in May 2017 of an exclusive supply agreement with one of our co-manufacturers due to non-performance under the agreement, we recorded restructuring expenses of $3.5 million in 2017, of which $2.3 million were related to the impairment write-off of long-lived assets, comprised of certain unrecoverable equipment located at the co-manufacturer’s site and company-paid leasehold
improvements to the co-manufacturer’s facility pursuant to the agreement, and $1.2 million primarily related to legal and other expenses associated with the dispute. See Note 9 to the financial statements included elsewhere in this prospectus. In addition, we recorded $2.4 million in write-off of unrecoverable inventory held at the co-manufacturer’s site, which is included in cost of goods sold, and $1.2 million primarily related to disputed fees for not meeting the agreed upon minimum production and expedited outbound freight expenses, which are included in selling, general and administrative expenses in our statement of operations for the year ended December 31, 2017. See Note 3 to the financial statements included elsewhere in this prospectus. As of December
31, 2017, there were no accrued unpaid liabilities associated with this contract termination, although we continue to incur legal fees in connection with our ongoing efforts to resolve this dispute. See “Business—Legal Proceedings” included elsewhere in this prospectus.
Income Tax Expense
Year Ended December 31,
(in thousands)
2016
2017
Current:
Federal
$
—
$
—
State
3
5
$
3
$
5
Deferred:
Federal
$
—
$
—
State
—
—
—
—
Provision
for income tax
$
3
$
5
We have provided a 100% valuation allowance on our deferred tax assets. Provision for income taxes in 2016 and 2017 was primarily for cash taxes payable to various states.
Seasonality
Generally, we expect to experience greater demand for certain of our products during the summer grilling season. In each of 2017 and 2018, we experienced
strong net revenue growth compared to the previous year, which masked this expected seasonal impact. 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.
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Quarterly Results of Operations
The following table sets forth our unaudited quarterly statements of operations data for each of the periods presented. In management’s opinion, the data below have been prepared on the same basis as the audited financial statements included elsewhere in this prospectus and reflect all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. The results
of historical periods are not necessarily indicative of the results to be expected for a full year or any future period. The following quarterly financial data should be read in conjunction with our audited financial statements and related notes included elsewhere in this prospectus.
Our net revenues have generally increased in each quarter presented with the exception of the quarter ended July 1, 2017 primarily due to increased sales. Net revenues in the quarter ended July 1, 2017, declined due to production challenges but increased significantly in subsequent quarters after the launch of The Beyond Burger and as production capacity increased and we brought new customers on board. Cost of goods sold in the quarter ended July 1, 2017 increased due to inefficiencies from production challenges resulting in the lowest gross profit among the periods presented. With the exception of the quarter ended July 1, 2017, gross profit and gross margin continued to grow in the periods presented as net revenues increased.
We cannot assure you that this pattern of sequential growth in net revenues and/or gross profit and gross margin will continue. We anticipate that gross profit and gross margin may fluctuate from quarter to quarter because of variability in product mix.
Our operating expenses generally have increased sequentially in each quarter primarily due to increases in headcount and related expenses to support our growth. Production challenges and cost of terminating a supply agreement with one of our contract manufacturers significantly impacted our quarter ended July 1, 2017. Quarterly fluctuations in our costs and expenses overall primarily reflect changes in our headcount. Research and development expenses have fluctuated based on the timing of personnel
67
additions
and related innovation expenditures. Selling, general and administrative expenses fluctuated within a narrow range in the quarterly periods in 2017 but fluctuated within a wider range and increased substantially in the quarterly periods in 2018 compared to the quarterly periods in 2017 primarily due to increases in headcount, marketing and other professional service fees, scale-up expenses, supply chain expenses, broker commissions, and outbound freight expenses
We anticipate our operating expenses will continue to increase in absolute dollars in future periods as we invest in the long-term growth of our business. Historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Liquidity and Capital Resources
Our
primary cash needs are for operating expenses, working capital and capital expenditures to support the growth in our business. Historically, we have financed our operations through private sales of equity securities and through sales of our products. Since our inception and through December 31, 2018, we have raised a total of $199.5 million from the sale of convertible preferred stock, including through sales of convertible notes which were converted into preferred stock, net of costs associated with such financings. We have also entered into the credit facilities described below with Silicon Valley Bank.
We believe that our cash and cash equivalents, cash flow from operating activities and available
borrowings under our credit facilities will be sufficient to meet our capital requirements for at least the next 12 months.
Credit Facilities
In June 2016, we entered into a Loan and Security Agreement, referred to as the Original LSA, with Silicon Valley Bank, or SVB, which comprised a $2.5 million revolving line of credit, or the 2016 Revolving Credit Facility, and a $1.5 million growth capital term loan advance, or the 2016 Term Loan Facility. As of December 31, 2017, the outstanding principal balance under the 2016 Revolving Credit Facility was $2.5 million and the outstanding principal balance of the 2016 Term Loan Facility was $1.0 million.
We refinanced the 2016 Revolving Credit Facility and the 2016 Term Loan Facility in June 2018, such that the 2016 Revolving Credit Facility
with SVB was expanded from $2.5 million to $6.0 million, and all loans under the 2016 Term Loan Facility were paid in full without a prepayment penalty and the 2016 Term Loan Facility was discontinued. The $6.0 million revolving credit facility, or 2018 Revolving Credit Facility, has a floating interest rate equal to the prime rate, plus a premium ranging from 0.75% to 1.25% per annum, with an additional 5% on the outstanding balances upon the occurrence and during the continuance of an event of a default. Interest is payable monthly. The 2018 Revolving Credit Facility will mature in June 2020. As of December 31, 2018, we had fully drawn on the 2018 Revolving Credit Facility.
In June 2018, we also entered into a new Loan and Security Agreement with SVB with a term loan commitment amount of $20.0 million, or 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. As of December 31, 2018, we had fully drawn on the 2018 Term Loan Facility. 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.
The 2018 Term Loan Facility and the 2018 Revolving Credit Facility, or together, the SVB Credit Facilities, contain customary negative covenants
that limit our 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 our personal property assets. The SVB Credit Facilities also contain customary affirmative covenants, including
68
delivery of audited financial statements. We were in compliance with the covenants in the SVB Credit Facilities as of December 31, 2018.
Equipment Loan
In September 2018, we entered into an Equipment Loan and Security Agreement with Structural Capital Investments
II, LP, or Structural Capital, and Ocean II PLO, LLC, as administrative and collateral agent, pursuant to which Structural Capital agreed to provide an equipment loan facility to us in the amount of $5.0 million for the purpose of purchasing equipment. Subject to Structural Capital’s approval, we may request that they advance to us up to an additional $5.0 million or an aggregate of $10.0 million. However, Structural Capital is not required to advance to us any funds after December 31, 2018.
We are required to pay interest on any unpaid principal amounts at a per annum rate equal to 6.25% plus the greater of 4.75% or the prime rate then in effect. Interest on each advance made to us is due and payable on the first business day of each month. We must begin repaying the aggregate principal amount of all advances we have received in equal monthly installments beginning on June
30, 2019, which may be extended for six or 18 months depending on whether we achieve certain milestones. The unpaid balance of all advances will become due on May 1, 2022. We must also pay a final payment fee of 13% of the facility commitment amount on the maturity date and such other date as the advances become due and such fee will increase by 1% if certain milestones are achieved.
The equipment loan facility has a prepayment penalty of 2% during the first two years of the term and 1% thereafter. The facility contains customary negative covenants that limit our ability to, among other things, grant liens, repurchase stock, pay dividends, transfer assets and merge or consolidate. It is secured by all equipment purchased with cash borrowed under the facility and all of our accounts, money, books, records and any cash or noncash proceeds of the foregoing. The facility also
contains customary affirmative covenants, including delivery of audited financial statements. We were in compliance with the covenants contained in the facility as of December 31, 2018.
As of December 31, 2018, we had borrowed an aggregate of $5.0 million under the equipment loan facility.
Cash Flows
The following table presents the major components of net cash flows from and used in operating, investing and financing activities for the periods indicated.
In 2016, we incurred a net loss of $25.1 million, which was the primary reason for net cash used in operating
activities of $23.5 million. Net cash used in operating activities also included $1.5 million in net cash outflows from changes in our operating assets and liabilities, fully offset by $3.1 million in non-cash expenses, comprised of depreciation and amortization expense, share-based compensation expense and convertible note-related expense.
In 2017, we incurred a net loss of $30.4 million, which was the primary reason for net cash used in operating activities of $25.3 million. Net cash used in operating activities also included $2.6 million
in net
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cash outflows from changes in our operating assets and liabilities, fully offset by $5.4 million in non-cash expenses comprised of depreciation and amortization expense, share-based compensation expense, convertible note-related expense and change in warrant liability. In 2017, net loss included a non-cash restructuring loss of $2.3 million on the write-off of fixed assets related to our termination of an exclusive supply agreement with a co-manufacturer.
In 2018, we incurred a net loss of $29.9 million, which was the primary reason for net cash used in operating
activities of $37.7 million. Net cash used in operating activities also included $16.3 million in net cash outflows from changes in our operating assets and liabilities, partially offset by $8.5 million in non-cash expenses comprised of depreciation and amortization expense, share-based compensation expense, convertible note-related expense, and change in warrant liability.
Depreciation and amortization expense was $2.1 million, $3.2 million and $4.9 million, in 2016, 2017 and 2018, respectively. We anticipate our depreciation and amortization expense will
be approximately $2.1 million per quarter in 2019 based on our existing fixed assets and anticipated capital expenditures as we expand our production capabilities to meet increased demand for our products.
Net Cash Used in Investing Activities
Net cash used in investing activities primarily relates to capital expenditures to support our growth and investment in property, plant and equipment.
In 2016, net cash used in investing activities was $5.0 million and consisted of cash outflows for the purchases of property, plant and equipment, principally to support the development and production of The Beyond Burger.
In 2017, net cash used in investing activities was $8.1 million and consisted of cash
outflows for the purchases of property, plant and equipment, principally for the build-out and equipping of our Manhattan Beach Project Innovation Center.
In 2018, net cash used in investing activities was $23.2 million and consisted of cash outflows for the purchase of property, plant and equipment, primarily for manufacturing facility improvements and manufacturing equipment.
In 2019, we anticipate spending approximately $17.0 million in capital expenditures as we scale our production capacity, including expenditures for additional machinery and equipment, as well as investment facilities and expenditures to replace normal wear and tear of machinery and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities
in 2016, 2017 and 2018 was primarily due to the net proceeds from our issuance of convertible preferred stock and net borrowings under our revolving credit facilities and our term loan facilities.
In 2016, financing activities provided $31.9 million in cash primarily as a result of $25.8 million of net proceeds from the issuance of our Series E and F preferred stock, net of issuance costs, $4.0 million in proceeds from the issuance of convertible notes that were eventually converted into Series F preferred stock, $1.5 million of proceeds from 2016 Term Loan Facility borrowing, $1.6 million in 2016 Revolving Credit Facility borrowings and $0.7 million in proceeds from option exercises, partially offset by payments towards our revolving credit facility borrowings and payments towards our capital lease obligations. Financing and revolving
credit facility borrowings were used to finance our operations.
In 2017, financing activities provided $55.4 million in cash as a result of $43.3 million of proceeds from the issuance of our Series F and G preferred stock, net of issuance costs, $10.0 million in proceeds from the issuance of convertible notes that were eventually converted into Series G preferred stock, $2.5 million in 2016 Revolving Credit Facility borrowings and $0.4 million in proceeds from option
70
exercises, partially offset by payments towards our 2016 Revolving Credit Facility borrowings and
capital lease obligations. The proceeds from the borrowings were used to finance our operations.
In 2018, financing activities provided $76.2 million in cash primarily as a result of $51.3 million in net proceeds from the issuance of our Series G and Series H preferred stock, net of issuance costs, $20.0 million in borrowings under our 2018 Term Loan Facility, $6.0 million in borrowings under our 2018 Revolving Credit Facility and $5.0 million in borrowings under an equipment loan facility, partially offset by cash outflows for repayment of the Missouri Note, 2016 Revolving Credit Facility and 2016 Term Loan Facility. The proceeds from the
borrowings were used to finance our operations.
As of December 31, 2018, we had borrowed the entire availability of $20.0 million under the 2018 Term Loan Facility and $6.0 million under the 2018 Revolving Credit Facility.
Contractual Obligations and Commitments
Effective March 1, 2019, we entered into a lease for our corporate offices at 119 Standard Street, El Segundo, California, for an initial term of five years. The aggregate lease amount for the five-year term is $2.7 million, which is not included in the table below.
The following table summarizes our significant contractual obligations
as of December 31, 2018:
Payments Due by Period
(in thousands)
Total
Less
Than One Year
1-3 Years
3-5 Years
More Than Five Years
Rent obligations(1)
$
5,450
$
1,264
$
2,192
$
1,135
$
859
Equipment
lease obligations(2)
131
44
62
25
—
2018
Revolving Credit Facility(3)
6,000
—
6,000
—
—
2018
Term Loan Facility(4)
24,456
1,908
18,038
4,510
—
Equipment
loan(5)
6,465
716
4,076
1,673
—
Purchase
commitments(6)
22,440
22,440
—
—
—
Total
$
64,942
$
26,372
$
30,368
$
7,343
$
859
___________________
(1)
Includes
lease payments for our Manhattan Beach Project Innovation Center in El Segundo, California and our manufacturing facilities in Columbia, Missouri. Excludes lease payments for our corporate offices which lease was entered into subsequent to December 31, 2018.
(2)
Consists of payments under various capital leases for certain equipment.
(3)
Consists of principal under a revolving credit facility from SVB. Interest accrued at a floating rate.
(4)
Consists
of a term loan with SVB. Includes principal and interest.
(5)
Consists of an equipment loan that we entered into in September 2018 (see Note 6 to our financial statements elsewhere in this prospectus). Includes principal and interest.
(6)
Consists of commitments entered into in 2018 to purchase pea protein inventory.
Segment Information
We
have one operating segment and one reportable segment, as our chief operating decision maker, who is our Chief Executive Officer, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any holdings in variable interest entities.
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Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks primarily consist
of interest rates, raw material prices and inflation as follows:
Interest Rate Risk
Our cash consists of amounts held by third-party financial institutions. Prior to the closing of this offering, we plan to adopt an investment policy which will have as its primary objective investment activities which preserves principal without significantly increasing risk.
We are subject to interest rate risk in connection with our SVB Credit Facilities and Equipment Loan. See “—Liquidity and Capital Resources—Credit Facilities” and “—Liquidity and Capital Resources—Equipment Loan” above. Based on the average interest rate on our SVB Credit Facilities and Equipment Loan during the year ended December 31, 2018 and to the extent that borrowings were outstanding, we
do not believe that a 1.0% change in the interest rate would have a material effect on our results of operations or financial condition.
Ingredient Risk
Our profitability is dependent on, among other things, our ability to anticipate and react to raw material and food costs. Currently, the main ingredient in our products is pea protein, which we source from Canada and France. The prices of pea protein and other ingredients we use are subject to many factors beyond our control, such as the number and size of farms that grow Canadian and European yellow peas, the vagaries of these farming businesses, including poor harvests due to adverse weather conditions, natural disasters and pestilence, and changes in national and world economic conditions. In addition, we purchase some ingredients and other materials offshore, and the price and availability of such ingredients
and materials may be affected by political events or other conditions in these countries or tariffs or trade wars. As of December 31, 2018, a hypothetical 10% increase or 10% decrease in the weighted-average cost of pea protein, our primary ingredient, would have resulted in an increase of approximately $0.8 million or a decrease of $0.8 million, respectively, to cost of goods sold. We are working to diversify our sources of supply and intend to enter into long-term contracts to better ensure stability of prices of our raw materials.
Foreign Exchange Risk
Our revenues and costs are denominated in U.S. dollars and are not subject to foreign exchange risk. However, to the extent our sourcing strategy changes or we commence generating net revenues
outside of the United States that are denominated in currencies other than the U.S. dollar, our results of operations could be impacted by changes in exchange rates.
Inflation Risk
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations and financial condition.
Critical Accounting Policies
In preparing our financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the amounts
of assets, liabilities, revenue, costs and expenses, and disclosure of contingent assets and liabilities that are reported in the financial statements and accompanying disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain. Therefore, we consider these to be our critical accounting policies. Accordingly,
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we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates and assumptions. See Note 2 to our financial statements included in this prospectus
for information about these critical accounting policies, as well as a description of our other accounting policies.
Revenue Recognition
While our revenue recognition does not involve significant judgment, it represents an important accounting policy. Our revenues are generated through sales of our products to distributors or customers. We recognize revenues when they are realized or realizable and earned. Revenue is recognized upon the transfer of the title to the product, ownership, and risk of loss to the distributor or customer, which typically occurs on the date of receipt of the product by the distributor or customer.
We routinely offer sales discounts and incentives through various programs to our customers and consumers. These programs include rebates, temporary on shelf price reductions, off-invoice discounts, retailer advertisements,
and other trade activities. At the end of each accounting period, we recognize a liability for estimated sales discounts that have been incurred but not paid. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
Share-Based Compensation
We account for all shared-based compensation awards using a fair-value method. Options are recorded at their estimated fair value using the Black-Scholes option pricing model. We recognize the fair value of each award as an expense on a straight-line basis over the requisite service period, generally the vesting period of the equity grant.
Determining the fair value of share-based awards at the grant date requires significant judgment. The determination of the grant date fair value of stock options using the Black-Scholes option-pricing model is
affected by our estimated common stock fair value as well as other highly subjective assumptions including, the expected term of the awards, our expected volatility over the expected term of the awards, expected dividend yield, risk-free interest rates. The assumptions used in our option-pricing model represent management’s best estimates. These assumptions and estimates are as follows:
•
Fair Value of Common Stock. As our stock is not publicly traded, we estimate the fair value of common stock as discussed in “Common Stock Valuations” below.
•
Expected
Term. The expected term of employee stock options during the years ended December 31, 2018, was determined based on management’s expectations as to the expected term of options granted, which were expected to remain outstanding. The expected term of options granted to nonemployees is equal to the remaining contractual life of the options.
•
Expected Volatility. As we do not have trading history for our common stock, the selected volatility used is representative of expected future volatility. We based expected future volatility on the historical and implied volatility of comparable publicly traded companies over the expected term of the options.
•
Expected
Dividend Yield. We have never declared or paid any cash dividends and do not presently intend to pay cash dividends in the foreseeable future. As a result, we used an expected dividend yield of zero.
•
Risk-Free Interest Rates. We determined the average risk-free interest rate using the yield on actively traded U.S. Treasury notes with the same maturity as the expected term of the underlying options. If any assumptions used in the Black-Scholes option-pricing model change significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.
The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different.
The
following table sets forth by grant date the number of shares of our common stock subject to options granted in the past 12 months, the per share exercise price of the options and the fair value of our common stock per share on each grant date:
Grant Date
Shares of Common Stock Underlying Options Granted
Exercise Price Per Share ($)
Per
Share Fair Value of Common Stock on Grant Date ($)
In addition, on April 18, 2019, o ur board of directors approved options to purchase common stock to Messrs. Brown, Goldman, Nelson, Muth and Ajami to be effective upon the effectiveness of the registration statement for this offering with an exercise price per share equal to the initial public offering price of our common stock in the offering. The option grants are as follows: Mr. Brown, 500,000 shares; Mr. Goldman, 100,000 shares; Mr. Nelson, 200,000 shares; Mr. Muth, 100,000 shares; and Mr. Ajami, 100,000 shares. In addition, our board will grant options to purchase 40,000 shares of common stock to Mr. Brown, options to purchase 5,000 shares of common stock to Mr. Goldman, and options to purchase 5,000 shares of common stock to Mr. Nelson, in each case to be effective upon the effectiveness of the registration statement for this offering with an exercise price per share equal
to the initial public offering price of our common stock in this offering.
Assuming an initial public offering price of $24.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, the aggregate intrinsic value of stock options outstanding as of December 31, 2018 was approximately $106.9 million, of which approximately $65.7 million related to vested awards and approximately $41.2 million related to unvested awards.
Common Stock Valuations
As there has been no public market for shares of our common stock to date, the fair value of our shares has
been determined by our board of directors as of the date of each award grant, with input from management, considering our most recently available third-party valuations of our common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Our board of directors intends all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The fair value of
74
our common stock was determined at each valuation date in accordance with the guidelines outlined in the American
Institute of Certified Public Accountants Practice Aid.
Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair market value of our common stock as of the date of each option grant, including the following factors:
•
contemporaneous valuations performed at periodic intervals by an unrelated third party valuation firm;
•
the
prices, rights, preferences and privileges of our preferred stock relative to our common stock;
•
our operating and financial performance;
•
current business conditions and projections;
•
our stage of development;
•
the
likelihood of achieving a liquidity event, such as an initial public offering, a merger, or an acquisition of our business;
•
the lack of marketability of our common stock;
•
the market performance of comparable publicly traded peer companies; and
•
macroeconomic conditions, including
U.S. and global capital market conditions.
In determining the fair value of share-based compensation awards, we first determined our business equity value using the prior sales of company stock method under the market approach prior to November 16, 2018 and the discounted cash flow method at April 3, 2019 under the income approach, adjusted our enterprise value for cash and debt and then allocated the equity value among the securities that comprise the capital structure of the company using primarily the Option-Pricing Method, or OPM, as described in the AICPA Practice Aid entitled Valuation of Privately-Held-Company Equity Securities Issued as Compensation. See below for a
description of the valuation and allocation methods.
The prior sales of company stock method estimates value by considering prior arm’s length sales of the company’s equity. When considering prior sales of the company’s equity, this method considers the size of the equity sale, the relationship of the parties involved in the transaction, the timing of the equity sale, and the financial condition of the company at the time of the sale. Each valuation date occurred no greater than two months after the sale of our preferred stock and was based on such sale. Although the sale involved preferred stock, new investors participated and the purpose of the sale was to provide
financing. We did not use the income approach because at the time of each valuation we did not have a reliable financial forecast for our business.
The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using discount rates which reflect the time value of money and is adjusted to reflect the risks inherent in our projected cash flows.
After determining an equity value, we then primarily utilized the OPM to allocate the equity value to our common stock. The OPM treats common stock and convertible preferred stock as call options on a business with a claim on the business at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. Therefore, the common stock has value only if the funds
available for distribution to common shareholders exceed the value of the liquidation preferences at the time of a liquidity event, such as a merger, sale, or initial public offering, assuming the business has funds
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available to make a liquidation preference meaningful and collectible by shareholders. The OPM uses the Black-Scholes option-pricing model to price the call option. We used the OPM to allocate the equity value to our common stock because at the time of the valuations there was a range of possible future outcomes of our business.
Finally, because we are a privately held company, in determining the fair value of our common stock, we also applied various non-marketability
discounts.
Following the closing of this initial public offering the fair value per share of our common stock for purposes of determining share-based compensation will be the closing price of our common stock as reported on the applicable grant date.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may take advantage of these exemptions until we are no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded
by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Recently
Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies certain aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications in the statements of cash flows. ASU 2016-09 is effective for all entities other than public business entities for fiscal years beginning after December 15, 2017, and therefore, effective for us for the fiscal year ending December 31, 2018. Early adoption is permitted. We adopted ASU 2016-09
beginning January 1, 2018. Adoption of ASU 2016-09 did not have a material impact on our financial position, results of operations, or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning
after December 15, 2017 with early adoption permitted. We adopted ASU 2017-09 beginning January 1, 2018. Adoption of ASU 2017-09 did not have a material impact on our financial position, results of operations, or cash flows.
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Recent Accounting Pronouncements
In May 2014, the 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. 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 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period for public business entities, and for annual reporting periods beginning after December 15, 2018 for business entities that are not public. ASU 2014-09 is effective for us beginning January 1, 2019. ASU 2014-09 may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. Additionally, ASU 2014-09 requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement
and recognition. We are currently in the process of assessing our adoption methodology for ASU 2014-09 and expect to use the modified retrospective method. The majority of our contracts with customers generally consist of a single performance obligation to transfer promised goods. Based on our evaluation process and review of our contracts with customers, the timing and amount of revenue recognized based on ASU 2014-09 is consistent with our revenue recognition policy under previous guidance. We have therefore currently determined that the adoption of ASU 2014-09 will not have a material impact on our financial position, results of operations, or cash flows.
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 U.S. 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. We expect to adopt and implement ASU 2016-01 for the year ending December
31, 2019 and for interim periods beginning January 1, 2020. We do not expect that adoption of ASU 2016-01 to have a material impact on our financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“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 us beginning January 1, 2020. Early application is permitted. We are 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 we have 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.
In August 2016, the FASB issued ASU No. 2016-15, “Statements of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statements of cash flows. ASU 2016-15 is effective for annual periods (including interim periods) beginning after December 15,
2018 for business entities that are not public, should be applied retrospectively, and early adoption is permitted. We are currently evaluating the impact that will result from adopting ASU 2016-15 on our cash flows.
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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 years beginning after December 15, 2020. ASU 2018-07 is effective for the Company beginning January 1, 2020. Early adoption is permitted but no earlier than the Company’s adoption date of Topic 606.
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LETTER FROM ETHAN BROWN, OUR
FOUNDER AND CHIEF EXECUTIVE OFFICER
Beyond Meat’s story begins on farmland. Through my father’s love of farming and the natural world, my urban childhood was interwoven with time spent on our family’s farm in Western Maryland where we were partners in a Holstein dairy operation. As a child, I was fascinated by the animals surrounding us: the companions at our sides, the livestock in the barns and fields, and the wildlife in the woods, streams, and ponds. As a young adult, I enjoyed a career in clean energy but continued to wrestle with a question born of these early days: do we need animals to produce meat? Over the years, the question knocked more loudly and I set out to understand meat.
I learned that we are deeply indebted to the carnivorous tendencies of our ancestor, the Great Southern Ape of Africa. The so-called Australopithecus Africanus increasingly integrated meat into
a steady diet of vegetation, the nutrient density of which reduced the size and energy requirement of our stomachs, freeing up energy for our brains which more than doubled in volume. With this outsized brain came increased capabilities, and increasingly sophisticated hominids shifted from scavengers to hunters.
It was not until some 12,000 years ago that agriculture appeared as we shifted from hunters of game to harvesters of crops and livestock. Farming enabled population growth, which demanded more from agriculture. We responded with a full display of human ingenuity and creativity. Across different geographies, soil types and climates, we grew and harvested crops and raised and slaughtered livestock. The model worked for the five million people alive in agriculture’s early days and for 250 million humans in early A.D. and provided the caloric fuel to grow the world’s population to today’s 7.6 billion.
As
population increased over the last century, we used science and technology to get more output per acre of land and more meat per species of livestock. For example, in the United States between the 1930s and 2016, the yield per acre of corn has grown nearly 600% and soybeans 400%, and from 1925 to 2017, broiler chickens have increased in weight by 250%. The result: ubiquitous availability of low-cost meat.
But progress came with cost in four key areas: human health, climate change, natural resources, and animal welfare. Correlations between animal protein consumption and disease spawned a cottage industry of studies and documentaries on the relationship between certain meats and epidemics of cancer, heart disease, and diabetes. Livestock emerged as a major contributor of greenhouse gas emissions, with related burdens on land, energy, and water.
We do not, however, face a binary
decision to eat or abandon meat. There is a path forward that I believe will unlock a new era of productivity for farmers, one capable of exceeding the gains made in the 20th century. It requires a change in perception, coupled with the use of science and technology.
If we insist meat be defined by origin—namely poultry, pigs and cows—we face limited choices. But if we define meat by composition and structure—amino acids, lipids, trace minerals, vitamins, and water woven together in the familiar assembly of muscle, or meat—we can innovate toward a solution.
Here’s how. None of these core elements of meat is exclusive to the animal. They are abundant in the plant kingdom. The animal serves as a bioreactor, consuming vegetation and water and using their digestive and muscular system to organize these inputs into
what has traditionally been called meat. At Beyond Meat, we take these constituent parts directly from plants, and together with water, organize them following the basic architecture of animal-based meat. We bypass the animal, agriculture’s greatest bottleneck.
For the consumer, this means that we can provide great tasting meat from plants -meat that delivers health benefits and environmental upside (90% fewer greenhouse gas emissions, 99% less water, 93% less land, and 46% less energy) and side steps the animal welfare issue. This is not a call to consume less meat. My own children enjoy more, rather than less, of their favorite meat occasions (sausage breakfasts, burger dinners) as I am comfortably aware that Beyond Meat products are free of cholesterol
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and
other aspects of animal protein that preoccupy public health debate. As we rush to keep up with consumer demand for our products, my guess is that many families are having the same experience.
All of this takes us back to the farm. I am, like many, troubled by the fraying fabric of our rural heritage, one increasingly torn by vanquished towns, marginalized populations ensnared in an opioid crisis, and hidden factory farms. In too many ways, rural communities stood as spectator in the digital revolution that has reshaped our economy. Not in the Beyond Meat story. Instead of growing low-value commodity feed for animals, I see a future of farmers growing higher value protein crops for more direct human consumption via plant-based meat. As attendant efficiency gains (which are worth repeating-93% less land, 99% less water, and 46% less energy per pound of consumable meat) are realized, we open vast resources for further wealth
creation by the farmer, carbon sequestration (pending rational carbon policies that reward the farmer as land steward), and, of course, conservation. I believe there is a new dawn for American agriculture and this conversion is our awakening hour.
At Beyond Meat, we can do our part by relentlessly pursuing that perfect build of meat from plants. At our innovation center, the Manhattan Beach Project, scientists and engineers are rapidly closing in on the differences between our plant-based meats and their animal protein equivalents. Certainly, gaps do and will remain for some time. However, having looked under the hood and through the microscope, we can say with confidence that we see no material obstacles to a perfect build of meat from plants. With each advance, I believe the market for our products will increase, and our sales will grow.
Lastly, as we embark on this next leg
of our journey, I’d like to thank our partners-the consumer-for being with us each step of the way. From the first days in 2009 of sampling our products to shoppers throughout the Mid-Atlantic, Ohio, and Kentucky, we’ve always felt an important message: consumers want this to work. Through successes and struggles, the consumer has been there for us, offering feedback, love and inspiration. Today, together we are breaking new ground. Last summer, for 12 consecutive weeks, The Beyond Burger outsold (by unit) all packaged beef patties in the meat case across the Southern California division of Ralph’s, a subsidiary of Kroger, one of the nation’s largest conventional grocers. This outcome surprised us—our aspiration as the only plant-based entrant in the meat case was to simply hold our own. As a new and plant-based entrant in the meat case, we did not contemplate this #1 position. And we learned that from January through June last year, nationwide across Kroger, 93% of
consumers who bought The Beyond Burger also put animal meat in their shopping cart—an important indication of mainstream appeal. Lastly, as we launched The Beyond Burger in the second largest quick-serve restaurant in Canada, A&W, consumer demand drove up store traffic across the chain, strongly outstripped forecasts, and led to much publicized outages.
In closing, it is with gratitude that we now offer the consumer the opportunity to become an owner in the company they helped build, bite by bite. We hope investors join us as we seek to become the first generation of humans to separate meat from animals, unlocking the next era in the American story of innovation, disruption, and growth.
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 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 to 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.
To capture this broad market opportunity, we have developed three core plant-based product platforms that align with the largest meat categories globally: beef, pork and poultry. The primary components of animal-based meat—amino acids, lipids, trace minerals, and water—are not exclusive to animals and are plentiful in plants. We create our plant-based products using proprietary scientific processes that determine the architecture of
the animal-based meat we are seeking to replicate and then we assemble it using plant-derived amino acids, lipids, trace minerals and water. We are focused on continually improving our products so that they are, to the human sensory system, indistinguishable from their animal-based counterparts.
Our flagship product is The Beyond Burger, the world’s first 100% plant-based burger merchandised in the meat case of grocery stores. The Beyond Burger is designed to look, cook and taste like traditional ground beef. We also sell a range of other plant-based meat products, including Beyond Sausage. All of our products are antibiotic-free, hormone-free, GMO-free and gluten-free. Our products are currently available in approximately 30,000 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. We enjoy a strong base of well-known retail and foodservice customers that continues to grow.
Research, development and innovation are core elements of our business strategy, and we believe they represent a critical competitive advantage for us. Through our Rapid and Relentless Innovation Program, our team of scientists and engineers focuses on making continuous improvements to our existing product formulations and developing new products across our plant-based beef, pork and poultry platforms. Our state-of-the-art Manhattan Beach Project Innovation Center in El Segundo, California brings together leading scientists from chemistry, biology, material science, food science, and biophysics disciplines who work
together with process engineers and culinary specialists to pursue our vision of perfectly building plant-based meat.
We have experienced strong sales growth over the past few years, increasing our net revenues from $16.2 million in 2016 to $87.9 million in 2018, representing a 133% compound annual growth rate. In 2018, our net revenues were $87.9 million, a 170% increase from $32.6 million in 2017. We have generated losses since inception. Net loss in 2016, 2017 and 2018 was $25.1 million, $30.4 million and $29.9 million, respectively, as we invested in innovation and growth of our business. Going forward, we intend to continue to invest
in innovation, supply chain capabilities, manufacturing and marketing initiatives, as we believe the demand for our products will continue to accelerate across both retail and foodservice channels as well as internationally.
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The Beyond Meat Strategic Difference
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Unique Approach to the Product
We employ a revolutionary and unique approach to create our products, with a goal of delivering the same satisfying taste,
smell and texture as the animal-based meats we seek to replicate. In our Manhattan Beach Project Innovation Center, our scientists and engineers continuously improve our products to replicate the sensory experience of animal-based meat. Through our investment in innovation, we have pioneered products like The Beyond Burger and Beyond Sausage, which we believe closely replicate the sensory experience of meat—from the look of the package and raw product, to the sizzle on the grill, to the juicy and protein-packed satisfaction of biting into a “meaty” burger or sausage.
We start by analyzing the composition and design of relevant animal-based meats at the molecular and structural level. The primary components, other than water, comprising animal-based meats are amino acids, lipids, minerals and vitamins,
which are not exclusive to animals and are present in abundance in plants. The amino acids that form the proteins which represent the muscle of animal-based meat can be sourced from plants. We use proteins primarily extracted from yellow peas, as well as legumes and other plant stock, through a natural process to separate protein and fiber. We then apply heating, cooling and pressure at rapid and varied intervals to weave the protein into a fibrous structure to create woven protein. Once we have the woven protein, we then add the remaining ingredients, such as water, lipids, flavor, color, trace minerals, and vitamins.
We operate approximately 100,000 square feet of production space in two facilities in Columbia, Missouri where we produce our woven protein. This woven protein is then converted according to our formulas and specifications
into a packaged product, either in our facilities in Columbia, Missouri or by our network of co-manufacturers. This capital efficient production model allows us to scale more quickly and cost-effectively to service the rapidly increasing demand for our products. We plan to continue expanding our own internal production facilities domestically and abroad to produce our woven protein while forming additional strategic relationships with co-manufacturers.
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Unique Approach to the Market
Our breakthrough product innovations have enabled a paradigm shift in both marketing and target audience—tapping into the enthusiastic pull from mainstream consumers for delicious and satisfying, yet better-for-you plant-based
meats. This approach is summed up in our brand promise—“Eat What You Love.” At one of the nation’s largest conventional grocers, Kroger, 93% of Beyond Burger buyers over the 26‑week period ended June 30, 2018 also purchased animal protein during the same period, which evidences Beyond Meat’s appeal to meat-loving consumers.
It is not, and has never been, our goal to become the best-selling veggie burger company or to market our products in a manner similar to traditional veggie burgers and soy-based meat. These products have had limited appeal to traditional meat eaters, who commonly criticize their inferior taste. Consumer research shows that, when choosing among plant-based meat options, taste is the single most important product attribute for plant-based foods. Legacy vegetarian brands have typically aimed to compensate
for poor taste appeal by positioning their products as a noble sacrifice-something consumers should do for the benefit of their health, the environment, and/or animal welfare.
When we launched our flagship Beyond Burger in 2016, we approached the marketplace in an unprecedented way. Instead of marketing and merchandising The Beyond Burger to vegans and vegetarians (who represent less than 5% of the U.S. population), we requested that the product be sold in the meat case at grocery retailers where meat-loving consumers are accustomed to shopping for center-of-plate proteins.
The first grocery unit to sell The Beyond Burger in its meat section was the Rocky Mountain Division of Whole Foods Market. In May 2016, they placed The Beyond Burger alongside its animal-based equivalents, and soon other Whole Foods Market regions followed. In
April 2017, Safeway of Northern
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California started merchandising The Beyond Burger in its meat section, and within a few weeks several Kroger divisions announced they would do the same. The Beyond Burger is now carried by approximately 15,000 of our 17,000 grocery store customers across the United States.
In the Southern California division of Ralph’s, a subsidiary of one of the nation’s largest conventional grocers, Kroger, The Beyond Burger was the #1 selling packaged burger patty by unit in the meat case for the 12-week period ending August 4, 2018. We believe merchandising in the meat case in the retail channel
has helped drive greater brand awareness with our end consumers.
Reflecting the strength and value of the Beyond Meat brand to its partners, many of our restaurant, hotel and other foodservice customers choose to prominently feature our brand name on their menu and within item descriptions, in addition to displaying Beyond Meat branded signage throughout the venue. Our foodservice business not only functions as a form of paid trial for our products, helping to drive additional retail demand, but also creates even greater brand awareness for Beyond Meat through the on-menu and in-store publicity we receive. We believe that we have established our brand as one with “halo” benefits to our partners as evidenced by the speed of adoption by key partners. For example, Beyond Meat was the fastest new-product launch in the history of A&W Canada and TGI Fridays, and a number of our key partners are investing their own resources
to tap into our brand and product awareness. For example, A&W Canada is currently investing significant amounts of money across television, digital media and press to promote the addition of The Beyond Burger to their menu. The Beyond Burger is now carried by approximately 12,000 restaurant and foodservice outlets across the United States and Canada. Our distribution across retail and foodservice outlets continues to grow on a monthly basis.
Our recent success with A&W Canada illustrates growing international demand for our products. We launched in Europe in August 2018 through contracts with three major distributors and have also received strong expressions of interest from some of Europe’s largest grocery and restaurant chains. We intend to establish production capabilities in Europe in 2020. Additionally, for several years
we have maintained a presence and generated brand awareness in Asia through our local distributor, and expect further expansion in the region over time.
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Unique Approach to Our Brand
Our mission is to create nutritious plant-based meats that taste delicious and deliver a consumer experience that is indistinguishable from that provided by animal-based meats. We believe our brand commitment, “Eat What You Love” encourages consumers to eat more, not less, of the traditional dishes they enjoy by using our products, while feeling great about the health, sustainability, and animal welfare benefits associated with consuming plant-based protein. Our approach of bringing to market the best innovations
each year is a strategy that engages the consumer and provides feedback from which we iterate and improve. This approach is one of the reasons we worked for and obtained Non-GMO Project certification for all of our current products.
Our brand awareness has been driven by strong social marketing. Consumers and the media are enthusiastic about the concept of an authentically meaty tasting plant-based burger and drove more than 9.9 billion earned media impressions in 2018 and 4.0 billion earned media impressions from January to March 2019. The viral nature of our marketing and brand-building has been enhanced by both the network of brand ambassadors we have developed throughout the United States, and our strong following by celebrities from the worlds of sports and entertainment who help promote the benefits of a plant-based diet and the Beyond Meat brand.
We launched The Future of
Proteinmarketing campaign in the summer of 2015, which seeks to mobilize our ambassadors to help raise brand awareness and make our products aspirational. Our joint announcement with Leonardo DiCaprio about his becoming a Beyond Meat brand ambassador in October 2017 has generated over 378 million earned media impressions, including a viral video released by Now This Entertainment that drew more than 8.5 million views. When we shared the announcement on Beyond Meat’s Instagram, it quickly became one of our most liked posts.
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“Earned
media impressions” refers to the amount of exposure that a piece of content in a television show, newspaper, website, blog or other form of media receives based on the readership or viewership for that particular media. Impressions are only calculated for stories that mention our brand or products specifically by name. For example, if as of January 2018, 3 million people subscribed to a particular newspaper and an article ran in January 2018 in that newspaper mentioning or featuring Beyond Meat or any of our products such as The Beyond Burger or Beyond Sausage which is not as a result of any payment by us, then the earned media impressions for that article would be 3 million.
Earned media impressions reflect interest in our products, our products’ or brand’s relevance to the media, the audiences they service and the overall
positioning of our products in the marketplace. We believe that continued growth in this number year-over-year reflects increasing organic media interest in us and thus consumer exposure to our brand and products. While we use earned media impressions to evaluate growth in brand awareness of our products, we do not use them as a metric in evaluating our business or results of operations.
Earned media impressions contain limitations in that they are calculated based on readership or viewership numbers of the particular media in which the impression appears and not on the number of readers or viewers who actually see the impression. Therefore, earned media impression numbers assume each person in the entire readership or viewership has been exposed to the impression. In addition, earned media impressions do not take into account whether there is any overlap in the readership or viewership of various media. Therefore, investors
should not place undue reliance or emphasis on earned media impressions given these limitations and the fact that they do not bear any direct relationship to the company’s operations or financial results.
A Food Insider video covering Beyond Meat’s unveiling of its new Manhattan Beach Project Innovation Center, went viral on Facebook, being shared more than 170,000 times and generating approximately 23 million views in three weeks.
History
We founded Beyond Meat in 2009 with a vision of building meat products directly from plants. This vision was in response to growing global challenges in the areas of health, climate change, natural resource use and conservation, and animal welfare,
which we now call our four horsemen of change. Our founder and CEO, Ethan Brown, began his professional career in the clean energy sector. For over a decade, Ethan saw first-hand the sizable investments in solar, lithium ion batteries, fuel cells, wind and other alternative forms of energy in an effort to reduce greenhouse gas emissions. Ethan realized we were ignoring a large piece of the global solution to climate stabilization: the large and growing contribution of the livestock industry to greenhouse gas emissions, estimated to be from 18-51% of total emissions, depending on the methodology used. He began to think about applying the same framework to solving livestock emissions, specifically using technology, science, and significant capital investment to address a global challenge and opportunity: bypassing the animal and building meat directly from plants.
Growing
up in Washington, D.C. and College Park, Maryland, Ethan spent considerable time on his family’s farms, most notably Savage River Farms, a Holstein dairy operation in Western Maryland. As an adolescent and young adult, Ethan began to ask a recurring question: what is the determining biological difference between the animals we keep as pets and those relegated to the dinner plate? Later, raising his own children and seeking to satisfy their protein requirements as they grew, this question returned, along with growing concerns around human health, climate change, and the natural resource implications of intensive animal protein production and consumption. In 2009, Ethan responded by founding Beyond Meat to understand the fundamental composition of meat and build it directly from plants.
In 2009, we opened our first operation in a small commercial kitchen in Maryland and we began selling an early plant-based product to Whole
Foods Markets Prepared Foods in the Mid-Atlantic region. In 2010, also in Maryland, we opened our own modest manufacturing facility. During this period, Ethan began working extensively with two researchers at the University of Missouri’s Bioengineering and Food
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Science Department at the College of Agriculture and Natural Resources, along with faculty and students at the University of Maryland’s Nutrition & Food Science Department. Ethan ultimately licensed a process developed by the researchers that combined proteins from plants into a basic structure resembling animal muscle, or meat, and used this as an initial foundation for Beyond Meat products. With this basic protein platform and an understanding that the balance of parts of meat, namely lipids,
trace minerals, and water, were also present in abundance outside the animal, it became clear that with appropriate resources, building meat from plants was indeed possible.
Over the years, Beyond Meat has continued to invest heavily in research, development and innovation as recently demonstrated by our state of the art Manhattan Beach Project Innovation Center in El Segundo, California. Our work is a team effort, defined by passionate and capable management, scientists, technicians and engineers who share a common goal to achieve enormous lasting benefits to our society and the planet.
Industry
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Our Market Opportunity
We
operate in the large and global meat industry, which is comprised of fresh and packaged animal-based meats for human consumption. According to data from Fitch Solutions Macro Research, the meat industry is the largest category in food and in 2017 generated estimated sales across retail and foodservice channels of approximately $270 billion in the United States and approximately $1.4 trillion globally. Our core target market is the United States, which has the highest level of animal-based meat consumption per person on a global basis, according to the OECD.
We believe that consumer awareness of the perceived negative health, environmental and animal-welfare impacts of animal-based meat consumption has resulted in a surge in demand for viable plant-based protein alternatives. Despite this growing demand, the plant-based meats category
currently represents approximately two percent of the U.S. meat industry, highlighting the lack of satisfying plant-based meat options and scaled winners in the category. According to Nielsen data commissioned by the Plant Based Foods Association, sales of plant-based meat in the retail channel generated just over $670 million of retail sales over the 52-week period ending June 16, 2018.
We are growing at a substantially faster rate than the existing animal-based meat and plant-based meat industries and expect our growth to accelerate. We believe our outsized revenue growth will allow us to capture an increased share of the broader U.S. meat category, supported by a number of key drivers, including the authentic comparability and sensory experience of our products to their animal-based
meat equivalents, continued mainstream acceptance of our products with the traditional animal-based meat consumer, heightened consumer awareness of the role that food and nutrition, particularly plant-based foods, play in long-term health and wellness, and growing concerns related to the negative environmental and animal-welfare impacts of animal-based meat consumption.
A key analogy for both the approach to and the scale of our opportunity is the strategy by which the plant-based dairy industry captured significant market share of the dairy industry over the past two decades. According to research firm Mintel, the current size of the non-dairy milk category is equivalent to approximately 13% of the size of the dairy milk category in the United States. According to the Mintel Report, the non-dairy milk category in the United States was estimated to be approximately $2 billion
as of 2017, which grew at a compound annual growth rate of 10% from 2012 to 2017. The success of the plant-based dairy industry was based on a strategy of creating plant-based dairy products that tasted better than previous non-dairy substitutes, packaged and merchandised adjacent to their dairy equivalents. We believe that by applying the same strategy to the plant-based meat category, it can grow to be at least the same proportion of the $270 billion meat category in the United States, which over time would represent a category size of $35 billion in the United States alone. We also believe that the introduction of our plant-based products is serving as a similar catalyst in the meat industry. As a market
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leader
in the plant-based meats category, we believe we are well-positioned to capture and drive a significant amount of this category growth.
We believe there is significant demand for our products across the globe in retail and restaurant and foodservice channels. In markets excluding the United States, the amount of meat consumed has more than doubled in the past two decades from 120 million tons in 1997 to 280 million tons in 2017, according to the OECD. Our initial target markets include Australia, Europe, Hong Kong, Israel, South Korea, South Africa and parts of the Middle East, where we have received strong inbound interest for our plant-based products.
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Health
and Environmental Impact of Animal-Based Meat Consumption
Consumer interest in plant-based proteins, particularly among millennial and younger generations, has been driven in part by growing awareness of the health and environmental impact of animal-based meat consumption. Now that consumers have access to unprecedented levels of information provided via the Internet and social media channels, we expect global awareness of these issues to grow and have a positive impact on consumer demand for our products.
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Health:
The negative impact on health caused by certain meats has been well publicized in recent years. In 2004, the WHO highlighted a paper indicating that dietary factors, including consumption of certain meats, accounted for at least 30% of most cancers in developed countries and up to 20% in developing countries. The WHO has since added processed meats such as hot dogs, ham, bacon and sausage to its Group 1 category of carcinogens. A similar conclusion was presented at the American Heart Association, where researchers conducting a 2017 dietary study of over 15,000 adults between 2003 to 2013 highlighted that people who eat mostly a plant-based diet were associated with a 42% reduced risk of developing heart failure among people without diagnosed heart disease or heart failure. Additionally, animals and livestock are also susceptible to various diseases such as Mad Cow (beef), Swine Flu (pork) and Avian Influenza (poultry) that
may cause further health risks from consuming potentially infected animal meats.
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Climate change: The global livestock industry is estimated to be responsible for a significant portion of global greenhouse gas emissions, such as methane and nitrous oxide. Estimates range from 18 to 51%. The landmark IPCC Report highlighted that climate change is expected to cause “severe, widespread, and irreversible impacts” on the natural environment unless carbon emissions are cut sharply and rapidly. The report highlighted that behavioral changes, including dietary changes such as eating less meat, can have a significant role in cutting emissions.
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Global
resource usage: Rising global meat consumption and livestock production has been shown to have major negative impacts on the environment due to the burden placed on land
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and water resources. According to the FAO, livestock occupies 30% of the planet’s land surface and accounts for 78% of all agricultural land use. The WRI Water Report also indicates that 29% of the water in agriculture is directly or indirectly used for animal production. Meat consumption is also burdensome on the environment in terms of production inputs. According to the WRI Report, beef is highly inefficient to produce because only 1% of the feed consumed by cattle is converted to calories that people consumed from eating beef while pork
converts approximately 10% and poultry converts approximately 11% of their feed to human-edible calories. During 2017 and 2018, Beyond Meat engaged the University of Michigan to conduct a peer-reviewed, third-party-led Life Cycle Assessment comparing the environmental impacts associated with producing a ¼-lb Beyond Burger versus a ¼-lb, standard 80/20 beef burger (which is a mixture of 80% lean cow muscle and 20% cow fat). The results of this study show that compared to a beef burger, The Beyond Burger generates 90% less greenhouse gas emissions, requires 46% less energy, has 99% less impact on water scarcity and 93% less impact on land use.
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Animal
welfare: Worldwide, it is estimated that about 60-70 billion farm animals are now produced for food each year; with two out of every three being factory farmed. Over the past decade, animal welfare groups have publicized a range of investigations highlighting the issues related to safety, welfare and well-being of animals caused by mass livestock production, which we believe has led to substantial movement toward more plant-based alternatives.
Our Competitive Strengths
We believe that the following strengths position us to generate significant growth and pursue our objective to become a leader in the global meat category.
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Dedicated
Focus on Innovation
We invest significant resources in our innovation capabilities to develop plant-based meat alternatives to popular animal-based meat products. Our innovation team, comprised of approximately 63 scientists, engineers, researchers, technicians and chefs, has delivered multiple first-to-market plant-based meat breakthroughs, as well as continuous improvements to existing products. Both our Beyond Burger and our Beyond Sausage products are the result of this approach. We are able to leverage what we learn about taste, texture and aroma across our platform and apply this knowledge to each of our product offerings. In addition, we recently opened our 30,000-square-foot Manhattan Beach Project Innovation Center in El Segundo, California, which is ten times the size of our previous lab space. In our
new innovation center, we have a strong pipeline of new products in development, and can more rapidly transition our research from bench top to scaled production. As our knowledge and expertise deepens, our pace of innovation is accelerating, allowing for reduced time between new product launches. Our goal is to develop at least one new product a year. After taking multiple years to develop the first Beyond Burger, it took us less than a year to develop a new version, with improved taste, texture and aroma attributes. This newer version of The Beyond Burger is already being sold by A&W Canada and Carl’s Jr., generating enthusiastic comparisons to beef. We expect this faster pace of product introductions and meaningful enhancements to existing products to continue as we innovate within our core plant-based platforms of beef, pork and poultry. Recently, in March 2019, we introduced our newest innovation, Beyond Beef, which is designed to have
the meaty taste and texture of ground beef and replicate the versatility of ground beef. Beyond Beef’s versatility is the result of a unique binding system that allows the product to seamlessly shape into a variety of forms.
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Brand Mission Aligned with Consumer Trends
Our brand is uniquely positioned to capitalize on growing consumer interest in great-tasting, nutritious, convenient, higher protein and plant-based foods. We have also tapped into growing public awareness of major issues connected to animal protein, including human health, climate change,
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resource
conservation and animal welfare. Simply put, our products aim to enable consumers to “Eat What You Love” without the downsides of conventional animal protein. Consumer research shows that health concerns are some of the key reasons consumers seek plant-based alternatives to meat. Our ¼‑lb retail Beyond Burger contains zero cholesterol and about 40% less saturated fat than a ¼-lb standard 80/20 beef burger.
We have built a powerful brand with broad demographic appeal and a passionate consumer base. Our brand awareness is driven by strong social marketing, with over 1.2 million combined social media and newsletter followers as of March 2019, more than 9.9 billion earned media impressions in 2018 and more than 4.0 billion earned media impressions from January to March 2019. See “—The Beyond Meat Strategic Difference—Unique Approach to Our
Brand” above for more information on “earned media impressions” and the limitations of this metric. Our audience continues to grow from the attention generated by our large following of celebrities, influencers and brand ambassadors who identify with our mission.
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Product Portfolio Generates Significant Demand from Retail and Restaurant Customers
Rapidly growing sales of our products by both our retail and restaurant partners have helped us foster strong relationships in a relatively short period of time. We provide our retailers with exciting new products in the meat case, where innovation rarely occurs. Many of our retail customers have experienced increasing
levels of velocity of our products, measured by units sold per month per store, as well as repeat purchases. Recent shopper data research demonstrates Beyond Meat’s mainstream consumer appeal, revealing that 93% of Beyond Burger buyers at one of the nation’s largest conventional grocers, Kroger, also purchase meat over the 26-week period ended June 30, 2018, which indicates that our products appeal to a much wider audience than the niche audience of vegans and vegetarians that typically purchase legacy meat substitutes. Our restaurant customers are excited by the opportunity to differentiate their menu offering and attract new customers by partnering with Beyond Meat, and are seeking new ways to further promote our product. In summer 2018, A&W Canada, the country’s second
largest burger chain, ran an advertising campaign promoting The Beyond Burger as an exciting new product offering to drive consumer traffic. We believe their choice to feature The Beyond Burger demonstrates the marketing power of our brand and overall consumer excitement for our product. Additionally, popular restaurants have approached us directly to carry our branded product, despite already carrying our competitors’ products. This type of demand for our products has been a driving force in building strong ties with customers who have been continuously impressed by the impact our brand can make on their business.
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Experienced and Passionate Executive Management Team
We are led by a proven and
experienced executive management team. Prior to founding Beyond Meat, Ethan Brown, our President and Chief Executive Officer, spent over a decade in the clean energy industry working for hydrogen fuel cell leader, Ballard Power Systems, rising from an entry level manager to reporting directly to the Chief Executive Officer. Mr. Brown’s significant experience in clean tech, coupled with a natural appreciation for animal agriculture, led him to start a plant-based food company. Seth Goldman, our Executive Chair, has extensive experience working at fast-growing brands in the food and beverage industry, having founded Honest Tea Inc., which was later sold to The Coca-Cola Company. Our management team plays an integral role in Beyond Meat’s success by instilling a culture committed to innovation, customer satisfaction and growth. Over time, we have grown our executive management team with carefully
selected individuals who possess substantial industry experience and share our core values. The other members of our executive management team, which include Mark J. Nelson, Chief Financial Officer; Charles Muth, Chief Growth Officer; Dariush Ajami, Chief Innovation Officer; and Stephanie Pullings Hart, Senior Vice President, Operations, have an average of 21 years of industry experience, having driven growth at both consumer packaged goods companies and high growth businesses, such as The Clorox Company, The Coca-Cola Company, Farmer Bros. Co. and Nestlé. We believe this blend of talent gives us tremendous insights and capabilities to create demand and fulfill it in a scalable, profitable and sustainable way.
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Our
Growth Strategy
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Pursue Top-line Growth Across our Distribution Channels
We believe there is a significant opportunity to expand Beyond Meat well beyond our current retail and restaurant footprint. Our early focus was to establish a presence in the grocery retail channel, and we have successfully expanded into approximately 30,000 points of distribution across the United States and abroad. In addition to further growth within retail, we are beginning to sell more of our product in restaurants and other foodservice locations and developing relationships with international partners, both of which represent significant new opportunities. We believe increased distribution will lead more consumers to
purchase our products and increase the overall size of the plant-based protein category as more consumers shift their diets away from animal-based proteins.
We have developed a strategy to pursue growth within the following distribution channels:
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Retail: Building on the strong success of The Beyond Burger, we intend to increase our presence as the first plant-based protein offering in the meat case. We have a strong presence at leading food retailers, including Albertsons, Kroger, Wegmans and Whole Foods Market. We have a significant opportunity to grow our sales within U.S. retail by focusing on increasing sales at our existing points of distribution, as well as increasing sales of new products,
such as our Beyond Sausage product. We also expect to grow our U.S. retail distribution by establishing commercial relationships with new customers. Examples of customer wins in 2018 include Publix and Sprouts.
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Restaurant and Foodservice: Our 2017 national food distribution launch of The Beyond Burger has resulted in our products being served in approximately 12,000 restaurant and foodservice outlets in the U.S. and Canada. We have established other partnerships with selected restaurant and foodservice chains, including BurgerFi, Bareburger, Carl’s Jr., Del Taco, TGI Fridays
and A&W Canada. We plan to continue to aggressively expand our network of restaurant and foodservice partners. As a result of our recent partnership with Carl’s Jr., The Beyond Burger is currently being sold at more than 1,100 Carl’s Jr. locations nationwide. We have received significant interest from other new potential partners and are expecting to launch at several prominent restaurant chains in 2019.
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International: We believe there is significant demand for our products in Canada and Europe across retail and restaurant and foodservice channels and expect to increase production for those regions in 2019. We launched in Europe in August 2018 through contracts
with three major distributors. We have established and seek to establish additional relationships with distributors in other geographies, including Australia, Israel, South Korea, South Africa and parts of the Middle East.
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Invest in Infrastructure and Capabilities
We are committed to prioritizing investment in our infrastructure and capabilities in order to support our strategic expansion plans. As a fast-growing company, we are making significant investments in hiring the best people, maximizing our supply chain capabilities and optimizing our systems in order to establish a sustainable
market-leading position for the long-term future. In 2018, we commenced production at a new state-of-the-art manufacturing facility and entered into relationships with three additional co-manufacturers to significantly increase our production capacity. In the first quarter of 2019, our monthly production capacity was triple our monthly capacity at the end of the second quarter of 2018. We have plans to unlock additional capacity both domestically and internationally in 2019. We are continuing to hire experienced employees in our sales, marketing, operations, innovation and finance teams to support our rapid growth. We are constantly evaluating and improving our supply chain processes and partnerships, so that we can increase manufacturing efficiencies and quality, while reducing costs.
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•
Expand
Our Product Offerings
The successes of The Beyond Burger and Beyond Sausage products have confirmed our belief that there is significant demand for additional plant-based meat alternative products. We intend to strengthen our product offering by improving the formulations for our existing portfolio of products and by creating new products that expand the portfolio. We are continuously refining our products to improve their taste, texture and aroma. In addition, we are committed to increasing our investment in research and development to continue to innovate within our core plant-based platforms of beef, pork and poultry to create exciting new product lines and improve the formulations for our existing portfolio of products. In 2018, we developed a new version of The Beyond Burger with improved taste, texture and aroma attributes. In March
2019, we introduced our newest innovation, Beyond Beef, which is designed to have the meaty taste and texture of ground beef and replicate the versatility of ground beef. Beyond Beef is anticipated to be Halal and Kosher certified and is expected to be in retail stores later this year. Also in March 2019, we launched the Beyond Sausage patty at A&W (Canada).
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Continue to Grow Our Brand
We intend to continue to develop our brand and increase awareness of Beyond Meat. We plan on highlighting our “Eat What You Love” message and the global environmental benefits that come with consumers eating more of our products. We also plan to continue to create relevant content with our network of celebrities,
influencers and brand ambassadors, who have successfully built significant brand awareness for us by supporting our mission and products and incorporating Beyond Meat into their daily lifestyle. We intend to expand our field marketing efforts to sample products directly with consumers in stores and at relevant events. We launched a Beyond Meat food truck in the fall of 2018 that supports consumer sampling, content creation, as well as media, influencer and customer activations.
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Remain Mission Focused and True to Our Values
We are a mission-driven business with long-standing core values. We strive to operate in an honest, socially responsible and environmentally sustainable manner and are committed
to help solve the major health and global environmental issues which we believe are caused by an animal-based protein diet and existing meat industry practices. We believe our authentic and long-standing commitment to these causes better positions us to build loyalty and trust with current consumers and helps attract new ones. Our corporate culture embodies these values and, as a result, we enjoy a highly motivated and skilled work force committed to our mission and our enterprise.
Our Products
We sell a range of products across the three core plant-based platforms of beef, pork and poultry. They are offered in ready-to-cook formats (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. Though the original line of Beyond Meat products were ready-to-heat, our ready-to-cook
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offerings, such as Beyond Burger and Beyond Sausage, have been the chief drivers of our growth. All of our products are 100% free of gluten and GMOs and are significantly lower in saturated fats than their animal-based equivalents. We are focused on making them nutritionally dense, with minimal negative attributes.
Ready-to-cook (“Fresh”)
The Beyond Burger. The Beyond Burger, our flagship product, was our first product merchandised in the meat case of grocery
stores. The Beyond Burger is designed to look, cook and taste like traditional ground beef. The Beyond Burger’s primary source of protein comes from yellow peas, providing 20 grams of protein and three grams of fiber per serving, and is free from soy, gluten and GMOs.
Beyond Beef. Beyond Beef, our newest product, is designed to have the meaty taste and texture of ground beef and replicate the versatility of ground beef. It has 25% less saturated fat than beef or less than six grams per serving. Like animal-based ground beef, Beyond Beef can be used in a variety of dishes, such as tacos and meatballs. It is made from a blend of mung, pea and rice proteins and is free from soy, gluten and GMOs.
Beyond Sausage.
Beyond Sausage is a ready-to-cook sausage designed to look, cook and taste like a pork sausage. Beyond Sausage’s primary source of protein comes from yellow peas, providing 16 grams of protein and three grams of fiber per serving, and is free from soy, gluten and GMOs. Beyond Sausage currently comes in three flavors across both retail and foodservice: Brat Original, Hot Italian and Sweet Italian.
Ready-to-heat (“Frozen”)
Beyond Beef Crumbles. Beyond Beef Crumbles are ready-to-heat products designed to look and satisfy like minced or ground beef. Beyond Beef Crumbles’ primary source of protein comes from yellow peas, providing approximately 13 grams of protein and one gram of fiber per serving, and is free from soy, gluten and GMOs. Beyond Beef Crumbles currently
come in two flavors for retail: Beefy and Feisty. The four flavors available for foodservice are Plain, Beefy, Feisty and Sausage.
Customers and Distributors
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Retail
Since the success of The Beyond Burger, we have created a strong presence at leading food retailers across the country, such as Ahold, Kroger, Safeway, Shop Rite, Stater Brothers, Target, Wegmans and Whole Foods Market.
Many of these retailers purchase our products through food distributors which purchase, store, sell, and deliver our products to retailers. Because such distributors function in an intermediary role, we do
not consider them to be customers.
For 2018, our largest distributors in terms of their respective percentage of our gross revenues included the following: UNFI, 32%; DOT, 21% and Sysco, 13%.
For 2018, our retail channel accounted for approximately 58% of our net revenues and has grown approximately 311% since 2016. We have a significant opportunity to grow our sales within U.S. retailers with improved fill rates at new and existing retail partners as we increase our production capacity, as well as increased sales of our product innovations, such as our Beyond Sausage.
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Restaurant
and Foodservice
Our 2017 national food distribution launch of The Beyond Burger has resulted in its being served in approximately 12,000 restaurant and foodservice outlets in the United States and Canada. We have established partnerships with selected restaurant chains, including A&W (Canada), Bareburger, BurgerFi,
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TGI Fridays and Veggie Grill. As a result of our recent partnership with Carl’s Jr., The Beyond Burger is currently being sold at more than 1,100 Carl’s Jr. locations nationwide. Our products are also available in prominent entertainment and hospitality vendors, such as Cinemark Theatres, Disney World, Hilton, Hyatt, LEGOLAND
and Marriott. In 2018, our restaurant and foodservice channel accounted for approximately 42% of our net revenues and has grown approximately 868% since 2016. We expect to launch The Beyond Burger and other products at additional prominent restaurant chains in 2019.
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International
We distribute our products internationally, using distributors in Australia, Chile, the European Union, Hong Kong, Ireland, Israel, the Middle East, New Zealand, South Korea, Taiwan and the United Kingdom. In 2017 and 2018, international sales represented approximately 1% and 7%, respectively, of our gross revenues. We expect
our international sales to grow substantially in the future, and believe that they will contribute an increasing share of our net revenues in coming periods.
Case Studies
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Kroger
Beyond Meat generated considerable excitement in July 2016, when it launched the plant-based The Beyond Burger and sold it in the meat section. There was considerable skepticism in the conventional grocer community in general as to whether the product—and bold merchandising strategy—would work in conventional grocery chains, and whether the success of the product’s initial launch at natural foods and specialty grocer chains was driven solely by vegans and vegetarians and other
natural consumers. Beyond Meat maintained that The Beyond Burger was developed for, and held strong appeal among, meat eaters who enjoyed the taste of meat, but increasingly sought to avoid the health issues associated with animal-based meat.
In June 2017, Kroger put The Beyond Burger and Beyond Meat’s consumer-target hypothesis to the test, authorizing close to 1,000 Kroger and Kroger-affiliated brand stores in five geographically diverse divisions in Atlanta and Michigan Kroger divisions plus King Soopers (Colorado), Ralphs (Southern California) and Fred Meyer (Oregon/Washington), to carry the product, selling it in the meat section. The product was an immediate success across store brands and geographies. The average velocity steadily increased from an average of four to five units sold per store per week upon launch to an average of 16 to 19 units sold per store per week as of August 2018. In the Southern California division
of Ralph’s, a subsidiary of Kroger, The Beyond Burger was the #1 selling packaged burger patty by unit in the meat case for a 12-week period, outselling other packaged burgers by more than 50%. Due to the popularity of The Beyond Burger, Kroger recently extended the product’s distribution to an additional 11 divisions, bringing the total distribution store count to slightly more than 1,500 stores and 17 total divisions.
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A&W Canada
In late 2017, we were approached by A&W Canada, the second largest quick-serve burger chain in Canada, to hold some exploratory discussions around the addition of The Beyond Burger to A&W’s menu at its nearly 1,000 outlets. A&W Canada, a separate entity
from A&W US, has a long history of adopting forward-thinking business practices aimed at better ingredients, transparency, and environmental stewardship.
While the A&W team saw a strong sustainability story in the idea of offering The Beyond Burger, they were initially more cautious and wanted to validate that The Beyond Burger would appeal to A&W’s meat-loving consumer base. In January 2018, A&W conducted concept and focus group testing to gauge consumers’ appetite for The Beyond Burger.
The results of the consumer testing were very positive. The concept of a plant-based burger that tasted like real meat, but without its health baggage, held strong appeal. In the taste testing, the actual product received high marks from surprised consumers. A&W CEO, Susan Senecal commented, “We
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were
blown away by the flavor and taste and delicious ‘burgerness’ of Beyond.” On the strength of these results, The Beyond Burger launched chain-wide and became the fastest new-product launch in A&W history. More than 90,000 patties were sold in the first three days after the launch and prior to the start of any media promotions. Nationwide, the level of consumer demand outpaced both A&W’s and Beyond Meat’s projections, leading to product sell-outs and widespread demand for more burgers. A&W also received reports from store managers that guest counts were up, indicating that The Beyond Burger was driving incremental business. A&W recently reported that the company experienced 10% same-store growth across Canada in 2018 due to A&W’s strategy to focus on innovation and quality ingredients and that bringing The Beyond Burger to the chain’s menu was part of that process.
A&W’s CEO Susan Senecal was quoted as saying, “We heard some guests who hadn’t been to A&W for a while were attracted by the idea of the Beyond Meat burger, and as well as some of our regular guests who just decided that they wanted to try it… so they came and gave it one more visit.”
Our Supply Chain
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Sourcing and Suppliers
The principal ingredients to manufacture our products include pea protein and our plant-based flavors. We procure the raw materials for our woven protein from a number of different suppliers. Although most of the raw materials we require are typically readily available from multiple sources, we rely on two suppliers
for the pea protein used for The Beyond Burger and Beyond Sausage. See “—Supply Agreements.”
We have a third supplier of yellow peas sourced from Canada which we use in our Beef Crumbles. This supplier based in China exports the pea protein it processes into the United States to an intermediary facility before it is shipped to our facilities in Columbia, Missouri.
We continually seek additional sources of pea protein and other plant-based protein for our products that meet our criteria.
Flavors consist of product flavors that have been developed by our innovation team in collaboration with our supply partners exclusively for us. The formulas are then produced by our suppliers for use in our products. Ingredients in our flavors are qualified through trials to ensure manufacturability. Upon receipt of the ingredients, we receive
Certificates of Analysis from our suppliers in our quality control process to confirm that our rigorous standards have been met. Flavors are extensively tested prior to introduction to ensure finished product attributes such as taste, texture and appearance are not negatively impacted.
We do not have long-term supply agreements with most of our suppliers. However, we secure our supplies on a purchase order basis. As most of the raw materials we use in our flavors are readily available in the market from many suppliers, we believe that we can within a reasonable period of time make satisfactory alternative arrangements in the event of an interruption of supply from our vendors.
Manufacturing
Our manufacturing process is diagrammed below.
First,
a dry blend containing our pea protein is combined within our manufacturing facility. The dry blend then enters our extruder, where both water and steam are added. We then use a combination of
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heating, cooling and variations of pressure to weave together the proteins. The formed woven protein is then cut into smaller pieces to expedite the freezing process and assist in the final manufacturing process. The frozen woven protein is used as the basis of all our products. Next, our co-manufacturers further process the frozen woven protein by combining flavorings and other ingredients, after which the co-manufacturer prepares the final packaged product that is then shipped to stores. In order to sustain the quality of our products, we have implemented a
“define, measure, analyze, improve and control,” or DMAIC, approach to improve, optimize and stabilize our processes and design.
While we manufacture The Beyond Burgerfor sale to the foodservice channel, we depend on co-manufacturers for all of our other products. Our co-manufacturers are located in California, Texas, Georgia and Pennsylvania. All third-party co-manufacturers sign non-disclosure agreements to ensure that our proprietary intellectual property and trade secrets are protected. We continue to explore establishing relationships with additional co-manufacturers as the business grows to take advantage of more competitive pricing and availability of our products.
Quality Control
In-process quality checks are performed throughout the manufacturing process,
including temperature, physical dimension and weight. We provide specific instructions to vendors and restaurants for storing and cooking our products. All products are transported and stored frozen. Frozen products such as the Beyond Beef Crumbles are intended to be prepared from their frozen state, with cooking instructions enclosed on all packaging.
Retail products sold in the meat case as part of our “fresh” platform, such as The Beyond Burgerand Beyond Sausage are shipped to the customer frozen. The foodservice customer is provided instructions on ‘slacking,’ which is typically done by moving frozen food to a refrigerator to allow it to slowly and safely thaw before cooking. For this step, retail customers must apply a “use by date” sticker of seven days for Beyond Sausage or 10 days for The Beyond Burger.
Distribution
Distribution
of products occurs from our in-house manufacturing facilities in Columbia, Missouri. From our co-manufacturing facilities, products are transferred by third-party logistics providers to cold storage facilities or are directly shipped to the customer.
At present, we do not utilize internal software to track loads but we leverage the systems of our transportation partners to manage our supply chain through retail distribution.
Ingredient and Packaging Suppliers
Packaging supplies are sourced in the United States with the exception of the Beyond Sausage tray which is currently sourced from China. We maintain approximately 10 weeks of inventory on these trays to ensure that we can mitigate any risk of interruption in supply.
We utilize an industry standard Number 3 Modified Atmospheric Packaging,
or MAP Tray, that is slotted for the placement of two four ounce patties and used for the retail Beyond Burger. Packaging specifications are clearly defined and shared with our third-party relationships.
Order Fulfillment
Our customer service and logistics functions are responsible for customer-facing activities, order management, customer logistics, 4PL leadership and intra-company distribution. These functional areas reside in the Sales Operations department. We utilize NetSuite (ERP), MS Applications and Cloud interface platforms for these processes. Customer orders are principally transmitted via electronic data interface, or EDI, but may be processed manually if necessary. Orders are accepted in NetSuite, reviewed for accuracy and fulfillment plans are developed. When fulfillment plans are ready, orders are downloaded and emailed
to our transportation partners for tendering. The order fulfillment process is led
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by the Sales Operations Manager and two direct-reports. Metrics for the Customer Service and Logistics team include order fill, on-time shipping, customer scorecards as needed and cost leadership. We have agreements with third-party service providers for all of our shipping needs.
Sales and Marketing and Consumer Outreach
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Sales
As of March
30, 2019, our 40-person sales and commercial team, led by Chief Growth Officer, Charles Muth, is organized into three divisions, retail, foodservice and international. The sales team has an extensive range of experience from leading natural food, meat and plant-based protein companies. The retail, foodservice and international teams work in close coordination with a national network of broker and distributor sales teams that gives us access to accounts across the United States.
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Field Marketing Representatives
We have an active field marketing team that samples our products at special events and utilizes a food truck. As of March 2019, we have executed approximately 400 such events, with approximately
138,000 samples distributed.
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Digital Marketing and Social Media
The primary means by which we drive consumer awareness and interest in our products is via (i) social media, (ii) our digital newsletter, which had over 242,000 subscribers as of March 2019 and (iii) our website, which had on average approximately 297,000 unique monthly visits from April 2018 to March 2019.
While we enjoy upward growth in our online marketing activities, we have historically done a relatively modest amount of paid targeting. In 2017, we dedicated approximately 4% of our marketing
and advertising spend to digital marketing channels. We maintain a registered domain website at www.beyondmeat.com, which serves as the primary source of information regarding our products. Our website drew approximately 3.6 million visitors from April 2018 to March 2019 based on Google Analytics. Our website is used as a platform to promote our products, provide news, share recipes, highlight nutritional facts and provide general information on where to purchase our products, whether retail or as served in an establishment.
We extensively
use social media platforms such as Facebook, Instagram and Twitter for online collaboration. These platforms are fundamentally changing the way we engage with our consumers and allow us to directly reach desirable target demographics such as millennials and “Generation Z.” A few examples of how we use social media to connect with our consumers and promote healthy lifestyles are summarized below.
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Facebook: We maintain a company Facebook page, which we use to facilitate consumer services, distribute brand information and news and publish videos and pictures promoting the brand. We also conduct regular contests and giveaways. As of March 2019, we had over 360,000 Facebook followers.
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Instagram:
We maintain an active company Instagram account, @beyondmeat, which we use to publish content related to our products and company in order to better connect with potential and existing consumers. We frequently publish news, celebrity promotion and content related to our activities. As of March 2019, we had over 567,000 Instagram followers.
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Twitter: We maintain an active company Twitter account, @BeyondMeat, which we use to disseminate trending news and information, as well as to publish short format tips, tricks and shortcuts. We also regularly interact with our consumers. As of March 2019, we had over 70,000 Twitter followers.
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•
LinkedIn:
We maintain an active company LinkedIn account, which we use to disseminate news related to Beyond Meat and industry-related media and information. We use our LinkedIn account as a job board for individuals interested in working with us. As of March 2019, we had more than 16,000 LinkedIn followers.
Celebrity Endorsement
We are fortunate to have partnered with celebrities such as Tia Blanco, Leonardo DiCaprio, Snoop Dogg, Kyrie Irving, DeAndre Hopkins and DeAndre Jordan who share our core values. Their organic involvement and interest are helpful to promoting our overall mission.
Competition
We operate in a highly competitive environment. We believe that we compete with both conventional animal-protein companies, such as Cargill, Hormel, JBS, Tyson and
WH Group (including its Smithfield division) and also plant-based protein brands, such as Boca Foods, Field Roast Grain Meat Co., Gardein, Impossible Foods, Lightlife, Morningstar Farms and Tofurky. We believe the principal competitive factors in our industry are:
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taste;
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nutritional profile;
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ingredients;
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texture;
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ease
of integration into the consumer diet;
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low-carbohydrate, low-sugar, high fiber and protein;
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lack of soy, gluten and GMOs;
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convenience;
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cost;
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brand
awareness and loyalty among consumers;
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media spending;
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product variety and packaging;
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access to major retailer shelf space and retail locations;
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access
to major restaurant and foodservice outlets and integration into menus; and
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intellectual property protection on products.
We believe we compete effectively with respect to each of these factors. However, many companies in our industry have substantially greater financial resources, more comprehensive product lines, broader market presence, longer standing relationships with distributors and suppliers, longer operating histories, greater production and distribution capabilities, stronger brand recognition and greater marketing resources than we have.
Employees
As of March
30, 2019, we had 383 full-time employees, including 227 in operations, 63 in innovation, research and development, 40 in sales and marketing and 17 in finance. Of the full-time employees,
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104 are contract workers. None of our employees is represented by a labor union. We have never experienced a labor-related work stoppage.
Facilities
We do not own any real property. We lease our headquarters at 119 Standard St., El Segundo, California pursuant to a lease agreement that expires on February 29, 2024. The building is approximately
17,600 square feet. If we are not in breach of the terms of this lease and provide our landlord with the required notice, we have an option to extend the term for an additional 36 months commencing when the prior term expires. We also lease our 30,000-square-foot Manhattan Beach Project Innovation Center at 1325 East El Segundo Blvd., El Segundo, California pursuant to a lease agreement that expires on January 31, 2022. If we are not in breach of the terms of this lease and provide our landlord with the required notice, we have an option to extend the term of this lease for an additional 24-month period commencing when the prior term expires.
We also lease our industrial manufacturing plant located at 1714 Commerce Ct., Suites A&B, Columbia, Missouri pursuant to a lease agreement, as supplemented by a side letter dated June
10, 2014. We are in the process of signing a one-year extension of the lease term, which expires on June 30, 2019. The approximately 26,000-square-foot facility houses our industrial manufacturing plant.
We have recently opened an expanded manufacturing facility located at 2400 Maguire Boulevard, Columbia, Missouri pursuant to a lease agreement that expires on October 1, 2024. The manufacturing facility is approximately 64,000 square feet. If we are not in breach of the terms of our lease, the term of the lease will be automatically renewed for two consecutive three-year option periods.
We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.
Research
and Development
Our research and development team, create, tests and refines our products at our Manhattan Beach Project Innovation Center. We employ in-house scientists, engineers, researchers and testers to help create the next iterations to plant-based meat products. Our team has delivered a number of first-to-market breakthroughs focused on plant-based meat and we are also focused on continuous improvement of existing products. We have and will continue to protect any intellectual property created by us.
As of March 30, 2019, we employed approximately 63 scientists, engineers, researchers, technicians and chefs to help create the next generation of food for our consumers.
Our Beyond Meat Rapid and Relentless Innovation Program defines the details of the product innovation process
from ideation and prototype development through commercialization. This process assigns responsibility and accountability of each functional team throughout the process and defines deliverables at each step.
Product Innovation
Innovation is a core competency of ours and important part of our growth strategy. Our goal is to identify large, animal-based meat product categories across our core plant-based platforms of beef, pork and poultry that exhibit long-term consumer trends. We then dedicate significant research and development resources to create authentic plant-based versions for these products that replicate taste, texture and aroma of their animal-based equivalents. We have been able to leverage the success of our existing products and resulting brand equity to launch improved versions our existing products and create new products. We have a range of new products in our pipeline
and our goal is to develop at least one new product a year.
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The innovation team undertakes extensive research projects to increase our fundamental understanding of animal-based meat and plant-based equivalents. A few examples of where we are focusing on continued refinements of our products include:
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Better fat adipose tissue and saturated fat mimics: We are researching new materials and technologies capable of mimicking saturated fat in terms of texture and appearance, but without the nutritional drawbacks of saturated
fat.
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Alternative functional proteins: We pursue new non-animal proteins that add function to our food products, including native proteins that can denature during cooking, protein binders and protein emulsifying agents and proteins.
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Additional connective tissue equivalents: We are seeking materials and methods to introduce additional cartilaginous-like materials and heterogeneity in the form of both texture and appearance in our food products.
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Encapsulation
materials and technology: We are seeking new materials and technologies to expand the scope of controlled-release delivery systems in our food products as it relates to delivering flavor, color and texturizing agents.
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Materials and technologies to support flavor and texture development: We are seeking non-GMO enzymes that can assist with protein enzymolysis as it relates to flavor reactions.
Seasonality
Generally, we expect to experience greater demand for certain of our products during the summer grilling season. In each of 2017 and 2018, we experienced strong net revenue growth compared
to the previous year, which masked this seasonal impact. 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.
Trademarks and Other Intellectual Property
We own domestic and international trademarks and other proprietary rights that are important to our business. Depending upon the jurisdiction, trademarks are valid as long as they are used in the regular course of trade and/or their registrations are properly maintained. Our primary trademarks are The Beyond Burger, Beyond Beef, Beyond Chicken, Beyond Meat, Beyond Sausage, The Cookout Classic, The Future of Protein and The Future of Protein Beyond Meat, all of which are registered with the U.S. Patent and Trademark Office. Our trademarks are valuable assets that reinforce the distinctiveness of our brand to our
consumers. We have applied for or have trademark registrations internationally as well, including in Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Egypt, the European Union, Hong Kong, India, Indonesia, Israel, Japan, Mexico, the Middle East, New Zealand, Norway, Philippines, South Korea, Russia, Saudi Arabia, Singapore, South Africa, Switzerland, Taiwan, Thailand, Turkey and the United Arab Emirates. We believe the protection of our trademarks, copyrights, patents, domain names, trade dress and trade secrets are important to our success.
We aggressively protect our intellectual property rights by relying on trademark, copyright, patent, trade dress and trade secret laws and through the domain name dispute resolution system. Our domain name is www.beyondmeat.com, which drew approximately 2.4 million
visitors from January through December 2018 based on Google Analytics.
We believe our intellectual property has substantial value and has contributed significantly to our business. At March 30, 2019, we had one issued patent in the United States and eight pending patent applications in the United States and 13 pending international patent applications.
We consider the specifics of our marketing, promotions and products as a trade secret, and information we wish to keep confidential. In addition, we consider proprietary information related to
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formulas, processes, know-how and methods used in our production and manufacturing
as trade secrets, and information we wish to keep confidential. We have taken reasonable measures to keep the above-mentioned items, as well as our business and marketing plans, customer lists and contracts reasonably protected, and they are accordingly not readily ascertainable by the public.
Segments
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by its chief operating decision maker, or CODM, in deciding how to allocate resources to an individual segment and in assessing performance. Our CODM is our Chief Executive Officer. We have determined that we operate in one operating segment and one reportable segment, as our CODM reviews financial information presented on an aggregate basis for purposes
of making operating decisions, allocating resources, and evaluating financial performance.
Government Regulation
Along with our co-manufacturers, brokers, distributors and ingredients and packaging suppliers, we are subject to extensive laws and regulations in the United States by federal, state and local government authorities. In the United States, the primary federal agencies governing the manufacture, distribution, labeling and advertising of our products are the U.S. Food and Drug Administration, or FDA, and the U.S. Federal Trade Commission, or FTC. Under various federal statutes and implementing regulations, these agencies, among other things, prescribe the requirements and establish the standards for quality and safety and regulate our product composition, manufacturing, labeling and other marketing and advertising to consumers.
Among other things, the facilities in which our products and ingredients are manufactured must register with the FDA, comply with current good manufacturing practices, or cGMPs and comply with a range of food safety requirements established by and implemented under the Food Safety Modernization Act of 2011. The FDA has the authority to inspect these facilities to evaluate compliance with these requirements. The FDA also requires that certain nutrition and product information appear on our product labels and, more generally, that our labels and labeling be truthful and non-misleading. Similarly, the FTC requires that our marketing and advertising be truthful, non-misleading and not deceptive to consumers. We are also restricted from making certain types of claims about our products, including nutrient content claims, health claims, and claims regarding the effects of our products on any structure
or function of the body, whether express or implied, unless we satisfy certain regulatory requirements.
In addition, the U.S. Department of Agriculture, or USDA, regulates certain categories of food products, including meat and poultry products. Although our plant-based products are not currently regulated by the USDA, in February 2018, the agency received a petition from industry requesting that it exclude products not derived from the tissue or flesh of animals that have been harvested in the traditional manner from being labeled and marketed as “meat,” and exclude products not derived from cattle born, raised and harvested in the traditional manner from being labeled and marketed as “beef.” The USDA has not yet responded substantively to this petition, but has indicated that the petition is being considered as a petition for a policy change under the USDA’s regulations.
In
addition to federal regulatory requirements in the United States, certain states impose their own manufacturing and labeling requirements. For example, every state in which our products are manufactured requires facility registration with the relevant state food safety agency, and those facilities are subject to state inspection as well as federal inspection. Further, states can impose state-specific labeling requirements. For example, in 2018, the state of Missouri passed a law that prohibits any person engaged in advertising, offering for sale, or sale of food products from misrepresenting products as meat that are not derived from harvested production livestock or poultry. The state of Missouri Department of Agriculture has clarified its interpretation that products which include prominent disclosure that the product is “made from plants,” or comparable disclosure such as through the use of the phrase “plant-based,”
are not misrepresented under Missouri law. We believe that our products are manufactured and labeled in material compliance with all relevant state requirements, including the recent Missouri law, and
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pay close attention to any developments at the state or federal level that could apply to our products and our labeling claims.
We are also subject to the laws of Australia, Canada, Hong Kong, Israel and the United Kingdom.
We are subject to labor and employment laws, laws governing advertising, privacy laws, safety regulations and other laws, including consumer protection regulations that regulate retailers or govern the promotion and sale of merchandise. Our operations,
and those of our co-manufacturers, distributors and suppliers, are subject to various laws and regulations relating to environmental protection and worker health and safety matters. We monitor changes in these laws and believe that we are in material compliance with applicable laws.
Supply Agreements
We have entered into a one-year supply agreement with Roquette America, Inc., or Roquette, which provides us with pea protein sourced from yellow peas from Canada and France. The agreement expires on December 31, 2019. This agreement increases the amount of pea protein to be supplied by Roquette in 2019 compared to a previous agreement with Roquette which was superseded by this new agreement. The pea protein obtained pursuant to the supply agreement is obtained on a purchase order basis regularly, per fairly equal quantities, throughout
the term. Roquette is not obligated to supply us with pea protein in amounts in excess of the regular spread by month of the total minimum quantity required to be purchased by us. We have the right to cancel purchase orders if we provide timely written notice; however, the total annual amount purchased must be at least the minimum amount specified in the agreement. We also have the right to be indemnified by Roquette in certain circumstances. Roquette is located in France and ships the pea protein to an intermediary storage facility in Chicago, Illinois.
We have a three-year supply agreement with PURIS Proteins, LLC, or Puris, under which we may purchase domestically sourced pea protein. The agreement expires on December 31, 2021. We obtain protein under the supply agreement on a purchase order basis. We have the right to cancel purchase orders if we
provide timely written notice; however, the total amount purchased in each year must be at least either the minimum volume specified for that year in the agreement or an amount based on a formula. We also have the right to be indemnified by Puris and must indemnify Puris in certain circumstances.
Legal Proceedings
We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although the outcome of these and other claims cannot be predicted with certainty, management does not believe the ultimate resolution of the current matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.
On May 25, 2017, Don Lee Farms, a division of Goodman Food Products, Inc., filed a complaint against us in
the Superior Court of the State of California for the County of Los Angeles asserting claims for breach of contract, misappropriation of trade secrets, unfair competition under the California Business and Professions Code, money owed and due, declaratory relief and injunctive relief, each arising out of our decision to terminate an exclusive supply agreement between us and Don Lee Farms. We deny all of these claims and filed counterclaims on July 27, 2017, alleging breach of contract, unfair competition under the California Business and Professions Code and conversion. In October 2018, Don Lee Farms filed an amended complaint that added ProPortion Foods, LLC (one of Beyond Meat’s current contract
manufacturers) as a defendant, principally for claims arising from ProPortion’s alleged use of Don Lee Farms’ alleged trade secrets, and for replacing Don Lee Farms as Beyond Meat’s co-manufacturer. ProPortion filed an answer denying all of Don Lee Farms’ claims and a cross-complaint against Beyond Meat asserting claims of total and partial equitable indemnity, contribution, and repayment. On March 11, 2019, Don Lee Farms filed a second amended complaint to add claims of fraud and negligent misrepresentation against us. Trial is currently set for May 18, 2020.
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Don Lee Farms is seeking from Beyond Meat and
ProPortion unspecified compensatory and punitive damages, declaratory and injunctive relief, including the prohibition of Beyond Meat’s use or disclosure of the alleged trade secrets, and attorneys’ fees and costs. We are seeking from Don Lee Farms monetary damages, restitution of monies paid to Don Lee Farms, and attorney’s fees and costs. ProPortion is seeking indemnity, contribution, or repayment from us of any or all damages that ProPortion may be found liable to Don Lee Farms, and attorney’s fees and costs.
We believe we were justified in terminating the supply agreement with Don Lee Farms, that we did not misappropriate their alleged trade secrets, that we are not liable for the fraud or negligent misrepresentation alleged in the proposed second amended complaint, that Don Lee Farms is liable for the conduct alleged in our cross-complaint, and that we are not liable to ProPortion for any indemnity, contribution, or repayment,
including for any damages or attorney’s fees and costs. We are currently in the process of litigating this matter and intend to vigorously defend ourselves against the claims. We cannot assure you that Don Lee Farms or ProPortion will not prevail in all or some of their claims against us, or that we will prevail in some or all of our claims against Don Lee Farms. For example, if Don Lee Farms succeeds in the lawsuit, we could be required to pay damages, including but not limited to contract damages reasonably calculated at what we would have paid Don Lee Farms to produce our products through 2019, the end of the contract term, and Don Lee Farms could also claim some ownership in the intellectual property associated with the production of certain of our products or in the products themselves,
and thus claim a stake in the value we have derived and will derive from the use of that intellectual property after we terminated our supply agreement with Don Lee Farms. Based on our current knowledge, we have determined that the amount of any material loss or range of any losses that is reasonably possible to result from this lawsuit is not estimable.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors as of March 30,
2019.
Mr. Pucker will resign as one of our directors immediately prior to the effectiveness of the registration statement on Form S-1, of which this prospectus forms a part. As Mr. Pucker is a partner in the law firm of Latham & Watkins LLP, law firm policy prohibits Mr. Pucker
from serving on the board of directors of a public company.
Executive Officers
Ethan Brown. Ethan Brown is the founder of Beyond Meat and has served as our President and Chief Executive Officer and as a member of our board of directors since our inception in 2009. He also served as our Secretary since our inception to September 2018. Mr. Brown began his career with a focus on clean energy and the environment, serving as an energy analyst for the National Governors’ Center for Best Practices. He then joined Ballard Power Systems (NASDAQ: BLDP), a hydrogen fuel-cell company where he worked for several years, being promoted from an entry-level manager to reporting directly
to the Chief Executive Officer before leaving to found Beyond Meat. Mr. Brown also created and opened a center for fuel reformation and has held several industry positions, including Vice Chairman of the Board at The National Hydrogen Association and Secretary of the United States Fuel Cell Council. He is a Henry Crown Fellow at the Aspen Institute and, along with Beyond Meat, is the recipient of the United Nation’s highest environmental accolade, Champion of the Earth (2018). Mr. Brown holds a MBA from Columbia University and an MPP with a focus on Environment from the University of Maryland. We believe Mr. Brown’s strategic vision for the company and his expertise in technology and business operations makes him qualified to serve on our board.
Seth Goldman. Seth Goldman joined Beyond Meat as Executive Chair and
as a member of our board of directors in February 2013. Mr. Goldman is also currently the TeaEO Emeritus and Innovation Catalyst for Coca-Cola Company’s Venturing & Emerging Brands, a part-time position he has held since November 2015. Mr. Goldman co-founded Honest Tea Inc., a bottled organic tea company, in February 1998, which was later sold to The Coca-Cola Company, and previously served as Honest Tea’s President
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and TeaEO until 2015. In 2015, Mr. Goldman was named the #1 Disruptor by Beverage World, and Beverage Executive of the Year by Beverage Industry magazine. He has also been recognized as an Ernst & Young Entrepreneur of the Year and the Washington DC Business Hall of Fame. In 2018, Partnership for a Healthier America recognized Mr.
Goldman with its Visionary CEO award. Mr. Goldman serves on the advisory boards of Ripple Foods, a dairy-free plant-based milk company (November 2015 to present), the Yale School of Management (July 2013 to present), the American Beverage Association (April 2010 to present), and Bethesda Green, a local sustainability non-profit he co-founded (January 2008 to present). He has a BA degree in Government from Harvard College and a Masters of Private & Public Management degree from Yale School of Management and is a Henry Crown Fellow of the Aspen Institute. We believe that Mr. Goldman is qualified to serve on our board of directors due to his extensive experience working at fast-growing brands in the food and beverage industry, his experience founding and building an entrepreneurial company and his knowledge of sustainable business practices.
Mark
J. Nelson. Mark J. Nelson rejoined Beyond Meat as Chief Operating Officer and Chief Financial Officer in May 2017. In September 2018, he was also appointed Treasurer and Secretary and resigned his Chief Operating Officer position. Mr. Nelson briefly served as Senior Vice President and Chief Financial Officer of Biolase (NASDAQ: BIOL), a medical device company, from March 2017 to May 2017. From February 2016 to March 2017, Mr. Nelson served as our Chief Operating Officer and Chief Financial Officer and from December 2015 to February 2016 served solely as our Chief Financial Officer. From April 2013 to November 2015, Mr. Nelson was Treasurer and Chief Financial Officer of Farmer Bros. Co. (NASDAQ: FARM), a manufacturer, wholesaler and distributor of coffee, tea, spices and culinary products.
Prior to that, Mr. Nelson served as Chief Accounting Officer (April 2010 to April 2013), Vice President, Corporate Controller (June 2008 to April 2010) and Vice President and General Manager (June 2006 to May 2008) at Newport Corporation, a formerly publicly traded global supplier of advanced-technology products and systems. He also worked at Thermo Fisher (NYSE: TMO), a biotechnology product development company from June 2002 to October 2004. Mr. Nelson has a BS degree in Business Administration from the University of Massachusetts at Amherst, and an MBA degree from Babson College.
Charles Muth. Charles Muth joined Beyond Meat as Chief Growth Officer in May 2017. In addition to his role at Beyond Meat, Mr. Muth also serves on the board of directors of Bali Beverage Company LLC, a beverage company, which specializes in beverages made from mangosteen. From
January 2014 to January 2017, Mr. Muth led the creation of a new entrepreneurial sales and commercial organization within the Coca-Cola Company called Venturing & Emerging Brands as Senior Vice-President. From January 2010 to January 2017, Mr. Muth was Vice President of Sales at Honest Tea Inc. after its acquisition by the Coca-Cola Company. From February 2004 to January 2010, Mr. Muth was Senior Vice President of Sales and Marketing at The Philadelphia Coca-Cola Bottling Company. Mr. Muth also served as Managing Director of Seagram’s non-alcoholic mixer business from 2002 to 2004 after its acquisition by the Coca-Cola Company. Prior to the acquisition, Mr. Muth served as the Vice President and General Manager of Joseph E. Seagram & Sons, Inc.’s global non-alcoholic beverages business unit from 1992 to 2002. Mr. Muth has a BS degree in Marketing and Management from Montclair State University and an MBA degree in Finance from Fairleigh Dickenson University.
Dariush
Ajami, Ph.D. Dariush Ajami, Ph.D., joined Beyond Meat in June 2015. Since July 2018, Dr. Ajami has been Chief Innovation Officer of Beyond Meat. He served as Director of Chemistry from June 2015 to August 2016, Director of Research from August 2016 to August 2017 and Vice President of Innovation from August 2017 to July 2018. Prior to joining Beyond Meat, Mr. Ajami was an Assistant Professor of Molecular Assembly at The Scripps Research Institute and Skaggs Institute of Chemical Biology from July 2008 to June 2015, where he worked on the fundamentals of molecular assembly, natural products and their applications in therapeutic development. Mr. Ajami has a BS degree in Chemistry from Isfahan University, Iran, a M.S. in Organic Chemistry from the Chemistry and Chemical Engineering Research Center of Iran, and a Ph.D. degree in Organic Chemistry from Technical University of Brunswick (Technische Universität Braunschweig),
Germany.
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Stephanie Pullings Hart. Stephanie Pullings Hart joined Beyond Meat as Senior Vice President, Operations in January 2018. Prior to her current role, Ms. Hart was Vice President, Technical & Production for Nestlé USA’s Confections and Global Foods and Ice Cream divisions from March 2016 to January 2018. She assumed her role in Nestlé USA, a subsidiary of Nestlé SA (SWX: NESN), after a three-year assignment as the Executive Director Technical & Production, Nestlé Australia Ltd. from January 2013 to March 2016. Ms. Hart also worked as the Vice President, Operations, Nestlé Nutrition – Jenny Craig from January 2010 to December 2012. Ms. Hart began her career with Nestlé in 1995 and has held
roles of increasing responsibility in manufacturing, research and development and human resources. She has a BS degree in Chemical Engineering from Florida State University and an Executive MBA degree from Benedictine College.
Directors
Ethan Brown. Business background information regarding Mr. Brown is set forth under “Executive Officers” above.
Seth Goldman. Business background information regarding Mr. Goldman is set forth under “Executive Officers” above.
Gregory Bohlen. Gregory Bohlen has served as a member of our board of directors since February 2013. Mr. Bohlen co-founded Union Grove Venture Partners, a venture capital firm,
in March 2014 and serves as a Managing Partner. Prior to that, Mr. Bohlen served as Managing Director, Venture Capital at Morgan Creek Capital Management, LLC, an investment management services company, from November 2011 to March 2014 to extend Morgan Creek’s venture exposure. From November 2002 to November 2011, Mr. Bohlen served as a managing director of Wasatch Advisors Cross Creek Fund, a venture capital firm. Mr. Bohlen’s experience and relationships in the venture capital and investment banking communities span over 30 years, and he has invested in over 50 venture-backed companies. Mr. Bohlen has a BS degree in Agricultural Economics and a MBA degree from the University of Illinois at Urbana-Champaign. We believe that Mr. Bohlen is qualified to serve on our board of directors due to his deep experience in working with entrepreneurial companies.
Diane Carhart. Diane Carhart
has served as a member of our board of directors since January 2016. Ms. Carhart joined Stonyfield Farm, Inc., an organic yogurt maker, as Chief Financial Officer in April 1992. and also began serving as Chief Operating Officer in August 2006. Ms. Carhart has a BS degree in Accounting from the University of Connecticut and an MBA degree with a finance concentration from Boston University. We believe that Ms. Carhart is qualified to serve on our board because she has more than 40 years in accounting, finance and operations management with 26 years in the food industry.
Raymond J. Lane. Raymond J. Lane has served as a member of our board of directors since February 2015. Mr. Lane has been a Managing Partner at GreatPoint Ventures, a venture capital firm since March 2015. Mr. Lane has served as a Partner Emeritus and Advisor of Kleiner, Perkins, Caufield & Byers LLC, a venture
capital firm, since April 2013 and was a Managing Partner of Kleiner, Perkins, Caufield & Byers LLC from September 2000 to April 2013. Mr. Lane has served on the board of directors of Hewlett Packard Enterprises (NYSE: HPE) from November 2015 to the present. In addition, Mr. Lane previously served as a member of the board of directors of Hewlett Packard, Inc. (NYSE: HPQ) from September 2010 to November 2015, where he also was the executive Chairman of the Board from September 2011 to April 2013 and the non-executive Chairman of the Board from November 2010 to September 2011. Prior to joining Kleiner Perkins, Mr. Lane was President and Chief Operating Officer and a director of Oracle Corporation, a software company. Mr. Lane also served as Chairman of the Board of Trustees of Carnegie Mellon University from July 2009 to July 2015. Mr. Lane holds a BS degree in Mathematics and honorary Ph.D. Science
from West Virginia University. We believe that Mr. Lane is qualified to serve on our board of directors due to his experience in working with entrepreneurial companies and his experience on other public company boards of directors.
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Bernhard van Lengerich, Ph.D. Bernhard van Lengerich, Ph.D., has served as a member of our board of directors since November 2016. Dr. van Lengerich joined General Mills, Inc. (NYSE: GIS), a multinational manufacturer and marketer of branded consumer food, in 1994 and was the Chief Scientific Officer and Vice President for Technology Strategy from 2007 until his retirement from General Mills in March 2015. Dr. van Lengerich is the founder of Seeding the Future Foundation, a
501c(3) organization focusing on food security in sub-Saharan Africa. He also founded Food System Strategies, LLC in 2015, pursuant to which he provides strategic advisory services to companies along the food value chain. Dr. van Lengerich served as our interim Chief Technical Officer and head of Research, Development and Innovation from February 2016 to February 2017 and has provided advisory services to us pursuant to an advisor agreement with Food System Strategies, LLC since October 2015. At General Mills, he led the development of key enabling capabilities resulting in both, new product innovations driving top line growth and major productivity benefits for General Mills’ Holistic Margin Management program. He also led a new Game Changer program and created a novel “Cashless Venturing” initiative, enabling faster and more disruptive innovations. Dr. van Lengerich is inventor/co-inventor of over 150 national and international patents
and patent applications and he is an IFT Fellow. He has MS and Ph.D. degrees in Food and Biotechnology from the Technical University of Berlin, which awarded him an Honorarium Professorship and where he also teaches Extrusion Processing. We believe that Dr. van Lengerich is qualified to serve on our board of directors due to his experience in the food industry and strong food science and technology background.
Michael A. Pucker. Michael A. Pucker has served as a member of our board of directors since June 2014. Mr. Pucker founded DNS Capital, LLC in April 2013, where he serves as Chairman and Chief Executive Officer. Mr. Pucker also serves as a partner at the law firm of Latham & Watkins LLP, where he has practiced law since 1999. Mr. Pucker’s legal practice focuses on general corporate counseling, mergers and acquisitions,
private equity, venture capital, capital markets, company representation, counseling boards and senior management in a variety of industries, and counseling families and related closely held enterprises in avoiding, mitigating and resolving disputes. Mr. Pucker currently serves as a member of the board of directors of Ann and Robert H. Lurie Children’s Hospital, the Advisory Board of After School Matters, the Board of Advisors of American Jewish World Service, the Board of Trustees of Bernard Zell Anshe Emet Day School, and the Board of Trustees of Facing History and Ourselves. Mr. Pucker has a BA degree in History and a JD degree from Columbia University. Mr. Pucker will resign as one of our directors immediately prior to the effectiveness of the registration statement on Form S-1, of which this prospectus forms a part. As Mr. Pucker is a partner in the law firm of Latham & Watkins LLP, law firm policy prohibits Mr. Pucker from serving on
the board of directors of a public company.
Ned Segal. Ned Segal has served as a member of our board of directors since November 2018. Mr. Segal has served as the Chief Financial Officer of Twitter Inc. (NYSE: TWTR) since August 2017. From January 2015 to August 2017, Mr. Segal served as Senior Vice President of Finance of Intuit Inc. (NASDAQ: INTU), a small business and financial software company. From April 2013 to January 2015, Mr. Segal served as Chief Financial Officer of RPX Corporation, a former publicly traded company that provides patent risk management and discovery services. From 1996 to April 2013, Mr. Segal held various positions at The Goldman Sachs Group, Inc. (NYSE: GS), most recently as Head of Global Software Investment Banking. Mr. Segal holds a BS degree in Spanish from Georgetown University. We believe that Mr. Segal is qualified to serve on our board because
of his experience in finance at a number of major public companies.
Christopher Isaac “Biz” Stone. Christopher Isaac “Biz” Stone has served as a member of our board of directors since January 2012. Mr. Stone is a Co-founder of Twitter, Inc. (NYSE: TWTR) where he has served as Creative Director since 2006 with a hiatus as Advisor between 2012 and 2017. Mr. Stone was the Co-Founder and Chief Executive Officer at Jelly Industries, Inc. from January 2013 to March 2017. Biz served as Special Advisor to the founders of Pinterest from March 2017 to March 2018, has been a Visiting Fellow at Oxford University since August 2015, has served as an advisor to The Global AI Council since August 2018 and is an active angel investor in companies such as Slack, Square, and Intercom. In addition to Twitter, Inc., Mr. Stone co-founded A Medium Corporation in January 2012, which provides
an
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online publishing platform and has served as a member of its Board of Directors since January 2012 and as Creative Director from February 2012 to April 2013. He was also Chairman of the Board of Polaroid Swing, Inc. from July 2016 to November 2017 and was an independent director of Workpop, Inc. from September 2014 until May 2017. His honors include Inc. magazine’s Entrepreneur of the Decade, TIME magazine’s 100 Most Influential People in the World, GQ magazine’s Nerd of the Year and The Economist’s “Innovation Award.” We believe that Mr. Stone is qualified to serve on our board of directors due to his extensive experience in working with entrepreneurial companies.
Donald Thompson. Donald
Thompson has served as a member of our board of directors since October 2015. Mr. Thompson is the Founder and Chief Executive Officer of Cleveland Avenue, LLC, which he founded in 2015. Mr. Thompson served as Chief Executive Officer and President of McDonald’s Corp. (NYSE: MCD) from July 2012 to March 2015 and as Chief Operating Officer of McDonald’s Corp. from January 2010 to June 2012. Mr. Thompson has been a member of the board of directors of Northern Trust Corporation (NASDAQ: NTRS), a financial services company, since March 2015 and has been a member of the board of directors of Royal Caribbean Cruises Ltd. (NYSE: RCL), a global cruise company, since May 2015. Mr. Thompson has been a member of the Advisory Board of DocuSign, Inc. (NASDAQ: DOCU), an electronic signature technology company, since February 2016. He serves on the Board of Trustees of Northwestern Memorial Hospital, Cleveland Avenue Foundation for Education and Purdue University (July 2009 to present).
Mr. Thompson served as a member of the board of directors of McDonald’s Corp. from January 2011 to March 2015 and as a member of the board of directors of Exelon Corporation (NYSE: EXC), an energy company, from May 2007 to April 2013. Mr. Thompson has a BS degree in Electrical Engineering from Purdue University and a Doctor of Science degree from Excelsior College in Albany, New York. We believe that Mr. Thompson is qualified to serve on our board of directors due to his experience in the food industry and his experience on other public company boards of directors.
Kathy N. Waller. Kathy N. Waller has served as a member of our board of directors since November 2018. Before her retirement in March 2019, Ms. Waller was Executive Vice President, Chief Financial Officer and President, Enabling Services of The Coca-Cola Company (NYSE: KO). Ms. Waller joined The Coca-Cola Company in 1987 as a senior accountant
in the Accounting Research Department and has served in a number of accounting and finance roles of increasing responsibility. From July 2004 to August 2009, Ms. Waller served as Chief of Internal Audit. In December 2005, she was elected Vice President of The Coca-Cola Company, and in August 2009, she was elected Controller. In August 2013, she became Vice President, Finance and Controller, assuming additional responsibilities for corporate treasury, corporate tax and finance capabilities, and served in that position until April 2014, when she was appointed Chief Financial Officer and elected Executive Vice President. Ms. Waller assumed expanded responsibility for The Coca-Cola Company's strategic governance areas when she was also appointed to serve as President, Enabling Services, on May 1, 2017. Ms. Waller joined the board of directors of CGI, Group. Inc. in December 2018 and serves on its Audit Committee. She received
a BA degree from the University of Rochester in New York and a MBA degree from the William E. Simon School of Business Administration at the University of Rochester, and is a CPA. We believe that Ms. Waller is qualified to serve on our board because she has more than 30 years of experience in accounting and finance at a major public company.
Board of Directors Composition
After the closing of this offering, our board of directors will consist of ten members. In addition, the number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws. Each of our current directors, except for Mr. Pucker, will
continue to serve as a director until the election and qualification of his or her successor, or until his or her earlier death, resignation or removal. Mr. Pucker will resign as one of our directors immediately prior to the effectiveness of the registration statement on Form S-1, of which this prospectus forms a part.
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Our amended and restated certificate of incorporation will provide that our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our current
directors will be divided among the three classes as follows:
•
the Class I directors will be Seth Goldman, Christopher Isaac “Biz” Stone and Kathy N. Waller, and their terms will expire at the annual meeting of stockholders to be held in 2020;
•
the Class II directors will be Gregory Bohlen, Bernhard van Lengerich and Donald Thompson, and their terms will expire at the annual meeting of stockholders to be held in 2021; and
•
the
Class III directors will be Ethan Brown, Diane Carhart, Raymond J. Lane and Ned Segal, and their terms will expire at the annual meeting of stockholders to be held in 2022.
At each annual meeting of stockholders, upon the expiration of the term of a class of directors, the successor to each such director in the class will be elected to serve from the time of election and qualification until the third annual meeting following his or her election and until his or her successor is duly elected and qualified, in accordance with our amended and restated certificate of incorporation. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of our directors.
This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.
Director Independence
Upon the closing of this offering, our common stock will be listed on the Nasdaq Global Market, or Nasdaq. Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors within one year of the completion of its initial public offering. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member
of a listed company’s audit, compensation and corporate governance and nominating committees be independent. Audit committee members and compensation committee members must also satisfy the independence criteria set forth in Rule 10A-3 and Rule 10C-1, respectively, under the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director with that listed company.
To be considered to be independent for purposes of Rule 10A-3 and under the rules of Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee,
the board of directors, or any other board of directors committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
To be considered independent for purposes of Rule 10C-1 and under the rules of Nasdaq, the board of directors must affirmatively determine that each member of the compensation committee is independent, including a consideration of all factors specifically relevant to determining whether the director has a relationship to the company
which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and (ii) whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company.
Our board of directors undertook a review of its composition, the composition of its committees and the independence of our directors
and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her
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responsibilities. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that each of Messrs. Bohlen, Lane, Stone, Thompson and Segal and Mses. Carhart and Waller do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules of the
SEC and the listing standards of Nasdaq. Ethan Brown, Seth Goldman and Bernhard van Lengerich are not independent under Nasdaq’s independence standards.
In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related-Party
Transactions.” There are no family relationships among any of our directors or executive officers.
Board of Directors Leadership Structure
The board of directors has no set policy with respect to the separation of the offices of Executive Chair and Chief Executive Officer. Currently, Seth Goldman serves as Executive Chair and Chairman of the Board and Ethan Brown serves as Chief Executive Officer. Raymond J. Lane serves as our lead independent director. The board of directors believes that this overall structure of a separate Chairman of the Board and Chief Executive Officer, combined with a lead independent director, results in an effective balancing of responsibilities, experience and
independent perspectives that meets the current corporate governance needs and oversight responsibilities of the board of directors.
Role of the Board in Risk Oversight
One of the key functions of our board of directors is to oversee our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address the risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor
and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Board of Directors Committees
Our board of directors has an audit committee, a compensation committee and a corporate governance and nominating committee, each of which has the composition and the responsibilities described below. Upon the closing of this offering, copies of the charters for each committee will be available on the investor relations portion of our website at www.beyondmeat.com.
Members serve on these committees until their resignations or removal. The inclusion of our website in this prospectus does not include or incorporate by reference the information on our website into this prospectus.
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Audit Committee
Following the closing of this offering, our audit committee will consist of Diane Carhart, Ned Segal and Kathy N. Waller, each of whom will meet the requirements for independence under the listing standards of Nasdaq and SEC rules
and regulations. Kathy N. Waller will be the chair of our audit committee and Mr. Segal and Ms. Waller are “audit committee financial experts” as such term is defined under the SEC rules implementing SOX Section 407. Following the closing of this offering, our audit committee will be responsible for, among other things:
•
selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
•
helping to ensure the independence and overseeing performance of the independent
registered public accounting firm;
•
reviewing and discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing with management and the independent registered public accounting firm our interim and year-end operating results;
•
reviewing our financial statements and our critical accounting policies and estimates;
•
reviewing
the adequacy and effectiveness of our internal controls;
•
developing procedures for employees to submit concerns anonymously about questionable accounting, internal accounting controls, or audit matters;
•
overseeing our policies on risk assessment and risk management;
•
overseeing compliance
with our code of business conduct and ethics;
•
reviewing related-party transactions; and
•
pre-approving all audit and all permissible non-audit services (other than de minimis non-audit services) to be performed by the independent registered public accounting firm.
Our audit committee will operate under a written charter, to be effective prior to the closing of this offering, which will satisfy the applicable rules of the SEC and the listing standards
of Nasdaq and will be available on our website at www.beyondmeat.com.
Compensation Committee
Following the closing of this offering, our compensation committee will consist of Raymond J. Lane and Donald Thompson, each of whom will meet the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. In addition, each member of our compensation committee will also be a non-employee director, as defined pursuant to Rule 16b-3 of the Exchange Act. Mr. Thompson will be the chair of our compensation committee. Following the closing of this offering, the compensation committee will be responsible for, among other things:
•
reviewing,
approving and determining, or making recommendations to our board of directors regarding, the compensation of our executive officers, including our Chief Executive Officer;
•
administering our equity compensation plans and agreements with our executive officers;
•
reviewing, approving and administering incentive compensation and equity compensation plans;
•
reviewing
and approving our overall compensation philosophy; and
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•
making recommendations regarding non-employee director compensation to our full board of directors.
Our compensation committee will operate under a written charter, to be effective prior to the closing of this offering, which will satisfy the applicable rules of the SEC and the listing standards of Nasdaq and will be available on our website at www.beyondmeat.com.
Nominating
and Corporate Governance Committee
Following the closing of this offering, our nominating and corporate governance committee will consist of Greg Bohlen and Christopher Stone, each of whom will meet the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. Christopher Stone will be the chair of our nominating and corporate governance committee. Following the closing of this offering, the nominating and corporate governance committee will be responsible for, among other things:
•
identifying, evaluating and selecting, or making recommendations to our board of directors regarding, nominees for election to our board of directors
and its committees;
•
overseeing the evaluation and the performance of our board of directors and of individual directors;
•
considering and making recommendations to our board of directors regarding the composition of our board of directors and its committees;
•
overseeing our corporate
governance practices;
•
contributing to succession planning; and
•
developing and making recommendations to our board of directors regarding corporate governance guidelines and matters.
Our nominating and corporate governance committee will operate under a written charter, to be effective prior to the closing of this offering, which will satisfy the applicable rules of the SEC and the listing standards of Nasdaq and will be available on our website
at www.beyondmeat.com.
Compensation Committee Interlocks and Inside Participation
None of the members of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee (or other board of directors committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our board of directors or compensation committee. Certain members of our compensation committee are affiliated with entities that purchased
our preferred stock. Please see “Certain Relationships and Related-Party Transactions—Sales of Securities” for more information.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following the closing of this offering, the code of business conduct and ethics will be available on our website at www.beyondmeat.com. We intend to disclose future amendments to such
code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions or our directors on our website identified above. The inclusion of our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus.
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Non-Employee
Director Compensation
Historically, we have neither had a formal compensation policy for our non-employee directors, nor have we had a formal policy of reimbursing expenses incurred by our non-employee directors in connection with their board service. However, we have reimbursed our non-employee directors for travel, lodging and other reasonable expenses incurred in connection with their attendance at board of directors or committee meetings and occasionally granted stock options to our non-employee directors. Except to the limited extent described below, we did not provide our non-employee directors, in their capacities as such, with any cash, equity or other compensation in fiscal 2018.
The following table sets forth information regarding the compensation awarded, earned or paid for services rendered to us by our non-employee directors for fiscal 2018:
Name
Option
Awards(1)
All
Other Compensation
Total
($)
Seth Goldman (Executive Chair)
—
175,000(2)
175,000
Gregory Bohlen
—
—
—
Diane
Carhart
—
—
—
Raymond J. Lane
—
—
Bernhard van Lengerich
—
120,000(3)
120,000
Michael
A. Pucker(4)
—
—
—
Ned Segal
149,522
—
149,522
Christopher Isaac Stone
—
—
—
Donald
Thompson
—
—
—
Kathy N. Waller
149,522
—
149,522
___________________
(1)
The
dollar amounts reported in this column represent the aggregate grant date fair value for financial statement reporting purposes of stock options granted in fiscal 2018 under our 2011 Plan as calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718, or FASB ASC Topic 718. These amounts reflect our accounting expense for these stock options and do not represent the actual economic value that may be realized by each applicable non-employee director. There can be no assurance that these amounts will ever be realized. The valuation assumptions we used in calculating the fair value of these stock options are set forth in Note 8 to our financial statements. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The number of outstanding stock options held by each non-employee director as of December
31, 2018 were: Mr. Goldman (97,897), Ms. Carhart (100,005), Mr. van Lengerich (133,147), Ms. Waller (16,734) and Mr. Segal (16,734).
(2)
This amount consists of fees paid to Mr. Goldman for services performed as a consultant in fiscal 2018.
(3)
This amount consists of fees paid to Food System Strategies, LLC that was earned for services Mr. van Lengerich performed as a consultant in fiscal 2018.
(4)
Mr.
Pucker will resign as one of our directors immediately prior to the effectiveness of the registration statement on Form S-1, of which this prospectus forms a part.
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In November 2018, our board of directors approved an outside director compensation policy that will become effective upon the closing of this offering. Under this policy, we will pay our directors who are not employees of the company, other than Seth Goldman, an annual cash retainer for service on the board of directors and an additional annual cash retainer for service on each committee on which the director is a member, which will be paid quarterly in arrears. The chairman of each committee
will receive higher annual cash retainers for such service. The fees paid to non-employee directors for service on the board of directors and for service on each committee of the board of directors on which the director is a member are as follows:
Member Annual Cash Retainer
Chairperson Annual Cash Retainer
Lead
Independent Director Annual Cash Retainer
Board of Directors
$
40,000
$
67,500
$
48,000
Audit
Committee
7,500
17,500
(1)
Compensation Committee
5,000
10,000
Nominating
and Corporate Governance Committee
3,000
8,000
___________________
(1)
The annual retainer to be paid to Kathy N. Waller for her service
as chairperson of the audit committee shall commence on the date of the annual meeting to be held in 2019.
In addition, each non-employee director elected or appointed to our board of directors for the first time following the completion of this offering will be granted two restricted stock unit awards upon the date of his or her initial election or appointment to be a non-employee director. The first restricted stock unit award will have a grant date fair value of $195,000 and will vest in equal monthly installments over the 3-year period following the grant date. The second restricted stock unit award will have a grant date fair value $105,000, pro-rated based on the number of full months that are expected to lapse between the non-employee director’s election or appointment to the board of directors and the next annual meeting of stockholders, and will vest in equal monthly installments over the total number
of full months following the grant date that are expected to lapse between the non-employee director’s election or appointment to the board of directors and the next annual meeting of stockholders.
Further, on the date of each annual meeting of stockholders following the closing of this offering, each director whose service as a non-employee member of the board of directors will continue will be granted a restricted stock unit award having a grant date fair value of $105,000. This restricted stock unit award will vest in equal monthly installments over the 12-month period following the grant date.
All restricted stock unit awards granted to non-employee directors following the completion of this offering are expected to be made pursuant to the 2018 Plan and will vest pursuant to the applicable vesting schedule subject to the director providing service through each applicable vesting
date; provided all such restricted stock unit awards will vest in full immediately prior to, and contingent upon, a change in control of the company if the non-employee director remains in continuous service as a member of the Board until immediately prior to the change in control. For additional information, see “Executive Compensation—Employee Benefit Plans—2018 Equity Incentive Plan.”
We will also continue to reimburse our non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with attending our board of director and committee meetings.
The outside director compensation program is intended to provide a total compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors’
interests with those of our stockholders.
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Director Compensation Arrangements
Seth Goldman
We entered into a consulting agreement with Seth Goldman on March 2, 2016, which was amended and restated on November 15, 2018 and amended on April 8, 2019. Pursuant to the consulting agreement, as amended, we have agreed to 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, we have agreed to grant Mr. Goldman a restricted stock unit award under the 2018 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. For additional information, see “Executive Compensation—Employee Benefit Plans—2018 Equity Incentive Plan.”
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.
In April 2019, our board of directors approved a grant of options to purchase 100,000 shares of our common stock and will grant additional options to purchase 5,000 shares of our common stock to Mr. Goldman, in each case to be effective upon the effectiveness of the registration statement for this offering. The exercise price per share will be equal to the initial public offering price of our common stock in the offering to which this prospectus relates. The options will vest over four years, with 25% vesting on the one year anniversary date of the effectiveness of the registration statement, subject to Mr. Goldman’s continued service through
the applicable vesting date.
Bernhard van Lengerich
We first entered into an advisor agreement with Food System Strategies, LLC in October 2015. Bernhard van Lengerich, Ph.D. is the Chief Executive Officer of Food System Strategies, LLC. Pursuant to this advisor agreement, we paid Food System Strategies, LLC $4,000 for each day that Dr. van Lengerich provided services to us. In February 2016, we 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 vests in equal monthly installments over three years in consideration of Dr. van Lengerich providing services as our interim Chief Technical Officer and the 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 for five to six days a month going forward. The advisor agreement may be terminated at any time upon written notice to the other party.
Director and Officer Indemnification Agreements
We have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by a director or executive officer
in any action or proceeding arising out of their services as one of our directors or executive officers or as a director or executive officer of any other company or enterprise to which the person provides services at our request.
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EXECUTIVE COMPENSATION
Overview
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act.
Our named executive officers for fiscal 2018, determined
in accordance with these rules were:
•
Ethan Brown, our President and Chief Executive Officer;
•
Dariush Ajami, our Chief Innovation Officer; and
•
Charles Muth, our Chief Growth Officer.
Although
not required, we have also included in this compensation disclosure Mark J. Nelson, our Chief Financial Officer, Treasurer and Secretary. Therefore, for purposes of the disclosure set forth in this prospectus, we have included Mr. Nelson within the “named executive officer” group.
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs and arrangements summarized in this discussion.
Summary Compensation Table
The following table provides information regarding the compensation awarded to,
earned by and paid to each of our named executive officers for the fiscal years indicated below:
Name and Principal Position
Year
Salary
($)
Option
Awards
($)(1)
Non-Equity
Incentive Plan Compensation
($)(2)
All Other
Compensation
($)
Total
($)
Ethan
Brown, President and Chief Executive Officer
2018
298,750
524,244
145,000
—
967,994
2017
288,789
—
124,700
—
413,489
Dariush
Ajami, Chief Innovation Officer
2018
233,450
1,225,807
113,705
—
1,572,962
2017
154,076
13,669
37,718
—
205,463
Charles
Muth, Chief Growth Officer
2018
297,924
792,633
147,504
—
1,238,061
2017
173,010
—
75,067
64,336(3)
312,413
Mark
J. Nelson, Chief Financial Officer, Treasurer and Secretary
2018
326,666
121,591
162,501
—
610,758
2017
287,336
—
117,042
—
404,378
___________________
(1)
The
dollar amounts reported in this column represent the aggregate grant date fair value for financial statement reporting purposes of stock options granted in fiscal 2018 under our 2011 Plan as calculated in accordance with FASB ASC Topic 718. These amounts reflect our accounting expense for these stock options and do not represent the actual economic value that may be realized by each applicable named executive officer. There can be no assurance that these amounts will ever be realized. The valuation assumptions we used in calculating the
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fair value of these stock options are set forth in Note 8 to our financial statements. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based
vesting conditions.
(2)
The amounts in this column reflect performance bonus awards earned by our named executive officers for fiscal 2018 and 2017 performance, as applicable.
(3)
This amount represents a relocation assistance payment relating to closing costs on the sale of Mr. Muth’s residence.
Narrative to Summary Compensation Table
Executive Employment Arrangements
Each of our named
executive officers is an at-will employee. Except as set forth below, we have not entered into any employment agreements or offer letters with our named executive officers.
In January 2019, we entered into an amended and restated employment agreement with Mr. Brown. Pursuant to this agreement, Mr. Brown’s annual base salary is $500,000 and he is eligible for an annual target bonus opportunity of 50% of his base salary and certain change in control benefits. For additional information on the change in control severance benefits, see “—Change in Control Severance Agreements.”
Dariush Ajami
Mr. Ajami’s annual base salary is $325,000. In November 2018, our compensation committee determined that Mr. Ajami
will be eligible to earn an annual bonus with a target bonus for fiscal 2019 equal to 50% of his annual base salary and he will be eligible for certain change in control severance benefits. For additional information on the change in control severance benefits, see “—Change in Control Severance Agreements.”
Charles Muth
In January 2019, we entered into an amended and restated employment letter with Mr. Muth. Pursuant to this agreement, Mr. Muth’s annual base salary is $365,000, he is eligible to earn an annual bonus with a target bonus equal to 50% of his annual base salary and he is eligible to receive a severance payment equal to six months of his base salary if we terminate his employment without cause at any time. For additional information on this severance benefit, see “—Severance
Agreements not in Connection with a Change in Control.”
In November 2018, our compensation committee confirmed that Mr. Muth will be eligible to earn an annual bonus with a target bonus for fiscal 2019 equal to 50% of his annual base salary and determined that he will be eligible for certain change in control severance benefits. For additional information on the change in control severance benefits, see “—Change in Control Severance Agreements.”
Mr. Nelson’s annual base salary is $365,000. In November 2018, our compensation committee determined that Mr. Nelson will be eligible to earn an annual bonus with a target bonus for fiscal 2019 equal to 50% of his annual base salary and he
will be eligible for certain change in control severance benefits. For additional information on the change in control severance benefits, see “—Change in Control Severance Agreements.”
The following table provides information regarding the unexercised stock options held by each of our named executive officers and Mr. Nelson as of December 31, 2018:
Option
Awards
Name
Grant Date
Number of Securities Underlying Unexercised Options (#) Exercisable(1)
Number of Securities Underlying Unexercised Options (#) Unexercisable(1)
This column represents the fair market value of a share of our common stock on the date of grant, as determined by our board of directors.
(3)
These option shares were part of a stock option grant covering 202,130 shares of our common stock. One-fourth of the grant vested on May 26, 2014 and the remainder of the grant vested in 36 equal monthly installments thereafter, subject to Mr. Brown’s continuous service through
the applicable vesting date. In addition, if we had terminated Mr. Brown’s employment without “cause” (as defined in the 2011 Plan), or if Mr. Brown had resigned for “good reason” (as defined in agreements applicable to Mr. Brown’s equity), in either case, upon the consummation of, or within 12 months following, a change in control in our ownership, then 50% of the then unvested shares subject to this option would have immediately vested (the “Prior Brown Acceleration”). However, these options have now fully vested based on their underlying four-year vesting schedule, so the Prior Brown Acceleration is no longer relevant to this option.
(4)
These option shares were part of a stock option grant covering 966,006 shares of
our common stock. One-fourth of the grant vested on June 19, 2015 and the remainder of the grant vested in 36 equal monthly installments thereafter, subject to Mr. Brown’s continuous service through the applicable vesting date. In addition, the Prior Brown Acceleration applies to these option shares prior to their full vesting, however, these options have now fully vested based on their underlying four-year vesting schedule, so the Prior Brown Acceleration is no longer relevant to this option.
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(5)
These option shares
were part of a stock option grant covering 301,960 shares of our common stock. One-fourth of the grant vested on July 20, 2017 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Brown’s continuous service through the applicable vesting date. In addition, if we terminate Mr. Brown’s employment without “cause,” or if Mr. Brown resigns for “good reason,” in either case, within 3 months prior to, or within 18 months following, a “change in control” of the company (each, as defined in Mr. Brown’s change in control severance agreement), then 100% of the then unvested shares subject to this option will immediately vest (the “Brown Acceleration”). For additional information on this change in control severance benefit, see “-Change in Control Severance
Agreements.”
(6)
These option shares were part of a stock option grant covering 332,157 shares of our common stock. One-fourth of the grant vested on August 3, 2018 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Brown’s continuous service through the applicable vesting date. In addition, the Brown Acceleration applies to these option shares prior to their full vesting.
(7)
These option shares were
part of a stock option grant covering 6,667 shares of our common stock. One-fourth of the grant vested on May 11, 2016 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, if we terminate Mr. Ajami’s employment without “cause,” or if Mr. Ajami resigns for “good reason,” in either case, within three months prior to, or within 18 months following, a change in control of the company (each, as defined in Mr. Ajami’s change in control severance agreement), then 100% of the then unvested shares subject to this option will immediately vest (the “Ajami Acceleration”). For additional information on this change in control severance benefit,
see “-Change in Control Severance Agreements.”
(8)
These option shares were part of a stock option grant covering 3,333 shares of our common stock. One-fourth of the grant vested on March 7, 2017 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(9)
These
option shares were part of a stock option grant covering 18,561 shares of our common stock. One-fourth of the grant vested on February 4, 2017 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(10)
These option shares were part of a stock option grant covering 13,334 shares of our common stock. One-fourth of the grant vested on August 15, 2017 and the remainder of the grant vested and will vest in 36 equal monthly installments
thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(11)
These option shares were part of a stock option grant covering 3,333 shares of our common stock. One-fourth of the grant vested on May 1, 2018 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(12)
These
option shares were part of a stock option grant covering 26,857 shares of our common stock. One-fourth of the grant vested on July 25, 2018 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(13)
These option shares were part of a stock option grant covering 66,669 shares of our common stock. One-fourth of the grant will vest on July 16, 2019 and the remainder of the grant vested and will vest in 36 equal monthly installments
thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(14) These option shares were part of a stock option grant covering 61,875 shares of our common stock. One-fourth of the grant will vest on July 16, 2019 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Ajami’s continuous service through the applicable vesting date. In addition, the Ajami Acceleration applies to these option shares prior to their full vesting.
(15)
These option shares were part of a stock
option grant covering 500,025 shares of our common stock. One-fourth of the grant vested on May 30, 2018 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Muth’s continuous service through the applicable vesting date. In addition, if we terminate Mr. Muth’s employment without “cause,” or if Mr. Muth resigns for “good reason,” in either case, within three months prior to, or within 18 months following, a “change in control” of the company (each, as defined in Mr. Muth’s change in control severance agreement), then 100% of the then unvested shares subject to this option will immediately vest. For additional information on this change in control severance benefit, see “-Change in Control Severance Agreements.”
(16)
These
option shares were part of a stock option grant covering 402,663 shares of our common stock. One-fourth of the grant vested on December 1, 2016 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Nelson’s continuous service through the applicable vesting date. In addition, if we terminate Mr. Nelson’s employment without “cause,” or if Mr. Nelson resigns for “good reason,” in
117
either case, within three months prior to, or within 18 months following, a “change in control” of the company (each, as defined in Mr. Nelson’s
change in control severance agreement), then 100% of the then unvested shares subject to this option will immediately vest (the “Nelson Acceleration”). For additional information on this change in control severance benefit, see “-Change in Control Severance Agreements.”
(17)
These option shares were part of a stock option grant covering 145,341 shares of our common stock. One-fourth of the grant vested on December 1, 2016 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Nelson’s continuous service through each vesting date. In addition, the Nelson Acceleration applies to these option shares prior to their full vesting.
(18)
These
option shares were part of a stock option grant covering 152,238 shares of our common stock. One-fourth of the grant vested on February 4, 2017 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Nelson’s continuous service through the applicable vesting date. In addition, the Nelson Acceleration applies to these option share prior to their full vesting.
(19)
These option shares were part of a stock option grant covering 70,024 shares of our common stock. One-fourth of the grant vested on July 20, 2017 and the remainder of the grant vested and will vest in 36 equal monthly installments
thereafter, subject to Mr. Nelson’s continuous service through the applicable vesting date. In addition, the Nelson Acceleration applies to these option shares prior to full vesting.
(20)
These option shares were part of a stock option grant covering 77,027 shares of our common stock. One-fourth of the grant vested on August 3, 2018 and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to Mr. Nelson’s continuous service through the applicable vesting date. In addition, the Nelson Acceleration applies to these option shares prior to full vesting.
Option Grants
Our board of directors has approved options to purchase common stock to Messrs. Brown, Nelson, Muth and Ajami to be effective upon the effectiveness of the registration statement for this offering. The option grants are as follows: Mr. Brown, 500,000 shares; Mr. Nelson, 200,000 shares; Mr. Muth, 100,000 shares; and Mr. Ajami, 100,000 shares. In addition, our board will grant options to purchase 40,000 shares of common stock to Mr. Brown, options to purchase 5,000 shares of common stock to Mr. Goldman, and options to purchase 5,000 shares of common stock to Mr. Nelson, in each case to be effective upon the effectiveness of the registration statement for this offering. The exercise price per share for each of options described above will be equal to the initial public offering price of our common stock in this offering. The options will vest over four years, with 25% vesting on the one year anniversary date of the effectiveness of the registration statement,
subject each officer’s continued employment with us through the applicable vesting date.
Severance Agreements not in Connection with a Change in Control
Charles Muth
Pursuant to the offer letter entered into with Charles Muth on May 5, 2017, if we terminate Mr. Muth’s employment without cause at any time, Mr. Muth will be entitled to a severance payment equal to six months of Mr. Muth’s base salary.
Change in Control Severance Agreements
In November 2018, our compensation committee approved change in control severance benefits for our named executive officers. These benefits are provided to Mr. Brown in an amended and restated employment agreement that was entered into with Mr. Brown in January 2019.
We have also entered into change in control severance agreements with Mr. Nelson, Mr. Ajami and Mr. Muth providing for these benefits.
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These agreements with Mr. Brown, Mr. Nelson, Mr. Ajami and Mr. Muth provide that if, within the period beginning three months prior to, and ending 18 months following, a change in control of the company, we terminate such officer’s employment without cause or such officer resigns for good reason, such officer will be eligible to receive the following severance benefits, subject to, among other things, executing a general release of claims in favor of the
company and complying with the terms of his confidentiality agreement:
•
a cash payment equal to 18 months of his then-current base salary in the case of Mr. Brown and 12 months of his then-current base salary in the case of Mr. Nelson, Mr. Ajami and Mr. Muth;
•
a cash payment equal to the COBRA premiums that would be due for COBRA coverage (assuming such coverage is elected) for a period of 18 months in the case of Mr. Brown and 12 months in the case of Mr. Nelson, Mr. Ajami and Mr. Muth; and
•
100%
immediate vesting acceleration of all of the shares of our common stock underlying any then-outstanding unvested stock options and other unvested equity awards that are subject to time-based vesting.
In addition, each applicable agreement contains a “better after-tax” provision, which provides that if any of the payments or benefits provided to an executive constitutes a parachute payment under Section 280G of the Code, the payments or benefits will either be (i) reduced or (ii) provided in full, whichever results in the named executive officer receiving the greater amount after taking into account all applicable federal, state and local income taxes, including the excise tax under Section 4999 of the Code.
Employee Benefit Plans
2011 Equity Incentive Plan
Our board
of directors originally adopted, and our stockholders approved, our 2011 Plan, in April 2011. Our 2011 Plan was amended most recently in April 2019. Our 2011 Plan allows for the grant of incentive stock options to eligible employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards and restricted stock units to employees, directors and consultants, including employees, directors and consultants of our affiliates. On November 15, 2018 and November 27, 2018, respectively, our board of directors and our stockholders approved the amendment and restatement of our 2011 Plan as the 2018 Plan which will become effective on the day immediately prior to the date that the registration statement of which this prospectus forms a part becomes effective. The terms of the 2011 Plan as described
herein will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.
Authorized Shares. The maximum number of shares of our common stock that may be issued under our 2011 Plan is 9,962,455. As of March 30, 2019, options to purchase 4,900,328 shares of our common stock and 1,142,449 shares issued pursuant to restricted stock awards were outstanding and 57,213 shares were available for future grants under the 2011 Plan. Shares subject to stock awards granted under our 2011 Plan that expire, are forfeited, or terminate without being exercised in full or settled in cash do not reduce the number of shares available for issuance under our 2011 Plan. Additionally, shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related
to a stock award become available for future grant under our 2011 Plan.
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Plan Administration. Our board of directors, or a duly authorized committee of our board of directors, administers our 2011 Plan and the stock awards granted under it. Our board of directors may also delegate to one or more of our officers the authority to (1) designate our officers and employees or any of our subsidiaries to receive certain stock awards and (2) determine the number of shares subject to such stock awards. Under our 2011 Plan, the board of directors has the authority to construe and interpret the terms of the 2011 Plan and awards granted pursuant to
the 2011 Plan and to determine and amend the terms of awards and underlying agreements, including, without limitation:
•
recipients;
•
the exercise, purchase, or strike price of stock awards, if any;
•
the number of shares subject to each stock award;
•
the
vesting schedule applicable to the awards, together with any vesting acceleration; and
•
the form of consideration, if any, payable on exercise or settlement of the award.
Under the 2011 Plan, the board of directors also generally has the authority to effect, with the consent of any adversely affected participant:
•
the reduction of the exercise price of any outstanding option or stock appreciation right;
•
the
cancellation of any outstanding option or stock appreciation right and the grant in substitution therefore of other awards, cash, or other consideration; or
•
any other action that is treated as a repricing under generally accepted accounting principles.
Stock options granted under our 2011 Plan generally have a maximum term of 10 years from the grant date and an exercise price equal to the fair market value of our common stock on the grant date, provided incentive stock options granted to any employee who owns more than 10% of the total combined voting power of all classes of our outstanding stock as of the grant date may not have a maximum term in excess of 5 years and must have
an exercise price of at least 110% of the fair market value on the grant date. Stock options granted under the 2011 Plan typically provide that a participant may exercise their option at any time up to the date that is 3 months after their termination of service, or 12 or 18 months after their termination of service in the case of termination due to disability or death, respectively (however, in no event may an option be exercised later than the expiration of its maximum term).
Restricted stock granted under our 2011 Plan generally vests in accordance with terms and conditions established by our board of directors at the time of grant, and the company generally has a right to repurchase any shares that are unvested on the date a participant’s service with the
company terminates at the original purchase price paid for the shares. Our board of directors also determines the number of shares of restricted stock a participant may purchase or receive, the price to be paid (if any) and all other terms and conditions applicable to the restricted stock award.
Transferability. Under our 2011 Plan, the board of directors may provide for limitations on the transferability of awards, in its sole discretion. Option awards are generally not transferable other than by will or the laws of descent and distribution, except as otherwise provided under our 2011 Plan.
Certain adjustments. In the event of certain corporate events or changes in our capitalization made in our common stock, appropriate adjustments will be made in the number and class of shares that may be delivered under the 2011 Plan and/or the
number, class and price of shares covered by each outstanding award.
Dissolution or liquidation. Except as otherwise provided in an award agreement, in the event of our dissolution or liquidation of the company, each outstanding stock award will terminate upon the
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consummation of such action, and the shares of common stock subject to our repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by us notwithstanding the fact that the holder of such award is providing continuous service.
Corporate Transactions.
Our 2011 Plan provides that in the event of certain specified corporate transactions, generally including: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of at least 90% of our outstanding securities, (3) the consummation of a merger or consolidation where we do not survive the transaction and (4) the consummation of a merger or consolidation where we do survive the transaction but the shares of common stock outstanding before such transaction are converted or exchanged into other property by virtue of the transaction, unless otherwise provided in an award agreement or other written agreement between us and the award holder, the administrator may take one or more of the following actions with respect to such stock awards: (1) arrange for the assumption, continuation or substitution of a stock award by a successor corporation, (2) arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation,
(3) accelerate the vesting, in whole or in part, of the stock award and provide for its termination before the transaction, (4) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us, (5) cancel or arrange for the cancellation of the stock award before the transaction in exchange for a cash payment, if any, determined by the board of directors, or (6) make a payment, in the form determined by the board of directors, equal to the excess, if any, of the value of the property the participant would have received on exercise of the stock award before the transaction over any exercise price payable by the participant in connection with the exercise. The plan administrator is not obligated to treat all stock awards, even those that are of the same type, or all participants, in the same manner.
In the event of a change in control, awards granted under the 2011 Plan will not generally receive
automatic acceleration of vesting and exercisability, although the board of directors may provide for this treatment in an award agreement. Under the 2011 Plan, a change in control is defined to include (1) the acquisition by any person of more than 50% of the combined voting power of our then outstanding stock, (2) a merger, consolidation, or similar transaction in which our stockholders immediately before the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity), (3) our stockholders approve or our board of directors approves a plan of complete dissolution or liquidation or a complete dissolution or liquidation otherwise occurs except for a liquidation into a parent corporation and (4) a sale, lease, exclusive license, or other disposition of all or substantially all of the assets to an entity that did not previously hold more than 50% of the voting power of our stock.
Plan
Amendment or Termination. Our board of directors may at any time amend, suspend or terminate the 2011 Plan, although certain material amendments require the approval of our stockholders, and amendments that would impair the rights of any participant require the consent of that participant.
2018 Equity Incentive Plan
General. Our 2011 Equity Incentive Plan was amended, restated and re-named the 2018 Equity Incentive Plan, or 2018 Plan, by our board of directors and our stockholders on November 15, 2018 and November 27, respectively. The 2018 Plan will become effective on the day immediately prior to the date that the registration statement of which this prospectus forms a part becomes effective.
Share Reserve.
The maximum aggregate number of shares that may be issued under the 2018 Plan is 14,482,356 shares of our 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:
•
2,144,521 shares;
•
4% of the shares of common stock outstanding on the last day of the prior fiscal year; or
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•
such
number of shares determined by our board of directors.
If an award expires, is forfeited or becomes unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an exchange program, the unissued shares that were subject to the award will, unless the 2018 Plan is terminated, continue to be available under the 2018 Plan for issuance pursuant to future awards. In addition, any shares which are retained by the company upon exercise of an award in order to satisfy the exercise or purchase price for such award or any withholding taxes due with respect to such award will be treated as not issued and will continue to be available under the 2018 Plan for issuance pursuant to future awards. Shares issued under the 2018 Plan and later forfeited to the
company due to the failure to vest or repurchased by the company at the original purchase price paid to the company for the shares (including, without limitation, upon forfeiture to or repurchase by the company in connection with a participant ceasing to be a service provider) will again be available for future grant under the 2018 Plan. To the extent an award under the 2018 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of Shares available for issuance under the 2018 Plan.
Plan administration. Our board of directors has delegated its authority to administer the 2018 Plan to our compensation
committee. Subject to the provisions of our 2018 Plan, the administrator has the power to determine the terms of awards, including the recipients, the exercise price, if any, the number of shares subject to each award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise of the award and the terms of the award agreement for use under the 2018 Plan. The administrator also has the authority, subject to the terms of the 2018 Plan, to amend existing awards, to prescribe rules and to construe and interpret the 2018 Plan and awards granted thereunder and to institute an exchange program by which outstanding awards may be surrendered in exchange for awards of the same type which may have a lower exercise price or different terms, awards of a different type and/or cash subject to stockholder approval.
Eligibility.
Employees, members of our board of directors who are not employees and consultants are eligible to participate in our 2018 Plan.
Non-employee directors. Our 2018 Plan provides that all non-employee directors will be eligible to receive all types of awards under our 2018 Plan except for incentive stock options. Prior to the completion of this offering, we intend to implement a formal policy pursuant to which our non-employee directors will be eligible to receive equity awards under our 2018 Plan. In addition, in order to provide a maximum limit on awards that can be provided to our non-employee directors under the 2018 Plan, our 2018 Plan provides that no non-employee director may receive awards under the 2018 Plan that, when combined with cash compensation received for service as a non-employee director, exceeds $650,000 in a calendar year, increased to $900,000 in the calendar
year of his or her initial services as a non-employee director. For purposes of this limit, the value of stock options and stock appreciation rights will be calculated using the Black-Scholes valuation methodology on the date of grant, and the value for all other types of awards will be determined by either (i) calculating the product of the fair market value per share on the date of grant and the aggregate number of shares subject to the award or (ii) calculating the product using an average of the fair market value over a number of trading days and the aggregate number of shares subject to the award.
Types of award. Our 2018 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and the employees of our subsidiaries, and for the grant of nonstatutory
stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and performance shares to our employees, directors, and consultants and the employees and consultants of our subsidiaries.
Stock options. The administrator may grant incentive and/or non-statutory stock options under our 2018 Plan, provided that incentive stock options may only be granted to employees. The exercise price of such options must generally be equal to at least the fair market value of our common stock on the date of
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grant. The term of an option may not exceed 10 years; provided,
however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator. Subject to the provisions of our 2018 Plan, the administrator determines the remaining terms of the options (e.g., vesting). After the termination of service of an employee, director or consultant, the participant may exercise his or her option, to the extent vested, for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 12 months. In the event of a
termination for cause, options generally terminate immediately upon the termination of the participant for cause. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term. The maximum aggregate number of shares of our common stock that may be issued under the 2018 Plan pursuant to incentive stock options may not exceed the maximum number of shares reserved under the 2018 Plan and to the extent allowable under Section 422 of the Internal Revenue Code, or the Code, any other shares that become available for issuance or reissuance pursuant to the terms of the 2018 Plan.
Stock appreciation rights. Stock appreciation rights may be granted under our 2018 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of
our common stock between the date of grant and the exercise date. Subject to the provisions of our 2018 Plan, the administrator determines the terms of stock appreciation rights, including when such rights vest and become exercisable and whether to settle such awards in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. The specific terms will be set forth in an award agreement.
Restricted stock. Restricted stock may be granted under our 2018 Plan. Restricted stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Shares of restricted stock will vest and the restrictions on
such shares will lapse, in accordance with terms and conditions established by the administrator. Such terms may include, among other things, vesting upon the achievement of specific performance goals determined by the administrator and/or continued service. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest for any reason will be subject to our right of repurchase or forfeited by the recipient and will revert to us. The specific terms will be set forth in an award agreement.
Restricted stock units. Restricted stock units may be granted under our 2018 Plan, and may include the right to dividend equivalents,
as determined in the discretion of the administrator. Each restricted stock unit granted is a bookkeeping entry representing an amount equal to the fair market value of one share of our common stock. The administrator determines the terms and conditions of restricted stock units, including the vesting criteria, which may include achievement of specified performance criteria and/or continued service, and the form and timing of payment. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. The administrator determines, in its sole discretion, whether an award will be settled in stock, cash or a combination of both. The specific terms will be set forth in an award agreement.
Performance units/performance shares. Performance units and performance shares may be granted under our 2018 Plan. Performance
units and performance shares are awards that will result in a payment to a participant if performance goals established by the administrator are achieved and any other applicable vesting provisions are satisfied. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will
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determine the number and/or the value of performance units and performance shares to be paid out to participants. For purposes of such awards, the performance goals may be based on one or more of the following performance criteria and any adjustment(s) thereto, in each case as determined by the administrator: (i) sales or non-sales revenue; (ii) return on revenues; (iii) operating income;
(iv) income or earnings including operating income; (v) income or earnings before or after taxes, interest, depreciation, and/or amortization; (vi) income or earnings from continuing operations; (vii) net income; (viii) pre-tax income or after-tax income; (ix) net income excluding amortization of intangible assets, depreciation and impairment of goodwill and intangible assets, and/or excluding charges attributable to the adoption of new accounting pronouncements; (x) raising of financing or fundraising; (xi) project financing; (xii) revenue backlog; (xiii) gross margin; (xiv) operating margin or profit margin; (xv) capital expenditures, cost targets, reductions and savings, and expense management; (xvi) return on assets (gross or net), return on investment, return on capital or invested capital, or return on stockholder equity; (xvii) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in
excess of cost of capital; (xviii) performance warranty and/or guarantee claims; (xix) stock price or total stockholder return; (xx) earnings or book value per share (basic or diluted); (xxi) economic value created; (xxii) pre-tax profit or after-tax profit; (xxiii) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration or market share, completion of strategic agreements such as licenses, funded collaborations, joint ventures, acquisitions, and the like, geographic business expansion, objective customer satisfaction or information technology goals, and/or intellectual property asset metrics; (xxiv) objective goals relating to divestitures, joint ventures, mergers, acquisitions, and similar transactions; (xxv) objective goals relating to staff management, results from staff attitude and/or opinion surveys, staff satisfaction scores, staff safety, staff accident and/or injury rates, compliance headcount, performance
management, and completion of critical staff training initiatives; (xxvi) objective goals relating to projects, including project completion timing and/or achievement of milestones, project budget, and technical progress against work plans; and (xxvii) enterprise resource planning. However, awards issued to participants may take into account other factors (including subjective factors). In addition, performance goals may differ from participant to participant, performance period to performance period, and from award to award. Any criteria used may be measured, as applicable, (i) in absolute terms, (ii) in relative terms (including, but not limited to, any increase (or decrease) over the passage of time and/or any measurement against other companies or financial or business or stock index metrics particular to us), (iii) on a per share and/or share per capita basis, (iv) against our performance as a whole or against any of our affiliate(s), or a particular segment(s),
a business unit(s) or a product(s) of ours or individual project company, (v) on a pre-tax or after-tax basis, and/or (vi) using an actual foreign exchange rate or on a foreign exchange neutral basis. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares, or in some combination thereof.
Non-transferability of awards. Unless the administrator provides otherwise, our 2018 Plan generally
does not allow for the transfer of awards and only the recipient of an option or stock appreciation right may exercise such an award during his or her lifetime.
Certain adjustments. In the event of certain corporate events or changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2018 Plan, the administrator will make adjustments to one or more of the number, kind and class of securities that may be delivered under the 2018 Plan and/or the number, kind, class and price of securities covered by each outstanding award.
Liquidation or dissolution. In the event of our proposed winding up, liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.
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Corporate
transaction. Our 2018 Plan provides that in the event of certain significant corporate transactions, including: (1) a transfer of all or substantially all of our assets, (2) a merger, consolidation or other capital, reorganization or business combination transaction of the company with or into another corporation, entity or person, or (3) the consummation of a transaction, or series of related transactions, in which any person becomes the beneficial owner, directly or indirectly, of more than 50% of the company’s then outstanding capital stock, each outstanding award will be treated as the administrator determines. Such determination, without the consent of any Participant, may provide that such awards will be (i) continued if we are the surviving corporation, (ii) assumed
by the surviving corporation or its parent, (iii) substituted by the surviving corporation or its parent for a new award, (iv) canceled in exchange for a payment equal to the excess of the fair market value of our shares subject to such award over the exercise price or purchase price paid for such shares, or (v) in the case of options, participants may be given an opportunity to exercise options prior to the transaction and, if not exercised, such options may be terminated upon consummation of the transaction.
Change of control. The administrator may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change of control. Under the 2018 Plan, a “change of control” is generally (1) a merger, consolidation, or any
other corporate reorganization in which our stockholders immediately before the transaction do not own, directly or indirectly, more than a majority of the combined voting power of the surviving entity (or the parent of the surviving entity), (2) the consummation of the sale, transfer or other disposition of all or substantially all of our assets, (3) an unapproved change in the majority of the board of directors during any 12-month period, and (4) the acquisition by any person or company of more than 50% of the total voting power of our then outstanding stock.
Clawback/recovery. Stock awards granted under the 2018 Plan will be subject to recoupment in accordance with any clawback policy we may be required to adopt pursuant to applicable law and listing requirements. In addition, the administrator may impose such other clawback, recovery or recoupment provisions in any stock award agreement as it determines
necessary or appropriate.
Amendment or termination. Our board of directors has the authority to amend, suspend or terminate the 2018 Plan provided such action does not impair the existing rights of any participant. Our 2018 Plan will automatically terminate on November 14, 2028 unless we terminate it sooner. We will obtain stockholder approval of any amendment to our 2018 Plan as required by applicable law or listing requirements.
Employee Stock Purchase Plan
General. Our Employee Stock Purchase Plan, or 2018 ESPP, was adopted by our board of directors on November 15, 2018 and approved by our stockholders on November 27, 2018. The 2018 ESPP will
become effective on the day immediately prior to the date that the registration statement of which this prospectus forms a part becomes effective. The 2018 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of 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.
Share reserve. We have reserved 804,195 shares of our common stock for issuance under the 2018 ESPP. 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:
•
536,130
shares;
•
1% of the shares of common stock outstanding on the last day of the prior fiscal year; or
•
such lesser number of shares determined by our board of directors.
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As of the date hereof, no shares of our common stock have been purchased under the 2018 ESPP.
Plan
administration. The 2018 ESPP will be administered by our board of directors or a committee designated by our board of directors. Our board of directors has delegated its authority to administer the 2018 ESPP to our compensation committee.
Eligibility. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates and certain non-U.S. service providers may participate in the 2018 ESPP.
Employees may have to satisfy one or more of the following service requirements before participating in the 2018 ESPP, as determined by the administrator, including: (1) being customarily employed for more than 20 hours per week, (2) being customarily employed for more than 5 months per calendar year, or (3) continuous employment with us or one of our affiliates for a period of time (not to exceed
2 years). No employee may purchase shares under the 2018 ESPP at a rate in excess of $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of an offering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the 2018 ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value under Section 424(d) of the Code.
Non-U.S. service providers must provide bona fide services to the company and may be subject to additional eligibility criteria as the administrator may determine even if such criteria is not consistent with Section 423 of the Code.
Offerings.
The 2018 ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of our common stock on specified dates during such offerings. Under the 2018 ESPP, we may specify offerings with durations of not more than 27 months, and we may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for participants in the offering. An offering under the 2018 ESPP may be terminated under certain circumstances. The administrator will have the discretion to structure an offering so that if the fair market value of a share of our common stock on the first trading day of a new purchase period within that offering is less than or equal to the fair market value of a share of our common stock on the offering date for that offering, then that offering will terminate immediately as of that first trading day, and
the participants in such terminated offering will be automatically enrolled in a new offering beginning on the first trading day of such new offering period. The administrator has not yet approved an offering under our 2018 ESPP and we are not certain whether or when this will occur.
Payroll deductions. Participants who are employees may contribute, normally through payroll deductions, up to 15% of their earnings (as defined by the board of directors in each offering) for the purchase of our common stock under the ESPP. Participants who are not employees will contribute on an after-tax basis in a manner determined by the administrator.
Unless otherwise determined by the administrator, common stock will be purchased for the accounts of participants in the 2018 ESPP at a price per share that is at least the lesser of (1) 85% of the fair market value of a
share of our common stock on the first date of an offering, or (2) 85% of the fair market value of a share of our common stock on the date of purchase.
Certain adjustments. In the event that there occurs a change in our capital structure through such actions as a stock split, reverse stock split, stock dividend, combination, consolidation, recapitalization (including a recapitalization through a large nonrecurring cash dividend) or reclassification of our common stock, subdivision of our common stock, a rights offering, a reorganization, merger, spin-off, split-up, repurchase, or exchange of our common stock or other significant corporate transaction, or other change affecting our common stock, the administrator will make appropriate adjustments to: (1) the class(es) and maximum number of shares reserved under the 2018 ESPP, (2) the class(es) and maximum number of shares by which the share reserve
may increase automatically each year, (3) the class(es) and number of
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shares and purchase price of all outstanding purchase rights, and (4) the class(es) and number of shares that are subject to purchase limits under ongoing offerings.
Dissolution or liquidation. In the event of our proposed winding up, liquidation or dissolution, any offering period then in progress will be shortened by setting a new purchase date and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the administrator. The administrator will notify each participant that the purchase date has been changed and that the participant’s purchase
right will be exercised automatically on the new purchase date unless prior to such date the participant has withdrawn from the offering period.
Corporate transactions. The 2018 ESPP provides that in the event of certain significant corporate transactions, including: (1) a transfer of all or substantially all of our assets, (2) a merger, consolidation or other capital, reorganization or business combination transaction of the company with or into another corporation, entity or person, or (3) the consummation of a transaction, or series of related transactions, in which any person becomes the beneficial owner, directly or indirectly, of more than 50% of the company’s then outstanding capital stock, a successor corporation may assume
or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute the purchase right, the offering period then in progress will be shortened, and a new purchase date will be set. The administrator will notify each participant that the purchase date has been changed and that the participant’s purchase right will be exercised automatically on the new purchase date unless prior to such date the participant has withdrawn from the offering period.
Amendment or termination. The administrator has the authority to amend, suspend or terminate our 2018 ESPP, except that, subject to certain exceptions described in our 2018 ESPP, no such action may adversely affect any outstanding rights to purchase stock under our 2018 ESPP without the holder’s consent. We will obtain stockholder approval of any amendment to our 2018 ESPP as required by applicable law or listing requirements.
Executive
Incentive Bonus Plan
Our Executive Incentive Bonus Plan, or the Bonus Plan, allows our compensation committee to provide cash incentive awards to selected officers and key employees, including our named executive officers, based upon performance goals established by our compensation committee.
Under the Bonus Plan, our compensation committee will determine the amount of the target award (which may, but is not required to be, based upon the participant’s base salary), the performance period and the performance goals to be applicable to any award. Performance goals that include our financial results may be determined in accordance with U.S. generally accepted accounting principles, or GAAP, or such financial results may consist of non-GAAP financial measures, and any goals or actual results may be adjusted by our compensation committee
for any reason, including without limitation, one-time items or unbudgeted or unexpected items, when determining whether the performance goals have been met. The performance goals may be on the basis of any factors our compensation committee determines relevant and may be adjusted on an individual, divisional, business unit or company-wide basis. The performance goals may differ from participant to participant and from award to award.
Our compensation committee, may, in its sole discretion and at any time, increase, reduce or eliminate an award otherwise payable to a participant with respect to any performance period.
Actual awards will be paid in cash only after they are earned, which usually requires continued employment through the date the bonus is paid unless otherwise determined by our compensation committee.
Our board of directors
or our compensation committee will have the authority to amend, alter, suspend or terminate the Bonus Plan, provided such action does not impair the existing rights of any participant with respect to any earned bonus.
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Health, Welfare and Retirement Benefits
401(k) Plan
We maintain a defined contribution retirement plan for our eligible U.S. employees. Participants may make pre-tax contributions to the plan from their eligible earnings, and we may make matching contributions and profit sharing contributions to eligible participants, in each case, up to the statutorily prescribed annual limits on contributions under the Internal Revenue Code. The 401(k) plan permits
us to make matching contributions and profit sharing contributions to eligible participants. Effective January 1, 2019, we began making matching contributions under the 401(k) plan equal to up to 50% of employee contributions to a maximum of $3,000. Contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The plan is intended to be qualified under Section 401(a) of the Internal Revenue Code, and the plan’s trust is intended to be tax exempt under Section 501(a) of the Internal Revenue Code. As a tax-qualified 401(k) plan, contributions to the 401(k) plan and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan.
Pension Benefits
None of our named executive
officers participate in or has an account balance in any qualified or non-qualified defined benefit plan sponsored by us.
Nonqualified Deferred Compensation
We have not offered any nonqualified deferred compensation plans or arrangements or entered into any such arrangements with any of our named executive officers.
No Tax Gross-ups
We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation paid by us.
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CERTAIN RELATIONSHIPS
AND RELATED-PARTY TRANSACTIONS
In addition to the compensation arrangements with our directors and executive officers, including those discussed in the sections titled “Management” and “Executive Compensation,” and the registration rights described in the section titled “Description of Capital Stock—Registration Rights,” the following is a description of each transaction since January 1, 2015 and each currently proposed transaction in which:
•
we have been or are to be a participant;
•
the
amount involved exceeded or exceeds $120,000; and
•
any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Sales of Securities
Series E Convertible Preferred Stock
From October 2, 2015 through January 29, 2016, we issued and sold an aggregate of 4,701,449 shares of our Series E convertible
preferred stock, or Series E stock, at a purchase price of $3.68 per share for aggregate consideration of approximately $17,300,000.
The participants in this convertible preferred stock financing included certain holders of more than 5% of our capital stock, one of our executive officers, certain members of our board of directors and as applicable, their affiliates. The following table sets forth the aggregate number of shares of Series E stock issued to these related parties in this convertible preferred stock financing:
Stockholder
Shares
of
Preferred Stock
Total
Purchase
Price
5% Stockholders:
DNS-BYMT, LLC
815,235
$
2,999,997.89
Entities
affiliated with Kleiner Perkins Caufield & Byers(1)
407,617
1,499,998.95
Entities affiliated with the Obvious Group(2)
135,872
499,998.01
Directors
and Executive Officers:
Seth Goldman and related entities(3)
44,294
$
162,998.99
Raymond J. Lane and related entities(4)
54,348
199,998.71
Gregory
Bohlen and related entities(5)
271,744
999,998.48
___________________
(1)
Consists of 375,823 shares of Series E stock purchased by Kleiner Perkins Caufield & Byers XIV, LLC and 31,794 shares of Series E stock purchased by KPCB XIV Founders Fund, LLC.
(2)
Consists
of shares of Series E stock purchased by Obvious Ventures I, L.P.
(3)
Consists of 44,294 shares of Series E stock purchased by the Julie D. Farkas Revocable Trust for which Mr. Goldman’s wife serves as the trustee.
(4)
Consists of 54,348 shares of Series E stock purchased by GreatPoint Ventures Innovation Fund, LP. for which Mr. Lane serves as Managing Partner.
(5)
Consists
of 271,744 shares of Series E stock purchased by Union Grove Partners Direct Venture Fund, LP, for which Mr. Bohlen serves on the investment committee of the record holder’s general partner.
September 2016 Subordinated Convertible Note Financing
From September 9, 2016 through September 12, 2016, we issued and sold subordinated convertible promissory notes with an aggregate principal amount of $4,000,000 bearing interest at a rate of 1% per annum, compounded annually.
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The participants in this subordinated convertible note financing included one of
the holders of more than 5% of our capital stock, one of our executive officers and members of our board of directors, and their affiliates. The following table sets forth the aggregate principal amount of notes issued to these related parties in this subordinated convertible note financing:
Stockholder
Total
Purchase
Price
Directors and Executive Officers:
Seth
Goldman and related entities(1)
$
300,000
___________________
(1)
Consists of notes in an aggregate principal amount of $300,000 purchased by the Seth Goldman Revocable Trust for which Mr. Goldman serves as the trustee.
Series F Convertible Preferred Stock
From October
7, 2016 through June 26, 2017, we issued and sold an aggregate of 4,866,758 shares of our Series F convertible preferred stock, or Series F stock, at a purchase price of $6.19 per share, for aggregate consideration of approximately $30,100,000.
The participants in this convertible preferred stock financing included certain holders of more than 5% of our capital stock, one of our executive officers, certain members of our board of directors and as applicable, their affiliates. The following table sets forth the aggregate number of shares of Series F stock issued to these related parties in this convertible preferred stock financing:
Stockholder
Shares
of
Preferred Stock
Total
Purchase
Price
5% Stockholders:
DNS-BYMT, LLC
161,686
$
999,998.72
Tyson
New Ventures, LLC
2,433,387
15,049,997.66
Entities affiliated with Cleveland Avenue, LLC(1)
202,107
1,249,996.34
Directors
and Executive Officers:
Seth Goldman and related entities(2)
51,087
$
315,967.90
Raymond J. Lane and related entities(3)
48,505
299,997.97
Gregory
Bohlen and related entities(4)
525,480
3,249,989.66
___________________
(1)
Consists of 148,894 shares of Series F stock purchased by Cleveland Avenue, LLC and held of record by CA Food I Fund LLC and 53,213 shares of Series F stock purchased by Donald Thompson, one of our directors, and held of record
by Cleveland Manor Investments II LLC. Mr. Thompson has voting and dispositive control over the shares held by CA Food I Fund LLC and Cleveland Manor Investments II LLC. See “Principal Stockholders” for more information.
(2)
Consists of 51,087 shares of Series F stock purchased by the Seth Goldman Revocable Trust for which Mr. Goldman serves as the trustee.
(3)
Consists of 48,505 shares of Series F stock purchased by GreatPoint Ventures Innovation Fund, LP. for which Mr. Lane serves as Managing Partner.
(4)
Consists
of 485,060 shares of Series F stock purchased by Union Grove Partners Venture Access Fund II-B, LP, 20,210 shares of Series F stock purchased by Union Grove Partners Direct Venture Fund, LP and 20,210 shares of Series F stock purchased by Union Grove Partners Venture Access Fund II, LP for which Mr. Bohlen serves on the investment committees of the general partners of each of the aforementioned record holders.
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August 2017 Subordinated Convertible Note Financing
From August 1, 2017 through November 3, 2017, we issued and sold subordinated convertible promissory notes with an aggregate principal
amount of $10,000,000 bearing interest at a rate of 5% per annum, compounded annually.
The participants in this subordinated convertible note financing included certain holders of more than 5% of our capital stock, one of our executive officers and certain members of our board of directors and as applicable, their affiliates. The following table sets forth the aggregate principal amount of notes issued to these related parties in this subordinated convertible note financing:
Stockholder
Total
Purchase
Price
5%
Stockholders:
DNS-BYMT, LLC
$
1,000,000
Entities affiliated with Cleveland Avenue, LLC(1)
3,600,000
Directors and Executive Officers:
Seth Goldman and
related entities(2)
$
1,000,000
Bernhard van Lengerich
300,000
___________________
(1)
Consists of notes in an aggregate principal amount of $1,587,322 purchased by Cleveland Avenue, LLC and held of record by Beyond Meat CA LLC, notes
in an aggregate principal amount of $1,587,322 purchased by Beyond Meat CA LLC, and notes in an aggregate principal amount of $425,356 purchased by Donald Thompson. Mr. Thompson has voting and dispositive control over the shares held by Beyond Meat CA LLC. See “Principal Stockholders” for more information.
(2)
Consists of notes in an aggregate principal amount of $1,000,000 purchased by the Seth Goldman Revocable Trust for which Mr. Goldman serves as the trustee.
Series G Convertible Preferred Stock
From November 22, 2017 through June
29, 2018, we issued and sold an aggregate of 5,114,786 shares of our Series G convertible preferred stock, or Series G stock, at a purchase price of $10.94 per share, for aggregate consideration of approximately $55,953,000, including the conversion of the $10,000,000 of subordinated convertible promissory notes described above.
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The participants in this convertible preferred stock financing included certain holders of more than 5% of our capital stock, one of our executive officers and certain members of our board of directors and as applicable, their affiliates. The following table sets forth the aggregate number of shares of Series G stock issued to these related parties in this convertible preferred stock financing (amounts shown below are in
addition to the convertible promissory notes described in the table above):
Stockholder
Shares of
Preferred Stock
Total
Purchase
Price
5% Stockholders:
DNS-BYMT,
LLC
102,838
$
1,124,991.52
Tyson New Ventures, LLC
731,301
7,999,998.89
Entities affiliated
with Cleveland Avenue, LLC(1)
1,906,253
20,853,280.51
Directors and Executive Officers:
Seth Goldman and related entities(2)
102,838
$
1,124,991.52
Bernhard
van Lengerich
49,133
537,494.33
___________________
(1)
Consists of 1,862,511 shares of Series G stock purchased by Beyond Meat CA LLC and 43,742 shares of Series G stock purchased by Don Thompson, in each case held of record by Cleveland Manor Investments II LLC. Mr. Thompson has voting and dispositive control over the shares held by Cleveland Manor
Investments II LLC. See “Principal Stockholders” for more information.
(2)
Consists of 102,838 shares of Series G stock purchased by the Seth Goldman Revocable Trust for which Mr. Goldman serves as the trustee. These shares were subsequently transferred to the Goldman Farkas 2017 Descendants Trust, and Mr. Goldman no longer has voting or dispositive power of such shares.
Series H Convertible Preferred Stock
From October 5, 2018 through November 2, 2018 we issued and sold an aggregate of 2,075,216 shares of our Series H convertible
preferred stock, or Series H stock, at a purchase price of $24.23 per share, for an aggregate consideration of approximately $50,283,000.
The participants in this convertible preferred stock financing included certain holders of more than 5% of our capital stock, one of our executive officers and certain members of our board of directors and as applicable, their affiliates. The following table sets forth the aggregate number of shares of Series H stock issued to these related parties in this convertible preferred stock financing:
Stockholder
Shares
of
Preferred Stock
Total
Purchase
Price
5% Stockholders:
DNS-BYMT, LLC(1)
173,570
$
4,205,580.83
Entities
affiliated with Cleveland Avenue, LLC(2)
103,361
2,504,451.56
Directors and Executive Officers:
Seth Goldman and related entities(3)
41,271
$
999,997.22
Raymond
J. Lane and related entities(4)
123,813
2,999,991.65
___________________
(1)
Consists of 173,570 shares of Series H convertible preferred stock purchased by DNS-BYMT, LLC.
(2)
Consists
of 76,669 shares of Series H convertible preferred stock purchased by Beyond Meat CA LLC, 6,129 shares of Series H convertible preferred stock purchased by CA Food I Fund, LLC and 20,563 shares of Series H convertible preferred stock purchased by Cleveland Manor Investments II LLC, one of our directors, and held of record by Cleveland Manor Investments II LLC. Mr. Thompson has voting and dispositive control
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over the shares held by CA Food I Fund LLC and Cleveland Manor Investments II LLC. See “Principal Stockholders” for more information.
(3)
Consists
of 41,271 shares of Series H convertible preferred stock purchased by the Seth Goldman Revocable Trust for which Mr. Goldman serves as the trustee.
(4)
Consists of 119,317 shares of Series H convertible preferred stock purchased by GreatPoint Ventures Innovation Fund, LP, for which Mr. Lane serves as Managing Partner, and 4,496 shares of Series H convertible preferred stock purchased by the GreatPoint Ventures Innovation Parallel Fund, LP., for which Mr. Lane serves as Managing Partner. See “Principal Stockholders” for more information.
Directed Share Program
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons. The directed share program will not limit the ability of our directors, officers and their family members, or holders of more than 5% of our common stock, to purchase more than $120,000 in value of our common stock. We do not currently know the extent to which these related persons will participate in our directed share program, if at all, or to the extent they will purchase more than $120,000 in value of our common stock.
In October 2018, we entered into an amended and restated investor rights
agreement with certain of our stockholders, which included the entities affiliated with Kleiner Perkins Caufield & Byers, the entities affiliated with the Obvious Group, DNS-BYMT, LLC, Tyson New Ventures, LLC and the entities affiliated with Cleveland Avenue LLC as well as our directors, Seth Goldman, Bernhard van Lengerich and Ethan Brown and their affiliates to the extent applicable. The investor rights agreement provides these stockholders with information rights and a right of first offer with regard to certain issuances of our capital stock, which in each case will terminate on the closing of this offering. In addition, after the closing of this offering, these stockholders will be entitled to rights with respect to the registration of their shares of common stock under the Securities Act. For
a description of these registration rights, see “Description of Capital Stock—Registration Rights.”
Advisor Agreement
In November 2015, we entered into an advisor agreement with Food System Strategies, LLC. In February 2016, we entered into new advisor agreement with Food System Strategies, LLC, which was subsequently amended in December 2016 and expired in February 2019. Dr. Bernhard van Lengerich, who is a member of our board of directors, is the Chief Executive Officer of Food System Strategies, LLC. As of December 31, 2018, we have paid $563,500 in fees to Food System Strategies, LLC pursuant to the advisor agreement. For more information regarding this advisor agreement, see “Management—Director Compensation Arrangements.”
Consulting
Agreements
In November 2018, we amended and restated a consulting agreement with Seth Goldman, our Executive Chair and a member of our board of directors, which was amended in April 2019. As of December 31, 2018, we have paid $495,833 in fees and a $149,625 discretionary bonus to Mr. Goldman pursuant to this consulting agreement. For more information regarding this consulting agreement, see “Management—Director Compensation Arrangements.”
In 2018, the Company reimbursed Cleveland Avenue, LLC, a venture capital investment company, which holds more than 5% of the
Company’s stock and is led by Don Thompson, for certain costs that were incurred by Cleveland Avenue, LLC in connection with Company presentations and the hosting of Company meetings. Cleveland Avenue, LLC received $121,546 in reimbursements for staff time, food, food preparation and facility rental costs.
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Option Amendment Letter
In March 2017, Mark J. Nelson, our Chief Financial Officer, terminated his employment with us but was re-employed by us in May 2017. In May 2017 we entered into an option amendment letter with Mr. Nelson, pursuant to which his outstanding stock options were amended to provide that his termination of employment
from us would not be considered a termination of his “Continuous Service” (as defined by the 2011 Plan) and that his stock options would continue to vest pursuant to their terms. The intrinsic value of his amended options as of the date of the amendment was $389,441, which amount is equal to the fair market value of the options less the exercise price.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. For more information regarding these indemnification agreements,
see “Management—Limitation of Liability and Indemnification.”
Promissory Notes
In December 2015, we loaned Donald Thompson, a member of our board of directors and Seth Goldman, $380,498 and $570,747, respectively, pursuant to promissory notes at an annual interest rate of 1.68%, compounded annually, to allow them to purchase restricted shares of our common stock. The promissory notes were repaid in full by each of Mr. Thompson and Mr. Goldman on July 17, 2018 and July 9, 2018, respectively.
Related-Party Transaction Policy
Our audit committee will have the primary responsibility for reviewing and approving or disapproving “related-party transactions,” which are transactions between
us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. The written charter of our audit committee will provide that our audit committee shall review and approve in advance any related-party transaction.
We have adopted a formal written policy providing that we are not permitted to enter into any transaction that exceeds $120,000 and in which any related person has a direct or indirect material interest without the consent of our audit committee. This policy was not in effect when we entered into the related-party transactions above. In approving or rejecting any such transaction, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to our audit committee, including whether the transaction is on terms no less favorable than terms generally
available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
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PRINCIPAL STOCKHOLDERS
The following table and footnotes set forth information with respect to the beneficial ownership of our common stock as of April 16, 2019, subject to certain assumptions set forth in the footnotes and as adjusted to reflect the sale of the shares of common stock offered in the public offering under this prospectus for:
•
each
holder of 5% or more of the outstanding shares of our common stock;
•
each of our named executive officers;
•
each of our directors; and
•
all of our executive officers and directors as a group.
In accordance with SEC rules,
each listed person’s beneficial ownership includes:
•
all shares the stockholder actually owns beneficially or of record;
•
all shares over which the stockholder has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund); and
•
all shares the stockholder
has the right to acquire beneficial ownership of within 60 days after April 16, 2019.
Our calculation of the percentage of beneficial ownership prior to this offering is based on 48,741,700 shares of common stock outstanding as of April 16, 2019, assuming the conversion of all then-outstanding shares of our convertible preferred stock on a one-for-one basis into 41,562,111 shares of common stock outstanding after closing of this offering. The percentage ownership information assumes no exercise of the underwriters’ option to purchase additional shares. Shares of common stock that a person has the right to acquire within 60 days after April 16, 2019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights but
are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. The following table does not reflect any shares of our common stock that may be purchased pursuant to our directed share program described under “Underwriting—Directed Share Program.”
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Unless otherwise indicated, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all securities that they beneficially own, subject to community property laws where applicable. Unless otherwise noted below, the business address
of the stockholders listed below is the address of our principal executive office, 119 Standard Street, El Segundo, CA90245.
Shares
beneficially owned prior to the offering
Shares beneficially owned after the offering
Name of beneficial owner
Common stock
Options exercisable within 60 days
Aggregate number of shares beneficially owned
%
Assuming
no exercise of option to purchase additional shares
%
Assuming exercise of option to purchase additional shares
%
5% or more stockholders:
Entities
affiliated with Kleiner Perkins Caufield & Byers(1)
