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Beyond Meat Inc
NASDAQ:BYND

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Beyond Meat Inc Logo
Beyond Meat Inc
NASDAQ:BYND
Watchlist
Price: 6.56 USD 1.08% Market Closed
Updated: Apr 17, 2024

Earnings Call Analysis

Q4-2023 Analysis
Beyond Meat Inc

Beyond Meat Eyes Recovery After Tough 2023

In 2023, Beyond Meat's net revenue fell by 7.8% to $73.7 million in Q4, impacted by a 14.6% drop in net revenue per pound, despite an 8% increase in product volumes sold. The U.S. market showed weakness, while international growth was solid. Gross profit saw a significant loss of $83.9 million owing to strategic changes and one-off charges, leading to an overall net loss of $155.1 million for the quarter. As 2024 approaches, the company is optimistic about returning to growth and improving its balance sheet, with anticipated revenue between $345 million and gross margins in the mid- to high teens.

Right-Sizing Operations for Profitability

The company has strategically trimmed down, targeting a minimum of $70 million in cost savings from its 2024 operating budget. This reduction is part of a broader push for a slimmer, more efficient organization aimed at profitability. In pursuit of this leaner structure, noncash charges amounting to roughly $95.6 million were incurred, largely from pruning inventory and assets no longer aligned with the company's pathway to growth.

Product and Market Refinement

Looking at 2024 as a year of transformation, the company has pinpointed five key priorities to drive its evolution. These include honing its operational focus, retiring the Beyond Meat Jerky product in favor of products with more promising profitable growth potential, and enhancing its portfolio with an upgraded product platform 'Beyond IV'. This new addition is anticipated to bolster the brand's health and nutritional profile, a counteraction against critical scrutiny and misinformation around plant-based meats.

Pricing Strategy Overhaul

In a pivot from previous strategies, early Q2 will see the implementation of fresh pricing policies across U.S. trade channels. Expected to significantly improve margins throughout the year, the move is a strategic effort to recover margins without abandoning the long-term goal of price parity with animal-based meat products. The revised pricing accommodates premium ingredients and positions the company to better penetrate the mainstream market.

Streamlining Production

The company has undertaken a rigorous consolidation of its manufacturing network, decreasing co-packer relationships from thirteen to a single partner in North America. This scaling back, alongside a focus on internal production, is designed to deliver cost savings, logistical efficiencies, and improved quality control. Furthermore, investments continue into strategic European markets, where the brand's presence is increasingly visible in popular food chains, portraying a growing acceptance of plant-based meat.

Financial Summary and 2024 Outlook

The fourth quarter of 2023 saw operating expenses rise to $76.9 million, up from $62.8 million the previous year, attributed to a mix of noncash charges and streamlined operational costs. Meanwhile, capital expenses decreased significantly year-over-year. Looking ahead, the company anticipates net revenues ranging from $70 million to $75 million in Q1 2024, totaling around $345 million for the year. Gross margins are expected to mature to mid- to high teens with a notable increase in the latter half, coinciding with strategic pricing and insourcing measures. Operating expenses are projected to be between $170 million and $190 million, with capital expenditures estimated at $15 million to $25 million. These financial maneuvers, including a plan to enhance liquidity and potentially restructure debt, are all in service of a robust, growth-oriented 2024.

Earnings Call Transcript

Earnings Call Transcript
2023-Q4

from 0
Operator

Good afternoon, and welcome to the Beyond Meat 2023 Fourth Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul Sheppard, Vice President, FP&A and Investor Relations. Please go ahead.

P
Paul Shepherd
executive

Thank you. Good afternoon, and welcome. Joining me on today's call are Ethan Brown, Founder, President and Chief Executive Officer; and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's fourth quarter and full year 2023 earnings press release filed today after market close. . This document is available in the Investor Relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented on today's call is unaudited. And that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Forward-looking statements in today's earnings release, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. We refer you to today's press release company's quarterly report on Form 10-Q for the quarter ended September 30, 2023, and for the company's annual report on Form 10-K for the fiscal year ended December 31, 2023, to be filed with the SEC along with other filings with the SEC, for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Please also note that on today's call, management may reference adjusted EBITDA, which is a non-GAAP financial measure. While we believe this non-GAAP financial measure provides useful information for investors, any reference to this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's press release through a reconciliation of adjusted EBITDA to its most comparable GAAP measure.

And with that, I would now like to turn the call over to Ethan Brown.

E
Ethan Brown
executive

Thank you, Paul, and good afternoon, everyone. I will begin my comments by briefly reviewing the 5 priorities we anchored our activities around in Q4 2023 and then turn to our 5 forward priorities for 2024. In both instances, these steps are intended to serve and accelerate our progress towards sustainable operations and return to growth.

In Q4 2023, we executed across the following actions: one, we sought to accelerate our transition to a leaner operating structure. As part of these efforts, we established a minimum of $70 million in cuts from our operating budget for 2024. We recorded approximately $95.6 million in noncash charges, primarily relating to inventory and assets now deemed to be in excess or no longer consistent with our path to profitability and continue to consolidate our production footprint.

Two, in U.S. retail, we put the finishing touches on a multiyear renovation of certain core platforms, including Beyond Burger and Beyond Beef. We believe this renovation further positions the brand to overcome misinformation regarding the nutritional and health profile of our products while providing strong support for certain pricing actions.

Three, we conducted extensive pricing analysis, and as discussed momentarily, are now preparing to implement pricing changes to support gross margin expansion; four, throughout the quarter, we continued to use inventory management to free up working capital; five, we maintained our investment focus in Europe and served our strategic customers in this important market for plant-based meats including continued traction in McDonald's across countries such as Austria, Germany, Ireland, the Netherlands, U.K., Malta, Portugal, Slovenia and Switzerland.

Turning to 2024, a pivotal year for Beyond Meat, we are pursuing the following 5 priorities, several of which simply represent a transition from 2023 planning to 2024 implementation. One, we are beginning 2024 by executing within a leaner operation, consistent with substantially reduced 2024 planned OpEx and cash use. Part and parcel with this leaner operation is our ongoing tightening of focus relating to portfolio, markets and consumer.

We are, as just 1 example, discontinuing our Beyond Meat Jerky product line despite its #1 position in the plant-based turkey category. These refinements allow focus and resources to be put against our latest product platform renovation beyond IV and other SKUs, which we believe have higher profitable growth potential here in the U.S. and are consistent with my intention to focus more resources against key markets and customers in Europe.

Two, we will be rolling out beyond IV in U.S. retail and view this renovation as an important and potentially transformative moment for our brand and category. Iron sharpens iron, and we certainly experienced this ancient metaphor firsthand. Specifically, the current climate and misinformation and efforts by incumbents, including sadly pharmaceutical interests to poison the plant-based meat well push us to accelerate gains in the health profile of our product platforms. To be clear, as I've often repeated, likely to appoint a Board of [ listeners ], we are proud of the health benefits available through our current products, including, for example, those documented in the SWAP-MEAT study published in the American Journal of Clinical Nutrition, where participants experienced a meaningful drop in LDL or bad cholesterol as well as a decline in TMO, a compound and the gut associated with heart disease after switching from animal-based meats to beyond meats across 8-week intervals. And we are proud of the certifications associated with our existing product lines such as the American Heart Association's Heart Check program certification of our Beyond Stake and Beyond Beef Crumbles. However, as we have also oft-repeated we are chasing a perfect build of need for plants, and this goal encompasses Century as well as nutritional characteristics. On the latter, our job is to deliver as much of the nutritional benefits of plant-based eating as we can in the familiar and satiating form and taste of meat.

Over the years, we've surrounded ourselves with a broad ecosystem of doctors, registered dieticians and leading health institutions to guide us in this effort. Combination of its extensive input and the talent and expertise of our research and development team is what led to what I believe is a significant breakthrough in the Beyond IV platform. If you come to our facilities in Los Angeles, you will see that one of the analytical areas that we emphasize is the structure, interplay and distribution of plant-based proteins and fats. In Beyond IV the team was able to blend high-quality proteins from follow beans, red lentils, peas, and brown rice together with fats from avocado oil in a way to deliver superior nutrition and century outcomes. The nutritions are clear and compelling, including high levels of plant-based protein, 21 grams, specifically, with just 2 grams of saturated fat which is 75% less saturated fat than a typical 80-20 animal beef patty.

Avocado oil has been identified as potentially beneficial across a range of health outcomes, including reducing the risk of various chronic diseases among them heart disease as well as potentially helpful with eye and skin health, reflecting its composition of monounsaturated fats antioxidants and other plant compounds.

The critics will undoubtedly continue to agitate. The favorite target is sodium levels and the slide of hand employed is to compare the Beyond Burger, which is seasoned to an unseasoned ground beef burger. Keeping in mind that the current Beyond Burger contains 17% of the daily recommended value of sodium, which when appropriately compared to season beef burgers often means less, not more sodium. Nevertheless, Beyond IV achieved a 20% reduction in the amount of sodium with the sodium content now registering at 14% of daily values.

Quick math reveals that even if you were to have 7 of the Beyond IV burgers in a single day, this consumption alone would not exceed the daily recommended value of sodium. And here's the thing. We're not done. As the critics physician, talk post and lobby, we will keep chasing our own True North, that perfect build of meat from plants and you can expect even lower sodium levels in subsequent generations.

These and other advances and Beyond IV have earned recognition from reporting members of the health and nutrition community. This includes the American Association's Heart check program certification of a series of heart healthy recipes featuring the Beyond IV, beef and burger. The placement of the American Diabetes Association seal on our Beyond Beef and burger packaging as both products meet the nutritional guidelines of the American Diabetes Association's Better Choices for Life program, and the clean label project certification of the Beyond IV beef and burger. Moreover, in a survey of registered dietitians at a recent conference, 94% of these dieticians answered that they enjoyed the taste of the new Beyond Burger viewed it is helpful and would be recommended, while broader consumer testing scored favorably across the taste, juiciness and texture relative to our existing burger.

Three, we are implementing changes to our U.S. trade and pricing programs effective in early Q2. Though varied across channels and product lines, we expect the overall impact of these pricing changes to meaningfully impact margin across the balance of the year. This change in strategy does not reflect an abandonment of our long sought price parity goal, which we, in fact, achieved in certain very specific offerings.

Rather, the change reflects 3 main factors: One, we clearly need to restore our margins and this, coupled with the network consolidation I discussed momentarily, are expected to aid greatly towards this end. Two, the broad pricing programs we put in place over the last 18 months simply didn't accomplish the goal of crossing from early adopters into the mainstream. In retrospect, the noise and swirl surrounding the category reached decibels that were perhaps sufficient to ground out pricing and other messages.

Three, given the aforementioned margin objectives as well as the inclusion of certain premium ingredients in the Beyond IV platform, our pricing architecture is putting far more delivered emphasis on tiered pricing across our product lines. Four, as referenced above, we are nearing the completion of what has been a very difficult but highly worthwhile consolidation of our production network.

Though we undertook these changes for myriad reasons, depending on the site and partner, we expect this rightsizing to substantially contribute to margin. To give a sense of the magnitude of this restructuring effort, it helps to consider that in the last 2 years, we've contracted our production network from as many as 13 co-packers in North America, to just 1 today.

This consolidation, coupled with an emphasis on internal production has obvious benefits relating to overhead absorption as well as logistics and quality control. Five, we're continuing to invest in our European business and related strategic customers.

In a recent trip to the U.K., I was struck by what I am personally certain is the future of plant-based meat. That is a growing ubiquity. I was able to, within a radius of no more than 3 blocks, enjoyed delicious Beyond Meat offerings at McDonald's U.K., Pizza Hut U.K. and Starbucks U.K. More generally, I routinely enjoy watching with much interest, the reaction of visitors that are headquartered in Los Angeles when they taste the plant nugget, which is now available in Germany. Almost universally, it is viewed as indistinguishable from its animal protein equivalent.

Similar to the delicious aforementioned products at Pizza Hut U.K. and Starbucks U.K., this outcome reflects years of development and investment that helps separate Beyond Meat. For moving on from Europe. I should note that across 2024, we look forward to a more fulsome entry into the German retail market given our recent satisfaction of local shelf life requirements.

In closing my comments, I want to properly frame the state of our business. Over the last 12 to 18 months, we spent considerable time, energy and resources reorienting Beyond Meat's trajectory, amidst changing and challenging conditions with an eye towards sustainable operations and return to growth.

To reiterate, these major steps include a potential leap forward in the value proposition of our core product lines. a steep reduction in our operating costs and cash use as we continue to implement lean management principles. The contraction of our production network to achieve quality and margin gains and the implementation of pricing changes also in support of margin expansion. As we look forward, we expect the early results from this extensive spade work together with specific actions we plan to pursue to bolster our balance sheet to make 2024 an important promising year for the Beyond Meat story.

With that, I'll turn it over to Lubi, our Chief Financial Officer and Treasurer; to walk us through our fourth quarter and full year 2023 financial results in greater detail as well as provide our outlook for 2024.

L
Lubi Kutua
executive

Thank you, Ethan, and good afternoon, everyone. Before diving into the components of our fourth quarter P&L, let me provide some color more broadly on the significant noncash charges you will have seen in our press release today. You'll recall we announced in November 2023 that we were initiating a review of our global operations spanning 5 areas: First, the potential exit of select product lines second, changes to our pricing architecture within certain channels; third, accelerated cash accretive inventory reduction initiatives; fourth, further optimization of our manufacturing capacity and real estate footprint and lastly, fifth, a review and potential restructuring of our operations in China.

We recorded $67.5 million in noncash charges in cost of goods sold this quarter in connection with our global operations review. These charges consisted of a few different items, including the provision for certain inventory now deemed to be excess or obsolete, given changes to our strategic priorities as well as more limited internal resources following our November 2023 reduction in force.

We also recorded a significant charge representing accelerated depreciation expense on certain fixed assets determined to be noncore to our strategic priorities within the foreseeable horizon but for which no recovery or sale value could be reasonably expected. Also in connection with the global operations review, we recorded a noncash write-off to cost of goods sold associated with a prepaid option to purchase certain raw material ingredients, which we no longer expect to exercise.

Within operating expenses, we recorded a noncash charge of $17.6 million, reflecting the write-down to estimated fair value of certain production and R&D assets, which we now intend to sell. Of note, $16.3 million of the noncash items recorded in cost of goods sold and $3.6 million of the noncash items recorded in operating expenses related to Beyond Meat Jerky, which we have made the decision as part of our global operations review to discontinue.

Let me now briefly review our fourth quarter financial results before turning to our 2024 outlook. Net revenues decreased 7.8% to $73.7 million in the fourth quarter of 2023 compared to $79.9 million in the year ago period. The decrease in net revenues was driven by a 14.6% decrease in net revenue per pound, partially offset by an 8% increase in volume of products sold. The decrease in net revenue per pound was mainly driven by changes in product sales mix and increased trade discounts, partially offset by favorable impact from foreign exchange rates.

The increase in volumes sold was primarily driven by sales in our international business, where we continue to see solid growth across our retail and Foodservice channels. However, this was partially offset by softness in our U.S. business where volumes declined in both our Retail and Foodservice channels due mainly to continued category weakness and the lapping of certain business in our Foodservice channel that did not repeat in Q4 '23.

Turning to gross profit and gross margin. Gross profit in the fourth quarter of 2023 was a loss of $83.9 million compared to a loss of $2.9 million in the year ago period, which included the negative impact of noncash charges totaling $78 million taken in the fourth quarter of 2023. Of the aforementioned amount $6.5 million was associated with strategic decisions arising from our global operations review and $10.5 million was due to other special items, driven mainly by additional reserves for inventory associated with a large QSR customer and the write-off of a prepaid fee resulting from the termination of a co-manufacturing agreement in Q4 2023.

Excluding the aforementioned charges, gross profit and gross margin were also impacted by lower net revenue per pound, partially offset by reduced logistics cost per pound compared to the year ago period. Operating expenses were $76.9 million in the fourth quarter of 2023 compared to $62.8 million in the year ago period. The increase in operating expenses included noncash charges totaling $17.6 million associated with our global operations review, which I described a moment ago.

Excluding these charges, operating expenses also reflected reduced nonproduction head count expenses, lower restructuring expenses, reduced scale up expense and lower selling expenses, partially offset by higher consulting fees compared to the year ago period.

Moving down the P&L. Total other income net of $5.7 million was lower by approximately $1.2 million compared to the year ago period, reflecting decreased realized and unrealized foreign currency gains. Losses related to the company's joint venture with PepsiCo, the Planet partnership decreased by approximately $8 million year-over-year, reflecting the reduced scale of our Jerky business versus the year ago period.

Overall, net loss in the fourth quarter of 2023 was $155.1 million or $2.40 per common share compared to net loss of $66.9 million or $1.05 per common share in the year ago period. Net loss in the fourth quarter of 2023 included noncash charges totaling $95.6 million, as previously described. Adjusted EBITDA was a loss of $125.1 million in the fourth quarter of 2023 compared to an adjusted EBITDA loss of $56.5 million in the year ago period.

Turning now to our balance sheet. The company's cash and cash equivalents balance, including restricted cash was $205.9 million and total outstanding debt was $1.1 billion as of December 31, 2023. Net cash used in operating activities was $107.8 million in the year ended December 31, 2023, compared to $320.2 million in the year ago period.

Capital expenditures totaled $10.6 million in the year ended December 31, 2023, compared to $70.5 million in the year ago period.

Let me now turn to our full year 2024 outlook. We expect net revenues to be in the range of to $345 million, and net revenues for the first quarter of 2024 are expected to be in the range of approximately $70 million to $75 million. Gross margin is expected to be in the mid- to high teens and is expected to be higher in the second half of the year relative to the first half reflecting the timing of anticipated pricing actions and further production in-sourcing activities.

Operating expenses are expected to be in the range of $170 million to $190 million, weighted slightly more towards the first half of the year, and capital expenditures are expected to be in the range of $15 million to $25 million. Finally, in 2024, we plan to bolster our liquidity and potentially restructure our balance sheet.

And with that, I'll conclude my remarks and turn the call over to the operator to open it up for your questions. Thank you.

Operator

[Operator Instructions]Our first question comes from Andrew Strelzik with BMO.

U
Unknown Analyst

This is Daniel Gold on for Andrew. When will the Beyond IV be rolled out? And will that be a phased role? And is pricing going to be rolled out alongside it? And what's the magnitude of pricing you plan on taking and kind of what channels and geographies is that plan for?

E
Ethan Brown
executive

Thank you for the question. So we're very excited to have the Beyond IV come out, it will be shipping next month and probably start to gain broader distribution April time frame and into May, and that will be in U.S. retail. On pricing, there are 2 kind of separate issues, the Beyond IV, as I mentioned in my remarks, was many years in the making and we were able to get it out as we roll into the summer season this year, but it does coincide well with some pricing changes that we have to take.

And so they will be largely coincident and certainly, it helps that there's some premium ingredients in Beyond IV, and I think an enhanced value proposition in the on to help support that pricing. In terms of the magnitude, we should probably talk with retailers first before getting into the specific details on that. But the entire effort is really around making sure that we get back to very healthy margins. And we did a tremendous amount of work on this question around elasticity, worked with an external firm and looked across our portfolio and where we thought pricing had some headroom or room rather for growth.

And so I think we've made the right decisions here and just look forward to rolling it out. But it is really part I just reiterate some of the things that I was saying on our introductory remarks. It's part of an entire effort to really reset the business after about 12 to 18 months of effort to reorient what we're doing from a much more growth at all cost focused operating model to one now that is highly focused on sustainability and profitability.

And so the pricing increase is just one of those things. But if you look at all of the changes we're making, whether it's a substantial reduction in operating budget will be down significantly from 2023 if we execute according to our '24 plan as well as a very substantial reduction in cash use, if you look at the global staff cuts we've made over the last several years, the other one that we did in November, was not insignificant at about 19%.

And so I think we really rightsized the business to -- for the size of the current opportunity and the growth that we want to create ahead. Pricing is a very significant tool and historic margin, but it's not the only one. We're also well underway in terms of production efficiencies that we've been chasing. And if you think about the magnitude of the effort over the last several years to put the business into a footprint that's consistent with the current opportunities. We're going from 13 manufacturing locations that are external to our company, down to 1 and bringing a lot of that production in-house to benefit from much higher overhead absorption and some material flow efficiencies and things of that nature, reduce logistic costs, so on and so forth.

So it's really part and parcel with an entire effort to reorient the business towards sustainable and then profitable organizations. I think I mentioned in the opening remarks that we're going to be discontinuing Jerky at the same idea there. And then this last global business review to take out some of the excess inventory and assets that we have from a write-down perspective and then be able to monetize those less pressure on us.

So all these things, again, we were at 1 size and needed to get a little bit leaner. And I think we've done that now. And so in '24, I very much look forward to a lot of this coming to fruition and reset beginning to really show.

U
Unknown Analyst

Just 1 more for me. Can you speak to your confidence in the gross margin guide?

E
Ethan Brown
executive

I'll give that to Lubi, but I think the 2 main features that I just referenced. One is the pricing change as well as this consolidation of our production network and the increased we're continuing rather COGS reductions that you see throughout the last 12 months. Those will, I think, help significantly and then also clearing out of some of the higher reserve levels we had, Lubi?

L
Lubi Kutua
executive

Yes. Not a whole lot to add to that, but I think just generally in speaking to sort of our confidence level we feel pretty good about it, right? And so we did say in the guidance that we provided that we expect gross margins to be higher in the back half relative to the first half, and that's related to some of the timing around some of these actions. Ethan already discussed the pricing One thing that we have communicated on prior calls as well is that we are rolling back to some degree, right, the level of promotions that we've done.

We really did some aggressive promotions in 2023 as a means of trying to draw more consumers into the category, and we're taking a little bit of a different approach this year. The in-sourcing of finished goods production is something that I think should not be underestimated. As Ethan said, it really gives us an opportunity to sweat our assets more and benefit from the fixed cost absorption as well as the fact is it helps us from a logistics cost perspective as well, right? You can imagine if you have 8 or 10 different co-manufacturers in your network, you're transporting the ingredients and work in process items to multiple locations that starts to have a detrimental effect on your logistics costs.

And so all of these things combined, I think, give us pretty good confidence that we should be able to achieve the margin targets that we're seeking.

Operator

The next question is from Adam Samuelson with Goldman Sachs.

A
Adam Samuelson
analyst

So I just want to -- a little bit easy, and I want to just make sure I'm thinking about the 2024 outlook pieces correctly. Given the revenue outlook you've given, given the gross margin outlook for kind of mid- to high teens, the operating expenses, and there's some D&A and stock comp, so it's not all cash, but there's also the it would still look like the cash burn based on the gross margin, less the OpEx plus the -- less the less the CapEx, add back from [ D&A ] and stock comp, you would still have a cash burn from operations in 2024 of $100 million plus. And a, I missing something in terms of the noncash expenses in there because I'm just trying to think about that level of cash burn in 2024 relative to an ending cash balance in '23, $205 million arguably kind of expecting to burn half or more of your cash balance in '24 for further liquidity actions?

E
Ethan Brown
executive

Yes, I can -- I'll answer at a higher level then hand it over to Lubi. I do think we should probably after the call or through you work through this with you on some of the puts and takes. We're pretty comfortable that it's going to come into a reasonable number and lower than 100%, certainly at the midpoint, but Lubi can give guidance on that. .

L
Lubi Kutua
executive

Yes. So Adam, I'm not sure what assumptions you're baking in there in terms of some of the noncash add backs. But I think the number that you're sort of -- that you referenced there, roughly $100 million. I think if you just looked at sort of -- you look at some of the big noncash items, the depreciation and stock comp from last year and factor that in and then just take our guidance, that would put us sort of right at the range that you're talking about. Obviously, we expect to do better in certain areas.

The other thing that's not baked into those numbers, right? We did -- part of the reason why we have these significant noncash charges is we're writing down certain fixed assets, right, to estimated fair value. so that we can sell them and start to monetize some of those assets, doing the same thing on the inventory side. And so that should that should provide some benefit to cash as well.

We did talk about that we're looking to bolster our liquidity. So look, we're doing everything that we need to do to fix sort of the fundamentals of the business so that we are fundamentally a lower cash consumption business, right, with a longer-term goal, obviously, of getting to sustained free cash flow positive. But we're being responsible as well. And this is why one of our objectives for 2024 is to bolster the balance sheet. But like I said, there's other puts and takes that just our guidance alone on its face would not necessarily consider, but we think we'll provide a little bit of upside relative to the number that you were estimating.

A
Adam Samuelson
analyst

Okay. All right. That's helpful. Let's take that off-line. If I can ask a follow-up just on the outlook for revenues, which you have down 8% to roughly flat year-over-year for 2024. What are volumes assumed in that at this juncture, I'm just trying to get a sense of how much price elasticity you really think would come from the higher price increases -- the higher prices, particularly in U.S. retail?

L
Lubi Kutua
executive

Yes. So we don't necessarily guide to volume, right? So we gave you the revenue dollar projection. But what I can say is -- we looked at price elasticities very deeply as part of this exercise, and we're looking at our pricing. And it is going to vary by channel and region, et cetera. But we believe and we feel pretty confident, right, that in some of the areas where we are looking to take pricing that the elasticity -- the changes in price will offset -- or more than offset the anticipated loss of volume as a result of the price increase. And so I don't want to get too specific -- too specific on volume numbers. generally speaking, right, we would expect the elasticity to be less than 1.

A
Adam Samuelson
analyst

Okay. So just to be clear there, if you're still having revenue dollars down, but the price increase is offsetting the volume declines is the revenue declines -- the dollar decline a function of exiting product lines or regions or what then would be -- what would be underpinning the revenue dollar decline expectation?

L
Lubi Kutua
executive

Yes. So some of it -- so there is some exit of product lines. We talked about Jerky as an example. The other thing is -- the reality is our U.S. retail business, right, continues to be challenged. And so there is some assumption in there, which we hope will turn out to be conservative. But nonetheless, we've seen baseline velocity erosion in U.S. retail channel. And so we're trying to factor that in, particularly on the downside. So those are sort of the key drivers, I guess, when you look at the lower end of the range.

E
Ethan Brown
executive

I think that's right. The continued kind of [ mobility ] in U.S. retail is something that just as you do your models as we do our models, right, we didn't want too rosy a picture around. I think the general notion here is that we're doing a massive product launch that's I think, transformative in terms of what we've done over the last 8 years. It's probably the most important renovation we've done since the Beyond Burger and then we're also taking price.

So the 2 of those make it very hard to deck with a ton of certainty, any type of growth. We just don't know. So we wanted to come in with something that was reflected kind of current information and hope to change it and have a better outcome.

Operator

The next question is from John Baumgartner with Mizuho.

J
John Baumgartner
analyst

I wanted to stick with the guidance for next year and specifically the OpEx. I mean the midpoint you're guiding to is about like a 25% drop from your recent sort of run rates. The global force reduction announced last quarter, I guess, explains a small part of it. But I'm trying to understand the rest of that decline, especially in the context of what, I guess, seems to be more reinvestment in marketing and brand building at this point.

E
Ethan Brown
executive

So I think I've said this before, but one of the things I like to say about marketing is that marketing is a lot easier when it's true. And what it really gets to is you got to have a great product. And I think [indiscernible] it in an even more pointed way, which was marketing is what you do when your product is no good. And -- and what we have to do, right, is reengage the consumer into this entire category with products that are really delivering value to them in a way they understand. And so for us, that's really about continuing to improve the taste, which I think we've done with Beyond IV, but also addressing this fundamental issue around health.

As I said in my prepared remarks, we really do have a set of products that today can deliver fantastic health outcomes. And I've seen it in my own life and my families. I've seen in studies we've done with Stanford, which I won't belabor today and others. But what we wanted to do was take it another level. And we wanted to continue this march toward that perfect build.

And I think we've taken a really big step here. it is not just an iteration. It's something that's more transformative than that. And so to be able to have these products where you're enjoying the satiating experience having a burger or having a [indiscernible] or whatever you decide to do with it. and yet having an oil that, for example, many in the nutrition community and medical community would characterize as heart healthy. It is something that is new -- and it's something that changes the dynamic of the decision. This went from 5 grams to 2 grams of saturated fat and it's not just the composition of -- sorry, it's not just the level of the fat in our product. It's the fact that it [indiscernible] comes from a source that I think is very well identified as delivering benefits, not just because of the low levels, but because of what's in it.

So these are things like polyphenols antioxidants and other plant compounds that depending on what study you want to look up, people have attributed to being helpful in the area of cardiovascular disease or dementia or the health and rides or scan, whatever it is, there's a lot of benefit here. We've also been able to reduce the sodium, which as I said before, is a red hearing, but it's still there. and something we had to address. And so at 14% of daily value now, that's a significant improvement.

And then you look at the proteins, whether we're using not just T protein but by going with red rentals and poles at Brown rise, we've increased the protein amount. So you have a product that fundamentally delivers a stronger value proposition. And we'll certainly going to market around that, but there's also a word of mouth in this community, and there's a strong desire, whether it's the health community or the environment community, where the in welfare community for these products in this category to come back.

And so I think we're going to leverage that, and you'll see us work a lot with dietitians and nutritionists and the medical community as well as with these very large health organizations. As I mentioned, the American Heart Association, American Diabetes association. In fact, the American Diabetes seal will be on the package itself, Clean Maple project and others.

So we're going to have the market for sure, but we're also going to do it in a way that, look, this is a fundamental shift in the value proposition. It's enhanced, it's increased, and I think people will begin to realize that. So there's use of grassroots marketing this use of institutions that are standing behind us I think, will allow us to do it much more efficiently. And so some of the costs that we've put out of the business, I think, only help us to become profitable more quickly versus hurt us from a marketing perspective.

J
John Baumgartner
analyst

Okay. Then to follow up on the gross margin guidance for 2024. The improvement there -- how much does that rest on the price increases? I mean, I guess it sounds as though you're not building in much operating leverage from new volume growth. The Colman consolidation, I think, has been accruing sort of quietly all along. And then with the China antidumping duties in the protein I imagine input costs can't be all that beneficial this year. So it feels like the gross margin expansion in the guide, a fair amount of just boiled down to the price increases. Is that -- I guess, can you walk through kind of the relative contribution of magnitude there for the driver?

E
Ethan Brown
executive

So I think you hear me talk a lot about how proud I am of the research and development team here. And I often spend more time on in doing the operations team. One of the things that I have felt hasn't been fair, not fair, but just has been unfortunate is that they're doing a really good job driving our fundamental cost structure down, right, whether it's our facilities in Pennsylvania or Missouri, I mean, these are great operators that are really driving -- and every quarter, we have something that comes up, whether we're dislocating from 1 co-packer in there some fees or some high reserves coming in from legacy products or partnerships that have kind of disrupted that, right, and have not allowed them to shine publicly, although I see what they're doing.

And so as we steady and kind of bring in the production network, I think some of the savings that we're achieving in our facilities will start to come through a little bit better. And an example of that is just the -- as we're taking production out of external networks and into internal -- the utilization rates in our facilities are significantly improving overhead absorption is significantly improving.

So these are things that, I think, even though we're going to be using, for example, in Beyond IV some more premium ingredients, they kind of are offset and then even driven down somewhat over time by the internalization of our production and the continued reduction in overall cost. So for the guys who are listening and the guys are listening, appreciate it, and you guys got to keep it up. We're finally going to be able to show it.

L
Lubi Kutua
executive

Yes. I would just add, I think it's fair to say that the price increases are a significant factor that play into the gross margin expansion that we're targeting for next year. But it's not just that, as Ethan mentioned, right, there's a lot of stuff that's been going on just across the production, our operations organization, et cetera. The other thing in addition to just price increases, we talked about pulling back on trade.

So the combined impact of those 2 things, right, actually has a pretty potentially meaningful impact on overall net revenue per pound. And then you mentioned the internalization, right, the increased insourcing of our -- of our finished goods production and you mentioned that some of that has pretty much been accruing already I think that's true, but there still was a lot of noise in our cost of goods in 2023, even as we were internalizing, we're still dealing with things like underutilization fees and things like that.

And I think that type of stuff should be significantly reduced in 2024. And so now I think we are in a position where we start to benefit in a much more meaningful way from bringing a lot of those production volumes in-house. And then I mentioned a little bit earlier that there should be benefits as well from just a more streamlined network overall from -- in terms of logistics costs when you look at some of these initiatives that we're targeting now to reduce overall inventory balances, that benefits warehousing costs and things like that.

Even the reclassification of some of these fixed assets to held for sale, right, will have a beneficial impact from a depreciation perspective, right? And so you combine all of these things together, and that makes us feel pretty optimistic about where gross margins can go this year.

Operator

The next question is from Robert Moskow with TD Cowen.

R
Robert Moskow
analyst

Ethan and Lubi, it looks like the center of gravity is going to continue to shift to international markets for your business. Can you speak to the profit margin profile of operating internationally? How is it different from domestic can you operate at a respectable margin overseas? Or are there complicating factors that make it more difficult than here?

E
Ethan Brown
executive

Thanks, Robert. It's good to hear from you. So when we think international, obviously, I've said a lot about Europe in the past. And in some sense, less becoming kind of its own operation over there. So it's not necessarily like we're shipping things here or anything of that nature they're driving a lot of the same cost reductions. We have a terrific partner there who does some of production -- is really a true partner to us as well as a very good general manager there and team.

So I think I don't foresee that being particularly challenged from a cost perspective model. We're still pretty nascent there, and so we do have to continue to adjust downward the cost structure, but that's possible. And it's something that we'll continue to focus on because some of our retail pricing, for example, is just too high for those markets. And so we need to continue to adjust it. But that comes with time and further localization of our network, which is doable. We just need the time to do it.

And then on the kind of Foodservice side, we'll continue to drive cost of those products and improve margin. And I think you'll start to see that come through in '24 onwards.

L
Lubi Kutua
executive

Yes. Not a lot. I would add to that, Rob. But I think fundamentally, if you look at our international business relative to U.S., it does skew more towards Foodservice and we have -- we've built a pretty meaningful business now with some of the large QSR customers in international. And so as you can imagine, the margin profile for that business would look somewhat different for us than on the retail side.

But I guess the short answer to your question about -- do we have respectable margins in international, I would say, yes, right? But as Ethan mentioned, there is still a number of things and initiatives that we're pursuing to bring about even further improvement in margins in the international business.

E
Ethan Brown
executive

And it is striking, as you know it's not directly responsive, but is an opportunity. It is striking to see the difference there in terms of uptake of the category and products. The thing I mentioned in my prepared remarks is significant within several block radius in London, you're going to McDonald's getting Beyond Burger going to Starbucks getting Beyond Sausage [indiscernible] on getting Beyond Pepperoni. And it's -- these trends tend to be stronger in Europe and then come over here and certainly our hope that we'll get through the politicalization of these protein choices here in the U.S. and just get back to you, let's do something that's good for a health environment.

R
Robert Moskow
analyst

And I'm very impressed that you're going to McDonald's and Burger King in London when you visit there. So keep up the good fight. But but you also mentioned that pricing is too high for some of your products. in the market? I think you've said that before. Can you be more specific as to why that is? Is it more commoditized the category in Europe? Or -- how do I think about that?

E
Ethan Brown
executive

Yes. No, I let Lubi give the details on it. But it's -- I was talking about retail. And it just -- we're still think about Beyond Meat in 2009 here in the United States, like we're still kind of getting going there in terms of the overall production process and things of that nature, but clearly further along than we were at that point. But Lubi can give some detail.

L
Lubi Kutua
executive

Yes, Rob. I think One of the differences when you look at the retail landscape in the EU versus the U.S. is they have a much larger private label presence, right? And so I think the penetration of private label in the EU is about double here in the U.S. And so there are -- there is a much broader, I guess, portfolio of items that compete in our category that at a much lower price. And the consumer in the EU does seem to be a little bit more predisposed towards private label than maybe the average U.S. consumer.

We, 2 years ago, took some steps to close the price gap of our products relative to the broader competitive set in the EU. But certainly, certain product categories where we still remain at a pretty healthy premium. And I think over time, the goal would still be to try to compress that gap somewhat, not necessarily I don't know that there's a need to come down to the level of private label in the region, for example, -- but there are areas where we think that the price gap is still wider than where it needs to be. but that's something that we'll look over time. I don't think it's something that we're immediately looking to address. And so that's just some general fundamental differences, I think, between the trade in the EU versus the U.S. .

Operator

The next question is from Alexia Howard with Bernstein.

A
Alexia Howard
analyst

So can I just get back to the dynamic in the U.S. And how do you go about rerecruiting lapsed consumers? If people were somehow disappointed in previous products, what compels them back into this, especially if the price gaps to animal meat products are expanding because of the price increases you're planning to take, and then specifically, I guess linked to that, is marketing spend expected to be up or down in 2024?

E
Ethan Brown
executive

I think on the question of bringing people back into the category, the biggest deterrent has been this health question, right? And you've heard me talk about it before that there's a without impetus and support from the incumbent industry. And that needs to really be looked at as well. I mean it is -- it's not just the animal protein players and their lobbyists but it's actually the pharmaceutical -- members of the pharmaceutical industry, which I find to be kind of disturbing actually. . And so we had to write the message, and we can do that by going from the roof top about the benefits of our existing products or we can just try to make them even more healthier and unassailable at some point. So that's what we've done, I think, with Beyond IV. We'll continue to do it. You can expect future iterations to continue to drive improvements. And then it's just linking up with associations and national institutions that really can validate what we're talking about and they help develop these products. That's the fascinating part about this work is that we didn't just do this with in a conference room on our own. We were out in the community, talking to doctors and nutritionists and each of these institutions.

Our Head of Communications did an amazing job pulling together an ecosystem of doctors and nutritionists and different national health organizations as well as universities, and we listened and we work very closely with them. And I can go back to individual conversations with individual doctors that relate to specific inputs that we used.

And so I do think that there's an opportunity here for more organic style of marketing that relies on the power of social media that relies on the fundamental truth of the products to bring people back in. And this wasn't just a health -- this was something that for years, we've been focusing on creating much more of a neutral beef taste. As I've mentioned many times, there's over 4,000 molecules that make taste like meat, and our job is to use the scientific expertise we have here to match those with analogous or the same molecules in plants and then find out what the main drivers are and incorporates of our products. And I think the team has done an amazing job with this product doing that.

So you get a benefit in health, you get a benefit in taste and you get the word out. And we've been very successful over the last decade and using people in a position of influence within society to carry that message because they believe in it. And when the message is this powerful when you have the opportunity to help people really improve the cardiovascular health to really improve the risk outcomes that they face in their day-to-day life from a health perspective. There are folks in position of influence that I want to talk about that. And so you're going to see us go back to that playbook in a very big way to get this message out. And whether it's ambassadors or influencers, whether some of the institutions. When you're trying to do something that's good and people recognize it, and there's a lot of truth to it, you tend to get help. And I think we're going to get a little help from our friends on this one.

A
Alexia Howard
analyst

And when will it be out on shelf? Is it a national launch in the first half of the year?

E
Ethan Brown
executive

Well, if that's a personal question, I can send you some.

A
Alexia Howard
analyst

If it really is that big of a leap forward. And just coming back to the marketing spend. Is that going to be up or down this year overall, just -- and then I'll pass it on.

L
Lubi Kutua
executive

Yes. Alexia, we do expect, in aggregate, our marketing spend to be down. As you can imagine, if you look at our guidance, our OpEx guidance and the -- what that implies in terms of a year-over-year decline. We are taking pretty broad cuts across the organization. But I think when you start to dig down into specific areas of the business specific departments, what really matters is how that spend is going to be directed. And so Ethan touched on this, but it's really the mix of the marketing spend and really taking a targeted approach being very deliberate about where we want to spend those marketing dollars. And so in aggregate, yes, it will be lower. But...

E
Ethan Brown
executive

Just 1 comment on pricing. You're right that in certain areas, there will be more of a delta between animal protein ourselves, but in others, there will not be. And so this is not a kind of crude application of the price increase. We have some very important partnerships and relationships where pretending on the product line, there won't be much change. And so -- and including in retail that you'll see some products where there's really not that much change. But in the aggregate, based on the elasticity studies we did, we'll get a nice bump in terms of margin while still offering the consumer value for those that want it.

Operator

The next question is from Peter Saleh with BTIG.

P
Peter Saleh
analyst

Great. it sounds like you guys have done a lot of work on pricing and the level of pricing. It sounds like it's a pretty meaningful change in your strategy. So I'm just curious, is this -- are you thinking about this as a onetime price hike to kind of get you in order here? Or is this just a real meaningful change in strategy where you're thinking this will be a hike this year or maybe 2 hikes this year and more price hikes as we go forward?

Just trying to understand how this strategy is really evolving on pricing? And then can you just elaborate a little bit on your tiered pricing comments? Is this tiered by distribution channel, by product are some prices coming down? Or are all prices going up? Just trying to understand those comments.

E
Ethan Brown
executive

Yes. I don't think it's a change in the long-term strategy. I mean if you think about -- and this is -- that's something that I find [indiscernible] fascinating, but won't -- won't dive into too much here, but just the incredible efficiency you have when you take a set of amino acids from plants versus waiting for the animal to process and development in bacteria and turn nitrogen and protein, all that stuff. It's just more efficient. And so there will be a day when this dramatically underprice animal protein, but that's not today. . We did achieve price parity with certain products in certain markets recently. But my view -- and that was not a certainly a global statement at all in terms of the products we still have a big delta for most of our products. But I will say that the pricing measures we took, I don't know they made that much difference. I think there is so much noise in the category so much noise about the category, so much agitation outside the category with people saying negative things about the category, scaring consumers away, that pricing just wasn't as effective a tool. And my view is we probably ended up selling a lot of our products to the same consumer at a reduced price. So we learned that and moved away from it.

But I do think there's a real opportunity to continue to offer outstanding innovation year after year that does have a more premium price on it while you continue to offer some of the rest of your portfolio at lower price. And so I do think you'll see that from us. And so when we talk about tiered part of that is that type of dynamic. I think the other is with particular customers and channels. If you think about very large strategic customers that are selling, let's say, billions of burgers a day that type of customer price sensitivity is so important. And so we'll continue to drive those type of products to parity as quickly as we can. I hope that helps.

P
Peter Saleh
analyst

Yes, I know that's very helpful. And then just lastly, on my end, given all the changes you guys are making, do you expect this to have a material impact on the number of doors that you're in, in 2024.

E
Ethan Brown
executive

Yes. I think it's too early to, I meant to say it's [indiscernible] not per day. I think it's just too early.

L
Lubi Kutua
executive

Yes. I mean, Peter, the 1 thing that I'd call out in terms of distribution outlets is we are -- we said we are discontinuing the Jerky product. And as you know, there were there was a pretty significant distribution presence related to that product. It got us into certain channels like convenience, for example, where you look at the rest of our portfolio, it doesn't really play there. And so certainly, on the U.S. retail side, if you include right, the impact of Jerky those numbers should come down. But apart from that, I think we're pretty well distributed across U.S. retail.

So I wouldn't expect too much movement in those numbers. I think we would expect over time to continue to grow our presence across U.S. food service. And then it still feels like pretty early days for us in international, quite honestly. And so I think there's room for further distribution expansion in international markets in the EU and other areas and even the same on the international Foodservice side.

Operator

The next question is from Ben Theurer with Barclays.

B
Benjamin Theurer
analyst

And I'll keep it short. So thanks for squeezing me follow up a little bit on some of the dynamics in foodservice and kind of the success international versus the declining trends in the U.S. and also I wanted to bring this back to some of the partnerships over the year, you flowed out with Yum! brands with McDonald's and so on. So I know you've talked a lot about the McDonald's case over in the U.K. But what are you seeing, particularly with those Foodservice players in the U.S. as it relates to your products and the rollout of those any color you can share on that, that would be much appreciated.

E
Ethan Brown
executive

Yes. Thank you very much for the question. It's a fair one. As I've done in the past, I really need to let those partners comment on their view on the category versus we're just a supplier to them. So I want to be careful on that front. I think that they look to the type of success we're having in Europe and then make decisions based on what they're going to bring here. But I will say the climate here has been so we're [indiscernible] earlier and clouded with this misinformation and things of that nature that we really have to straighten that out first from -- get the right information out there. . Basically consumer understands the value proposition. And I think the rest will follow from there. I mean if I could, just on this before that we're rolling out, -- what we're trying to do here is to create a question in the consumer's mind as to why wouldn't you do this, right? And of course, if it's too pricey, that's an answer, but we don't think it will be prohibitive in its pricing, and the health benefits are so clearly there. They support from the medical and nutrition communities there and taste is there. So obviously, environmental benefits. And I will answer your question, but the ability to solve the main issue that people ran their hands out with climate through a change in how we get protein just out of the plate is absolutely phenomenal.

And if you talk to people who study these issues, whether it's the gentleman at Yale, it's in the video we did for Beyond IV or folks at NYU, [indiscernible] is one of them who study this. And the use of land and biomass to bring carbon back out of the atmosphere and cool our climate and to reduce methane emissions associated with livestock, et cetera, and so on and so forth. It's an incredible opportunity.

And so we're going to make sure the consumers understand that when we're talking about healing their body and helping them to achieve better health outcomes. We're also able to do that on the planetary side. And at some point, it becomes such a powerful value proposition. The consumer does come back in. We need to take it away from the politics. We can take it away from us versus them. Farmers should be very much involved in this and making a great living doing it, not only growing our crops, but potentially receiving funds from the government to sequester carbon.

And it's a real path forward for our country and for the globe. So I think we said to get people excited about that concept again, and the rest of the industry will follow in terms of restaurants and things of that nature. But it's for us to apply a lot of focus on that. This year is probably not the right area. The less continue to be successful with them in Europe, and let's see what unfolds here in the U.S. in the future.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks.

E
Ethan Brown
executive

Great. Thank you. I would encourage folks to visit -- put it in the press release with the video that we put together around Beyond IV, again, to get a sense of the health benefits and to get a sense of the global environmental benefits. Both of them are very strong. I think both will bring the consumer back to this discussion. And tasting is believing we're trying buy type brand. And as folks taste this new iteration, I think there'll be they'll be quite pleased with it. So we're cautious in our optimism. We've obviously had some tough years, but by making these changes and creating a sustainable baseline on which we can grow we're going to create some room for ourselves to execute and get back on track for growth. Thanks, everybody. .

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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