Good day and welcome to Beyond Meat, Inc. 2023 Third Quarter Conference Call. [Operator Instructions] Please note that this event is being recorded. I’d now like to turn the conference over to Paul Shepherd, Vice President, FP&A and Investor Relations. Please go ahead.

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 third quarter 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, the company’s annual report on Form 10-K for the fiscal year ended December 31, 2022, the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2023, to be filed with the SEC and 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 for 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.

Thank you, Paul, and good afternoon, everyone. Having pre-announced select’s financial results for the third quarter last week, I will briefly review these metrics and provide more color on our performance and then turn attention to what we are doing to adjust our global operations to fit the current macroeconomic reality and business environment. We expected a modest return to growth in the third quarter of 2023, which did not materialize as category-specific and broader consumer headwinds continued and drove weaker-than-expected sales volumes, reduced promotional effectiveness and adverse changes in our product sales mix. Net revenues for the third quarter were $75.3 million, down approximately 9% year-over-year. In turn, lower volumes, coupled with higher levels of discounting and other factors, exerted significant downward pressure on our gross margin relative to our previous expectations, with gross profit swinging to a loss of approximately $7 million. This result obscured continuing progress we’re making on COGS reductions, where year-over-year, we reduced cost of goods sold by 18%. Despite these challenging circumstances, we were able to achieve free cash flow positive operations for the quarter. As we indicated when setting this goal 1 year ago, this outcome reflects a meaningful benefit from working capital as a source of cash. And while encouraging should not be interpreted to new that we have turned the corner to sustained free cash flow positive operations. We do however believe that is indicative of the early progress we are making in our objective to reduce cash consumption even as the company takes additional measures to substantially reduce OpEx, make changes to pricing architecture and further prioritize current growth opportunities. I will now dive into our strategy and plan to accelerate our transition to sustainable and ultimately profitable operations. We are pursuing five main actions to improve our cost structure and overall operating performance. One, as previously announced, we are executing a 19% reduction in our global non-production employee base, immediate step in a broader program to improve our cost structure; two, we are reviewing our pricing strategy with certain channels to support margin expansion; three, we are continuing to utilize inventory management to reduce working capital; four, we are intensifying our focus on channels and geographies that are exhibiting revenue growth; and five, in U.S. retail, we are using our portfolio and marketing to directly counter misinformation about our products and category. I will now provide further commentary in each of these five areas: operating expense reduction, a reduction in force combined with the elimination of certain open positions is expected to result in approximately $10.5 million to $12.5 million in operating expense savings in 2024 and is an immediate step in a broader cost-cutting initiative to better align our operating expenses with current revenue. While necessary, this is a difficult decision for the business given the tremendous talent, expertise and passion of our workforce. Our people are what make us special and letting these team members go is done with a very heavy heart. Though we reduced year-to-date operating expenses by 29% or $73.9 million year-over-year to further cut costs as we look to establish our operating expense base for 2024 at a level that better reflects current revenues, we are initiating a review of our global operations focused on narrowing our commercial focus to certain growth opportunities, and accelerating activities that prioritize gross margin expansion and cash generation. As part of these efforts, we are evaluating intend to reduce activities related to certain underperforming geographies, markets and channels, including a review and potential restructuring of our operations in China. We are further focusing our research and development to near-term product renovations and innovations and a more limited set of breakthrough projects and programs. As I will elaborate on momentarily, we are more narrowly deploying our marketing spend in the U.S. around the primary message of taste and health. More generally, we continue to invest focus and resources around lean management in support of overall expense reduction and margin expansion, including the potential exit of certain product lines and further optimization of our manufacturing capacity and real estate footprint to reduce overall complexity and drive additional cost savings relating to logistics, overhead, tolling and general production pricing architecture. As you know, over the last year, we have used pricing in an effort to bring new consumers into the category and to support our inventory reduction and cash generation objectives. While these pricing programs are effective in generating cash and inventory that did not help us move from early adopters to mainstream consumers. We believe there are likely several reasons for this outcome, among them, increased consumer confusion over our value proposition and the remaining price delta between Beyond Meat products and their animal protein equivalent. As we look to 2024, we expect to implement a more nuanced pricing strategy, keeping certain programs and pricing in place, while adjusting others in support of gross margin expansion. Inventory management, we intend to continue to manage inventory levels down to generate cash. We’ve made some progress in this regard as inventory levels have fallen by 21% year-over-year, yet we have many miles left to travel as we seek to bring inventory in line with lean management principles. Commercial focus on current growth markets and channels, we are encouraged by and are investing in markets and partnerships that are currently exhibiting growth. This includes select markets in Europe and in particular, certain strategic partners where we are experiencing year-over-year double-digit growth. Bidding back in U.S. retail, we are pursuing the portfolio and marketing approach intended to restore growth in U.S. retail. We are contending with two main headwinds. First, there are broader challenges facing the U.S. consumer, namely higher prices and reduced buying power. We believe that the corresponding consumer action of trading down among proteins that is foregoing more expensive cuts of animal meat for cheaper cuts of meat, similarly impacting our category and brand. We are, despite aforementioned pricing programs at certain exceptions, a higher-priced protein relative to animal protein. Second, as I previously mentioned, we continue to face serious category perception challenge. As I’ve long maintained as a brand and category, we will cross the chasm to mainstream on the strength of progress across taste, health and price and to a lesser extent here in the U.S., awareness of the planetary benefits of our products. We continue to make organoleptic progress across our portfolio, which the team is wrapping up recognition and awards as we close the century gap between our products and their animal protein equivalent. And it is, in our view, the health perception of the category that is the most immediate and important variable to address in order to restore growth. We must squarely and forcefully counter the broad misinformation that swirls around our category before we can more effectively use pricing as a tool to bring new users in the mainstream consumer into our category. There is a loud and steady drumbeat of advertisements, peds and social media post and activities that seek to negatively influence the consumer regarding our products and category. Generally, this always-on attack platform uses 1 or more of 3 million rhetorical anchors, sake meat, processed and full of chemicals. The financial backers of the successful campaign appear to range from more obvious, such as various members of the meat industry, the less obvious, which may include members of the pharmaceutical industry, the latter seeking to preserve one of the largest global markets for antibiotics, livestock. As you may know, it’s estimated that over 70% of medically important antibiotics are given not to humans, but to livestock. As I shared, this effort to sow doubt to confusion regarding our products has worked, while 50% of U.S. consumers believe that plant-based meats were healthy in 2020. By 2022, this number had declined at 38%, and my guess is that this percentage would be lower today. This well-orchestrated campaign borrows heavily from similar efforts to frustrate tobacco legislation and the tighter regulation of under-aged consumption of alcohol and, in fact, share some of the same players. We are confident that the strong health benefits available to consumers the use of our products will ultimately overcome these tactics. This said, we are not passively waiting and instead are taking the following actions. First, we continue to support third-party research regarding the health outcomes available to consumers through our products. This research includes our ongoing work with Stanford University School of Medicine, and a growing and formal consortium of universities, hospitals and institutions. We derive significant value from this research in at least 2 ways. First, we achieved and can share a more precise understanding of the impact of our products on key human health indices, for example, cholesterol levels. Second, we are surrounded by leading medical and nutritional experts who are instrumental in our efforts to, over time, deliver even greater health benefits in future iterations of our products. Second, we are teaming up with leading associations to validate and help familiarize the consumer with the health benefits of our products. These partnerships and affiliations include, as we’ve highlighted, the American Heart Association, which has recently expanded the number of Beyond products, earning its rigorous certification as a hard healthy food as well as our multiyear program with American Cancer Society to further research on plant-based meat and cancer prevention. In 2024, we expect to announce additional certifications and partnerships that we believe provide important third-party endorsements and/or recognition of the health benefits of our products. Third, to make accessible and amplify the positive health outcomes associated with our products. We are teaming up with authentic voices, including ambassadors, medical professionals and registered dietitian and nutritionist to counter false narratives and educate the consumer on the ingredients and process we use for our plant-based meats. There will be more to come on this front in the coming quarters, and we look forward to updating you on our progress accordingly. In closing, we are disappointed by our third quarter 2023 results and are taking immediate action to pull significant costs out of our operating base as we enter 2024. Simultaneously, we are heightening and narrowing our focus around specific geographies and channels where we are experiencing growth, including in the EU, where we’re seeing favorable near-term trends, such as certain segments of U.S. Foodservice. As we head into 2024, we believe we have a solid portfolio and marketing strategy to address category and brand headwinds in U.S. retail, one built around the fundamental benefits available to the consumer through our carefully designed plant-based meats. Though we believe that our achievement of cash flow positive operations for the third quarter is an encouraging directional signal, we are committed to a far more comprehensive and aggressive rebalancing of operating expense to current revenues as we plan for the future. We understand the current results, category challenges and the intended media coverage can distract from what we believe is a far brighter future. We see this future in colleges and universities here in the U.S. and abroad, including those where use-driven movements are calling for fully plant-based campuses to fight climate change, drawing analogies to university pledges to divest from fossil fuels. We see this future in countries where per capita animal meat consumption is the lowest ever in recorded history, such as in the UK and Germany and the corresponding progress we are experiencing in McDonald’s McPlant platform in these and other EU economies. We see this future in cities, such as Amsterdam, where officials are taking tangible steps to increase availability of plant-based meats and dairy in support of their target to have 50% of citizens consuming a plant-based diet by 2030. And in South Korea, where the Minister of Agriculture, Food and Rural Affairs recently announced strategic plan to support the growth and consumption of plant-based meats and alternative proteins. And we see this future in the use-driven petition to have the upcoming UN Climate Summit, top 28, the majority plant-based and a UN’s acknowledgment of the legitimacy and seaming [indiscernible] this demand. Finally, we see this future when together with the medical and nutrition community, we mobilized to push back against incumbent industry propaganda and put in place our strong response yet to this troubling misinformation campaign. In summary, though we did not foresee the current trough in our journey of disruption, we are confident in our ability to successfully fight through it, and fulfill our vision of being tomorrow’s global protein company of size and significance, a company dedicated to empowering consumers through delicious and satiating products to take meaningful action to address the urgent human health, climate natural resource and animal welfare challenges facing our global society. With that, I will turn it over to Lubi, our Chief Financial Officer and Treasurer, to walk us through our third quarter financial results in greater detail as well as update our outlook for 2023.

Thank you, Ethan, and good afternoon, everyone. As Ethan noted, this was a disappointing quarter for us in light of continued weakness in the plant-based meat category in our largest channel, namely U.S. retail, we are doubling down on our gross margin expansion and cash generation efforts, hence our decision to execute a further reduction in force and initiate our global operations review. As we shared in the press release, that review will consider the potential exit of select product lines, changes to our pricing architecture within certain channels, accelerated cash accretive inventory reduction initiatives, further optimization of our manufacturing capacity and real estate footprint and a review and potential restructuring of our operations in China. As you might expect, this global operations review needs to take its course, and so we will reserve providing further more detailed information for future periods as individual initiatives become more definitive. As such, my remarks today will primarily focus on our financial results for the third quarter of 2023 as well as our updated outlook for the full year. Net revenues for the quarter ended September 30, 2023, were $75.3 million, a decrease of $7.2 million or 8.7% compared to the prior year period. This was driven by an 11.6% decrease in net revenue per pound, partially offset by a 3.5% increase in volume of products sold. The decrease in net revenue per pound was primarily driven by increased trade discounts, especially in the U.S. retail channel and changes in product sales mix, partially offset by favorable changes in foreign currency exchange rates. The increase in volumes of products sold was primarily driven by sales to international retail and Foodservice channels and was partially offset by decreased volume in the U.S. retail and Foodservice channels due to weak category demand and the cycling of certain sales in the Foodservice channel in the year ago period that did not repeat this year. Breaking down our net revenues by channel, net revenues from U.S. retail sales in the third quarter of 2023 were $30.5 million, a decrease of $15.7 million or 33.9% compared to the prior year period due to an 18.8% decrease in volume of products sold primarily reflecting continued soft category demand, particularly among our core refrigerated products, and an 18.6% decrease in net revenue per pound, resulting from higher trade discounts and to a lesser extent, changes in pricing and product sales mix. In U.S. Foodservice, net revenues in the third quarter were $12.5 million, a decrease of $3.5 million or 21.6% compared to the year ago period. This decline was driven by a 37.7% decrease in volume of products sold, primarily reflecting the cycling of sales to a large QSR customer for a limited time offering in the year-ago period, which did not repeat in the current year, partially offset by a 26% increase in net revenue per pound, primarily driven by changes in product sales mix. Excluding the aforementioned sales to a large QSR customer for a limited time offering, U.S. Foodservice channel net revenues would have increased by approximately 39% year-over-year. Net revenues from international retail sales in the third quarter of 2023 were $14.2 million, an increase of $4 million or 38.8% compared to the year ago period due to a 42.8% increase in volume of products sold, primarily reflecting strong sales from new product introductions and the lapping of a weak year ago comparison partially offset by a 2.8% decrease in net revenue per pound. The decrease in net revenue per pound was primarily due to higher trade discounts and changes in product sales mix, partially offset by favorable changes in foreign currency exchange rates. Finally, in International Foodservice, net revenues were $18.1 million in the third quarter of 2023, an increase of $8 million or 78.7% compared to the year ago period. This increase was driven by a 90.9% increase in volume of products sold primarily reflecting strong sales to a large QSR customer in the EU, partially offset by a 6.3% decrease in net revenue per pound. The decrease in net revenue per pound was primarily due to higher trade discounts, partially offset by favorable changes in foreign currency exchange rates. I’ll now move to gross margin. Gross profit in the third quarter of 2023 was a loss of $7.3 million or gross margin of negative 9.6% compared to a loss of $14.8 million or negative 18% in the year ago period. Although this represents over 8 percentage points of margin improvement versus the year ago period, including the impact on depreciation expense from the change in our accounting estimates associated with the estimated useful lives of our large manufacturing equipment, it fell short of our previously stated expectation to drive sequential margin improvement throughout the year. Relative to our previous expectation, the variance in gross margin was primarily driven by lower net revenue per pound, reflecting higher-than-expected trade discounts and less favorable sales mix and, to a lesser extent, higher COGS per pound, mainly driven by warehousing costs and co-manufacturer underutilization fees. Compared to the year ago period, gross profit and gross margin in the third quarter of 2023 were positively impacted by lower manufacturing costs, excluding depreciation, lower materials costs lower depreciation and lower inventory reserves per pound, partially offset by lower net revenues per pound. In the third quarter of 2023, gross profit and gross margin benefited by $4.4 million or 5.9 percentage points of gross margin, respectively, as a result of the change in the estimated useful lives of certain – of our large manufacturing equipment as compared to those same measures calculated using our previous estimated useful lives. Moving down the P&L. Operating expenses in the third quarter of 2023 were $62.4 million, a reduction of $12.5 million or 16.7% compared to the prior year period. The primary drivers were lower legal and restructuring expenses, reduced non-production headcount expenses, lower product donation expenses and reduced scale-up expenses, partially offset by the write-off of an uncollectible note receivable in the amount of $3.8 million associated with a certain co-manufacturer as well as higher consulting expense accruals. Loss from operations was therefore $69.6 million in the third quarter of 2023, compared to $89.7 million in the prior year period. Total other expense net of $0.7 million in the third quarter of 2023 consisted primarily of $2.5 million in realized and unrealized foreign currency transaction losses, and $1 million in interest expense from the amortization of convertible debt issuance costs, offset by $2.8 million in interest income. Overall, net loss in the third quarter of 2023 was $70.5 million compared to $101.7 million in the year ago period. Adjusted EBITDA was a loss of $57.5 million or negative 76.3% of net revenues in the third quarter of 2023, compared to an adjusted EBITDA loss of $73.8 million or negative 89.5% of net revenues in the year ago period. Turning now to our balance sheet. Our cash and cash equivalents balance, including current and non-current restricted cash was $232.8 million and total debt outstanding was approximately $1.1 billion. Inventory fell to $194.6 million in the third quarter of 2023, representing a sequential quarterly reduction of $12.6 million or 6.1% and our sixth consecutive quarter of inventory reductions. Turning to cash flows. Net cash provided by operating activities in the third quarter of 2023 was $9.1 million, an increase of $43.7 million compared to the year ago period, and capital expenditures totaled $1.4 million compared to $18 million in the year ago period. As a result, free cash flow, defined as cash flows from operating activities less capital expenditures, was an increase of $7.6 million in the third quarter of 2023 and total net change in cash, including the effect of foreign currency exchange rate changes on cash was an increase of $6.9 million compared to a decrease of $64.5 million in the prior year period. Taken together, these year-over-year improvements in COGS, operating expenses, inventory drawdown and cash compensation demonstrate that we continue to make real strides in managing our business more efficiently. Finally, I will provide revised guidance for our full year 2023 outlook. We now expect net revenues to be in the range of $330 million to $340 million representing a decrease of approximately 21% to 19% compared to the full year 2022. Gross profit for the full year is now expected to be approximately breakeven, and we continue to expect operating expenses to be approximately $245 million or less before onetime separation costs and non-cash savings associated with our recent reduction in force. We estimate we will incur onetime cash charges of approximately $2 million to $2.5 million in connection with the reduction in force, primarily consisting of notice period and severance payments, employee benefits and related costs, and we expect the majority of these charges will be incurred in the fourth quarter of 2023, subject to local law and consultation requirements, which may extend the process beyond the end of 2023 in certain countries. In aggregate, the reduction in force, combined with the elimination of certain open positions is expected to result in approximately $9.5 million to $10.5 million in cash operating expense savings in 2024, and an additional approximately $1 million to $2 million in non-cash savings related to previously granted unvested stock compensation, which would have vested in 2024. Finally, we now expect capital expenditures to be in the range of $10 million to $15 million for the full year 2023. With that, I will conclude my remarks and turn the call back over to the operator to open it up for your questions. Thank you.

Thank you. [Operator Instructions] First question comes from Alexia Howard of Bernstein. Please go ahead.

Good evening, everyone.

Hi, Alexia. How are you?

Hi, there. So can we hone in on the U.S. sales generally, particularly the grocery channel. It looks as though the measured channel data was better than the numbers that you reported. So I’m wondering, first of all, what happened in non-measured channels? And then I have a follow-up.

Yes, it’s Lubi. I can speak to that, Alexia. So as you know, there’s typically a lag between shipments and the consumption data. So sometimes, some of the trends that you see in the consumption data do not necessarily align. I wouldn’t say that there was anything particularly unusual that happened in non-measured channels. So I think primarily, like any differences that you’re noting there are primarily driven by just sort of timing differences.

Great. Thank you. And as a follow-up, can you talk about the differences between the dynamics in the international markets versus domestically? Obviously, things are still very challenged domestically with pricing down and so on. And yet you’re actually seeing much better performance in the overseas market. So I’m wondering what the difference is in terms of consumer behaviors, competitive trends, et cetera. And I’ll pass it on.

Thank you for the question. That’s exactly what’s happening. I think the kind of main story that’s afoot right now with our business from a growth perspective is if you look at the EU, as an example, retail and foodservice are both up substantially. Some of that is driven by timing of shipments, but the numbers are pretty significant. It’s like 39% for retail and almost 80% for foodservice. But again, you have to factor in some timing issues with shipments, but overall, very directionally encouraging. And then you look at the strategics and what’s happening with McPlant platform, for example, in the EU, it continues to get good traction to a point where if you look at Austria, Germany, Ireland, Netherlands, UK, Malta, Portugal and Slovenia and Switzerland, all of those markets are operating and doing well for us. So the main difference, right, is in the EU, the consumer is driven not only, of course, by taste, they wanting to enjoy the delicious products, but also climate plays a significant role in the consumer decision around the food system and food choices as well as health. And health does not have the same kind of counter attack that’s going on here in the U.S., the – both on a climate and health perspective, the products are viewed correctly and given credit for their positive impact. So we continue to see very strong international growth. And if you start to look at the mix of our revenues, it’s reflecting that, right? I think we’re 43% now. International versus 67% domestic. And then in the U.S., if you look at U.S. Foodservice, we are lapping an LTO we did a year ago this past quarter. And if you separate that out for a minute, U.S. Foodservice is also up pretty substantially. So it really gets down to U.S. retail. That’s the main issue. And so that’s why we’re spending so much time focusing on how do we write the narrative, how do we correct the narrative rather in U.S. retail around our product to bring the consumer back into our value proposition. And as I noted, there is some confusion out there and some misinformation that we need to do a better job of cleaning up. So very encouraged by the growth we’ve seen internationally, encouraged by some of the segments in foodservice, continue to be concerned about retail, but have a strategy there to try to get that ship righted.

Great. Thank you very much. I will pass it on.

Thank you. Next question will be from Daniel Gold [ph], BMO. Please go ahead.

Hi, this is Daniel Gold. Thanks for taking my question. In the pre announcement, there is a comment about improving margins through pricing. How does that reconcile with targeting price parity with beef?

Sure. So I think almost – let me see, 4.5 years ago, I set a target to within 5 years to be able to price at parity with at least one product in one category. And we’ve actually achieved that with a particular product. We’ll give more news on that as we come up on the 5-year mark. But overall, we need to take a step back. The idea here last year when we went into a focus on driving our pricing structure, closer to animal protein, a couple of things are going on. One animal protein was seeing increases in price. So we thought with that narrowing of the gap, we could accelerate and close the delta even further. But the idea was to get across chasm from kind of the niche early adopter consumer that we do so well with to the mainstream consumer. And it didn’t work. We think that the headwinds that the category is facing, whether it’s the misinformation or misunderstanding about the value proposition or whether it’s just the incredible pressure. the retail consumer is under and the very established pattern of trading down among high-cost proteins. Again, even though we did pricing program, we were still higher cost. So in that environment, whether it was the sector-specific headwinds of ambiguity around the health benefits and things of that nature or whether it was a broader consumer environment and reduced buying power and things of that nature. It just didn’t have an impact. And so we’re going to go back to pricing the products at a way that gives us a margin that can sustain our business. And that’s not across the board, right? Some of the pricing programs will stay in place and others will lift, and it will be on a case-by-case basis.

Interesting. That’s really helpful. Also, there were some 3Q softness that was attributed to lower-than-anticipated promotional effectiveness. What can you learn from that? And why was that the case?

I think it’s the same feature that I was just highlighting. When there is so much noise, both macroeconomic with the consumer pressure, as well as questions about our value proposition. There are some programs that is less effective. And so in hindsight, right, we probably would have done less of it, given the just the overall conditions of the market in our particular category. In the long run, we think it’s a good thing to do. But we first have to clean up this messaging issue and the perception issue before. I think those type of programs can be effective. In some sense, you just train the consumer if you’re not increasing the population that’s consuming your product, you’re just training existing ones to wait for those discounts. So – but we’re going to look heavily at how we do that and when we do that in the future.

Got it. That makes sense. Thank you.

Thank you. Next question will be Ben Theurer of Barclays. Please go ahead.

Good afternoon. And thanks for taking my question. So Lubi, I wanted to dig a little bit into the potential of your gross margin and how we should think about this? Because clearly, I know you were targeting to be somewhat positive this quarter. You’re talking about breakeven for the year, this quarter still didn’t turn out. But just help us understand what’s been driving the cost up so much compared to 3, 4 years ago when you were able to achieve gross margins in the 30% plus range? And is that something you think is achievable? Or is there something structural to the cost of your product that is impacting and impeding you of reaching those levels you had, just call it maybe pre-pandemic, right before the pandemic? That would be my first question.

Yes. No, that’s a good question. So I think this is an area that kind of can frustrate our operations team. We’re about a year in now to implementing lean management and it all takes 5 years to get an organization to be fully leaned out and operating according to those principles. But we’re taking it very seriously, and they’re doing great work at the plant level. They’re driving – I think we took like $1 or so out of COGS on a year-over-year basis, but two things are working here against us on that front. One is just pricing, right? Like we’ve taken down pricing dramatically since the period you referenced. And second is mix has changed. There’s definitely a pretty significant impact from mix. So the gains that we’re seeing on whether it’s direct labor or direct material or reduced logistics or things of that nature are kind of being swamped by the pricing measures we took as well as some of the mix changes. And so that’s why we’re so focused right on pricing. We obviously are going to continue to drive down costs, and address the mix issue and things of that nature, but the primary tools that we are looking at from a change perspective is moderating our pricing programs. But Lubi, don’t know if you want to add to that?

Yes, Ben, the only thing I would add to that is from a COGS per pound perspective, if you look over the last couple of years, say, the last 12 to 24 months or so. Clearly, there has been some softness in demand. And so there has been an impact from just volume deleveraging and also the impact from underutilization fees, right? And so we’ve done a lot of work over the last 12 months or so to really try to consolidate the network. We think we’re going to start to see greater benefits from that in future periods. But those are things that I wouldn’t consider structural. I mean clearly, there’s challenges that remain in the category today, and we got to figure out a way to stabilize the business in the U.S. and get that back to growth. But I wouldn’t consider those as structural hurdles, right, in terms of the cost structure. And so as Ethan said, I think a large part of this does come down to pricing and then I think if we’re successful at restoring growth in the business and some of the fixed cost absorption issues and things like underutilization along with the work that we’re doing from a network perspective should sort of resolve itself.

Yes, I think that’s exactly right. And we – as we look at sort of what changed between August and now, certainly, the lower volumes impacted our ability to call this one, right? And then our trade payment, right, so it’s less on the COGS side and more on those factors for right now.

Okay. And then just one for me to like kind of try to get your thoughts on this idea of the concept of if you want to – you obviously said you’re going to spend a lot of time on telling consumers and convincing consumers of the health aspects and just the benefits it has, not only to health but also to the environment, etcetera. So ultimately, talking about this being a superior premium product and usually in consumer products for healthier products, for superior products, you can charge premiums, you ultimately get a better pricing, making this a more exclusive product. So is that something that you would consider within your strategy, particularly in retail, creating brand value, creating something that just on purpose is not striving for price parity, but actually for a significant premium because it is something better and to make it profitable through that?

Yes. Look, that’s a great question, and I don’t want to sort of show too much of our hand. So I can’t give a particularly detailed answer. But I think the way to think about our pricing and our value proposition is going to be vary in certain segments, it’s going to be very aggressive in terms of reaching price parity. And we’re seeing some absolutely amazing exert that our team has done such good work in some of those channels. But in retail, particularly as we try to remove some of the targets even though we think they’re unfair. We are going to kind of get into that area of maybe a more premium good. And that will, I think, drive a justification for pricing at a higher level as well. And it gets back to are we trying to in retail right now across the chasm to the mainstream consumer. Are we kind of regrouping getting our margins right, getting the product value proposition cleaned up and selling maybe a higher priced product to a group of early adopters in early mainstream. So I think that the direction of your question, I think, is spot on.

Perfect. Ethan, thank you very much.

Thank you. Next question will be from Adam Samuelson, Goldman Sachs. Please go ahead.

Yes. Thank you. Good evening, everyone.

Hi, Adam.

Hi. So I guess going – continuing on the pricing and margin discussion, if I look at the business, the U.S. pricing per pound is $0.80 or so, $0.80, $0.90 higher than it is internationally. It moves around quarter-to-quarter a little bit depending on promotions and mix and FX. How big of a difference would you frame the cost to serve that international business versus the domestic? So as part of the plan here, hey, we have better – we’re seeing better consumption growth. We’re seeing better demand. Maybe there is less price elasticity if we can get our pricing points in Europe closer to where they are in the U.S. or is the point that domestically in retail, we need the price – kind of price cuts are not working, and so we can make it profitable you raise price even if we have to sacrifice volume just trying to dimensionalize where along the continuum we are in terms of the plan of attack going forward?

Yes. So, I think in Europe, we are probably less inclined to do any significant price increases in retail and as well as in Europe because of the heavier action among strategics there. The price point is lower in foodservice. In U.S. foodservice, actually, our pricing went up due to mix. But in retail, of course, it went down substantially. I think the average was 521 to 424, price per pound basis, and that was driven largely by trade discounts and pricing and mix. But – so I don’t – I think in the – we are primarily focused on the pricing question and any significant strategy change in the U.S. market versus in Europe. I don’t know, Lubi, if you want to add to that.

Yes. Adam, what I would add to that is, if you recall at the beginning of last year, I believe, in 2022 we did do a pretty broad-based pricing reduction in the EU to better align our pricing in the European retail landscape. Now, one of the things that’s structurally different about Europe retail, if you will, relative to the U.S. is there is a much greater presence of private label over there. And so when you look at the competitive landscape in the EU, you have to – the pricing structure is going to be different from the U.S. Now, we actually think that our pricing, where it stands today in the EU feels like it is where it needs to be relative to the competitive set. I think there are opportunities for us to drive incremental efficiencies from a COGS perspective. But our margin profile in the EU business is actually pretty good. I think there is opportunities to make improvements there. But I think when we are thinking about pricing strategy in the EU, I wouldn’t necessarily be thinking about price increases. There is always going to be some variations from a promotional perspective and things that we do in that regard. But we actually went through the exercise a year – over a year ago, right, to make sure that our price points were in the right place in EU retail.

And I think the way to think about – so we are undergoing a substantial reduction in operating expense across the company to better fit kind of the near-term conditions. But that in the EU, because of success we are seeing on a relative basis, for expanding our investment there just because it’s such a powerful growth engine for us at the moment.

Okay. And if I could just ask a follow-up on cash flow. So, there was positive cash from operations kind of in the quarter. It seems like a large part of that was your payables actually expanded. So, that was a source of cash, which is not we would expect to happen if you are also trying to reduce your purchases and slow down inventory and shrink inventory. So, as part of the point on the cash flow sustainability that, that payables kind of growth in the quarter, which just becomes a source of cash is not repeatable, and that then becomes a headwind as you move in 4Q and into next year?

Yes. I think that’s right, Adam. So, the working capital was a pretty significant benefit in the third quarter of this year. Typically, we do have a strong quarter from the perspective of accounts receivable in Q3 because that’s following what is seasonally our strongest quarter in Q2. And so we collect I would say AP, typically, that tends to move around. It tends to be sort of more just timing driven. But I think you are absolutely right in thinking about as we move forward sequentially, and we have said we don’t expect to sustain the cash flow positive in the fourth quarter. One of the headwinds, if you will, in this quarter will be we don’t expect that type of a benefit from accounts payable.

Okay. Appreciate it. I will pass it on. Thanks.

Thank you. Next question comes from Peter Saleh of BTIG. Please go ahead.

Great. Thanks for taking the question. You guys mentioned, I know it’s early, the exit of select product lines and/or geographies, potentially restructuring in China. I was hoping you could give us a little bit more color on at least the early thinking there is. Is this mostly related to U.S. retail product lines? And also maybe just a little bit of color on the performance of Jerky. Is that on the in the consideration set? And then when you mentioned restructuring in China, is this just a shrinking of the China market, or are you considering a full-on exit? Just any color around that would be helpful. Thank you.

Sure. I mean we can’t give too much, right, for – just want to box ourselves in. But what’s on the table, right, our product lines that are underperforming in a way that we think is perhaps structural on a margin perspective or we are just not exhibiting the growth we want to see. So, some of what you mentioned is probably falls into that pretty well. On China, I think it’s just taking a look at what is our strategy for the next 2 years, 3 years there, and how big or small do we need to be. It’s interesting that part of the world is starting to replicate a little bit of what you are seeing in Europe in just an early, very nascent way. Like if you look at Europe with all the government programs and incentives or campaigns rather probably is a better way to put it, to reduce animal protein consumption as I mentioned in my prepared remarks. Whether it’s the UK, Germany, Netherlands, etcetera, South Korea, as I mentioned as well, just came out with something you see some interesting activity occurring on the commercial side of things in Japan. So, it’s a little bit too early to give an answer to that, and we are just continuing to look at it. But to drive down the type of cost reduction and the operating expense reduction that we are pursuing, kind of everything has to be on the table when it is.

Thank you very much.

[Operator Instructions] Next question comes from Michael Lavery, Piper Sandler. Please go ahead.

Thank you. Good evening. Just would love to understand the table towards the end of the text in the release better on the distribution points by channel. Obviously, you have done much better in international foodservice than in the U.S., but that shows a sharp decline in distribution points and a small uptick in the U.S. in foodservice. Can you just help explain what’s going on with those numbers and how to reconcile that with what you have reported? Is there somebody that’s just had a recent discontinuation or anything we should be sure to be aware of?

Yes. So, in international foodservice, what that’s reflective of is basically the discontinuation of distribution at a certain large like chain customer, and this is in China. It’s not a meaningful percentage of revenues at all. And then I think your – the second part of your question was related to U.S. foodservice. Those numbers tend to – from quarter-to-quarter have some fluctuations in them. So, I don’t think there was anything of note to call out in that particular line item.

Okay. That’s helpful. And even a little bit of rounding, it’s just not a huge move is what you are saying. Just following up on – just some of the outlook on the restructuring or SKU rationalizations, I know you don’t want to be too specific, but just in terms of how we are thinking about modeling 2024, which obviously too, I know you are not guiding on yet, but anything just directionally to more specific, I guess in terms of where there is watch out in terms of – even if certain products haven’t been pinpointed yet. Is it more China-focused than U.S. retail? It sounds like we have some of the breadcrumbs, but anything more you can give there?

We can give a lot more additional color, but I think it’s – we are not doing anything it would, I think surprise people. If you look at kind of the performance of various product lines and where our emphasis is as a company, obviously we are very focused on beef and burger and sausage and our chicken lines and things of that nature, and really focused on the partnerships we have in Europe and some of the new retail items we have offered there. So, it’s some of the more underperforming SKUs and if you were to do a quick chart, you would see, that’s the process we are going through. So, I don’t think it’s anything is going to surprise at all.

Okay. Thanks so much.

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

No, that’s it. We are I think taking a very hard look at where our operating expense is, given that the revenue is lower than we needed to be right now. So, we are going to be fitting the organizational size into more of the near-term opportunity. We are extremely encouraged by the international growth that we are seeing. And the way the world is moving in that direction. The governments in Europe are taking this matter very seriously. They see plant-based foods and a shift from an animal protein-based economy to one that is plant-based from a food system perspective as a very strong lever for climate. And just so the folks understand this, the reason it’s so powerful, right, is that not all emissions are kind of equal, right. And methane is a very powerful greenhouse gas. It also moves through the atmosphere at a quicker rate its half-life is much lower. So, you can take it out of the atmosphere much more quickly. And so in doing, you can dramatically slow within our lifetime and within the period it matters the rate of climate change. But more importantly, by utilizing the 30% of land that we have globally devoted to livestock for carbon sequestration, you can pretty much take a huge chunk out of the climate problem without any new technology development. So, that’s why this solution is so much more powerful than automotive or energy or the other areas that get so much attention. It’s a near-term solution that requires very little additional technological development, and the European governments see that, right. And you think – I think some of the Asian governments are starting to see as well. U.S. has been slow. It’s dominated by vested interest, and the government is very much beholden to them. So, this transition here is going to be about businesses and the consumer making the change. I don’t think we expect the government to step up, but we are doing that. And I think that health is the main driver here, and some really quite optimistic about what we are going to do next year to help write the narrative and get back on track with the U.S. consumer and retail. So more to come and we will talk next time. Thanks.

Thank you. This concludes the conference. Thank you for attending today’s presentation. You may now disconnect.