Beyond Meat: Some Progress In Q2 2024, But Much More Is Still Needed
Contributor since 2013 / 11266 Followers
Summary:
- Beyond Meat reported $93.2 million in Q2 2024 net revenue, above expectations for $85 million to $90 million.
- The company also increased its gross margins by nearly 10% from Q1 2024.
- Despite some improvements, BYND is still on track for around $41 million in 2H 2024 cash burn.
- Convertible note holders remain likely to end up with most to all of Beyond Meat’s equity.
- Beyond Meat can theoretically limp along for multiple years, though.
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Beyond Meat (NASDAQ:BYND) demonstrated some improvement with its Q2 2024 results, but it seems likely that its turnaround efforts will be too slow to avoid an eventual debt restructuring.
That being said, there doesn’t appear to be any urgency for debt restructuring. Beyond Meat has $1.15 billion in convertible notes due 2027 that carry a 0% interest rate, so its cash burn wouldn’t be affected by the elimination of those notes.
With a reasonable level of continued improvement in its results, Beyond Meat should also have enough cash (without needing an equity raise) to last until those notes are due.
On the other hand, it seems rather inevitable that the convertible note holders will end up owning most to all of Beyond Meat’s equity. In a scenario where Beyond Meat gets to around $410 million in net revenue in 2026 (+21% from 2024 levels) and increases its gross margins to 30%, it still may end 2026 with net debt of over 100x its 2026 adjusted EBITDA.
Beyond Meat is tracking a bit better than I previously expected, but still far below what it needs to be able to deal with its 2027 notes without giving note holders most of the equity.
I estimate the actual value of its shares at $0 to $1, but also believe that it could keep going for a couple of years without restructuring its debt.
Notes On Q2 2024 Results
Beyond Meat’s Q2 2024 results were generally better than expected. It reported $93.2 million in net revenues, above its expectations for $85 million to $90 million in Q2 2024 net revenues.
Beyond Meat’s gross margin also improved to 14.7% in Q2 2024, up from 2.2% in Q2 2023 and 4.9% in Q1 2024.
Despite those positives, Beyond Meat still reported negative $23 million in adjusted EBITDA during the quarter, which illustrates how much of a hole it needs to dig itself out of.
Beyond Meat’s capital expenditures are currently quite limited (approximately $1 million in Q2 2024) and it doesn’t have any cash interest costs. Thus, its free cash flow should be pretty close to its adjusted EBITDA at least.
Changes To 2024 Guidance
Beyond Meat tightened its expected net revenue range for 2024 to $320 million to $340 million, which is $5 million narrower at both ends compared to its original expectations for $315 million to $345 million.
Meanwhile, Beyond Meat’s gross margin expectations have been reduced slightly to the mid-teens. This compares to its original expectations for mid-to-high teens gross margins. Beyond Meat’s gross margins were around 10% in 1H 2024, so this still suggests a decent improvement in the second half of the year.
As well, Beyond Meat’s full-year operating expenses are now expected to be $180 million to $190 million, compared to prior expectations for $170 million to $190 million.
Although operating expenses are trending towards the upper half of its original guidance, Beyond Meat has trimmed its capex budget slightly to a new range of $15 million to $20 million, down from $15 million to $25 million.
Effect On 2H 2024 Results
If Beyond Meat hits the high end of its updated full-year revenue guidance, it would end up with approximately $171 million in 2H 2024 revenue. At 20% gross margin in 2H 2024 (which would bring its full-year gross margins up to a bit over 15%), Beyond Meat would generate $34 million in gross profits during the second half of the year.
Based on Beyond Meat’s other guidance items, this may translate into around $41 million in cash burn in 2H 2024, before any impact from working capital changes.
| $ Million | |
| Gross Profit | $34 |
| Less: Cash Opex | $60 |
| Less: Capex | $15 |
| Free Cash Flow | -$41 |
Beyond Meat had $145 million in cash and cash equivalents (not including restricted cash) at the end of Q2 2024, so this projected cash burn would result in it having around $104 million in cash and cash equivalents at the end of the year.
It also had approximately $13 million in restricted cash at the end of Q2 2024, most of which committed to secure a letter of credit for the leasing and development of its Campus Headquarters in El Segundo.
Future Years
With a roughly 10% increase in net revenues per year and an increase in gross margins to 25% in 2025 and 30% in 2026, Beyond Meat would be able to reduce its cash burn to approximately $40 million in 2025 and $10 million in 2026. This also assumes around $20 million per year in capex.
There is theoretically a reasonable path for Beyond Meat to avoid running out of cash (without an equity offering) in the next couple of years. However even in this relatively positive scenario, Beyond Meat has some cash burn and would end 2026 with net debt that is over 100x its 2026 adjusted EBITDA.
Potential Debt Restructuring
Beyond Meat was reported to be in talks with bondholders about a potential debt restructuring. There doesn’t appear to be an urgent need to get something done though, since Beyond Meat’s $1.15 billion in convertible notes carry a 0% interest rate and don’t mature until March 2027.
Thus, restructuring Beyond Meat’s notes wouldn’t benefit its free cash flow. However, if Beyond Meat is to be an acquisition target in the future, it will need to eliminate its notes and also make more progress in reducing its cash burn and achieving some revenue growth.
Notes On Valuation
Beyond Meat’s large short interest (and resulting high cost to borrow) is pretty much the only thing propping its shares up. I’d estimate Beyond Meat’s actual value at $0 to $1 per share.
The $0 end of that valuation range assumes that Beyond Meat’s convertible note holders get all of Beyond Meat’s equity in a restructuring scenario.
The $1 per share valuation would involve negotiations that result in Beyond Meat’s convertible note holders owning most (such as 85%) but not all of Beyond Meat’s equity.
Beyond Meat’s 0% convertible notes due March 2027 are relatively lightly traded, with the last reported trade occurring on August 28th for 17.25 cents on the dollar.
That low price for the notes shows that Beyond Meat’s equity is currently likely quite far out of the money.
Conclusion
Beyond Meat made some progress with its Q2 2024 results, with gross margins improving significantly from Q1 2024, and it is exceeding expectations for net revenue.
However, Beyond Meat’s situation looks dire even with that progress. I believe currently on track to be able to limp along for potentially multiple years without needing to raise more money.
Beyond Meat’s $1.15 billion in convertible notes due 2027 are a massive problem though, as reflected in those notes trading at around 17 cents on the dollar.
It is difficult to think of an outcome that doesn’t involve the convertible note holders owning most (if not all) of Beyond Meat’s equity.
Thus, I’d estimate the value of Beyond Meat’s shares at $0 to $1, although the high cost to borrow plus the potential for Beyond Meat to survive multiple years makes it challenging to short. A short position would be betting that there will be a near-term deal that gives most of the equity to convertible note holders.
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