Good day, and welcome to the Beyond Meat, Inc. 2022 third quarter conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. At this time, I'd like to turn the conference over to Teri Witteman, Chief Legal Officer and Secretary. 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 earnings press release filed today after the market closed. 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. 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 the earnings release that we issued today, 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, 2021, the company's quarterly report on Form 10-Q for the quarter ended October 1, 2022, 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 note that on today's call, management may make reference to 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. With that, I would now like to turn the call over to Ethan Brown.
Thank you, Teri, and good afternoon, everyone. Last month, we signaled that the business continues to navigate a challenging period where broader economic conditions, particularly inflation, category-specific headwinds and increased competition have, over the past 12 months, combined to disrupt what has been over a decade of growth. This disruption has been in contrast to the year we had planned, where we expected a resumption of our strong growth trajectory as the pandemic receded in the majority of our markets. In my remarks today, I will briefly unpack what we believe are the key drivers of this disruption in our growth, the elements that we believe are transitory, and those that may be more persistent. I will then walk through the full force transition underway toward accelerated cash flow positive operations in route to a sustainable growth model.
Before doing so, I would like to take a moment to offer a broader perspective. As is the case with many emerging industries that challenge the status quo, the path to mainstream adoption is rarely straight and smooth. Turbulence along the way generally does not signal a diminished long-term total addressable market or TAM. The history of innovation is replete with examples of this phenomenon captured across a host of disruptive technologies. We are in one such moment as a brand and category and are operating with urgency and decisive action to navigate it. We do so with an unwavering focus on our $1.4 trillion TAM, the global meat market, and continued execution of our long-held goal of achieving taste and price parity with animal protein.
As we seek to pivot the business to cash flow positive operations and quicken our path to profitability, we are committed to transparency and accountability. To this end, in my remarks, I will center on a clear and highly focused set of actions that we are taking, which are intended to fortify the foundation of our business and drive long-term value for shareholders. For the next several quarters, I will return to these actions to track progress, and as we advance, provide a more fulsome look at the underlying financial metrics we are using beyond free cash flow to form the backbone of a durable financial algorithm and total shareholder return equation. With that, I will now turn to a brief overview of current market dynamics.
The current economic climate has not been kind to plant-based meat. The most quantifiable trend, which we believe is transitory, is a well-established history of consumers trading down among proteins during difficult economic times. This appears to be in full swing today.
With persistent and 40-year record inflation in grocery stores, shoppers are seeking to dial out inflation by, among other measures, switching out higher cost proteins for lower cost proteins. Ribeye declines, Spam rises, and so on. While these items are on either end of the continuum, consumers are trading down throughout, generally from higher cost beef and pork items to lower cost chicken. In this environment, the category and Beyond Meat should be expected to see declines as consumers flock to cheaper proteins. Correspondingly, household penetration for the plant-based meat category, according to Numerator data, slipped for a second consecutive quarter, falling roughly 20 basis points versus second quarter of 2022.
Recall that Q2 saw the first sequential decline in household penetration for the category since at least Q1 of 2018, which is as far back as the data set goes. Climbing trend in household penetration holds true for us and most of our peers as well, and we have seen some brands significantly retrench or exit the category altogether in the U.S. Despite the category slowdown, there has been a tremendous increase in the number of competitive entrants and activities. As we have maintained, we believe that healthy competition within plant-based meat is a good thing as it brings investment and marketing to the category. However, in the current environment, we are not seeing this benefit of competition. Instead, more companies are pursuing the same for fewer consumers. Though we remain the category leader in refrigerated plant-based meat, the volume of competition has eroded some of our share.
As noted a moment ago, a shakeout does appear to be underway, and we expect more brands to either retreat or consolidate a less cluttered playing field to emerge in the midterm. A less tangible, though important dynamic, is also present within the category today. As consumers intensify focus on making ends meet, health and environmental considerations take a back seat. This phenomenon makes it more difficult to broadly convey our core value proposition to the consumer, a topic I will return to later.
To summarize the current situation, we face an economy where blistering inflation pressure is shifting consumer behavior in the grocery store . Category, where competition has dramatically increased despite a broad and precipitous category slowdown, and a consumer base whose focus is understandably turned to fulfilling immediate basic needs over pursuing the broader benefits that represent our core value proposition.
These trends have precipitated a substantial drop in revenues for our business, the impact of which is a series of knock-on effects across our income statement. They include a sizable reversal in expected improvements in gross margin as we contend with lower overhead absorption, greater variability of our inventory reserves, and excess capacity and related underutilization and termination fees within our co-manufacturing network. Path forward in this environment is clear, and at its foundation is a pivot from the growth above all operating model that has characterized our business to date to one that prioritizes positive cash flow and sustainable growth. This strategic shift is designed to stabilize the business, nurture our most important growth paths, and position us to drive and capitalize on renewed category growth as the economy emerges from its current state.
We will use the following three tenets to underpin our path to cash flow positive operations and sustainable growth, and I will return to these in subsequent quarters to track progress. One, we are significantly reducing operating expenses while focusing on a more narrow set of strategic partner, retail, and food service opportunities and utilizing lean value streams across our beef, pork, and poultry platforms.
Two, for the time being, we will be emphasizing cash flow accretive management of our inventory with a focus on profit dollars versus maximizing percent margin. Currently, we are further rationalizing our production network in the context of more moderate volume assumptions to improve overhead absorption, address underutilization fees, and support margin improvement.
Three, we are applying a laser focus to our sales and marketing activities, emphasizing those opportunities that we believe strike the right balance between restoring near-term growth and nurturing our most valuable long-term opportunities. Though my comments today tend to focus on our U.S. business and global partnership activities, we are applying similar measures across our EU and China operations.
I will now address each of the three pillars of our go-forward strategy in greater detail. One, operating expenses. We continue to bring our total operating expenses down and expect to drive further progress. Compared to Q1 of this year, we reduced total operating expenses by 23% from $97.8 million to $74.9 million in Q3, and we expect OpEx to fall even further in Q4 and thereafter.
To date, we have instituted two separate reduction in force actions, one in August and one in October, totaling approximately 240 positions. Together, these actions represent more than 20% of our global workforce. With our most recent reduction in force, we are expecting operating expense savings of approximately $39 million over the next 12 months, excluding one-time separation costs of approximately $4 million. Although letting go of these dedicated, passionate, and talented team members was painful, these actions were necessary to right-size our organization so that we are aligned with current business conditions.
Moving forward, to support the execution of a more narrow set of key priorities while delivering further OpEx reductions, we are implementing lean value streams across the organization around our three product platforms of beef, poultry, and pork. I have, along with the team, strong enthusiasm around this implementation as lean value stream management comports well with and extends throughout the organization several of the principles of our Beyond Meat rapid and relentless innovation program.
Two, aggressively managing down inventory and rationalizing our production network. We are focused on maximizing cash flow generation and profit dollars when it comes to inventory management over percent margin. Specifically, in the context of a more limited number of segments, we are testing a pricing reduction that more quickly collapses the pricing delta between one of our core products and its animal protein equivalent.
We are implementing these programs in a highly targeted manner where we believe doing so will welcome new points of distribution and new consumers to our brand while increasing volumes throughout our facilities and network. We expect these activities to accelerate our drawdown of inventory, which we've already reduced by nearly $37 million since the end of Q1 and free up cash. In addition, we are taking immediate steps to rationalize our production network to address what we expect may be continued lower than previously planned growth. These activities include the further consolidation of production activities within our co-packing network, the full utilization of our own facilities by bringing in certain outsourced activities, and in certain instances, redistributing production across our network to address volume commitments. These measures are critical to improving overhead absorption and minimizing unproductive idle fees.
Three, restoring growth in retail and food service through a series of targeted innovation, sales, and marketing execution. In the midst of all the noise in the broader economy and the civic challenges facing our segment and brand, it's important not to forget something. We remain an innovation engine working on one of the most powerful solutions to some of the most serious challenges facing our country and the world. As you will recall, this year we were recognized by American consumers as the most innovative company in food. As they, in the same survey, recognized Apple, Tesla, and Amazon as the world's most innovative companies across technology, transportation, and consumer goods.
As such, even as we continue to reduce our operating expenses and implement lean value streams, prioritize cash flow from inventory, and right-size our production network, we will do what we do best, innovate a s we challenge and push our way into our long-term $1.4 trillion TAM. Specifically, in retail, we plan to restore growth to our core product offerings of burgers, beef, and dinner sausage in the refrigerated set through exciting product renovation, and to leverage and support these renovations by pursuing distribution expansion, certain aforementioned strategic pricing activities, and targeted marketing. These products, which generally carry the highest margins across our product portfolio, account for roughly three-quarters of our total gross revenues and the majority of our retail gross revenues. Previously teased our fourth iteration of our Beyond Burger, so I'll speak more openly about that particular item now.
Though we will not give a release date for our retail channel, I will say that I'm thrilled with the improvements the team has made on the broader Beyond Burger platform. Throughout its development, I've watched key customers and stakeholders come through our innovation center, try a version of this fourth generation product, and quickly share my belief that it's a meaningful advance toward our North Star of being indistinguishable from its animal protein equivalent. Though we have long emphasized the refrigerated meat case next to animal meats as one of the long-term engines of significant growth, we do not discount the importance of the frozen aisle in grocery. As such, we are bringing an increased amount of innovation to the frozen category.
We are continuing to prioritize expanding distribution for our chicken tenders, which as you may recall, won the 2022 People Magazine Food Award, while adding a host of new, easy-to-use, delicious offerings for busy families and consumers. These include the recently announced Beyond Steak, which truly delivers the juicy, tender, and delicious bite of seared steak tips with the added nutritional and environmental benefits of plant-based meat. This brand-new product, which like our chicken, was also the recipient of a well-recognized award, which will be announced soon, is now available at more than 5,000 Kroger and Walmart stores nationwide, as well as at select Albertsons and Ahold divisions, with further distribution gains expected in the near future. Reinforcing our health value proposition, Beyond Steak is low in saturated fat, with 0 mg of cholesterol, and has no antibiotics or hormones.
As just announced, we followed up on the introduction of Beyond Steak with the launches of Beyond Chicken Nuggets and Beyond Popcorn Chicken, which are rolling out at over 5,000 stores at national retailers like Walmart and Kroger, as well as select regional retailers like Ahold and Albertsons, and is expected to expand into more outlets in the near future. As with Tenders, these chicken products deliver tangible health benefits to the consumer, including having 50% less saturated fat than the leading brand of traditional breaded chicken nuggets, 0 mg of cholesterol, and no antibiotics or hormones. Frozen plant-based chicken is the largest single subcategory in all of plant-based meats and continues to grow at a double-digit pace, so we are pleased to be expanding our presence with additional chicken items.
Turning now to food service. In the last year alone, Beyond Meat has executed an impressive number of launches and tests across the globe with our strategic partners. Specifically, in the last 12 months, we have had 25 trials for permanent menu launches with nine distinct products across our beef, pork and poultry platforms in 18 countries. Though these activities do not result in immediate sustained revenues, they represent very important seeds that we are planting for future growth. For example, across the McDonald's network, we have been busy launching the McPlant in Australia, the U.S., U.K., Ireland, Germany, Portugal, Taiwan, Austria, and the Netherlands. As of today, we are pleased to share the McPlant has already become a permanent menu item in the U.K., Ireland, Austria and the Netherlands.
Moving on to Yum. As you know, we tested Beyond Kentucky Fried Chicken here in the U.S. early this year, and we've launched Beyond Meat toppings with Pizza Hut locations across Singapore, Germany, Kuwait and the UAE, Canada, Guatemala and El Salvador, with Canada, Guatemala, El Salvador and Singapore already converting to permanent Beyond Meat menu items. Most recently regarding Yum, we are excited to be testing Beyond Carne Asada at Taco Bell locations in and around Dayton, Ohio. The Carne Asada product represents the toil and ingenuity of many special and talented people across the Yum and Beyond Meat partnership. It was not easy to bring to life, and getting it right was a walk through the halls of real innovation, ideation, research, development, failure, iteration, breakthrough, and back again countless times, and then resounding success.
It is something new to the world, delivering the taste, mouthfeel, and satiating experience of its animal protein equivalent. Importantly, it is being offered at the same price as its animal protein equivalent. If you are in or near Dayton, it is well worth a trip to Taco Bell to taste the future. As I round out some of the latest strategic launches, I'd like to turn to Panda Express. In early September, Panda Express brought back Beyond The Original Orange Chicken to over 2,300 U.S. locations for a limited time offering following a successful regional launch last year. As with McPlant at McDonald's and Beyond Carne Asada at Taco Bell, I encourage you to stop by at Panda Express and enjoy the absolutely delicious Beyond The Original Orange Chicken. Tasting is believing.
The final piece in this third pillar of our strategy is a more aggressive and more narrowly tailored application of our taste, health and planet message, focusing on those consumers who are most able to hear us during these difficult economic times. When I think about the first order of business in our long-term vision, building meat from plants that is indistinguishable from its animal protein equivalent, I am confident that we are advancing year- by- year. When I think about the next critical step in our long-term strategy, driving down the cost of goods of our products so that we sell at or below price parity with animal protein in at least one category, I am equally confident we are advancing the goal that I set three and a half years ago.
Where we need to do better and will do better, is in connecting with the right consumer at the right time around the very real broader benefits of going beyond, so that we can make the leap from early adopters to the early majority. I believe this to be the case with both our health and planet messaging as a brand and as a sector. With health, we have allowed special interest groups to have a field day seeding doubt about the health profile of what they call fake meat. I'd like to spend a moment on this point. We care about our ingredients and are proud of our process because we care about health at the very foundation of our brand. I return to, for example, recent research conducted at the Stanford School of Medicine as part of our five-year plant-based diet initiative with the university.
In the first clinical trial, published in The American Journal of Clinical Nutrition in August 2020, researchers reported declines in LDL or bad cholesterol and TMAO when participants switched from animal protein to plant-based Beyond Meat over successive eight-week periods. TMAO is a compound that forms in the gut and has been correlated with heart disease and certain cancers. As we move forward, we will be announcing a major partnership with a national health organization and taking other steps to highlight to consumers the tangible health benefits of Beyond Meat.
Two, we need to do a better job helping the consumer better understand the connection between our products and climate. Again, focusing on the right consumer at the right time when we have the greatest chance of being heard. The climate impact of our food production system exceeds that of our transportation system globally.
Correspondingly, plant-based meat is one of the most immediate and powerful tools available to the public for addressing climate change. Here again, I return to research which I shared earlier, conducted at the University of Michigan in 2018, where the team performed a life-cycle analysis of the original Beyond Burger versus a quarter-pound U.S. beef burger, and found that producing a Beyond Burger not only generated 90% fewer greenhouse gas emissions, but also used 99% less water while requiring 93% less land. As I've long maintained, marketing is a lot easier when it's true. In our case, as these and other data points suggest, we have a very real and compelling story to tell consumers on health and planet.
What you'd expect from us going forward is more pronounced, narrowly targeted messaging around taste, health and planet, directed towards those consumer segments most likely to listen to our voice. In closing, last month, as on this call, I signaled change in our growth strategy. Namely, after a long period of investment, I've set a clear target for our company to achieve cash flow positive operations within the second half of 2023. My decision to accelerate positive cash flow operations and ultimately profitability, is simultaneously a recognition of today's challenging economy and tomorrow's opportunity. We are and will be here for the long game.
To reiterate, the three main pillars we're using to advance positive cash flow and implement a sustainable growth model are; one, continued reduction in OpEx and a narrowing of focus on key strategic partner, food service and retail opportunities, while making further efficiency gains through lean value streams across our beef, pork and poultry platforms. Two, emphasizing cash flow accretive management of our inventory with a focus on margin dollars versus maximizing margin percent, and concurrently rationalizing our production network in the context of more moderate volume assumptions. Three, narrowing our sales and marketing focus to a core set of activities that we believe strike the right balance between restoring near-term growth and nurturing our most valuable long-term opportunities. I look forward to returning to our call in the new year to update you on our progress across this critically important pivot and plan.
With that, I will turn it over to Lubi, our new Chief Financial Officer and Treasurer, to walk us through our third quarter financial results in greater detail and reiterate our outlook.
Thanks, Ethan. We recorded net revenues of $82.5 million in the third quarter of 2022, in line with the updated guidance we shared on October 14th and representing a 23% decrease compared to the third quarter of 2021. This result fell short of the expectations that informed our outlook on our Q2 earnings call, primarily as a result of weaker than expected demand in the category and especially within our core subcategory of refrigerated. In addition to overall category softness, and as we shared in our October 14th press release, net revenues during the third quarter were also negatively impacted by increased competition, certain customer decisions such as reductions in targeted inventory levels and postponed and/or canceled promotions, as well as delayed and/or canceled product promotions and introductions relative to our prior plans.
In aggregate, total volume sold during the third quarter of 2022 declined 12.8% compared to the year ago period, primarily as a result of the factors I just described. While net revenue per pound decreased approximately 11%. The decrease in net revenue per pound was primarily attributable to strategic but limited price reductions in the US and broader list price reductions in the EU, increased trade discounts, unfavorable changes in foreign exchange rates, and to a lesser extent, changes in sales mix. Turning to gross profit. Gross profit in the third quarter of 2022 was -$14.8 million or -18% of net revenues as compared to $23 million or + 21.6% of net revenues in Q3 of 2021.
Gross profit in the third quarter of this year was negatively impacted by approximately $7.2 million, or -8.8 percentage points to gross margin from underutilization fees and one-time termination costs associated with certain co-manufacturer agreements, of which approximately $5.9 million was related to Beyond Meat Jerky. Including such underutilization and one-time termination costs, in total, Beyond Meat Jerky contributed a gross profit loss of $5.8 million, or -7 percentage points to gross margin during the period. As Ethan alluded to, the decline in overall gross profitability is largely emblematic of the swift and meaningful deceleration in demand, which has necessitated a significant curtailment of our production volumes in short order.
Generally speaking, it is the combined pace and magnitude of this volatility that presents the greatest challenge from an operating perspective, as it is difficult to adjust and or right-size the production network at a commensurate pace. Overall, cost of goods sold per pound was $5.60 in Q3 2022, compared to $4.19 in Q3 2021, or an increase of $1.41 year-over-year. We estimate Beyond Meat Jerky accounted for approximately $0.47 of the increase, with the remainder being driven by increased manufacturing costs, including depreciation, increased materials costs, and to a lesser extent, higher transportation and warehousing costs. The increase in manufacturing costs, including depreciation, is primarily reflective of the volume deleveraging impact I described a moment ago.
As an example, although COGS depreciation expense in Q3 increased by approximately 13% sequentially on a per pound basis, depreciation nearly doubled versus Q2. While this is a single example of just one component of our COGS, the theme is generally true across our other COGS buckets and is informative of the potential impact our efforts to stabilize growth and right-size the network could have. Moving down the P&L to OpEx. Operating expenses for the third quarter of 2022 were $74.9 million, down 2.7% year-over-year and down 10.3% quarter-over-quarter. The year-over-year decrease was primarily driven by lower selling expenses, which include our cost of outbound freight and non-people general and administrative expenses, partially offset by higher marketing expense and restructuring costs, which consist mainly of legal fees.
The sequential decrease in operating expenses was driven by reduced people expenses, including stock-based compensation, lower general and administrative expenses, and lower selling expenses, partially offset by higher marketing expense and restructuring costs. As announced in our October 14 press release, we made the difficult but necessary decision to implement a secondary reduction in force, which impacted approximately 19% of our global workforce. Through this action, we expect to generate approximately $39 million in operating expense savings over the next 12 months, excluding one-time separation costs, which will largely be incurred in Q4 2022. As a result, we expect total operating expenses to be in the mid $60 million range in Q4 of this year, subsequently falling to the low $60 million range per quarter thereafter.
Moving further down the P&L, loss from unconsolidated joint venture increased to $8.7 million compared to $0.6 million in the year ago period and $1.4 million in Q2 2022. This line item relates to our joint venture with PepsiCo, The PLANeT Partnership, LLC, or TPP, and in the latest quarter reflects an increase in inventory reserves at TPP, as well as planned increase in marketing. All in, net loss in the third quarter of 2022 was $101.7 million, or a net loss of $1.60 per common share, compared to net loss of $54.8 million in the year ago period, or net loss per common share of $0.87. Now turning to our balance sheet and cash flow highlights.
Our cash and cash equivalents balance was $390.2 million, and total debt outstanding was approximately $1.1 billion as of October 1st, 2022. In Q3 2022, inventory decreased to $247 million as compared to $254.7 million at the end of Q2 2022, and decreased from $283.8 million at the end of Q1 2022. The inventory decline was driven by continued progress in reducing our finished goods and work in process balances, partially offset by an increase in raw materials and packaging. In terms of cash flow, for the three months ended October 1st, 2022, net cash used in operating activities was $34.7 million, a $35.9 million decrease compared to the year ago period, and a $35.8 million decrease compared to Q2 2022.
As we have communicated, cash consumption continues to be a key focus area for us. Although we expect to drive further improvement over the next several quarters, we expect cash used in operating activities to increase sequentially in Q4 2022, as the benefit from collection of receivables in Q3 is expected to meaningfully moderate. Within cash flows from investing activities, capital expenditures totaled $18 million in Q3 2022 compared to $52.9 million in the year ago period, and we invested $10 million in our joint venture pursuant to the second tranche of our predetermined capital contribution schedule. We expect to invest a further $6.5 million in the JV, split equally across the fourth quarter of 2022 and the first quarter of 2023. Let me now provide some commentary about our 2022 outlook as well as some high-level comments about 2023.
We will provide further details regarding our 2023 outlook on our fourth quarter earnings call. As previously communicated in our October 14 press release, for the full year 2022, we expect net revenues to be in the range of $400 million-$425 million, representing a decrease of approximately 14%-9% compared to the full year 2021. Given the implied level of sales for the fourth quarter of 2022, combined with the gross margin pressures I described earlier, we expect gross margin in the fourth quarter to be negative, albeit sequentially higher than Q3, as we do not expect to incur similar co-manufacturer termination fees. For fiscal year 2023, as we shared in our October 14 press release, we are targeting cash flow positive operations within the second half of 2023.
To be clear, this target implies the achievement of a full quarter of positive free cash flow, defined as cash flow from operations less capital expenditures during the second half of 2023. We intend to discuss the building blocks of this objective in greater detail following our Q4 2022 earnings call next year. For now, I will share some high-level qualitative information. Given our near-term pivot to an approach that prioritizes cash flow and profitable growth above immediate market share capture, we expect 2023 growth to exhibit ongoing pressures as we transition the business model. To drive our cash flow positive objective, therefore, there are four key levers. First, as Ethan described, we are focused on stabilizing and subsequently restoring growth within our core portfolio of refrigerated SKUs, which in turn is expected to contribute to meaningful gross margin improvement back into positive territory.
To reiterate, restoring growth in our core entails closing existing distribution gaps, launching renovated and improved versions of our core SKUs, deploying strategic promotional programs aimed at drawing in new consumers and securing new doors, and focusing our marketing efforts on consumers whose receptivity to our value proposition is believed to be high. Second, we will manage our operating expenses within a tight range by adopting lean business practices and driving greater accountability among individual budget owners across the organization. Third, we will maintain a strong focus on drawing down inventory levels to free up cash from our balance sheet. Finally, fourth, we will tightly manage our CapEx budget to a level substantially below 2022 in either of the previous two years. Taken in combination, we believe these measures will serve as key enablers of our cash flow positive objective in the latter half of 2023.
With that, I'll conclude my remarks and turn the call back over to the operator to open it up for your questions. Thank you.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star and then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Please limit yourself to one question and re-queue for additional questions. First question today will come from Alexia Howard of Bernstein. Please go ahead.
Good evening, everyone. First of all, thank you very much for really focusing on how do you get back to cash flow positive. You've obviously given us a quantification of the savings from the two reduction in forces or the most recent reduction in force that you've just put in place, but the level of cash burn is still quite high. Lubi, thank you for going through the components, and I recognize you're going to give us more details on the fourth quarter. Is there anything else you can tell us about how much you could reduce the input cost or the COGS ingredient packaging side of things, how much the plant costs could come down by reducing the use of unnecessary co-manufacturers?
Is there anything else that you can give us that will give us an idea of how much those all of that cash burn can come down by so that we can get some visibility into what the drivers are? Thank you, and I'll pass it on.
The speaker's lines are live.
I apologize. We were muted. Alexia, thanks for the question. Although I can't provide the exact level of specificity that you're asking for, let me try to give some qualitative information here that hopefully will help you in your modeling. You know, we put out a target to be cash flow positive within the second half of 2023. Clearly, there isn't a path to getting there if we don't restore our gross margins back to positive territory. Now, we're not prepared just yet to give you sort of an exact target for gross margins for 2023. As I said in my prepared remarks, we'll be providing more detail at our fourth-quarter earnings call.
You know, clearly, restoring the gross margin back into sort of solidly positive territory is high on our priority list, and it entails a couple different things, you know, including stabilization of the core, right-sizing the network. You know, those two initiatives are going to be very important levers to driving continued improvement in the gross margin, you know, profile of the business. Then, you know, obviously we've taken recently, you know, the difficult but necessary decision to really reduce our operating expenses, and we'll continue to benefit from that as well as we move into next year. You know, those, from a margin perspective, those are gonna be the two big drivers.
Obviously there is, as I said in my prepared remarks, there's the inventory reduction and CapEx objectives as well that will help us get to that cash flow positive.
That's great, Lubi. Alexia, if I could just give some additional color. We're obviously gonna continue to bring cash consumption down. I think the biggest, broadest explanation that I think is important to drive home is when you have this drop in volume and associated deleveraging, you know, things are gonna start showing up in gross margin and elsewhere that are unfavorable. You can either wait for growth to return, or you can right-size your production system and your organization. I want you guys to hear directly from me that we are right-sizing the organization, the operational footprint, to be able to drive to cash flow positive within the second half of next year. Independent of any aggressive growth assumptions.
I think that is something that is new to our business, given the 12+ years of pretty aggressive growth that we had enjoyed, and I think we will enjoy again in the future. For now, it's really about stabilizing the business based on a more reasonable revenue growth trajectory. It's exactly as Lubi said, in terms of making sure that we see some growth in the core lines of beef, burger and dinner, but again, nothing extraordinary. Continuing to reduce the size of the network and eliminate idle fees. Moving certain parts of our production back in-house, so that we can improve overhead absorption. Really aggressively managing inventory.
You know, we always think about inventory as kind of sleeping money and, you know, we need to start accessing much more of that. There's two benefits to that, right? One is obviously you reduce inventory levels and free up the cash. Two is you can use some of that inventory to welcome new consumers into the brand at a time when they're economically stressed. We're gonna, some of that targeted pricing, which I'll explain more later on the call. We're gonna go ahead and implement. Then we have a whole cost down program, which actually is going quite well, and it's one that we've been driving.
The challenge is you're not gonna see those results until we move through some of the inventory that we have now and start to get to the conversion of raw material into products within the new production system and where those cost down programs have been successful. A lot of things are in play to be able to drive us from the model that we had, which was one of heavy cash consumption, to one that will be cash flow creative.
Our next question will come from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes, thank you. Good evening, everyone. Maybe, Ethan, you kind of just alluded to, I guess, just at the end of the last answer, but some of those strategic targeted pricing actions and kind of the ability of the target to free up inventory, can you provide a little bit more context and scope around what that entails, kind of what you think the incremental distribution could be, and where you think the inventory balance will end up, either at the end of the fourth quarter or at the end of the first quarter, to help you access the cash that's on the balance sheet.
Sure. Thank you, Adam. I'm gonna give you an answer that probably is one degree of specificity away from where I think you'd like it, just because of competitive reasons and things of that nature. You know, part of the push toward cash flow positive and a sustainable growth model is to dramatically narrow our focus within food service and retail. The unifying theme in terms of what we're targeting are those opportunities that give us the highest probability of restoring growth while also nurturing kind of the most valuable long-term pathways that we have. Examples of that, you know, we have a number of QSR partners.
We're narrowing our focus somewhat to a handful that we're having great success with, and wanna nurture those. You know, I think there's a lot of focus on our U.S. business and our U.S. retail, appropriately so. If you look at what's going on in Europe, for example, and just focus for a moment on the launches and the tests that I mentioned, and then as well as the permanent menu placements, not only in Europe, but Latin America and in parts of Asia, we are planting seeds that we expect to be pretty significant volume drivers for us in the future.
We'll narrow our focus there, and then when you get into the retail space, again, and narrowing the focus toward what can we do to restore growth in the fresh meat case, where we really believe transformation can occur. An enormous amount of energy, time, and focus has gone into the third iteration of our sausage platform for the fresh case and the fourth iteration of our burger platform and beef platform. We expect to have those out, and I can't give a specific deadline for that, but in a way that will be helpful to restoring growth. Now within that, there are select pricing programs, to answer your question, that we're putting in place to target specific consumers.
It really gets back to, again, it's a time of distraction for the consumer. You know, our story right now is, I think, several layers away from where the consumer's focused in terms of just basic needs. We're tailoring our messaging to subsegments that are more receptive, rather, to hear. When it comes to health, that's generally, you know, 40 and older. When it comes to our planetary message around climate, water use, et cetera, that's the much younger generation. You know, coming out with these innovations and then targeting specific subsegments of the population with that messaging and offering some introductory pricing that gets people involved is how we're going about restoring that fresh case.
When you look at frozen, we've had a good success with the tenders that we launched. I think we're up about 24% or so in frozen last 12 weeks year-over-year. Of course, you know, we've launched the new steak product, you know, that chicken tender product that I mentioned won the, I think, People Magazine Award of the Year or something of that nature. The steak product that we just launched, I think is probably will be viewed by many as one of our best products, is also up for an award that we'll announce shortly. That's going into the frozen section as well as popcorn and tenders.
On the food service side, I mentioned the QSRs, but there are also subsegments of the food service industry that our messaging is gonna resonate more than in other subsegments. We're tailoring our messaging and our focus in terms of our sales to those subsegments. They have to do with the younger consumers, they have to do with consumers who are maybe in the healthcare system, things of that nature, and I don't wanna get too much into it. Offering pricing in those segments that will attract the largest number of consumers to our brand at a time when pricing really matters is how we're gonna deploy this pricing program. You know, we have a lot of inventory. We wanna work through it, and we wanna welcome people into the brand.
I can't give you specific numbers on exactly how much inventory we're gonna draw down, but you can expect this to be aggressive, in a way that maximizes profit dollars versus margin percent at the moment.
Our next question today will come from Robert Moskow of Credit Suisse. Please go ahead.
Hi, Ethan.
Hey, Rob.
You know, the script today and the task at hand, it's a very different task than what you know, your vision of the company was originally, and I also think the culture of the company that you've built. I'm just wondering, you know, do you have the right people in place to execute this new kind of approach? You know, are people ready to make this kind of pivot?
Yeah.
Do you need to bring in different people to do it?
Yeah. No, that's a great question. Thanks, Rob, for asking that. It is a pivot, for sure. I wanna be very clear that it's coming from me. You know, I feel very passionate about this change that we're making. I have no doubt about the long-term opportunity facing our company and our ability to go get it. We continue to produce the very best products, all these other things, right? What we have to do is change our mindset from one where it was growth above everything else to now pushing very quickly the business into a the cash flow positive and profitable position. That's not because I feel that I need to produce better numbers for people right now or things of that nature.
It's because it's what's going to allow us to endure this current economic situation and reach that longer term goal. In terms of the people that I have around me, I do think that we have a lot of the right pieces in place and a lot of the language that I was using, you know, you could obviously resonate to people who are aware of the lean literature and things of that nature. We have folks that have come out of that school of lean principles, and it's not a manufacturing mindset, it's an organization-wide mindset, right? We are pushing that out throughout the organization. But it is the number one goal.
The hallmark of the way I manage our business is we have a high level set of goals for a three-year period. We have a, you know, three-year plan. We've got a one-year annual operating plan. Those boil down into a set of discrete projects. The number one project for this company is to push this into a cash flow positive position by the second half of next year in order to accelerate profitability. Anyone who's not willing to sign up for that is not gonna be very comfortable here. It's coming from the top. I'm very passionate about it.
We have the energy here to get it done and, you know, just all the intensity and focus you saw on us signing up the very best partners in the world, putting the best products out, and growing the movement. We are now shifting to achieving this goal again so that we can realize that long-term vision we have for the company. You know, I have no intention of shifting gears in terms of what our long-term goal is. You know, we will be a, you know, very large protein player globally. This is a difficult period economically across the country and across the world. We are gonna right-size the organization to get through it, and it's coming from me and, we'll get it done.
Our next question today will come from Cody Ross of UBS. Please go ahead.
Hey, good evening. Thank you for taking our questions.
Sure.
I just wanna touch a little bit, Lubi , you talked about a good part of your goal to become cash flow positive is to turn gross margin positive. Can you just remind us or give us any color on what percentage of your COGS are fixed versus variable?
I'm not sure that we've quantified that, specifically. You know, the vast majority of our COGS basket is variable, and our COGS cost is variable, and that's a function of the you know sort of the co-manufacturer sort of model that we have today. You know, obviously, a fair amount of our finished good production is still done with you know with our co-manufacturing partners. Therefore, the only fixed cost that we have embedded are associated with our own facilities where we do the extrusion.
Our next question today will come from Peter Saleh of BTIG. Please go ahead.
Great. Thanks for the question. Ethan, I just wanted to come back to a comment you made. You said, you guys are gonna focus on gross profit dollars and not necessarily gross margin percent. Maybe just if you can provide a little bit more detail on that, what will you be focusing on in terms of products that drive gross profit dollars? And are there any products or channels that you'll be cutting that maybe were higher gross profit percent, but lower on the dollar side? Just trying to kinda understand that comment in the context of what you guys gave us today. Thanks.
Sure. It has to do with the pricing program we're putting in place on one of our items that is kind of in our core. Again, it's not gonna be a blanket pricing for all segments. We think it'll be meaningful for those that we apply it to. I wanted the team to understand that the goal there is to drive conversion inventory, bring new people into the category. We're obviously not gonna do anything that would be on a per unit basis negative. It has to do with that program. You know, I also think the days again gets to the change in mindset. You know, we lost the jerky product, great partnership with Pepsi.
You know, I think it's a $30 million contribution this year to revenue. I think we grew the category 4x or something of that nature. We finally crossed over into a break-even situation on the margin on that. It's being obscured by these termination fees and idle fees and things of that nature. Those days are over. Like, you know, we're not gonna be launching any products that aren't, you know, cash flow positive and margin profit dollar contributors at the onset. It's really about flexing where we have room and margin to flex to drive more volume, and that gets down to our core lines.
Again, I don't wanna specify which one, or which segment we're going after, but that's the reason that I'm asking the team to focus on profit dollars right now versus, you know, versus percent margin.
Yeah. Yeah. I would just add on top of that you know, we're being very targeted with these programs and, you know, we're looking at number one, as Ethan alluded to, we're looking at some of our core SKUs where we you know continue to have pretty strong margins on those already. You know, these won't be you know negative margin, you know, from a unit perspective. We're also looking at our core products where there are existing distribution gaps and where we have an opportunity to maybe secure new points of distribution, you know, by doing some kind of a special program, you know, bring in new consumers who maybe haven't tried you know these types of products or our brand before.
It's a targeted type of program. As Ethan said, these are cash flow accretive, you know, assuming we get the lifts, right, these are still cash flow accretive activity because we'll be covering our variable costs.
Our next question today will come from Michael Lavery of Piper Sandler. Please go ahead.
Thank you. Good evening. I just wanted to come back to fixed costs. I know we've touched on this a little bit, but for some of these, underutilization penalties or for the new headquarters, which I think the rent starts at around $15 million a year and then builds. There's, you know, it's a meaningful outlay in terms of your spend. How much flexibility do you have on terminating or changing any of these contracts? Or, you know, are you committed to the headquarters building? Is there a better way to think about how to run, you know, set that up? What's some of the flexibility you might have?
It's a great question. We have kind of four buckets that we're looking at of kind of agreements and things that we entered into, you know, several years ago that you know comported more with the kind of growth curve that we're seeing than that you know we're just gonna have to have the tough discussions with those partners about how to address it, and we're doing that now. On the headquarters question itself, we're just consolidating a bunch of leases, so we're pushing forward in that direction, getting out of the buildings we've been in, subleasing some of them, things of that nature.
I don't think we'll change course on the headquarters, but we will consolidate into them, and that's I think an important step. I mean, people, I think many people have commented on the disruptive aspect of the pandemic and you know distributed workforces. In our kind of work, we're you know pushing and you know churning out best products in the world and doing it under tight timelines. We need everyone together. I'm very much committed to making sure that happens. But the kinda idle fee things and things of that nature you know we're doing a few things there.
One would be trying to consolidate some of our production to areas where we do have idle capacity to make sure that we're not, you know, spending anything that's unnecessary for production. Then having those conversations, right? I mean, think that the world has changed, and everyone needs to play a part as our partner. It's a big focus for me.
Our next question today will come from Rupesh Parikh of Oppenheimer. Please go ahead.
Good evening, and thanks for taking my question. Just on international markets, I was curious, as you guys have, you know, reviewed the business, any thought of actually exiting any international markets to more quickly rationalize the business?
Yeah, that's a good question. I mean, I think in Europe you'll start to see as some of the inventory gets eroded, you know, I can't predict the future there obviously, but we see some trends that we like. There's an overhang of inventory. In China, it's so early to tell what's going on there because they're just coming out of all these, you know, lockdowns and, you know, they come out, and they go back in, and things of that nature. What we are doing, though, is reducing expense throughout our global operation and relying more heavily on partners.
We have a terrific partner in Europe, Zandbergen, and working very closely with them to continue to serve and grow the longer-term opportunity for Beyond in Europe, but do in a way that's maybe a little bit more asset light. Then in China, without you know getting into too much, we're looking at some similar opportunities there.
The next question today will come from Peter Galbo of Bank of America. Please go ahead.
Hey, guys. Good afternoon. Thanks for taking the question. Lubi, just a really quick one. Appreciate that you've given kind of a qualitative look at 2023 revenues, but maybe just so that we're all on the same page, can we kind of just outline some of the puts and takes that gets you to, you know, a still kind of compressed revenue next year? I think I heard from you know, obviously rationalizing some of the footprint across QSRs and some retail partners focusing more on the core. You know, I think you'll be lapping the jerky kind of load in from the first half of this year going into next year. Then I would think on the positive side of the ledger, you know, you'll have some load in on steak and popcorn chicken.
Just wanted to understand all of the puts and takes as we start to think about, again, from a high level, where revenues could shake out for 2023. Thanks.
Sure. I think you actually answered your own question, but you know, there is certainly, you know, if you look at where the trends have been in the business, recently, you know, we've started to see some increased pressure in our international markets, as well. You know, that stuff is not gonna turn on a dime, right? I think in the near term, there's gonna continue to be some pressure, you know, particularly you look in the first half of next year. You know, as we've been discussing, right, we have a number of these initiatives that are really focused on, you know, stabilizing and eventually restoring growth within our core.
This includes things like, you know, launching the new iterations of some of our key core SKUs. When you look at those activities as well as, to your point, start to layer on bigger contribution from things like steak and popcorn chicken and potential other new launches, we do expect that, you know, some of the pressure that we expect to feel in the first half of the year should abate as we get to the second half. I know that's, you know, not overly specific, but, you know, hopefully that gives you some sort of idea about how we're thinking about it.
Our next question today will come from John Baumgartner of Mizuho. Please go ahead.
Good afternoon. Thanks for the question.
Thanks.
You know, Ethan, I wanted to dig into innovation because it's hard to think that there isn't cannibalization, whether it's meatballs versus ground beef, ground beef versus patties. You're renovating products, but you're also launching the fourth iteration of ground beef. The competition's moved on to frozen meals, protein bowls. They're hitting new need states, going from commodity to value add. Why isn't Beyond also moving away from commodity products? Like, you know, why wouldn't that benefit you more than trying to migrate consumers from, like, you know, a Beef 3.0 to a Beef 4.0 ? I'm just trying to think bigger picture about what you can do need state-wise to get revenue growth back into the model.
Yes. Yeah, a very good question. I think the move you've seen from us on frozen is in part responsive to that, and you'll see more of that from us in the frozen space in terms of convenience and things like that. Without you know, revealing too much, I don't think that part of your question is in any way not consistent with where we're headed. On the question about the core, you know, we really do believe, and we've seen this, that, you know, our products continue to get closer to animal protein, right, in terms of the taste and texture and sensory experience. As we drive down the cost, and BCG did a nice study on this, you know, the consumers want to do this.
They just don't want to pay more for it, right? You know, we have to continue to drive toward, you know, taste parity, which we're getting closer on, and then realize this cost goal that we've had, which I think we're still gonna hit within the timeframe that I specified in at least one product in one category. The Taco Bell carnitas is a good example of that. That's on the menu. It's the same price as steak. I'm not gonna walk away from that massive global opportunity around beef, pork, and poultry with just the core cuts of that, right? The grounds and things of that nature.
I'm certain that as we hit price parity with that, as the products become indistinguishable, as the climate situation worsens, as people get a clearer sense of what the real health benefits are, and I wanna actually just use this as a moment to talk about that, real health benefits are of our products, this conversion will happen. I got to make sure, and I'm very committed to making sure that Beyond is the absolutely best in that category. There's huge volume and value creation opportunity if we can do that. In the near term, I've seen competitors go and launch, you know, value-added meals, things of that nature, and that's fine. I'm not saying we're not gonna do that, and I'm not saying we're not gonna invest in frozen, we certainly are.
The transformative growth is in the refrigerated meat case, and it's in these QSR relationships. Those are the ones that are gonna drive home this transition. You know, I acknowledge I probably swung too hard at that, you know, at the beginning of the company's entry into those markets, and didn't expect the pandemic or this high inflation. That doesn't mean that over the long run, those things aren't going to come to fruition. Again, I would point everybody to the thing we've done, whatever I mentioned on the call. We have 25 distinct launches in the last 12 months, nine different products in 18 countries. You know, I listed the different permanent menu placements we're getting. That's where the $30 billion-$40 billion revenue company is gonna come from.
I don't think it's gonna come from, you know, the next spaghetti and meatball frozen bowl. Not to say we're not gonna do it, but I think this core focus is the right one.
Our next question today will come from Benjamin Theurer of Barclays. Please go ahead.
Thank you very much, and good evening, everyone. I wanted to follow up on the comments you just made around the pricing and the getting to price parity. It really feels like if we just look and dig into the sales versus volume that you share on the press release, that there's been already a lot of investment, particularly on the international side. It's tough to follow data points. Maybe you can help us understand where you stand right now in terms of the price premium versus your, call it, commodity peers, particularly on the international side.
Yeah. So we're just a couple of things. One of the things that's just requiring patience is, you know, we've been able to realize pathways to significant savings in our production that are just congested right now because we have inventory that we have to draw down in order for the, you know, new production, new sourcing, all that stuff to come to fruition, right? There's just a backlog in terms of being able to show the cost down measures that we've taken. Internationally, now to be very honest, we're just too expensive right now, right? Part of the pricing action we took in Europe is because of that.
I got a text early this morning from a friend, former colleague, head of sales on one of our divisions here, who was in Israel, and he was saying just how incredibly expensive our products are there. I heard the same thing about Singapore recently. You know, we have to drive better coordination across our distribution network, across our retailers, about not driving the price up. You know, even in the U.S., you know, I think a lot of the contraction you've seen, it's not all, but a lot of the contraction you've seen, you know, if you go into the store, on average $3 more than a pound of beef.
The consumer is clearly signaling as they go to the dollar store and everywhere else, that that's just not what they're gonna do today. Again, I get back to the BCG study, I get back to the vision I've had for the company since I started it, that we've got to get this to be at price parity. I think it's interesting, you know, there's so much, and I understand it's sort of human nature, desire to call this thing one way or the other, right? They say, "Well, the public's gonna go for this," and they're not. Yet the dynamics are not yet in place to answer that question, right? You know, let the economy settle, let us get our price point at parity, then let's see what happens, right?
You know, if a launch doesn't go well with a QSR, the sky is falling. Well, how about if maybe it was priced too high? Maybe it wasn't the right build, right? Things of that nature. It's not binary, and we just have to keep chopping away at this thing, you know, and we'll get to the point where you'll see that kind of accelerated growth again. We've got a lot to navigate right now, and I wanna make sure we stabilize the company to be able to do that, and that's what I'm focused on.
Our next question will come from Rebecca Scheuneman of Morningstar. Please go ahead.
Great. Thank you for squeezing me in. My question really stems from the $7.2 million fees that was in the growth margin. I'm trying to get a sense for how much of that will, you know, be continuing into other quarters or how much was truly one time. It seems like, you know, if it's a termination fee, that would be one time, but, you know, maybe some of these underutilizations would be ongoing. I would just like some clarity on how much of this we can expect to continue forward as long as we're in this kind of softer environment. Thank you.
That's a good question. You're right. The majority was the termination, but there are these continuing capacity fees and we're reorienting the network to be able to absorb some of those so they're not just going to non-productive use. And then we're also, you know, just in negotiation, right? But if you look at what's happened in the industry, I mean, I find this interesting just from a disruption perspective and how categories expand and then contract and expand again. You saw JBS close entirely their Planterra effort here, like 125 people, whole facility in Denver. I don't know who listened to my friend Michael's commentary yesterday at Maple Leaf.
You know, I think they took a $190 million goodwill charge on their plant protein business and impairment rather. You know, had also, I think, 22.5% negative margin. There's just a, there's so much volatility right now in this category, given the broader economic issues and things of that nature. You're going to run into if you design a business for a year to say you're gonna get, I'll make up the number, $150 million in revenue or something per quarter and it drops dramatically, you are gonna have idle fees, you're gonna have excess capacity, you're gonna have lower absorption of overhead, all these knock-on effects, and we're feeling those.
You know, instead of just saying, "I'm gonna cross my fingers and hope for growth to return," we're in that process of negotiation, in that process of reducing the operations footprint temporarily to be able to, you know, produce better margin, without any significant resumption of growth.
Our next question will come from Ken Zaslow of Bank of Montreal. Please go ahead.
Yeah, it's a real quick question. Of your program, which of the four steps that you have do you think is most at risk or out of your control, and which ones do you think you have the most control over?
I think Lubi was referring specifically to four of the kind of financial levers he's pulling. The program that we have is three steps. It's you know obviously to drive home the reduction in OpEx. That one, I think, we feel comfortable with. I think you know getting the cash flow positive really depends on you know not only discipline there but also working through our inventory, which is the second step. Third, which is probably the one that we have the least control over, is the result of the execution of our focused growth strategy. You know, we're narrowing down our focus to some key retail activities and some key food service activities and some key QSR partners.
It's a much narrower scope than we've had in the past, but we think those are the kinda, you know, 80/20 rule. Those are the ones that are gonna drive growth. If the economy continues to worsen, you know, if we don't connect with the consumer in the right way, you know, that could be something where there's risk. Again, we're not structuring the business for that, where that has to happen at some sort of dramatic level. We're gonna structure the business differently, right? Even if there's some moderate growth, I mean, very moderate, we'll be able to achieve the goals that we're talking about.
What I like about that is that as these things that have been percolating and that we've been planting the seeds quarter after quarter, the 25 distinct launches, the nine distinct products, the 18 countries, you know, the Taco Bell stuff here in the U.S., the Panda Express here in the U.S., the McDonald's in Europe, you know, Pizza Hut in Latin America. As those things start to move from kind of the test phase into much broader utilization, those are kinda upside for business that has been right-sized. I think that's where the value creation in this environment will occur.
Ladies and gentlemen, at this time, we will conclude our question and answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks.
I think I've said it all, what I wanted to convey. It is a pivot in our business model. It's a pivot from, you know, kind of growth above all to cash flow positive and sustainable growth. I'm very excited about it. It's something I think is gonna produce the long-term results that we've been after and do so in a way that's more efficient. I look forward to building it together.