Beyond Meat Grilled Over Disclosure Requirements

Beyond Meat Grilled Over Disclosure Requirements

Life has been pretty yummy for Beyond Meat lately. Since going public in May, the company and its investors have been on a magical ride. Except for a small dip when the plant-based food merchant held a second equity offering, the stock has been on a sharply upward trajectory. It went from $66 to Friday’s close of $177 in three short months – delicious news for everyone except Beyond Meat’s many short sellers.

Of course, life as a public company isn’t all rainbows. Like other unicorns before it, Beyond Meat is now learning to live with the governance and financial reporting requirements faced by every other publicly traded company. MarketWatch recently summarized the back-and-forth with the SEC, in which Beyond Meat staked out its position on two juicy issues.

First, it faced questioning from the SEC about changes it made to disclosures regarding its largest distributors as well as Whole Foods, its single largest customer. In its confidential registration statement, Beyond Meat originally included, and then removed, information about its relationships with those business partners – including contract details.

In a November 1, 2018 response to the SEC, Beyond Meat laid out its case for no longer making those disclosures. As to both its distributors and Whole Foods, Beyond Meat claimed that its business was not “substantially dependent” on its relationship with any single one of them. Acknowledging that Whole Foods accounted for 10% of its gross revenues in 2017, for instance, Beyond Meat said that was down to 2% by the third quarter of 2018. Given that Beyond Meat was not “substantially dependent” on those relationships, its lawyers said, it did not have to disclose its contracts under Item 601(b)(10)(ii) of Regulation S-K.

Other unicorns have come in conflict with the SEC over similar issues. For instance, a filing from Slack shows that it balked when asked to provide information on a contract with Amazon Web Services. Similarly, Uber invoked the “substantially dependent” language when it pushed back on a request from the Commission for more information about the company’s master services agreements.

In a second line of questioning, the SEC asked Beyond Meat to separate its sizzle from its (proverbial) steak. In its draft registration statement, Beyond Meat touted its PR successes, noting that its revenues have been increasing “over the past several years along our earned media impressions.” Casting a skeptical eye on the value of Beyond Meat’s good press – boosted by stars like Leonardo DiCaprio and Jessica Chastain – the SEC asked it to provide “enhanced disclosures” explaining the connection between its earned media impressions and its business results.

Beyond Meat retorted that earned media impressions are a measure of “brand awareness,” the building of which is a central element of the company’s growth strategy. The company eventually struck a compromise with SEC reviewers by beefing up its prospectus with a new disclosure section: “Brand Mission Aligned with Consumer Trends.” By this and other metrics available, that growth strategy appears to be a success.

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