Beyond Meat, Inc. (NASDAQ:BYND) Q1 2024 Earnings Call Transcript

Beyond Meat, Inc. (NASDAQ:BYND) Q1 2024 Earnings Call Transcript May 8, 2024

Beyond Meat, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Beyond Meat 2024 First Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paul Shepherd, Vice President, FP&A, and Investor Relations. Please go ahead.

Paul Shepherd : Thank you. Hello everyone, and thank you for your participation on today’s call. Joining me are Ethan Brown, Founder, President and Chief Executive Officer, and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our first quarter 2024 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 today 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 our 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, our Quarterly Report on Form 10-Q for the quarter ended March 30, 2024 to be filed with the SEC, and our Annual Report on Form 10-K for the fiscal year ended December 31st, 2023, along with other filings for the SEC for a detailed discussion of the risks that could cause actual results that 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, adjusted loss from operations, and adjusted net loss, which are non-GAAP financial measures.

While we believe these non-GAAP financial measures provide useful information for investors, any reference to this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today’s press release through a reconciliation of these non-GAAP financial measures. For their most comparable GAAP measures. And with that I would now like to turn the call over to Ethan Brown.

Ethan Brown : Thank you, Paul, and good afternoon, everyone. I’ll begin with a brief overview of our Q1 2024 performance afterwards I’ll provide updates on the five priorities I outlined on our previous earnings call and how we are building toward our goal of sustainable operations and return to growth. Total net revenue is above the top end of our $70 million to $75 million guidance range at $75.6 million, an 18% decline from Q1 in the previous year. Gross margin was 4.9% higher than each of the three previous quarters, but a reduction from 6.7% in Q1 2023. While we are pleased to return to positive gross profit and gross margin this quarter, this fell short of our expectations due to among other factors, trade discounts running a bit higher than planned, transitional and startup costs related to bringing production in-house as we continue to consolidate our network, an incremental, accelerated appreciation of certain fixed asset disposals.

As this positive swing in margin occurred prior to the enactment of our price increases, the first trance of which began rolling out last month and prior to completion of our network consolidation work, as well as being impacted by the aforementioned accelerated appreciation, we are optimistic regarding margin improvement across the balance of the year. Operating expenses in Q1 were $57.1 million, a $6.8 million reduction year-over-year. This operating expense total includes a $7.5 million accrual for consumer class action settlements, which without operating expenses would have been $49.6 million, a reduction of $14.3 million year-over-year. This reduction in operating expense helped reduce our loss from operations to $53.5 million in Q1 ’24 compared to $57.7 million in the year-ago period.

Adjusted loss from operations was $46 million, reflecting the exclusion of the $7.5 million accrual for the consumer class action settlements. We will continue to drive efficiencies throughout the organization in support of further operating expense reductions throughout 2024. Turning to our balance sheet and cash flow, inventory fell to $122.5 million, down by $7.8 million from Q4 2023, and down by almost $100 million from Q1 2023. And our cash consumption of $32.5 million Q1 2024 was down significantly from $49 million in the same period in 2023. I should note that while inventories fell, the first quarter does represent a period of inventory build as we prepared for higher demand during our peak selling quarters. This build, which included inventories for the Beyond Burger IV and Beyond Beef IV launch, meant that we parked more cash and finished goods inventory this quarter than we did in Q4 2023.

Coming off of this first quarter of the year and looking across 2024, we will remain focused on driving further reductions in cash consumption. With that brief overview, I will now run more fully through the progress we’re making against each of our five priorities for 2024, while Lubi will follow with more detail on our overall financial performance in Q1 2024. First, getting leaner. The first quarter of 2024 provides a clear proof-point that our operations continue to get leaner and more efficient. We realized a positive gross margin despite a lower revenue base for reducing operating expenses, inventory and cash consumption relative to the same period in 2023. Our continued emphasis on leaning out to our operations also entails tightening our focus with regard to product portfolio, markets, consumer targets, claims and messaging, which leads me to our second priority, Beyond IV.

In February, we unveiled Beyond Burger 4 and Beyond Beef IV, and across April, these products began rolling out in grocery stores nationwide, including Walmart and Kroger. Through this fourth-generation project, which we expect will be fully distributed by Memorial Day, we took a leap forward on a continuous improvement journey that is a rapid and relentless innovation program. As you will recall, we iterate our product lines across one of the [indiscernible] properties in a framework referred to as FAAT for flavor, aroma, appearance, and texture, while driving improvements in nutrition, cost, and other considerations. In the Beyond IV platform, as discussed previously, we placed considerable emphasis on unlocking further health gains. To this end, we work intensely with leading medical and nutrition experts as we build this next generation.

Together with this network, our team in my view, delivered a home-run and improved sensory experience with a nutritional build, so impressive that it goes to market with a host of important validations. These include becoming the first plant-based meat brand to be recognized by the American Diabetes Association evidence-based nutritional guidelines for better choices for life program. Being featured in a collection of hard healthy recipes certified by the American Heart Association’s Heart-Check program, as well as an upcoming American Heart Association and Beyond Meat cookbook. Earning good housekeeping coveted nutritionist, approved envelope, which assesses food products based on specific nutritional criteria as well as taste, simplicity and transparency.

And finally, becoming the first plant-based meat products to be clean label project certified. As has been the case with other disruptive innovations in history, innovations that are today commonplace everyday items. One of the biggest challenges our brand has faced is orchestrated misinformation regarding our product lines. As Beyond Burger IV and Beyond Beef IV approaches full distribution, we will launch our 2024 marketing program, which highlights their strongly validated helpfulness, built with protein from yellow peas, red lentils, brown rice and fava beans, together with heart healthy avocado oil, Beyond Burger IV and Beyond Beef IV provides consumers with 21 grams of clean protein with only two grams of saturated fat per serving. As the Beyond IV platform rolls out to more stores, we are pleased with the positive though still anecdotal feedback is receiving from consumers as well as members of the health and wellness community, including nutritious and dietitians.

And won’t consume our time today with a lengthy review of what has been a very gratifying initial introduction, but we’ll instead share perhaps one of my favorite headlines thus far. This is from good housekeeping, which simply states; our registered dietitians can’t stop talking about Beyond Meat’s newest launch. This headline is particularly important to me as it represents our promise that we build plant-based meats that are not only delicious, but serve an important role in human health. This and other similar reviews are also important because they help create strong relevance for large swaths of consumers, whether quantified as roughly 160 million Americans who have some type of cardiovascular disease, with 97 million Americans were prediabetic or the 38 million Americans who are diabetic or the 25 million Americans who have high cholesterol.

We believe as do the nutritionists, institutions and dietitians standing behind Beyond IV, that we offer consumers a delicious yet powerful choice that can help them and their loved ones with healthier lives. The aforementioned 2024 marketing campaign, which we are rolling out imminently, will bring this message to life across a variety of media throughout the summer rolling season and beyond. Moving on for products. I should note that we announced a newly renovated and expanded line of three different Beyond Crumbles, original, feisty and Italian style. These tasty bite size crumbles go from frozen to finish in just a few minutes and provide a delicious and healthy protein options throughout the day. Beyond Crumbles have 12 grams of protein per serving, less than one gram of saturated fat and no cholesterol.

These are intended to join Beyond Steak in the frozen aisle and as with Beyond Steak, the Beyond Crumble lineup has been certified by the American Heart Associates Heart-Check program and the American Diabetes Association’s Better Choices for Life program. Moving forward, we expect to be introducing yet another delicious product set to this heart healthy lineup later this year. I’ll turn now to our third priority, implementing changes to our US trade and pricing programs beginning in Q2 which we believe will meaningfully impact gross margin. Our overarching goal is to restore margins to previous levels achieved in 2019 and 2020 over time. As we report, we just passed through the second major tranche and majority of our pricing actions for the year.

These measures reflect a series of tiered pricing changes following a thorough analysis regarding elasticities in our frozen and fresh product offerings and the introduction of Beyond IV and it’s more premium ingredients, among other factors. Fourth, we are nearing completion of the difficult task of consolidating our production network. Lower decision regarding a degree of consolidation reflects a myriad factors depending on the co-manufacturing partner. We expect this comprehensive action to substantially contribute to margin as we emphasize the [term] (ph) production and benefit from better asset utilization overhead absorption, production and logistics efficiencies while also providing for better management of logistics and quality control.

Finally, fifth, we are investing in our European business and related strategic partners. We continue to make progress with our quick service restaurant business in Europe and the UK, even as the quarter’s year-over-year numbers were impacted by the lapping of product loading and promotional activities in the year ago period that did not repeat in Q1 2024, a consumption trend toward value items in a certain geography, reflecting broader macroeconomic conditions. Looking forward, just today, McDonald’s Germany kicked-off it’s famous meals promotional campaigns at all restaurants across Germany. The campaign features two celebrity favorite meals built around plant burgers and plant nuggets, exclusively. Additionally, in Q1, McDonald’s expanded availability of the plant burger across the Baltic countries of Latvia, Lithuania and Estonia.

In Europe, more broadly, we launched Beyond Steak for foodservice in the Netherlands and a retail in Belgium as well as expanded availability of the Beyond Burger at Co-op stores across the UK. Further, we are excited that we will soon be expanding our presence of retail in Germany given our recent satisfaction of local shelf life requirements and see continued opportunity for further distribution expansion in the EU and other international markets. To conclude, we believe that 2024 is a pivotal year for change in progress for Beyond Meat. We began the year making solid strides along our 2024 strategy and correspondingly, our path to sustainable operations and a return to growth. We believe that our determination to sharply reduce our operating expenses and cash use, consolidate our production network, implement pricing changes to help restore margins and launch from most significant renovation to date Beyond IV for purposes of reinforcing, as well as raising the bar on the health benefits of our plant-based needs, amidst sustained misinformation campaigns are beginning to pay off.

We expect to continue to harvest benefits from these actions across the balance of the year and beyond. These powerful measures and their early dividends, coupled with our initiative to bolster our balance sheet this year, infuse us with cautious optimism as we look forward. And with that, I’ll turn the call over to Lubi to walk us through our Q1 financial results in greater detail as well as provide our outlook for 2024.

Lubi Kutua: Thank you, Ethan, and good afternoon, everyone. I’ll begin by reviewing our first quarter financial results before providing an update on our 2024 outlook. Net revenues decreased 18% to $75.6 million in the first quarter of 2024 compared to $92.2 million in the year ago period. The decrease in net revenues was driven by a 16.1% decrease in volume of products sold and to a lesser extent a 2.3% decrease in net revenue per pound. Taking a closer look by channel. Net revenues in our US retail and foodservice channels decreased by 16% and 16.2%, respectively, primarily due to a decrease in volume of products sold and reflecting continued macroeconomic and category-specific headwinds. Net revenues in our international retail and foodservice channels decreased by 12% and 28.7%, respectively.

Softness in our international retail channel mainly reflected the lapping of large initial pipeline orders in Europe for our chicken innovation launches from a year ago, as well as softer demand in the Canadian market for certain of our beef and pork items. The year-over-year decline in our international food service channel primarily reflected the lapping of strong sell-in of burger and chicken items to a large QSR customer in the year ago period, as well as generally softer demand in the UK. With regard to the UK, recessionary pressures appear to be dampening demand, both in our retail and food service channels, although we believe this could be a transitory effect. It’s also worth noting that while the EU and Canada remain our two largest markets in the international space by some margin, we do have presences in Mexico, Australia and certain parts of Asia, among other regions where we did experience some idiosyncrasies that also impacted our first quarter results, albeit to a lesser extent.

Turning to gross profit. Gross profit in the first quarter of 2024 was $3.7 million or gross margin of 4.9% compared to $6.2 million or gross margin of 6.7% in the year ago period. The year-over-year change in gross profit and gross margin reflected higher manufacturing costs, including depreciation, higher materials costs and reduced net revenue per pound, partially offset by lower inventory reserves and lower logistics cost per pound. Within manufacturing costs although we realized solid benefits from our network consolidation efforts, we did also see transitional costs such as temporary labor and increase over time in our own facilities, as we brought in substantially higher production volumes in a short period of time. However we saw encouraging sequential trends within the quarter and expect our meaningful in-sourcing of production volume to pay dividends in terms of reduced costs and improve quality in the coming periods.

Operating expenses were $57.1 million in the first quarter of 2024 compared to $63.9 million in the year ago period. The decrease in operating expenses was primarily due to reduced non-production head count expenses, lower marketing expenses and reduced selling expenses partially offset by an increase in general and administrative expenses. General and administrative expenses included a $7.5 million accrual for a consumer class action settlement associated with certain lawsuits that originated in 2022. Of the aforementioned settlement amounts and subject to court approvals, we anticipate making a cash payment of approximately $250,000 in 2024 and the remainder in 2025. Overall, loss from operations was $53.5 million in the first quarter of 2024 compared to $57.7 million in the year ago period.

Adjusted loss from operations which excludes the aforementioned class action settlement accrual was $46 million in the first quarter of 2024. The Net loss was $54.4 million or $0.84 per common share in the first quarter of 2024 compared to a net loss of $59 million or $0.92 per common share in the year ago period. Adjusted net loss was $46.9 million or $0.72 per common share in the first quarter of 2024. Adjusted EBITDA was a loss of $32.9 million in the first quarter of 2024 compared to an adjusted EBITDA loss of $45.8 million in the year ago period. While we still have a lot of work to do this represents our smallest adjusted EBITDA loss, going back to the second quarter of 2021. Turning now to our balance sheet and cash flow highlights. Our cash and cash equivalents balance, including restricted cash was $173.5 million, and total debt outstanding was $1.1 billion as of March 30, 2024.

Net cash used in operating activities was $32.2 million in the quarter ended March 30, 2024, compared to $42.2 million in the year ago period. Capital expenditures totaled $1.2 million in the quarter ended March 30, 2024, compared to $5.3 million in the year ago period. Finally, I’ll conclude my remarks by commenting on our 2024 full year outlook. Which we are largely reaffirming as follows. Net revenues are expected to be in the range of $350 million to $345 million for the full year. Net revenues for the second quarter of 2024 expected to be in the range of $85 million to $90 million. Gross margin is expected to be in the mid-to-high teens range for the full year 2024 and is expected to be higher in the second half of the year relative to the first half.

Operating expenses excluding the $7.5 million consumer class action settlement are expected to be in the range of $170 million to $190 million weighted slightly more towards the first half of the year; lastly capital expenditures are expected to be in the range of $15 million to $25 million. And with that, I’ll turn the call back over to the operator to open it up for your questions. Thank you.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Alexia Howard with Bernstein.

Alexia Howard: Good evening everyone.

Ethan Brown: Hi, Alexia.

Lubi Kutua: Hi, there.

Alexia Howard: Hi, I guess my main question is around the confidence that you have in the sales outlook. It feels as though last quarter the pricing was down quite a bit and the volumes improved. And this time, obviously we’ve seen a big sequential increase on the pricing side, but the volumes have deteriorated. So as you look out, what gives you the confidence to be able to reiterate the full year guidance? What improves over the summer during grilling season and so on. Thank you.

Ethan Brown: Thank you for the question. So I think we were rolling out towards the end of the first quarter, some of the most early shipments of the Beyond IV product. So those are hitting stores now, and we expect to be in full distribution by Memorial Day. And — so a lot of the focus for us as a company has been on that reset. I’ve spoken about this many times. If you look at what has led to the deceleration of growth in the entire plant-based meat category. We believe it is a perception around the health benefits of the products, which were quite strong. If you think about 2020 for example, where survey results suggest that they were — I think it was 50% or more of American felt that the plant-based meat was healthy for them.

Whereas in 2022, that number was down at 38%. And my strong belief is that it declined further in subsequent years. And so we wanted to tackle that directly and try to make our products as unassailable on the health side, as they are on the climate and environment and animal welfare side of things. And so over this three year period of working with doctors, nutritionists and dietitians, we did that, in my view. And this product that is now reaching full distribution later this month, has been so well received by the not only medical community, but the nutrition and registered dietician community. That we have high confidence that it addresses the Number One issue in the category. And so if you think about the type of endorsements that I went through on the script there, whether it’s American Heart Association recipe program, whether it’s American Diabetes Association, whether it’s the clean label project certification or good housekeeping sealed nutrition, all of these things are signaling mechanism to the consumer that regardless of the misinformation out there, the orchestrated campaigns to suggest it’s some healthy.

You can trust that this product has the health benefits that you’d expect it to have. And so that’s a very different scenario than one we were facing a year ago, where there was just so much negative noise that was being drummed up about the category. And although we had studies in the work with Stanford, we did not have this kind of overarching framework of endorsement and support from nutrition and health and wellness community. And if I could — if you look at some of the earliest reviews of these products, whether it’s good Morning America, saying we’ve raised the bar on the attrition of plant-based meats or he would eat this not that. We were featured as one of the best new grocery products at [24] (ph). Prevention magazine put us the Number One product for plant-based meat — eating well, I think, had really great review by nutritionist or a registered dietition around how this is a heart healthy option and particularly relevant people who are struggling with cardiovascular issues, which, by the way, is 160 million Americans, as I mentioned in my prepared remarks, then women’s health selecting it as their Number One favorite rather team favorite plant-based meat.

So — it took a lot of time, a lot of discipline on effort, but we wanted to fix that fundamental perception issue around the category. And so as we roll out in this pivotal year. We’ve taken all these steps which I went through in my remarks, whether it was bringing operating expense down, continuing to bring our cost of goods down across the balance of this year, whether it’s the price increases we’re taking. We are stabilizing the business and then rolling out this very significant product. So we think for that reason that we will see some acceleration across the balance of the year. On the pricing that did not go into effect until — we see April 5 was the first tranche and then May 5th roughly was the second tranche. So that wouldn’t have impacted results in the first quarter.

Alexia Howard : In that case, may I follow up and ask whether you’re seeing any preliminary price elasticity as you’ve introduced those price increases over the last month?

Ethan Brown: We have — it’s too early to tell. I mean, I think we were pleased with some of the — some of what we’ve seen so far, but it’s just too early to tell. But it is — that the picture is somewhat clouded, right? Because it’s not only are we introducing new pricing, but we’re also introducing a new premium product, right? So there is just different value to the consumer. So we’ll wait and see, but we’re optimistic.

Alexia Howard : Okay, great. I’ll pass it on. Thank you.

Operator: Your next question comes from Ben Theurer with Barclays.

Ben Theurer: Hi good afternoon, Ethan and Lubi. So first of all, just wanted to follow up a little bit on that — like the initiatives as you’ve laid out in order to just focus on the new products, like a little bit of a premiumization getting the right price points. So it felt like that in the quarter prices were still on average, slightly down. So can you help us understand how we should think about the cadence of the new product flowing into results and how that price points potentially going to move as you have like this more differentiated approach as to pricing. So how should we think about the cadence here for the coming quarters?

Ethan Brown: Yes. We won’t get a full benefit from that in this quarter, although you will see definitely some benefit from it. Because again, it is just reaching full distribution and the pricing went through in those two tranches as of May [5th] (ph). So I think you can expect this quarter to see a meaningful increase in net revenue per pound, in the U.S., and then of course we also have some activities elsewhere that are also, I think going to be accretive to us from a margin perspective globally.

Ben Theurer: Okay. And then just a quick follow-up as to the performance in International, which used to be the stronger market, but felt a little softer this time just on like a year-over-year basis. Was there anything in particular that you could point us to what happened in the international markets that drove particularly the volume decline?

Ethan Brown: Yes. I think we remain very bullish about Europe and about some of our other international markets, Canada, et cetera. Two main factors. I will address retail first. We did sell in quite a bit of a new product in the first quarter of ’23 in Europe. That’s our chicken product, and we are lapping that in Q1 of ’24. And then the second, we do have some exposure to both obviously, the UK, is a good and healthy market for us from an overall demand perspective, as well as Canada. But in both cases, you see some recessionary factors in place there and consumer trading around looking more for value at the moment. So those two issues on the retail side, I think led to some of the lumpiness in that story. I think on the international foodservice side somewhat similar in the sense that we were lapping a year ago, sell-in of chicken to one of our largest QSRs, as well as some additional burger sales loading.

And then in two of the markets I just mentioned UK and Canada, there is overall slower sales in some of our QSRs, they are not necessarily related to our category. So those two factors. And I think some of it is particularly on the QSR side, really can be explained by timing. We did see a pretty decent level of orders at the end of the fourth quarter of ’23, and we did see some pretty healthy orders coming in as we started the second quarter here. So had those moves a few weeks, one or the other direction I think we would have been a little bit different story.

Ben Theurer: Okay, perfect. Thank you very much, Ethan.

Operator: The next question comes from Adam Samuelson with Goldman Sachs.

Adam Samuelson: Yeah. Thank you. Good afternoon everyone. So Ethan, Lubi I was hoping to maybe get a little bit more color on the phasing of pricing and gross margins between the first half and the second half? Just trying to think about year getting to the mid-to-high teens when we are at 4% in the first quarter — are 5% the first quarter excuse me. And then revenues first half, second half look to be about equally split dollars-wise, based on the second quarter guidance. And so as we think about getting to that mid-to-high teens for the back half, it would seem to imply the back half gross margins are comfortably north of 20% kind of implied in that outlook. And if that’s correct — can you just help us think about the magnitude of kind of pricing uplift that helps push it there? Versus the magnitude of unit cost reductions in COGS that would improve the gross margins? So it seems like there is anticipated contributions from both. Thanks.

Ethan Brown: Yes. Thank you. That’s a great question. You’re absolutely right. We do see, obviously some significant benefit from the pricing increase. But I think also and so much work has gone into this. I do want to pause on it for a minute. The consolidation of our network, and we did this for a number of reasons, in some case, quality, in some case, the cost and things of that nature. But we wanted to the year with a lot more of the production under our own roof. And we were able to do that. There were some significant transitory costs in there from a transitioning perspective, whether it was temporary labor or overtime, some logistics, some start-up costs and things of that nature that did bring the overall margin for the quarter down.

But if you look at the [overhead] (ph) absorption we expect to see across the balance of the year as well as the efficiencies of being under one or two roofs. And then also reduce logistics and things of that nature. You can begin to see quite a significant spread occurring between the price that we’re charging and the cost of our production. So we do feel good about it for the balance of the year. The amount of throughput that’s flowing through our facilities right now is pretty impressive relative to where it was. So it’s a lot of work, but it’s the right thing. And if you look at the steps we are taking, I think one of the reasons I’m so optimistic about where we are headed is that business is getting leaner from an operations perspective.

If you look, we took $14 million out year-over-year once you adjust for the settlement. We continue to bring down the overall size of the network, and we’re going to realize very significant, I think cost savings on a COGS basis for that raising price, there you are going to get additional margin. The new products that are coming out address very squarely. We could have just proliferated SKUs. We could have just said we’re going to launch this product and that product. But we wanted to address the fundamental issue going on with the category as a category leader, and I think we’ve done that. And by the way, that’s opening up some new markets for us, as we work with American Heart Association and others to address some of the disease states that are out there.

So all of these things, to me are addressing the fundamental issues around the business and going to allow us this year to have the type of return to growth, whether it happens 12 months from now, 16 months from now, I can’t say. But that we’ve been anticipating. And so net-net, I feel very good about where the business is, and we are going to continue to make these changes across the balance of the year.

Lubi Kutua: Yes. And Adam, I’ll just add to that. So I think, it is a good question regarding what the margin trajectory looks like for the balance of the year, just given where we finished in Q1. A couple of things I’ll say about Q1, and we mentioned this in the prepared remarks. So first off — we have been — we’ve talked about this for the last couple of earnings calls sort of phasing out the — some of the promotional activities that we were doing that were more on the aggressive side. And what I will say is that we were encouraged to see that sequentially as we progress through the quarter our level of trade spend came down pretty nicely. The other thing and Ethan mentioned this in his prepared remarks is there was some — we identified some incremental assets in the quarter.

We are still really just kind of wrapping up the — most of the heavy lifting as it relates to our network consolidation efforts. And there were some incremental fixed assets that we identified. And so that drove some higher depreciation costs in Q1. And then lastly we mentioned this as well that there was some just on the direct labor side, right some temporary labor and overtime and things like that, that drove up our direct labor costs. Most of those or it should be substantially less of a drag in the balance of the year. The other thing, too is as pricing will become — we’ll have the benefit of a full quarter’s worth of pricing in the back half, right? We’ll start to see some of that benefit in Q2 but then it kicks in — in a more meaningful way in the back half.

And I’ll just remind you that as it relates to price, not only are there — is there a pricing in terms of what we’re doing from a list price perspective, but we’ve also rolled back promotions. And then all of the various efforts that we have going on in terms of the network consolidation, which should drive much better fixed cost absorption. We’re seeing logistics cost savings. I think we’re really encouraged to the sequential progress that we saw in the first quarter in terms of our production costs. And so we feel pretty good about our assumptions for the balance of the year. And then you asked the question about the relative magnitude, as it relates to pricing versus cost. I think price for sure is a significant component of it, but we are expecting to see some efficiencies from a cost perspective as well.