Adam Samuelson: That’s all very helpful. I’ll pass the line. Thank you.
Operator: Our next question comes from Ken Goldman with JPMorgan.
Ken Goldman: All right. Thank you. I wanted to follow up on the line of questioning about pricing. A few here, right? One, how are your customers reacting given that you are raising prices as your cost decline and the category is still struggling a little bit? I guess the second one is, how should we think about your competitors’ reactions to your raising prices? What are you seeing or thinking you’re going to see in the market? And then the third is what’s in your guidance? I mean, I don’t need an exact number, but just are you being conservative enough on price elasticity in the markets where you are taking those meaningful increases. So I know that’s a lot. I just wanted to kind of dig in a little bit. Thank you.
Ethan Brown: Sure. So I think on the first question what are we seeing from customers we roll this out, it’s just too early to tell. I mean, it’s just hitting the shelf now. We did have long discussions with a lot of the main retailers we work with around why we’re doing this. And with limited exception most we’re accepting. And we are doing this at a time when we are also offering more premium set of products. And so I think that made the discussions a lot easier. From a competitive perspective, we’re largely following a lot of price increases and obviously, in retail more generally but also if you look at our largest competitor, they went through a similar process. about a year before us. So I don’t anticipate much in terms of kind of strategic interplay from them.
I mean they are also trying to do — what we are trying to do, which is drive their business toward profitability. So I don’t think we’re going to see a very strong discounting or something of that nature. But I can’t promise that. And then on guidance, just what’s in it, [indiscernible] Lubi.
Lubi Kutua: Yes. We do think that we are being appropriately conservative. We did a significant amount of work with an external consultant as we went through this price increase. And we did various studies, consumer studies to try to gauge what elasticity might look like. We are baking into our estimates for the balance of this year and elasticity that’s lower than one, but it’s — we feel like there is some conservatism baked into that.
Ken Goldman: Okay. Thank you for that. And then I appreciate the help with guidance for 2Q sales. Just thinking about the other factors in terms of — I know there’s been questions about the cadence of the gross margin. How do we think about — where would you like it to be generally, I’ll just ask it directly for the gross margin in 2Q? And then EBITDA. The Street’s modeling, I think negative $25 million for adjusted EBITDA. Just how reasonable do you think that is in-light of where you’re pointing people to for the top-line?
Lubi Kutua: Yes. In terms of margin, I would say we would expect to see a pretty decent sequential improvement, obviously, from Q1 to Q2. The Q2 does tend to be our highest volume quarter as well just as we’re entering drilling season things like that. So usually, we will see some benefit from just fixed cost absorption. But then obviously, with the price increases starting to kick in. And as I mentioned, our trade rate has been coming down, we would expect to see a pretty meaningful sequential improvement. And then in the back half, we also would expect to see — probably — you wouldn’t see the same step as we would expect to see going from Q1 into Q2. But we would expect there would be some incremental improvement versus Q2 in the back half just as a result of the fact that we’ll have additional — that we’ll have a full quarter’s benefit of the price increases is the main driver in both quarters in Q3 and Q4.
Ken Goldman: Please. Go ahead.
Lubi Kutua: And then. The question on EBITDA. Could you just remind me what was the question there?
Ken Goldman: Yes, I’m just trying to figure out a way to ask if the consensus number of negative $25 million is kind of in the ballpark of where you’d like us to be?
Lubi Kutua: Yes. We don’t — I don’t want to provide specific guidance by quarter for EBITDA. So –.
Ken Goldman: If I can ask a quick one, Lubi, I’m not to take too much time. But the EBITDA guidance for the year, does that include or exclude the $7.5 million accrual, just to be clear.
Lubi Kutua: We didn’t guide to EBITDA, but we did guide to operating expenses, and that excludes the $7.5 million.
Ken Goldman: Right, that’s right. Thank you, my apologies.
Lubi Kutua: No problem.
Operator: Your next question comes from Michael Lavery with Piper Sandler.
Michael Lavery: Thank you good afternoon.
Lubi Kutua: Hi, good afternoon.
Michael Lavery: Just curious if you could update us on sort of the state of the union for SKU rationalization? And how much of that work is done or midstream versus still to come? And Obviously, you’ve given the revenue guidance that wraps it all together. But how do we think about that as a piece of — one of the moving parts for revenues?
Ethan Brown: Yes. No, thanks for the question. So obviously, we continue to complete the process of exiting Jerky. In terms of the overall emphasis in SKUs, on SKUs you’ll see us very much lean into the Beyond IV platform this year. including launching a very — I think, going to be impactful and significant marketing campaign as we roll into more of it. But in terms of announcing any major SKU reductions or things of that nature, we’re not in a position to do that.
Michael Lavery: Okay. That’s helpful. And — just maybe a little bit of a higher level. Can you help us understand maybe if your target consumer has changed at all? And I appreciate there’s definitely some health and wellness seeking consumers, but certainly even quite a lot of them prioritize taste. And I’d say, historically when you talked about targeting mainstream consumers, it would seem like that’s an even bigger priority and our survey work always points to that. So I know you’ve called out some doctor and dietitian support for Beyond IV. But for the consumer who doesn’t pay attention or care, is that just not kind of your audience the way it might have been in the past? Or — how do we think about just the universe of consumers and how to excite them all?
Ethan Brown: Yes. No, that’s a great question. My emphasis on the health side of things is simply because of the misinformation campaign. We would not make these changes at the expensive taste. And in fact, the team was able to score higher on Century tests with the Beyond IV platform versus Beyond 3.0. So we do large testing called CLT, Central Location Testing with consumers. And don’t move forward unless there’s some statistically significant benefit that we see. And so we did gain on the Century side as well as on the health side. And the reason that I’m so focused on making sure people understand the health benefit is, one, we want to bring back in that very close and early adopter consumer that maybe has been scared away.
