Benson Hill Q1 2023 Earnings Call Transcript

There are 9 speakers on the call.

Operator

Good morning. Thank you for attending Benson Hills First Quarter 2023 Earnings Call. My name is Brika, and I will be your moderator. All lines are on mute for the presentation portion of the call I would now like to pass the conference over to your host, Ruben Mayer, Senior Director, Investor Relations with Benson Hill. Ruben, please go ahead.

Speaker 1

Thank you and good morning. We appreciate you joining us to review our Q1 2023 financial results and outlook. With me today are Matt Crisp, Benson Hill's Chief Executive Officer and Dean Freeman, our Chief Financial Officer. Earlier this morning, we filed our earnings release and Form 8 ks. These documents as well as our investor presentation we will reference during the prepared remarks are available in the Investors section of the Benson Hill website.

Speaker 1

Comments today from management will contain forward looking statements, including Benson Hill's expectations of future financial and business performance, Industry outlook as well as our current guidance for 2023. Forward looking statements are inherently subject to risks, uncertainties and assumptions and are not guarantees of performance. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward looking statements. Such factors include those referenced in the cautionary notes included in our Form 10 ks, Form 10 Q, press release and investor presentation, as well as other filings with the SEC. Also during this presentation, we will be discussing certain non GAAP financial measures.

Speaker 1

A reconciliation to GAAP is available in our earnings release and presentation. I will now turn the call over to Matt.

Speaker 2

Thanks, Ruben, and good morning, everyone. We are off to a solid start in 2023 with financial results in line with expectations and indicative of a strong year ahead for Benson Hill. We are building on the momentum from last year and we are seeing demand for our proprietary soy ingredient products in line with our expectations for a 40% to 50% increase in proprietary revenues. We continue to experience market conditions that support our non proprietary meal, Ingredient and oil sales despite the current softness in underlying commodity crush margins. These market dynamics On deck is the 2023 planting season, which is now well underway.

Speaker 2

Our team has successfully secured final commitments from our farmer partners To grow a proprietary crop on approximately 50% more acres than last year, which we expect to produce a harvest this fall that enables more targeted growth from our ingredient product portfolio with a focus on profitability as we discussed last quarter. We had the opportunity in March engage with some of you at our headquarters in St. Louis for Investor Day. The event provided the backdrop to more insights into our strategy And demonstrated our commitment to build a company that can set the pace of innovation in the agri food system of the future. I would like to reinforce some important takeaways from that event.

Speaker 2

The demand side for innovations remains intact. To meet nutrition security goals and global climate goals, we need innovation in the plant based food movement, which has been building for years. We believe the secular trends underlying this broad and diverse market opportunity are durable and it is continuing to grow and diversify. Innovation that leads to reduced processing, better flavor and more nutrition per acre can boost the adoption of plant based foods And those foods significantly reduce climate impact. That's why we've chosen to bring our innovations to markets in plant based proteins, Aquaculture and specialty oil with plans to start and expand into new markets through our product pipeline.

Speaker 2

What makes our approach to innovation impactful is the multiplier effect we create, which demonstrates the power of using genomics as a lever for change. Through genomic innovation, we can achieve elevated protein levels, enhanced nutrition, better functionality and other attributes, All of which then get leveraged across crops, across feed and food categories, across different geographies, Into multiple ingredient streams and into multiple food application areas. We plan to further scale the existing proprietary portfolio And introduce next generation products. Since we unveiled our product pipeline in early 2022, we have advanced several candidates in the As well as added new ones. We estimate that the serviceable obtainable market for our pipeline over the next 8 to 10 years is approximately $6,000,000,000 primarily in North America.

Speaker 2

Given the limited acreage footprint of this opportunity, particularly in contrast to the more than 90,000,000 acres of through a combination of our closed loop operations, partnerships and licensing arrangements. As we look over the next 2 years, Here is what you can expect from Benson Hill. From now until 2025, we plan to scale our highest margin ingredient products help achieve our stated objective to generate positive adjusted EBITDA and positive free cash flow. Given the current macroeconomic and capital markets environment, we believe prioritizing profitability is the right decision for our shareholders. We are introducing 2 new proprietary soy varieties for commercial planting this year with several more expected over the next 2 years.

Speaker 2

In fact, by 2025, we plan to more than double our proprietary soy varieties, including a significant expansion Our ultra high protein soy options for our farmer partners to grow. Enabled by our CropOS technology platform, these varieties have been to deliver improved agronomic attributes, including higher yields, which can provide benefits to our farmer network and help reduce the higher premiums We have had to offer under current market conditions. Furthermore, these new commercial varieties will increase our flexibility to plant in different geographies, which will further serve to diversify planting risk as well as reduce logistics costs. We plan to target a larger share capture In the European aqua market with our ultra high protein plus low oligosaccharide soy meal product, which is less processed, more sustainable and Responsibly sourced from U. S.

Speaker 2

Farmers. Aqua feed represents an exciting growth opportunity that has far exceeded our expectations and expands the market opportunity for our domestic farmer partners. And in the years to come, we expect to introduce our soy ingredient products across multiple categories in the European plant based food ingredient market. Between 20252028, We expect to begin scaling our 1st generation of ultra high protein yellow pea varieties, initially targeting the pet food market using our already established closed loop model in North Dakota. We also expect to begin accessing the broader animal feed market With new high protein soy varieties that are lower in anti nutrients and also include Corteva's Enlist E3 technology package.

Speaker 2

This innovation is expected to open an estimated 40,000,000 acre domestic opportunity for the poultry market And allow us to offer more choice for farmers, processors and meat producers to partner with Benson Hill and realize efficiencies and cost savings in their operations. It's notable that the value proposition for our improved soy varieties has already been validated by multiple of the top 5 poultry producers in North America. The unlock for Benson Hill and our partners to more broadly access this market will be the inclusion of herbicide tolerance, which we will have incorporated across numerous commercial soy varieties in the field starting in 2025. In the near to medium term, Our plans also include the introduction of the industry's 1st CRISPR enabled next generation soy varieties with higher protein and improved nutrition profiles. These introductions are anticipated to provide benefits beyond our current non GMO products as well as any GMO products currently available on the market.

Speaker 2

As we look beyond 2028, we are planning to bring to bear the full capabilities of CropOS and Crop Accelerator With several step level changes in innovation, first, we plan to introduce a dual premium plus soybean that couples our ultra high protein meal With a lower anti nutrient profile and our high oleic low linolenic oil, this is a complex challenge well suited for our CropOS platform. Our goal is to grow on 1 acre what it currently takes 2 acres to produce with our highest value added ingredient products for customers. 2nd, we expect to introduce future generations of seed innovation with even higher protein content and higher oil content that offer additional benefits to customers and provide us with more access to markets such as biodiesel. Finally, We expect to continue the progress made to date to tackle one of the most complex technical challenges, improving flavor profiles in yellowpea and soybean. If we are successful, this has the potential to further expand our opportunities for yellowpea in the human food market and establish a proprietary Soy and yellow pea platform capable of providing expanded novel ingredient options to our customers.

Speaker 2

We believe what differentiates us That our focus in these areas is driven by the conversations we are having with customers to see around the corner to what's possible with CropOS. I will conclude by saying how excited we are about the outlook for this year. 2023 is the year of the customer And our operations and commercial teams have a relentless focus on pulling forward our innovations to attack multiple end markets. Across every segment, our diverse portfolio assures that we are hitting many of the key trends that impact consumers. That's how we are winning With great technology, best in class operations and strong business execution led by an experienced team of leaders, And it's how we're setting the pace of innovation in food with ingredients that are better from the beginning for people and for our planet.

Speaker 2

I will now turn the call over to Dean for his perspective on our Q1 results and outlook.

Speaker 3

Thanks, Matt, and good morning, everyone. As you saw in our release, in the slide you see now, performance in the Q1 excluding the impact of open mark to market timing differences led to an 80% increase in revenues to $128,000,000 compared to the Q1 of 2022 and gross profit increased by approximately First, we had strong sales of our proprietary products, especially in the aquaculture market that led to an 80% revenue increase to $25,000,000 2nd, crush margins remain favorable and capacity utilization high, which helped to drive an approximate 100 year over year increase in nonproprietary sales. Over $20,000,000 of our revenues in the quarter came from onetime nonproprietary soybean sales that helped to optimize our logistics for our UHP soy meal shipments to the European aquaculture markets. 3rd, while operating costs were significantly better than the prior year, Ongoing inflationary pressures and supply chain challenges were a factor in our Q1 results. Operating expenses declined by 11% to $29,000,000 As a result of implementing a portion of the operating expense reduction expected through our liquidity improvement plan.

Speaker 3

As a result, We are reducing our 2023 operating expense to a range of $115,000,000 to $125,000,000 which is a $10,000,000 decline from our original guidance. From a cash OpEx perspective, we expect the range to be $80,000,000 to $87,000,000 compared to $95,000,000 in 2022. We are on track to complete the cost savings effort by the end of this year and to realize at least a $20,000,000 annual run rate reduction by the end of 2024. The revised guidance is expected to flow through to a reduction in our loss for adjusted EBITDA and free cash flow as you see in the presentation slides. The remaining elements of our liquidity plan and the status of our efforts remain the same as we discussed on the Q4 call and at our Investor Day event a few weeks ago.

Speaker 3

We expect the 2nd quarter to be another period of strong financial performance. As Matt mentioned, crush margins are down considerably. However, we have been able to mostly lock in crush margins in line with what we saw in the Q1. Our assessment earlier this year indicated a continuation of a favorable commodity market in 2023, which is reflected in our guidance. We continue to support this view, but we are closely monitoring the commodity markets.

Speaker 3

As Matt mentioned, we're off to a good start in 2023. We are leveraging the operating and commercial infrastructure we established last year to scale our proprietary ingredients portfolio. We're adapting to the changing macro environment with a prudent plan to enhance our cost structure, improve liquidity and execute our strategic objectives. That concludes the prepared remarks. We'll now move on to the Q and A session.

Operator

Thank you. We will pause here briefly as questions are registered. We have the first question on the phone lines from Kristen Owen of Oppenheimer.

Speaker 4

Great. Thank you for taking the question and good morning everyone. Congratulations on the nice results in the quarter. I was wondering if you could talk a little bit about the cadence for the rest the year. It seems like you had some pretty good visibility on the proprietary revenue growth, had some one time items that I think you called out in the quarter.

Speaker 4

Just wondering if you can give us a sense of the inflection or trade off between the commodity environment and the proprietary environment and how you're managing that mix shift over the balance of the year? Thank you.

Speaker 2

Thanks, Kristen, for the question and your comment. I'll let Dean fill in the blanks as it relates to some of the one time Items, because as you point out, that affects Q1 non proprietary revenue in a meaningful way. But what I will offer is that in contrast to 2022, we expect a more consistent Quarter by quarter performance, hence the affirmation of the $100,000,000 to $110,000,000 proprietary Guidance for 2023 in light of what was a really nice first quarter kickoff That constituted nearly a pro rata view of that. So, yes, I think as it relates to the remainder of the year, we're seeing some maturation in the customer relationships that we began to talk about in the last call. And you really see 2023 being the year of the customer where we've landed into a lot of accounts With a large customer base across several markets and we're excited about expanding those relationships and continuing to build business Dean, you want to comment any more on the on some of the moving parts on the non proprietary?

Speaker 5

Yes. No, I would just say, as Matt pointed out, that on an adjusted basis, meaning excluding the effects Of the mark to market adjustments, the $128,000,000 does include about $23,000,000 of this one time shipment. And when you kind of strip that out, The proprietary revenue came in about where we expected. And when we look at our capacity utilization, Our process utilization was in line and in fact consistent with sort of exit run rates In 2022, so that was intact. We did have some maintenance that we had to perform at Seymour That created a little bit of headwind, but we were able to work through that.

Speaker 5

So aside from that, I'll call it the one time level loading bean shipment for the European markets. It was really the only items and so I think it's consistent with what we expected and notably the proprietary revenue is coming in right in on run rate where we expected. So No big surprises other than the one time item that we just talked about.

Speaker 4

That's really helpful. Thank you both. And then if I could maybe double click on some of those customer comments that you made, Matt. Can you just give us an update on the co branding strategy that You launched this quarter with ADM, understanding that it's still very early days, but any commentary on the initial reception, anything you can share there would be helpful. Thank you.

Speaker 2

Sure. So we haven't released the co branded line with ADM, but we continue to anticipate that, that will occur in the Q2. The work stream as it relates to some of the pre commercialization This has done quite well. I can't comment in detail, but I will just say at a high level that the feedback on the products has been positive, Consistent with some of the validations that we've seen from applications work conducted by some of our early adopter customers in 20 22. And so we're really bullish on the product lines that are there, the

Speaker 4

Thank you. I'll pass it on.

Operator

Your next question comes from Cody Ross of UBS.

Speaker 6

Good morning, everyone. Thank you for taking our questions. You're off to a solid start this year. Sales came in much better than expected. You noted a one time benefit of $23,000,000 Was that initially planned in your original sales outlook of $390,000,000 to 430,000,000

Speaker 2

No, it was not planned. Yes, sorry. Go ahead, Dean.

Speaker 5

Yes. No, sorry. Short answer was not planned.

Speaker 6

Okay. Right. So that helps. Sorry, go for it. Sorry to cut you off.

Speaker 2

No, go ahead, Cody.

Speaker 6

I was going to say that wasn't planned. So that's a benefit that was unexpected. You held your sales guidance. I'm just kind of curious, the rest of the year, it looks like you expect sales to decline 5% to 18% Based on your guidance range, I'm wondering why that would be?

Speaker 5

Well, it's just it's within the guidance range. I mean, it wasn't a significant We've got a long year yet. We're pleased with how obviously Q1 played out, but it's I think still a little bit early days on the top line to sort of expand on a $20,000,000 item. Obviously, things play out the way we expect on the Within the range, it will be a benefit. But right now, it's I would say it's included in the range, all things being equal.

Speaker 6

Okay. And then I just want to talk about the belly of the P and L because gross profit Came in slightly ahead of expectation, albeit on the sales beat a little lighter. How much gross profit was attached to that? And then can you just give any color on some of the OpEx improvements that you've made and how we should think about that for the remainder of the year? Thank you.

Speaker 5

Yes, great question. So there was virtually 0. There was, I would call it, the minimis amount of contribution margin Related to the one time bean sales, really the entire strategy was to optimize the shipment and the cost per bushel rate optimization to The Aqua Markets. So in and of itself that one time had no margin contribution, no significant margin contribution, maybe a couple of 100,000. In terms of the operating expense, I would say this, it's broad based, but focused on execution of the value creation Strategies and commitments that we've made.

Speaker 5

So we're not sort of communicating the elements of the cost reduction that we've achieved so far. It has been a part of the overall optimization of our operating expense that we've been executing and then some incremental actions in Q1 and we'll take incremental actions as we go Throughout the year and executing the liquidity improvement plan. And so while it's broad based, it is focused on making sure that we retain the value creation Our capabilities and we continue to support the strategies that we've committed to.

Speaker 6

Great. Thanks. I'll pass it on. Okay.

Operator

We now have Ben Heurer of Barclays.

Speaker 7

Yes, good morning and thanks for taking my question. Congrats on the very strong results. One question actually, most likely technical for Dean. So if we look into The adjusted EBITDA you have for the quarter, I mean, obviously, there was this roughly $5,000,000 impact from open mark to market timing differences. Now as it relates to the guidance for the year, it's a very narrow range of just about $5,000,000 which is just that difference.

Speaker 7

So wanted to understand Is it related to your guidance? Is that excluding open mark to market timing differences? Or is it including what you had on the benefit in the Q1? That would be my first question, very Technical, I

Speaker 3

know.

Speaker 5

Yes, it's very technical, but let me answer it in a non technical way. We don't as you know, Ben, we don't guide on the mark to market adjustments. And if we could do that, We'd be great, but we don't provide guidance as it relates to expected impacts on the mark to market adjustments moving forward. So The short answer is that that does not include mark to market adjustments.

Speaker 7

Okay, perfect. And then if we think about just The longer term and as you introduce and kind of work through what you currently have in Portfolio, what's in your innovation pipeline and go forward, how should we think about like the need to allocate Spend as it relates to research, as it relates to CapEx, what are like kind of like the medium term Needs for you guys to spend and how does that sit within some of the cost savings we've been seeing. So just wanted to understand if we're Not overdoing here on the savings side just because of the liquidity position and compromising a little bit on the opportunities You guys would have just from the technical capabilities in order to achieve your goals further down the decade? Thank you.

Speaker 5

Yes, great question, Ben. And I'll go ahead, Matt.

Speaker 2

Well, let me give the I'll give a qualitative view of it at a high level because from a strategic One of the core tenants of the liquidity improvement plan was to maintain the both operational excellence, but also the innovation That we've invested in very heavily over the past many years. And so as we've evaluated our cost structure, a lot of the focus Starts with G and A and you're sort of building out from that. And so think there first then. The other element is, as you've seen reported in the neighborhood of a $40,000,000 line item for R and D. And over time, a larger proportion of that has been on the D than the R.

Speaker 2

In other words, As we've seen our pipeline mature in the last 3 to 5 years, a larger proportion of that operating budget It's geared towards pre commercial activities and really bringing to market a portfolio of products that have largely been derisked. And that has also been a core priority for us to retain all those capabilities. And in fact, I would say, in some respects, Reinvest in those capabilities, expand those capabilities given that numerous product opportunities that we've described in the next 2 to 5 years are coming online for which we've largely already derisked. In other words, they've demonstrated the phenotypic output or the characteristics the spec as it may be for an ingredient product and now we're really in the final stages of bulking up inventory and bringing those opportunities to our partnering customer base. So those are the areas that we've really prioritized and put a ring fence around as it relates to maintenance.

Speaker 2

And then as it relates to some of the other areas, like I said, G and A has been an area of focus Some of the very longer term components, but none where we've sacrificed a core capability or Technological platform that we've built over the last few years. So I just want to give you the sort of strategic thought pattern there and then Dean can articulate some more detail.

Speaker 5

Okay. Matt, I think you covered it well. I think just to reiterate what Matt said, I think we're focused. I think we're being surgical. And I think we're acting in a way that's consistent and prudent with Ensuring that we retain the value creation capabilities of the company.

Speaker 7

Okay, perfect. Thank you very much, Matt. It's been congrats again.

Speaker 2

Thank you, Ben.

Operator

Thank you. Your next question comes from Brian Wright with Roth MKM.

Speaker 2

Thanks. Good morning. Thanks for the question. Just wanted to thanks for the additional detail on the pipeline. I thought that was really helpful.

Speaker 2

Taking a little deeper on that, just to understand the scope maybe a little bit better as far as kind of Is everything in the pipeline focused on soybean and yellow pea? Or are there any other potential crops That are in that pipeline, anything kind of like in the cover crop area or anything you want to talk about that to give us a scope of What could be in that? Not right now. There is a real focus in soy and yellow pea, given the quantum of market opportunity that's there and every time we speak to new So, Murs, we're learning more and more about other opportunities, even to enhance beyond what we've currently contemplated in the current pipeline. However, it is something that we're not blind to as we've built out a really, really robust intellectual property portfolio It's how the innovations that we've discovered or the inventions that That come from our R and D efforts can be translated to other crops, namely legume and whole crops that drive a lot of the Nutrition demand in the global markets.

Speaker 2

So in time, I think we'll be better positioned to talk about Some investments that we may make. But right now, we really, as reflected in this liquidity improvement plan and other efforts, We've really tried to streamline our operations, be lean, focus on the largest nearest term, Highest margin value creation opportunities and drive towards successful commercialization of our closed loop. So that's really the focal point is around soy and yellowpea for the foreseeable future. Makes sense. Thank you.

Operator

We now have Ben Cleave of Lake Street Capital Markets.

Speaker 5

Hi. Thanks for taking my questions. I have

Speaker 8

a couple on the opportunity now on hand with the Enlist herbicide package. First question is, not that this is still young, only, I don't know, 6 weeks in, but can you kind of provide a bit more detail On the activities that you are undertaking now to introduce those traits into And your genetics and kind of what your expectations are over the next 18 months for in this process?

Speaker 2

Sure, sure. Thanks for the question. What I would say is that the introgression or the incorporation of The E3 in force technology, as you know, is a really meaningful potential unlock in some larger acre broader markets. But it's not something that we just commenced even though we just announced it a few weeks ago, it's something that's been ongoing for some time, Which is actually what enables us to hit the market starting with plantings initially in 2025 because that work has been underway for The opportunity set and how we're kind of thinking about the next 2 to 4 years as we roll out numerous commercial That incorporates that technology. It's focused not just on the large acre Market opportunities, we've talked briefly about 40,000,000 acres soy opportunity in the poultry market.

Speaker 2

I mentioned in my prepared remarks today That this is not a concept for advancement in a pipeline that we hope might work one day. This is indeed something that's been validated in very meaningful feeding studies already. There's no product opportunity that's here today. The unlock truly is reducing the cost of the closed loop with an herbicide tolerance package that will Enable us to identity preserve at a larger degree of scale with our partners feed inputs for some of those markets. But it's not just those, as I mentioned.

Speaker 2

There's also a healthy GM market domestically and elsewhere in some of these higher value But you can imagine In 20,6, 7, 8, that technology layering into all of the other stacks That we've begun to discuss, including on the long term, even the dual premium theme, which is an extraordinarily exciting opportunity that, As I mentioned, it creates multiple premium value streams from the same acre, from the same bean, Further enabled by the herbicide tolerance package. So hopefully that provides a little bit more context.

Speaker 8

Yes. That was really helpful, Matt. And that kind of leads into my follow-up question on this. Given The dynamic that a typical novel GMO bean will have or seed in general will have A pretty high scale commercial launch versus the kind of the traditional cadence that you guys see with kind of Well on steady ramp in the early years given the kind of complexity of your consumer focused products. Can you characterize kind of the magnitude Of the commercial ramp from that you expect from Enlist Varieties in its 1st few years versus Your traditional non GMO varieties, is it going to be materially greater in scale or you think it's going to track in line with what you've seen historically?

Speaker 2

Yes, great question. It's more the latter. I see it tracking in line with what we've seen. And to be frank, this is really rate limited by Feed availability. So one point you're sort of getting at here is that there's a distinct contrast Between how we go to market with a new genetic variety, than a seed company.

Speaker 2

Seed company might bulk this in Really massive way and then they're selling seed at the end of the day. So they're scaling its employees to unilaterally push a product To a farmer. Whereas we're saying with the farmer partner, where there's more of a bilateral relationship here that We're giving you early access to what might not be 100 of 1000 of acres worth of seed, maybe it's only tens of 1000 of acres in 1st year. But that provides an adequate opportunity for us to move product in a targeted way to preferred customers in the initial launch year. And so that rate limiter of seat availability is essentially how we think about making the product available.

Speaker 2

And we'd rather not hold back innovations from the market. Our mission is to set the pace of innovation and food. And while that might not initially result in 100 1,000 and millions of acres worth of penetration, there's a meaningful amount of value to be created by moving products to market as soon as we feasibly can. And I think in the non GMO portfolio, we've demonstrated some real acuity to do that. So I expect it will be very similar when we launch

Speaker 8

Got it. Got it. Very good. Very helpful. Thanks a lot for taking

Speaker 5

my questions. I'll get back in line.

Speaker 2

Thank you.

Operator

Thank you. I can confirm we have no further questions. So I'd like to hand it back to the management team.

Speaker 2

Thank you, Briko. And thanks everybody for your time and attention this morning. We've demonstrated since the founding of the company An ability to be nimble and a will to win. And we continue to believe we have the right technology, products, Pipeline, talent, culture and strategy to set the pace of innovation in food, which really isn't a slogan, but a mission That is very much the core of what we at Benson Hill do. Today, we're at the forefront of a unique and powerful synergy So data, plant and food science and combined with the go to market capabilities that we have, we expect to continue to gain momentum this year and in the years to come.

Speaker 2

We're excited about our future because it's defined by our innovations being brought to bear across broad market categories today. And we believe that the best is really yet to come as we scale our proprietary products and we launch the next generations of our products.

Earnings Conference Call
Benson Hill Q1 2023
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