Benson Hill, Inc. (NYSE:BHIL) Q1 2023 Earnings Call Transcript

Benson Hill, Inc. (NYSE:BHIL) Q1 2023 Earnings Call Transcript May 10, 2023

Benson Hill, Inc. beats earnings expectations. Reported EPS is $-0.02, expectations were $-0.19.

Operator: Good morning. Thank you for attending Benson Hill’s First Quarter 2023 Earnings Call. My name is Brika, and I’ll be your moderator. All lines are on mute for the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to your host, Ruben Mella, Senior Director, Investor Relations, Benson Hill. Ruben, please go ahead.

Ruben Mella: Thank you and good morning. We appreciate you joining us to review our first quarter 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 filled our earnings release and Form 8-K. These documents, as well as an investor presentation we will reference during the prepared remarks, are available in the Investors section of the Benson Hill website. 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 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 these 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-K, 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. A reconciliation to GAAP is available in our earnings release and presentation. I will now turn the call over to Matt.

Matt Crisp: 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 and underlying commodity crush margins. These market dynamics and our teams unwavering focus on execution give us confidence we can more than double our gross profit for the year. On deck is the 2023 planning season, which is now well underway.

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 to engage with some of you at our headquarters in St. Louis for Investor Day. The event provided the backdrop to more insights and to our strategy and demonstrated our commitment to build a company that can set the pace of innovation and the agri-food system of the future. I would like to reinforce some important takeaways from that event. 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 and plant-based proteins, aquaculture and specialty oil with plans to start and expand into new markets through our product pipeline. 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 pipeline and 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 billion, primarily in North America. Given the limited acreage footprint of this opportunity, particularly in contrast has been more than 90 million acres of soy and yellow pea in North America.

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We believe that this is achievable and we expect to service this market opportunity through a combination of our closed-loop operations, partnerships, and licensing arrangements. As we look over the next two years, here is what you can expect from Benson Hill. From now until 2025, we plan to scale our highest margin ingredient products to 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 two new proprietary soy varieties for commercial planting this year with several more expected over the next two years. In fact, by 2025, we plan to more than double our proprietary soy varieties, including a significant expansion of our ultra-high protein soy options for our farmer partners to grow.

Enabled by our CropOS technology platform, these varieties have been demonstrated 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. 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 2025 and 2028, we expect to begin scaling our first 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. This innovation is expected to open an estimated 40 million 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 five 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 first 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 product currently available on the market. As we look beyond 2028, we are planning to bring to bear to 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 one acre, what it currently takes two acres to produce with our highest value-added ingredient products for customers. Second, 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. Timely, we expect to continue the progress made to date to tackle one of the most complex technical challenges, improving flavor profiles and yellow pea and soybean.

If we are successful, this has the potential to further expand our opportunities for yellow pea in the human food market and establish a proprietary soy and yellow pea platform capable of providing expanded novel ingredient options to our customers. We believe what differentiates us is 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. I’ll now turn the call over to Dean for his perspective on our first quarter results and outlook.

Dean Freeman: Thanks, Matt, and good morning, everyone. As you saw in our release in the slide, you see now performance in the first quarter, excluding the impact of open mark-to-market timing differences led to an 80% increase in revenues to $128 million compared to the first quarter of 2022. And gross profit increased by approximately $5 million to a positive $4.3 million. There were three factors that led to our year-over-year revenue and gross profit performance in the quarter. First, we had strong sales of our proprietary products, especially in the aquaculture markets that led to an 80% revenue increase to $25 million. Second, gross margins remain favorable and capacity utilization high, which helped to drive an approximate a 100% year-over-year increase in non-proprietary sales.

Over $20 million of our revenues in the quarter came from one-time non-proprietary soybean sales that helped to optimize our logistics for our UHP soy meal shipments to the European aquaculture markets. Third, while operating costs were significantly better than the prior year, ongoing inflationary pressures and supply chain challenges were a factor in our first quarter results. Operating expenses declined by 11% to $29 million as a result of implementing a portion of the operating expense reduction expected through our liquidity improvement plan. As a result, we are reducing our 2023 operating expense to a range of $115 million to $125 million, which is a $10 million decline from our original guidance. From a cash OpEx perspective, we expect the range to be $80 million to $87 million compared to $95 million in 2022.

We are on track to complete the cost savings effort by the end of this year, and to realize at least the $20 million 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. There are many elements of our liquidity plan and the status of our efforts remain the same as we discussed on the fourth quarter call and at our Investor Day event a few weeks ago. We expect the second quarter to be another period of strong financial performance. As Matt mentioned, gross margins are down considerably. However, we have been able to mostly lock in gross margins in line with what we saw in the first quarter. 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. As Matt mentioned we’re also 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&A session.

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Q&A Session

Operator: Thank you. [Operator Instructions] We have the first question on the phone lines from Kristen Owen of Oppenheimer.

Operator: Your next question comes from Cody Ross of UBS.

Operator: You now have Ben Theurer of Barclays.

Operator: Thank you. Your next question comes from Brian Wright with ROTH MKM.

Operator: We now have Ben Klieve of Lake Street Capital Markets.

Operator: Thank you. [Operator Instructions] I can confirm we have no further questions, so I’d like to hand it back to the management team.

Matt Crisp: Thank you, Brika. And thanks everybody for your time and attention this morning. We’ve demonstrated since the founding of the company and 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 at very much the core of what we at Benson Hill do. Today, we’re at the forefront of a unique and powerful synergy of 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. 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. Thanks again for joining us. Have a great week.

Operator: Thank you. This concludes the Benson Hill conference call. You may now disconnect your line.