Q3 2021 Benson Hill Inc Earnings Call

To execute our strategy today, you will hear from Matt, Chris Benton, Hill's Chief Executive Officer, and Dan Bruns, Our Chief Financial Officer of third quarter earnings Press release is available on the investors section of our website. We will also post this video presentation and a live Q&A to our web site later today before we begin I want you to.

Note that the prepared remarks contain forward looking statements, including Benson hills expectations of future financial and business performance and conditions and industry outlook forward looking statements are inherently subject to risks uncertainties and assumptions and are not guarantees of performance. We caution you to consider risk factors that could cause actual results to differ.

Materials <unk> from those in the forward looking statements such factors include those referenced in the cautionary note included in our earnings release. The 10-Q filing made this morning and our other filings with the SEC also during this presentation, we will be discussing certain non-GAAP financial measures a reconciliation to GAAP can be found in our earnings release.

With that I'll turn it over to Matt.

Thanks, Ruben and thank you everyone for joining us today I want to take this opportunity to reiterate where we are where we're going and why I'm. So excited about Benson hills near term and long term prospects.

<unk> is then going to review, our operating and financial results before we open the presentation for Q&A.

Let me start with my enthusiasm for where our business is today and the tremendous opportunity we have before us.

Often over the last few months, we've been described as a category defining company, meaning we're taking a differentiated approach to create and realize value in the food system. This is required technological innovation, which is driven by crop OS as well as a business model innovation, which is driven by our vertically integrated go to market approach.

Both of which I'll revisit in my comments today.

We believe we are doing something that few others in the world, they're doing by combining technology and cutting edge science with this unique go to market strategy and enabling it at scale. We are building a food innovation platform that is bold and different powered by technology and driven by sustainable and more affordable food.

Options for consumers, it's our view that the current food system is at a crossroads.

When we look at how food is typically made today, we see a large scale commodity driven system built to make cheap calories versus quality calories and trapped within its own inertia struggling to adapt to improve climate impact in human health, while maintaining production at scale.

The need for change is urgent because there is essentially no industry more fundamentally important to people and our planet than food production.

This isn't something that can be viewed as ahead of its time, when we're nearly out of time and the signals for change or coming loudly and from many directions. It starts with the consumer consumer preferences have and continue to evolve fueling the rapid growth and demand for plant based proteins and better for you food options.

That are less processed with cleaner product labels and interest and purpose driven brands.

Food companies are working to meet this consumer demand with innovative food choices and greater sustainability on their supply chains.

But their innovation is largely limited to the same traditional commodity ingredients they've used for decades with no connection to the farm gate.

The agricultural processors of ingredients are also working to adapt to the plant based food movement determining how to increase capacity, that's still involves water and energy intensive processes and major investments in facilities that typically take years to bring online. Meanwhile, many farmers are eager to connect with the consumer and move.

On the increasing input costs and narrow margins of the traditional commodity system. They know they play a pivotal role in successfully advancing our food system and they also want to focus on quality not just quantity. We firmly believe the right approach begins with a better seed for decades commodity.

Seeds, the most fundamental component of food production had been largely developed without the consumer in mind.

The natural genetic diversity of plants leveraged through technology is our greatest untapped resource to move the food system Ford genomics is already a proven leader for innovation and we're focused on unlocking massive opportunities to realize its potential across the agrifood system with consumers farmers and our planet.

In mind.

Our food innovation platform has two components the first technology.

<unk> allows us to harness the power of data genomics and AI to reduce product development timelines and costs for seed food and ingredients. The second component is our vertically integrated business model through this we are working to apply our technology across the value chain to make and sell plant based ingredients since.

Food that are better from the beginning starting with the seed inherent in all aspects of our business. The sustainability at scale. We believe the proprietary non GMO soybean ingredient products, we are commercializing today and the yellow Pea ingredients, we have in development will help companies meet real.

<unk> targets in doing so we can offer identity preserved traceability of our ingredients and partner with farmers to optimize on farm resources climate resilience and soil health to name a few sustainability benefits we have of soy based ingredient today that we believe can reduce or eliminate processing steps.

And there is a multiplier effect as we anticipate that our products will allow customers to increase the sustainability of their products.

This and our view is a unique differentiator we've already demonstrated our ability to execute a closed loop supply chain and we are building relationships with food feed and ingredient customers, which is driving our revenue growth and providing us further insight to apply to our product development. We expect this approach will allow us to leverage.

Innovations to gain market share expand margins and accelerate growth across our business everything we do is underpinned by data we have a massive data library and crapo is today and we're investing to continue to add high quality data to expand our AI stimulation and prediction capabilities.

Our ability to use simulation to bring our innovation to life is core to our value proposition. We believe that the convergence of data science with plant Science and food Science is a major differentiator, which will drive value across both our development and our commercial pipelines as well as help enable a significant long term.

Competitive advantage, turning now to our third quarter performance, where we continued to make tremendous strides to execute and realize our vision.

Adjusted revenues in the third quarter increased 35% year over year and the ingredients segment adjusted revenues grew 80% year over year and as a reminder, adjusted revenues excludes sales from our barley operation. We sold last year, we remain committed to deliver on strong execution. Our commercial teams are rising to the challenge.

Meeting the needs of customers during a time of capacity constraints for yellow Pea ingredients oversupply of fresh produce and challenges in the value chain that are impacting companies across many industries.

Despite the current operating environment, we are in a strong position to finish the year with revenues that we expect will meet or exceed the $127 million guidance. We provided in may and which we established internally nearly a year ago. We were following a rigorous budgeting process now as we did last year to complete our detailed financial plan for 2022.

<unk>.

Harvest is nearing completion for our 2021 soybean crop it's been a great season, which was kicked off by our exceeding our target for contracting acres as well as executing the first commercial plantings of our ultra high protein beans were excited about the interest we see from both farmers and customers as we move into 2022 unique.

To our engagement with farmers as we help optimize protein expression and sustainability as well as crop agronomics as part of that effort for the last few weeks. Our team has been in the field collecting protein measurements as well as being composition soil health data and non GMO validation for nearly all of our ultra high protein.

Soybean acres.

Contracting for our 2022 crop is well underway and many farmers are grew for US. This year have already made commitments to expand Benson Hill acreage in 2022, we're attracting new farmers as well and we're pleased to share that a large portion of our ultra high protein soy acres are already secured for the next growing season, we take our.

Relationship with farmers seriously and we look for ways to expand our partnership with this forward thinking group in the third quarter, we introduced our plant for protein initiative to use regenerative agriculture and protein optimizing practices and we launched a pilot carbon critical program as well with the ecosystem services market consortium or E. M S.

C, which leverages the advantages of our closed loop system also in the third quarter, we achieved two important milestones to advance our near term and long term strategy first we opened our crop accelerator a state of the art technology enabled facility that will double the number of plant growth cycles per year.

While the predictive power of <unk> to identify genomic targets greatly accelerates new seed development those predictions still have to be brought to life through breeding and testing the crop accelerator is enabling us to rethink the traditional product development processes and deliver innovative ingredient in food outcomes, we need with <unk>.

<unk> sufficiency and urgency.

We anticipate a 20 fold increase in testing capacity, which will help fuel our efforts in developing the next generation soy and yellow Pea seed varieties for both the plant based protein and pet food markets. The second milestone is the startup of our recently acquired soy crush facility in Seymour, Indiana.

We plan to access this capacity as part of our soy ingredient commercialization strategy dependable and cost effective soy crushing while routine is an important component of our integrated business model and we expect to continue to upgrade the facility to help address the growing demand for our soy ingredient products.

We have a strong team today and bolstered it during the quarter with some key additions, including our ingredient segment, which is led by Bruce Bennett in the last few months alone. We have added over 100 years of cumulative experience from companies like ADM Bhangi NIF F. These colleagues bring expertise and grain processing and product formulation and.

Have a keen understanding of the protein ingredients that food companies need as well as the multiple ways. Our products can bring them value. We believe we are well positioned to deploy our integrated business model to meet customers, where they are and offer a portfolio of differentiated ingredients beginning with protein and in particular ultra high protein soybean.

Through our new true Valle brand. We are also excited about the prospects of forming lasting partnerships and licensing agreements to fuel our growth in the years to come in closing I want to emphasize again that we are pleased with our progress this year and we feel good about the outlook for 2022 like I said, we believe what we're doing.

It's truly innovative we have built a substantial technology moat that we have strategically targeted soy and yellow pea as crops ripe for innovation, we have a robust product pipeline that we believe has huge growth potential in the exploding plant based category, but we're not going to stop there. We're in the early innings of an evolution of our food system.

And what we're achieving will take time, we have tremendous momentum today and an incredibly talented team focused on solving some of the most significant and most exciting challenges and food.

Our core values to be bold be inspired and be real enabled us to build bensenville and these values along with our mission continues to fuel our passion to create food made better from the beginning we are convinced this is a rare moment to take advantage of these incredible market tailwind.

We're in active conversations with customers, who are moving quickly to meet this consumer led movement for better food choices, we believe our products address the market need whether it's higher protein content sustainability traceability affordability or a domestic source of supply we check all the boxes, we owe it to all of our stakeholders.

To be aggressive now as our growth extends into the plant based alternatives markets. This fits with our mission to leverage our food innovation platform to set the pace of innovation and food.

Whether you are a farmer customer or consumer or an investor I Hope you will join us on this journey to advance the food system.

I will turn it over now to Dan to discuss our financial results.

Thanks, Matt and good morning, everyone. This is an exciting time for events and health. We completed the merger with Starwood Corp. Two on September 29th and began trading as BHI al. The following day with the close of the transaction, we completed an important milestone and one of the many steps in our plan to bring better food choices to consumers.

<unk> and improve our planet by reducing carbon production and water usage.

We're working to do this through our talented team members deployment of our technology intellectual property and go to market strategy.

I'm going to start with a question. We believe is top of mind for many I'm, referring to the question of how does the relatively high redemption rate and the merger transaction impact Benson health plans of course, our redemption rate of approximately 75% was a disappointment as we've consistently communicated with full funding from the 400 million.

Trust combined with the 225 million pipe, we expected not only to have funds to execute on our plan, but also to have dry powder to take advantage of strategic opportunities as they may arise to further accelerate the commercialization of our product portfolio the share redemption level, we experienced does not diminish our.

Our resolve to execute the plan we shared with you at the analyst meeting in June nor does it diminish our desire to accelerate the plan where possible as you know we brought in $320 million in gross proceeds of $274 million and net cash to our balance sheet.

This is more than dozen hill had previously raised in all its private fundraising events combined we believe this major cash infusion represents sufficient capital to fund the organic business through 2022 and into 2023.

As we planned and previously communicated shortly after closing the transaction, we elected to pay off some higher cost debt from our private company days we.

We will continue to evaluate opportunities to advance the organic plan and accelerate the commercialization of our products and to that end may consider debt financing if it makes sense to deliver shareholder value.

Our operating cash usage for the nine months ended September 30th was $73 6 million. In addition, we spent $37 5 million for capital expenditures and the acquisition of the Seymour, Indiana soy crush facility, our ending cash balance at September 30 was $257 million.

Let's turn to more about our Q3 results the combination of proprietary soybean product sales and higher volume and average selling prices for yellow Pea resulted in a 34% year over year quarterly revenue growth in the ingredient segment on a U S GAAP basis, and as Matt mentioned earlier, an 80% growth year over year.

When adjusted for the barley business sold last year as was the case last quarter the market for fresh produce continues to be impacted by higher than expected yields both domestically and imported.

This is negatively impacting average selling prices and volumes as a result fresh segment revenues declined 19% as compared to the third quarter last year. These unusual market conditions and fresh have continued into the fourth quarter. Despite the impact of these macro conditions. Our overall revenue performance driven by the <unk>.

<unk> segment was favorable to our plan for the quarter.

Consolidated gross profit for the quarter was 409000, a decline of 898000 as compared to the prior year, though it was essentially flat when adjusted for 681000 in gross profit from the sale of the noncore parlay business.

Cost of sales included higher costs of production from the 30000 acres planted in the 'twenty 'twenty crop and approximately 847000 and startup costs for the C. More facility for which we anticipate additional costs in the fourth quarter.

Favorable yellow pea pricing and volumes helped to offset the higher soy costs the market dynamics in the fresh segment resulted in relatively higher cost of sales we are not immune to the supply chain challenges in the U S. Our costs were higher for fuel storage and freight which mostly impacted fresh produce.

We expect the supply chain challenges will continue to persist into 2022, and we are working to mitigate any potential impact to our business plan.

Lastly.

I want to share some thoughts on SG&A, which was $28 million in the quarter for the quarter expenses were unusually high as they included cost related to the merger public company readiness and acquisition costs that totaled $13 5 million. After adjusting for these nonrecurring items SG&A costs were 14, and a half million dollars.

We're investing in resources to execute our commercialization of our soy product and in addition, we experienced higher noncash stock compensation expense, both contributing to higher human resource costs. Our investments include the product operational and sales resources needed to achieve scale and win market share. We also are.

Investing to continue to expand and protect our intellectual property and advance our technological capabilities, including the launch of our crop accelerator facility. Adjusted EBITDA was a loss of $21 million driven predominantly by the margins operational research and development and G&A expenses as we can.

<unk> to invest in the execution of our strategy.

Matt outlined several of the milestones we achieved so far in 2021.

Fall season is a busy time with harvest processing, our soybean grain and engaging with customers to sell our expanding availability of proprietary soybean ingredients and other products. We are currently working through the details of our plan for fiscal 2022 with a focus on balancing opportunities and resources, we will share more about the op.

<unk>, we see for 2022 on our Q4 call.

I will now turn it back to Matt for his concluding comments. Thanks.

Thanks, Dan.

Our premise when we started Vincent Hill in 2012 was to use the natural genetic diversity already in plants to create a better food system consumer preferences are shifting as this need for changes recognized and the demand is greater now more than ever for nutritious food and ingredient options, especially those that are sustainably.

<unk> traceable and domestically sourced yet that are still great tasting and affordable we are passionate about our mission to set the pace of innovation in food and we recognize that we are at the right place at the right time to serve as the picks and shovels of this plant based movement and to offer customers in the near term better.

Protein ingredient choices. Thank you all of our stakeholders for your ongoing support we could not be doing this without you.

Let's move now to the live Q&A.

Or.

Great.

Sure.

Good morning, and welcome to the live Q&A session.

Matt and Deanne here to go through some of the questions. As a reminder, we're using zoom webinar. So please use the raise your hand feature before we get to the questions from the audience. We actually participated would say technologies to do a Q&A forum and we receive some really thoughtful questions from indesit from retail investors and so we want to go through a few.

Those right now.

And the first question, Matt for you will be beyond meat and impossible foods have reduced revenue forecast what has been said Hill's plan if the demand for their ingredients flatten.

Sure Thanks, Robin and thanks for.

The person who asked the question so as a matter of policy, we won't comment on other companies and their financial performance, but what I will say is that in 2020 that good food Institute <unk> issued a report in.

An estimated that there's about 800 companies right now are developing or commercializing plant based food alternatives.

Some of these are going to be winners and some of these are going to be losers and the expected market growth by the end of the decade is expected to be north of a $100 billion. So it's a it's a massive opportunity in total for plant based protein and in particular and especially the the plant based meat substitute market.

As we've talked about where the thing behind the thing that the picks and shovels. So Benson Hill is really a bet on the on the movement and and you know we're able to support a wide variety of customers not any specific brand we've already been in contact with dozens of companies about our true Vale product.

And its portfolio, which comes from our ultra high protein soy.

The reception for Travail has been terrific and we're really excited about the opportunity that it presents particularly we're finding a lot of market interest across several of the of the value props for true <unk> and as well as the other products, we sell but namely.

Fully traceable are non.

Non GMO domestically source more affordable and more sustainable.

In large part more sustainable and affordable because we're reducing expensive water and energy intensive processing, which Furthermore, reduces our processing bottleneck in the supply chain.

This is providing the opportunity to relieve constraints for growth that the company is like like beyond an impossible might actually face so.

It's got a multipart value proposition.

The second question. We got was Environmentalists' have requested audits of greenhouse gas emissions to rank plant based protein G. H T. H G against conventional proteins has been held budgeted for these third party assessments.

So to be clear, we're supplying ingredients used in food and feed we also do grow fresh produce mostly on contract with the farmers.

And yes, we haven't and we're continuing to engage with third party resources to conduct independent LCA has or lifecycle analyses of our ingredients, which establishes the G. G. The greenhouse gas gas emissions and also the water use baseline for our products compared to others that are available.

Our approach.

To sustainability in our products really includes practices across both the farm and the processing level again by by reduction of water and energy intensive processing, we believe the innovations and the data that we can help supply through these independent <unk> can help farmers and AG.

Processors and food companies really realize there their sustainability goals.

Terrific and the third question, we got was.

How do you think about new product development. What are your plans for 2022 and is there any anywhere we can see a five year roadmap of plan right. So so we invest more than $40 million a year currently and in research and development activities and we've got about 150 professionals across data science plant science.

In food science that are working really tirelessly to bring our innovation starting with the better seed the market not just in the immediate term with products that have already been derisked, but.

But also for product generations to come the focus today is really on soy and yellow Pea and admittedly, we've not talked a lot about our innovation pipeline, which is not detailed in our published materials, but we believe that pipeline is going to provide significant upside to the plan that we've discussed publicly.

And they're starting a conveying that message we plan to host an investor day in early April where we'll begin sharing more information about the breadth and the value of the pipeline.

And the next question is for you and when do you expect to be profitable.

Thanks, Kevin.

You know, we're seeing just massive market.

Market potential here for our products and it and it seems to continue to grow.

There were.

The potential that Matt has already talked about is still the opportunity that we see in art and in our plan for it for.

Addressing this market.

You know we've talked about and in this in the script and I talk about the fact that we have sufficient cash to get us into 2023, and we're working hard toward capturing more share of the of the consumer demanded products for our for our products Travail, which is.

Already available and you can see more about that on our website.

Is is the portfolio of the platform portfolio that that we're in discussions with numerous consumer products companies about at this time.

You know.

We look forward to and our Q4 call.

Sharing more with you we're in a rigorous planning process for 2022, well also be updating our our plans for the longer term.

And are excited about sharing that with you in Q4.

Okay, Great and one more question for from our retail audience, what markets to Benson he'll consider promising outside of plant based protein and what's a development lead times for those markets sure sure. So we believe there's a tremendous opportunity.

In the broadly speaking the consumer led food as health movement, which is really in its in its early days.

Crapo, Wes and its capabilities can apply to a lot of crops, both large and small as well as in emerging categories like the vertical farming space. So so where for instance already invested in the fresh produce market for the purpose of this broader food itself movement and we're beginning to use crop OS to research into developed food.

<unk>, there that will come to life in the future, it's a longer term value prop, though so it's really too early to talk about specifics in this area, but in the near term. We really are focused on capturing share in the in the plant based category and particularly with the soy portfolio as mentioned and in the medium term with.

<unk> that are coming online in yellow Pea.

So those are those are several of the questions that we received from the retail audience. There are others and in the essence of time, we'll move to the live audience, but will we grow with US are the red at forum to answer some of those questions.

And get back to investors and we appreciate the the retail investor interest in personnel and in our partnership with Sei technologies gives us that opportunity to hear from them.

So now we'll move over to the live Q&A session again use the raise your hand feature if you like to ask a question and our first question is from Ben Theurer from Barclays.

Hey, Ben.

Hey, there does it work.

Or how are you Ben.

I'm very good.

Congrats on the results.

So two questions actually one was answered and asked already by the retail audience I'm very pleased with that and thank you very much for the clarification on the revenue out by some plant based made that I think you're right with the.

Constellation that Theres, just a lot of newcomers coming into the system.

And ultimately maybe what two companies are saying, it's not indicative for what in <unk>.

It's trending towards now.

Now that put aside.

Obviously, we have there.

Perfect by the industry between using protein versus soy protein how do you see him about the.

The growth outlook in between the two and where do you think it's actually a bigger potential as it was in soy just because of the vast majority of growth in acreage, which is already available worldwide.

You really think it's what you have to where you can be.

Able to deliver on Pea protein that will be my first question.

Sure sure well, both supply benefit and value.

When we think about soy, it's obviously the predominant crop of choice, but in other markets in certain other markets.

It's not the crop of choice or the ingredient of choice and so what what Benson Hill is really focused on doing is investing in innovation to provide that choice.

Two a wide stakeholder base to two.

A large number of the food innovators in the Cpg's debt debt.

Won't want multiple options.

We'll save from a from a soy versus yellow pea standpoint, the productivity of soy.

Is is quite high on.

On an output of protein per unit input basis, it's a very efficient producer of high quality very healthy protein and and it's enabled in many respects the market to really lift off in the manner that it has now.

On the yellow Pea side, it's the fastest growing source of alternative plant based protein for the alternative meat substitute category and so while it's starting from a from a smaller base and certainly there is not a great deal of acreage versus a soy.

Sometimes like to say a few acres of soy will make a lot of hamburger and and yellow Pea is no exception. It doesn't require tens of millions of acres to satiate. The demands that are in this category.

And and I hope that that's reflected as well in the acreage that events and hill continues to show ramping across both of these crop areas.

Okay perfect. Thank you very much for that and then Dan.

Kind of laid out during your prepared remarks, some of the onetime costs you have Jeremy the closing obviously impacting your thinking that there could be so if we think going forward for the coming quarters, our run rate somewhere plus or minus $50 million in SG&A would that be a fair assumption or is there is there anything else, which you've talked about.

The the accruals and stock components that we need to consider going forward as well in the SG&A.

Okay.

And I think that's in the ballpark I think ultimately, though I would say we are building the resources, we need to deliver on the commercialization of our products and so.

As we're going through the planning process for 2022, we're looking at that very critically and balancing you know kind of the investments we need to connect with the resources that we have available. So as you know I think a little bit TBD, but I think you're probably in the ballpark.

Okay, and then one last one if I might squeeze it and I won't I guess map again.

So when you talk about the guidance the $127 million.

Does it come down to what the fresh segment is ultimately going to do to help you to either exceeded or just need it because of the current weakness.

Strong supply and hence the low price in the first six months.

Im actually go out and.

<unk> [laughter].

Youre right in a fresh is a little bit of an uncertainty right now that those macro dynamics are are a challenge where we are seeing.

Really great results into the fourth quarter already is on the ingredients side and as you know that is a big part of our focus and our major focus.

With the startup of the Seymour plant.

Very minimal revenue from that in the third quarter, but we do see that happening.

And in a bigger way in the fourth quarter. So.

You know we've talked about I'll just jump into the seasonality question, we've talked about that historically, we haven't had much in the way of seasonality, but as we grow that ingredients revenue, we'll be really looking at that and communicating more around that.

Okay perfect.

Thank you very much.

So if anyone has any other questions. Please use the raise your hand feature right now Ben say only one.

So give people a moment to see if they have any other questions for <unk>.

For US you always got to give enough time.

[laughter].

Yeah.

Okay no other questions. So thank you very much for participating today in our.

Third quarter earnings call and we'll be happy to take your questions offline just reach out and.

And we will communicate with you guys in the future. Thank you.

Have a great day.