Q1 2022 Benson Hill Inc Earnings Call
Our Chief Financial Officer.
Earlier. This morning, we issued our earnings release and filed our Form 10-Q and form 8-K.
These documents as well as an investor presentation are available on the investors section of the <unk> website.
Comments today from management will contain forward looking statements, including Benson hills expectations of future financial and business performance.
Current guidance about 2020 to annual results as well as industry outlook.
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 note included in our Form 10-K, and 10-Q filings press release and 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.
With that I will turn the call over to Matt.
Thanks, Ruben and good morning, everyone. Our team did a terrific job executing and delivering first quarter results, which are in line with our expectations. As a result, we are reaffirming our guidance for the full year. We have been building on the momentum achieved in 2021 as we scaled the commercialization of our proprietary soy ingredients portfolio.
Market dynamics and macro tailwind are continuing to help drive and in many cases further accelerate demand for our innovative products. We are pleased with the growing interest from customers in our clean crush ingredients derived from our ultra high protein soy varieties. These ingredients have inherent sustainability and supply chain efficiency benefits.
Because we're able to eliminate a costly and environmentally intensive processing step. In addition, we can deliver enhanced reliability through domestic sourcing and traceability across the supply chain, meaning that we check many of the boxes are customers are demanding with increasing frequency, especially in this supply constrained environment are.
Recently announced partnerships with Kellogg's Morningstar farms plant based foods and de Nova a leading protein producer in northern Europe are two examples for how we can help customers and partners across the agro food value chain meet their needs.
And both of these cases, we're working together to achieve their sustainability objectives, while at the same time supplying them with high quality and less processed soy ingredient products, we're off to a good start in the second quarter as we continue our focus on execution and supporting our expanding network of farmer partners during the 2022 planting.
In that vein, we recently made the decision to increase the number of acres of our non GMO high oleic soybean varieties due to the growing concern around supply chain disruptions and imminent shortages and the European sunflower oil market, which has historically been sourced primarily from Ukraine.
The geopolitical situation and rising inflation are underscoring the urgent need to increase the reliability of supply chains and reduce costs in our food system, we believe that our product innovations and our integrated go to market model uniquely positioned Benson Hill to help our customers navigate these challenges higher protein in the bin.
Creates more efficient value add opportunities for our customers partnership back to the farmer enhances our agility to respond to the needs and the opportunities in the market. We look forward to the remainder of 2022 and beyond with the right team products and approach to fuel an increasing demand for more sustainable foods and <unk>.
More plant based foods with that I will turn the call over to Dean to review, our first quarter financial results.
Thanks, Matt and good morning, everyone.
As our first quarter results in the earnings release and presentation slides.
I'll focus my remarks on a couple of important takeaways.
As Matt mentioned, we continued to build upon the momentum achieved last year with first quarter consolidated revenues of $92 million.
200% increase year over year led by growth in the ingredient segment with reported revenues of $66 million up nearly 400%.
The ingredient segment was driven by strong operational execution and market demand for both proprietary and non proprietary products. We continue to benefit from broader food system supply chain constraints, coupled with the strength in demand for non GMO food grade, sorry, specialty oils, and Aqua market meal products consolidated gross margins were in.
Aligned with expectations when adjusting for approximately $8 million in losses related to the timing impact of the mark to market hedge contracts and corresponding sales, let me explain a little bit more about that.
Our hedging policy cover soybean purchase price risk as well as prices on product sales and the soybean meal and oil markets.
When we hedge these risks and commodity prices continue to rise, we take mark to market losses on the futures contracts. These losses can then be offset and current or later periods, but higher price sales on the physical assets. The total reported mark to Mark loss was approximately $13 million with $5 million realized during the quarter for settlement of Cod.
Tracts corresponding to higher price sales in the quarter, the remainder or the timing differences I just mentioned for anticipated future sales at higher prices, primarily in the second and third quarters.
Looking further at our segment performance.
<unk> revenues in the ingredient segment were $14 million, which increased 161% over the prior year driven by strong sales demand for specialty meal and oil products. This was in line with our expectation for full year proprietary revenue guidance of 70 million to $80 million as we anticipate a ramp up of product sales in the remainder of the year.
Overall ingredients segment gross loss was approximately $9 million, which includes $8 million for the derivative losses I mentioned earlier, our teams performed well and executing the closed loop model with proprietary and non proprietary contribution margins in line with expectations and the fresh segment, we saw better than expected price increases and volume growth that led to strong year over year.
<unk> increases in revenue to $26 million and double digit gross margins. This was a result of improved price due to supply chain constraints and favorable weather conditions. While we're pleased with the performance in the quarter. We are taking a cautious approach as the current trends could prove to be temporary.
Lastly use of cash to fund our operations during the quarter was $53 million, which included a temporary timing effect of approximately $15 million for the margin calls on the mark to market losses in the quarter, our cash use in the quarter was in line with our expectations and is typically seasonally high in Q1 as approximately 60% of our annual cash use occurs in the <unk>.
And fourth quarters of any given year. Our cash use also includes the impact of operating expenses and Capex, which were both in line with our expectations for the quarter.
Finally, I'll close with saying we're off to a good start we're pleased with how we performed in the quarter and we like how we positioned ourselves in light of the market dynamics, we face and given the strength of our solid execution and market demand, we have high confidence in our ability to meet our guidance commitments for the year.
We will now take your questions.
Thank you for your intellectual ask a question. Please press star followed by one on your telephone keypad if for any reason that you'd like to remove that question. Please press star two.
Again to ask a question that stock for about one and as a reminder, if you are using a speakerphone. Please pick up your handset before asking your question.
We'll pause briefly ask questions registered.
Okay.
And our first question is from the line of Adam Samuelson of Goldman Sachs. Adam. Your line is now open. Please proceed.
Yes, thanks, good morning, everyone.
Good morning, Adam.
Good morning.
So I guess first question just as we think about your 2022 plantings.
One any update in terms of progress it has been a late start to field work.
In the areas, where you are what are your growers are located you see any risk.
That market being able to get into the ground and then you talked in your prepared remarks, Matt about expanding.
<unk> of the data Lake.
The non GMO <unk>.
Yes.
How.
Big of an incremental.
Acreage and potential other opportunities 2023 would that be.
Okay.
Sure sure. Thanks for the question, yes in.
In respect of planting I mean, everybody is probably aware that the spring has been pretty cool and wet and thats been delaying some plantings of corn beans and lead.
Planting is trailing average of last year, but it is actually underway and a lot of regions. It's a little too early for us to tell.
This is going to have any impact this year, but we don't see anything right now that would signal cause for material concern.
Yeah.
And then you asked about the high oleic stuff in respect to the.
In respect to the acreage increase that we've talked about in response to it was obviously a little bit late in the contracting cycle, but we did make the decision to.
Seek out some additional seek out some additional acres of that product we want to talk about the exact numbers, but it was meaningful over 10000 acres of additional.
<unk> oil.
Crop and we're obviously trying to help address a really big challenge by by responding some.
Just some urgency that customers have.
Some of these customers by the way are prospective customers, who have never used soy before never use soy oil and Benson Hill is marketing a non GMO project verified.
<unk> soy oil.
We believe strongly as a great alternative.
To the to the Sun that is going to see some really significant shortages.
The latter part of this year and forward.
Got it okay.
That's really that's really helpful. And then just thinking about in the ingredient business.
The crest <unk> facility, obviously, theres noise as it relates to the mark to market.
I was just trying to think about soybean crush margins.
Which on a cash basis in the U S very very healthy right now and I'm, just trying to make sure I'm calibrated about how that would.
How that is or should be flowing through your results.
Seems to be a very good time to be on ASI crush plant in.
In Iowa, the smaller one in Indiana.
Sure No I mean.
Youre right I mean in that soy crush margins are certainly healthy.
And they help support it keep in mind, however that the Crescent and Cmos facility is or not.
Incredibly large scale facilities they are really in many respects.
I'd say designed but.
More appropriate for the types of high value products that we're bringing to market, where we're just intermediate and other supply other processing steps and so and so while some of the legacy business has certainly enjoyed its slightly better margins than it may have traditionally it doesn't move the dial a whole lot for us.
And then over time as you know our intent will be to take a larger and larger proportion.
The capacity of those plants with proprietary product and that's that's the primary driver on which we're focused right now. So it's certainly these macro effects are certainly helpful.
But they're not moving the dial on a super significant way as they might for folks with much much larger processing operations.
Okay.
That's all helpful I'll pass it on thanks.
Thanks, Ed.
Thank you Adam and our next question is from the line of Ben sure.
Barclays.
Your line is now open. Please proceed.
Okay perfect. Thank you very much and congrats on the go to.
Two questions. If I may so first small of a follow up around the dynamics within the within the ingredients business and obviously the high value year. You just talked about can you give us a little more sense about.
What that where.
Were you basically got that $14 million from.
Youll proprietary being strong so just to understand a little bit the driving dynamics here and how should we think about the.
The revenue contribution throughout the year.
Given where just in one quarter, but just to understand a little bit.
With the recovery on some of the Mark to market, but I mean, just to understand the proprietary how thats going to evolve how you expect it going to evolve over the coming quarters that will be my first question. Thank you.
Yes, I mean, there's multiple ways that we can realize proprietary revenue streams I mentioned high oleic oil thats one of them.
One that we are seeing obviously, a real spike in demand for.
And then as you move to the protein side of the ingredients portfolio think.
Anything from flowers to texturize products to even just whole beans.
That may be utilized in others others facilities. So the.
The first quarter represented.
Revenue across the board.
But as Dean mentioned in his comments, we will expect that given the sales cycles and this is the first full commercial year that the ultra high protein soy portfolios online that we'll see some pretty material pickup over the duration of the year, particularly on the protein side.
Yes, I think just to just to add onto that Ben.
We talked about full year 2022 proprietary being about 30% of the total revenue, we don't anticipate a significant deviation from that.
Okay perfect. Thank you very much very clear and then.
Thanks.
If we look into the Opex number that was that was obviously relatively high can you can you help us digest that a little more than a little more detail.
And the breakdown just what happened on the SG&A side, because it basically had almost doubled in just to understand a little bit what of what we're of a different drivers behind that I mean, you gave a little bit of an explanation within.
Within the press release.
Some of the pipe transaction, but if we could just better understand what the real impact that would be much appreciated between the different segments.
Yes.
I think the broad way to think about it and as.
Q1 prior year, it was probably not the best comp for operating expense as you know we didn't have a full build out of our.
Ingredients commercial organization, we didn't have a fully fully built out.
General administrative organization quite at that point.
So I would say much of the year over year.
Differential or increase is associated with a full build out of the commercial teams and the administrative teams I'd also point out that about $6 5 million of that increase was driven by noncash and onetime related items, we had pipe season, there as well as the stock compensation was the biggest driver of that of that particular piece.
<unk>.
Okay. So basically if we adjust the fix out that would be more of the run rate. We should think about is local in quarters to come correct.
Sure.
Okay. Thank you.
Thank you and our next question is coming from the line of Christian <unk> of Oppenheimer.
Christian Your line is now open if you'd like to.
Great. Thank you for taking the question and congratulations on the next quarter.
Just wanted to talk through some of the follow up on this authorities and so I understand that there is a favorable backdrop for soy crush margins, but wanted to ask specifically about what the operational improvements that you're seeing.
Hadn't brought this facilities in house I think at the Investor Day, you talked about running those at some of their best performance.
Just wondering if you can talk a little bit about what you're doing internally to further improve the efficiency at those facilities.
Yes. Thanks for the question Kristen This is Matt.
We have indeed in the first quarter.
And I'd say year to date seen really really nice operational performance out of that and frankly. This is a testament to the team.
We've got a very very seasoned group of leaders and professionals of that.
Are helping oversee an upgrade in some respects these facilities to suit our needs not just again for the proprietary portfolio, but to run these businesses with operational excellence.
That ultimately does contribute to.
To the margin profile on the non proprietary side. So we're continuing to see that I'm really encouraged by the team's performance as we've talked about execution as the number one area that we're continuing to focus on and the single most important factor to do that is.
The caliber of talent that we're.
We're investing in.
Thank you for that.
Wanted to follow up on some of your comments about just the backdrop for vegetable oil demand and the tightness that we're seeing because of the geopolitical events going on.
And if I recall correctly.
City for the Hellenic oil was already largely booked throughout the remainder of this year.
You mentioned in your prepared remarks, expanding your acreage and yes.
Should we be thinking about contribution to 2023 are you are you already having conversations with some of your customers to lock in.
Supply and if you could talk about just some of the pricing dynamics and how sticky you see that and thinking about the back half of the year and going into 2020. Thank you.
Sure sure so correct in your first comment about having booked.
Business through the crop.
Are coming from the 21 crop is accurate and so when we talk about adding acreage for the 'twenty. Two season. The earliest that we would see that moving into commercial channels would be the very late part of this year and Thats why exactly as you indicated youre not youre not.
It's unlikely to see.
A very material impact to 2022, however, we would expect to see some additional inventory of this for 23.
And there is that there is a significant amount of interest in the market. We're seeing pricing has been reflected in.
On <unk>.
Oil increasing pretty materially.
Due to the geopolitical events.
Yeah.
Europe is obviously a major.
A major driver of the demand for <unk> oil.
Benson Hill, having a non GMO project verified high oleic oil.
We think positions us really well to help meet some of the challenges in some of the gaps shortfalls that that are eminent some of those happening already but I think it's likely to get quite a bit worse before it gets better and so we are seeing interest in a possible longer term contracting, which we think could be could be favorable as well.
Thank you so much I'll pass it on.
Thank you and our next question is from the line of Brian Rights of Roth Capital Partners. Brian . Your line is now open if you'd like to proceed.
Thanks. Good morning, just wanted to kind of take a step back and look at the big picture and kind of think about things really robust quarter on the revenue side this quarter.
Guidance kind of.
The same at the moment.
Is it just because it's early in the quarter and late planting season, then just all the typical kind of risk that you ran during the year or is it just kind of wanted to think about how youre kind of thinking about things.
Well I think.
From an ingredient perspective.
Importantly, this proprietary revenue number and the growth that we're seeing there over the duration of the year is going to be an indicator of how our proprietary products and innovations are continuing to gain traction in the space.
I would just say at a high level I mean to your earlier question.
I'm very pleased.
When adjusting for some of the noise created by the Mark to market activity.
<unk> met or exceeded.
Both revenue and margin expectations.
I'm very pleased with how the team has executed.
Having.
Having the market tailwind.
It can influence a market tailwind continue.
It certainly helps the business and we don't see that slowing down either but.
We're again seeing strong demand in all of our relevant target markets and and the team has done a really nice job of helping meet customers' needs Dean anything you want to no I think thats exactly right I think the big picture is the demand.
Side of the equation continues to be strong.
We continue with Matt has talked a lot about just the plain execution.
Running those facilities and meeting the demand points that we need to to continue to grow the business.
So I think I think we can say with confidence that we are exactly where we expect it to be and we're obviously pleased with how we're positioned for achieving our commitments for the year.
And having a diverse.
Product portfolio allows you to be nimble when opportunities present themselves is that a fair comment exactly.
Yes. Thank you so much.
Right.
Okay.
Thank you we have no further questions to day, so I would like to hand back to our host Rubin for any further remarks.
Thanks, Terry we are going to take a few minutes to go over some of the questions. We received from the retail investor audience of Madden game. The first question is what is the biggest headwind for Ensign Hill this year.
Well.
We continue to believe that that execution is.
Our biggest challenge it's the biggest risk.
And as I mentioned in one of the comments earlier you were having a terrific team is really the single most important way that we can address that risk.
And I'm pleased that we've got an excellent group of leaders.
Who are really dedicated to delivering on the promise of the proprietary portfolio that we're commercializing who believe our focus on operational excellence.
And taking innovations from from seed to play it. So so in short execution execution I mean, that's the biggest that's the biggest headwind for us and one which we're relentlessly focused.
Another question from the retail audience with Allison this inflationary environment affected our.
Our business.
Yes, I'll take that one Reuben so look we're not we're not immune to the impact of the inflationary pressures we had.
Rising fuel costs.
<unk>.
Broader wage inflation.
So far we've been able to manage those cost pressures at least worked through them I think as everyone is trying to but I think also it speaks to the fact that.
The best deflationary.
Effect that you can have certainly in the fluid system right now is innovation and we think that we're positioned to so a lot of challenges in the food system right now as a result of the inflationary effects. There is number of dynamics that are driving the inflationary effects.
We have the opportunity to bring solutions to some of those challenges.
Another question what are your plans to increase revenue and what are your plans to increase shareholder returns.
So we have a good.
The good fortune of having just come off of an Investor day.
There is ample amount of material that kind of suggests that we.
We are aggressively pursuing growth I think our first quarter results speak to that obviously, when we guided our proprietary business on the ingredients side to $350 million by 2025.
We have aggressive plans, we have appropriately balanced plans I think in terms of the the portfolio targets that we're setting for ourselves the margin targets, we're setting for ourselves.
In terms of the value creation for shareholders, but those plans are really around continuing to innovate across the portfolio I don't know Matt.
Anything more specific.
Completely agree and I mean, we're pleased with the progress in the commercialization of the portfolio. Thus far it continues to gain gained momentum, particularly as I mentioned, the ultra high protein based ingredients being.
Being commercialized now under our clean crush brand.
We really expect that to drive some significant shareholder returns as we're as we're bringing that and other innovations to market.
What's the potential for <unk> to participate in controlled environment, agriculture and partner with some of the major firms in that space to aid in the development of better crops higher yields et cetera.
Sure. So we know the CE space fairly well.
And we do believe that.
Companies like this that our focus on innovation in food and AG.
Bringing they're bringing their products and their innovation to bear is going to help solve some significant needs in the category, but that biology and genetic potential of plants.
We will play a major role in the CPA space as well and that'll be that brings sustainable more healthy importantly in this space more accessible.
Food markets.
Markets that that need that and that means that food.
That Benson Hill, while we have a technology platform that in many respects can be applied to a lot of crops. We feel like it's important at this point in our lifecycle to continue to focus.
And namely in our proprietary soy portfolio and our our yellow Pea portfolio, which is coming online, we're making significant investments there we've got tremendous opportunities in front of us.
So in the near term our focus will remain on soy and yellow pea in the medium and long term, we will always keep an open mind to other opportunities in adjacent spaces.
And the last question, it's a bit related but are there any conversations on expanding the product lineup of the crops should provide the farmers as a potential catalyst to grow the business for the long term.
Well similar answer here, our current focus is really on protein driven solutions.
Obviously, a unique opportunity.
And the oil category that world So.
We're also helping solve for.
But so and yellow pea.
<unk> are the two focal points and like I said in the medium to long term I think there'll be opportunities for us to utilize the technology platform in the.
Remarkable capabilities that our product development organization is built out in order to bring other crops online.
But that's unlikely to happen in the next two to three years are really going to focus on on the current portfolio in the near term.
So those are the top questions. We got from retail investors. We appreciate the retail audience participating with sei technologies, and getting and letting us hear from you.
We have no further questions at this time, so now I'll turn it over back to you for some final comments, yes sure.
Sure sure I appreciate that.
Just conclude by saying that we are pleased with the performance in the quarter, which met or exceeded our expectations for revenue and margins and we are on track for a solid 22.
This dynamic nature of the global agro food system.
It was really requiring companies to be innovative and agile and Benson Hill's position.
As an integrated through technology company is positioning us very well to continue to deliver solutions to help our customers and our partners to meet their needs.
So I appreciate everybody's time and attention. This morning have a great week.
This concludes Defensin Hill earnings call you May now disconnect your lines.