Benson Hill Inc. Q1 2023 Earnings Call
Thank you for your patience Benson <unk> first quarter 2023 earnings call, we'll be starting shortly.
[music].
Good morning, Thank you for attending bent to house fast called Cat 2023 earnings call.
My name is breaker and I'll be your margin I guess.
Yeah.
All lines on mute for the presentation portion of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star one on your telephone keypad.
I would now like to pass the call David to your highest we've been that senior director Investor Relations.
Rubin. Please go ahead.
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 Chris Jansen.
<unk>, Chief Executive Officer, and Dean Freeman, our Chief Financial Officer.
Earlier. This morning, we filed our earnings release and form 8-K. These documents as well as our Investor presentation. We will reference during the prepared remarks are available in 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 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-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'll now turn the call over to Matt.
Thanks, Rob 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.
Might the current softness in underlying commodity crush margins.
These market dynamics and our team's unwavering focus on execution give us confidence we can more than double our gross profit for the year.
On deck as the 2023 planning season, which is now well underway.
Our team has successfully secured final commitments from our pharma partners to grow our proprietary crop on approximately 50% more acres than last year, which we expect to produce the 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 into our strategy and demonstrated our commitment to build a company that can set the pace of innovation and the aggregated system of the future.
I would like to reinforce some important takeaways from that event.
The demand side for innovations remains intact.
Nutrition security goals and global climate goals, we need innovation and 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 innovation to market and plant based proteins Aqua culture, 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 to be create which demonstrates the power of using genomics as a lever for change through.
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 in the multiple ingredients 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 as well as added new ones, we estimate that the serviceable obtainable market for our pipeline over the next eight 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. 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 few 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 sleep 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 former partners to grow.
Enabled by our crop OLED 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 risks 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 oligosaccharides soy meal product, which is less processed more sustainable.
Responsibly sourced from U S farmers.
<unk> represents an exciting growth opportunity that has far exceeded our expectations and expands the market opportunity for our domestic pharma 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 <unk> enlist <unk> III 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.
Notable that the value proposition for 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.
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 products currently available on.
The market.
As we look beyond 2028, we are planning to bring to bear the full capabilities of crop OS 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 little Nick oil.
This is a complex challenge well suited for our <unk> 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.
We expect to introduce future generations of <unk> 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 and yellow Pea and soybean.
If we are successful this has the potential to further expand our opportunities for yellow Pea and 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're having with customers to see around the corner to what's possible with crop loss.
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.
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 will now turn the call over to Dean for his perspective on our first quarter results and outlook.
Thanks, Matt and good morning, everyone.
As you saw in our release and 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.
Compared to the first quarter of 2022.
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 agricultural market that led to an 80% revenue increase to $25 million.
Crush margins remain favorable and capacity utilization high which helped to drive an approximate 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 UHT soy meal shipments to the European agriculture 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.
As a result, we are reducing our 2023 operating expense to a range of $115 million to $125 million, which is $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.
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.
To revise 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 crush margins are down considerably. However, we have been able to mostly locked in on crush 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.
Matt mentioned, we're off to a good start in 2023, we're leveraging the operating and commercial infrastructure, we established last year to scale, our proprietary ingredients portfolio.
<unk> is a changing macro environment with a prudent plan to enhance our cost structure improved liquidity and execute our strategic objectives.
That concludes the prepared remarks, we'll now move on to the Q&A session.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
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We will pause briefly ask questions registered.
We have the last question on the phone lines from Chris.
Christian Allen.
Yeah.
Great. Thank you for taking the question and good morning, everyone. Congratulations on the nice results in the quarter.
Wondering if you could talk a little bit about the cadence for the rest of the year. It seems like you had some pretty good visibility on the proprietary revenue growth had some onetime items that I think you called out in the quarter. Just wondering if you can give us a sense of.
The inflection or tradeoff between the commodity.
<unk> and our proprietary environment and how youre managing that.
That mix shift over the balance of the year. Thank you.
Thanks Christian for the question and you tell that.
I'll, let dean fill in the blanks as it relates to some of the onetime.
Items, because as you point out that affects first quarter non proprietary revenue in a meaningful way.
But what I will offer is that.
In contrast to 2022, we expect.
<unk>.
Quarter by quarter performance.
Hence the affirmation of $100 million to $110 million proprietary.
<unk> for 2023.
In light of what was.
It's a really nice first quarter kickoff.
Constituted.
Nearly a pro rata.
That so.
Yes, I think as it relates to the remainder of the year, we're seeing some maturation of the customer relationships that we began to talk about.
Last call and you're really seeing in 2023 being the year of the customer where we've landed into a lot of our accounts.
Our customer base across several markets.
And we're excited about.
Banding, those relationships and continuing to build business across the portfolio.
Do you want to comment any more on the on some of the.
The moving parts on the non proprietary.
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.
$28 million does include about $23 million of this onetime 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 a C Moore that.
<unk> created a little bit of headwind, but we were able to work through that so aside from that I'll call. It the onetime level loading being shipments where the European markets.
Really the only the only items and so I think it's consistent with what we expected and notably the proprietary revenues coming in right in on run rate, where we expected so no big surprises other than the the onetime item that we just talked about.
Yeah.
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.
Can you just give us an update on the 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.
Sure. So we haven't released the co branded.
Aligned with ADM, but we continue to anticipate that that will occur in the second quarter.
The work stream as it relates to some of our pre commercialization activities has done quite well.
I cant comment in detail, but I will just say at a high level, but the feedback on the products has been positive.
Consistent with some of the validation that we'd seen from applications work conducted by some of our early adopter customers in 2022 and so.
We're really bullish on.
On the product line that that are there the sustainability benefits that they provide and how we think that there'll be received in the market.
Thank you I'll pass it on.
Your next question comes from.
With UBS.
Good morning, everyone and thank you for taking our questions.
You are off to a solid start this year sales came in much better than they expected.
You noted a one time benefit of $23 billion was that initially planned in your original outlook of 392 $430 million.
I know I can see it was not planned.
Yes, sorry go ahead Dave.
Yeah.
Yes, no sorry short answer was not planned.
Okay, right so that helps.
Alright, Gulfport, sorry to cut you off.
No go ahead cutting.
I was going to say that that wasn't planned. So that's a benefit that was unexpected you held your sales guidance.
Just kind of curious the rest of the year. It looks like you expect sales to decline 5% to 18%.
Just on your guidance range I'm wondering why that would be.
Well, it's just it's within the guidance range I mean, it wasn't a significant we've got it we've got a long year yet.
We're pleased with how obviously Q1.
Played out, but I think still a little bit early days on the top line to sort of expand on that $20 million.
Item, obviously, if 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 its included in the range all things being equal.
Okay, and then I just wanted to talk about the belly of the P&L because gross profit came in slightly ahead of expectation, albeit.
Pete 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.
You've made and how we should think about that for the remainder of the year. Thank you.
Yeah. Great question. So there was virtually zero there was I would call a de minimis amount of contribution margin.
<unk> to the one time being sales.
Really the entire strategy was to optimize the shipment and the cost per bushel right optimization to support the Aqua markets.
So in and of itself at one time had no had no margin contracts no significant margin contribution maybe a couple hundred thousand.
Terms of the operating expense I.
I would say that it's broad based.
But focused on the execution of the value creation.
<unk> and commitments that we've made so we're not sort of communicating the elements of the cost reductions that we've achieved so far.
It's 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 will 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.
Capabilities and we continue to support the strategies that we've committed to.
Great. Thanks, I'll pass it on.
Okay.
We will now have been tiara of Barclays.
Yes, good morning, and thanks for taking my question Congrats on the very strong results.
One question actually most like the technical attack for Dean So if we look into.
The adjusted EBITDA, you have for the quarter I mean, obviously, there was roughly $5 million impact.
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 million, which is just that difference. So wanted to understand as it relates to your guidance is that excluding open mark to market timing differences or is it including what you have on the benefit in the first quarter that would be my first question Larry Technical Idaho.
Yes, its very technical but let me answer it.
Nontechnical way.
As you know Ben we don't guide on the Mark to market adjustments that we could do that.
We would 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.
Okay, perfect and then if we think about just the longer term and as you introduce and kind of.
Worked through what you currently have in your 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.
Need for you guys to spend and how does that fit 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.
Yes, great question.
Go ahead, Matt go.
Well, let me give I'll give a qualitative view of it at a high level.
From a strategic perspective, one of the one of the core tenants of the liquidity improvement plan, what's the maintained.
Both operational excellence, but also the innovation excellence.
We've invested in very heavily over the past 11 years and so as we've evaluated our cost structure a lot of the focus.
Darts with G&A and sort of building out from that and so I think their first then.
The other element is as you as you've seen reported in the neighborhood of about $40 million a line item for R&D and over time, a larger proportion of that has been on the D than they are in other words as we've seen our pipeline mature in the last three to five years.
Larger proportion of that operating budget is geared towards pre commercial activities and really bringing to market a portfolio of products that have largely been de risked.
And that has also been a core priority for us to retain all of those capabilities and in fact, I would say in some respects reinvest in those capabilities and expand those capabilities Kevin.
Numerous product opportunities that we have described in the next two to five years are coming online for which we have largely already derisked.
In other words they've made.
Demonstrated the phenotypic outflow are the characteristics of 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 partner and customer base.
These are the areas that we've really prioritized and put a ring fence around as it relates to <unk>.
And then as it relates to some of the other areas like I said G&A has been it's been an area of focus.
Some of the very longer term components, but but none where we sacrificed.
Our core capability or technology technological platform that we've built over the last few years. So I just wanted to give you that sort of a strategic thought pattern. There and then dean can articulate some more detail.
Okay Alright.
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.
Okay perfect. Thank you very much from asking Congress again.
Thank you Ben.
Thank you. Your next question comes from Brian <unk>.
With MTN.
Thanks, Good morning, Thanks for the question.
Thanks for the additional detail on the pipeline I felt like that was really helpful.
Taking a little deeper on that just to understand the scope may be a little bit better as far as kind of as everything in the pipeline focused on soybean in 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.
Talk about that to give us the scope of what could be in that.
Yeah.
Not right now there is there is a real focus on soy and yellow Pea Kevin.
From a market opportunity that's there and every time, we speak to new customers.
Learning more and more about other opportunities.
To enhance.
And what we've currently contemplated.
And 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 is how the innovation that we.
<unk> discovered or.
Inventions that.
Come from our R&D efforts can be translated to other crops, namely leg unit pulse crops.
That drive a lot of the nutrition demand in the global markets.
So in time, I think we'll be better positioned to talk about.
So the 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.
<unk> focus on the largest nearest term highest margin value creation opportunities and drive.
Driving towards successful commercialization of our closed loop.
So that's really the focal point is around soy in reality for the foreseeable future.
Makes sense. Thank you.
We now have.
<unk> of Lake Street capital markets.
Yeah.
Hi, Thanks for taking my question, Tom I have a couple on the opportunity.
And what the enlist herbicide package first question is still.
Still Jan one I don't know six weeks in but can you kind of provide a bit more detail on the activity that you are undertaking now too to introduce those traits into your.
And your genetics and kind of what your expectations are over the next 18 months.
Sure.
In this process.
Sure sure. Thanks for the question.
What I'd say is that the introgression or the incorporation of the <unk> technology. As you know is a really meaningful potential unlocking.
Some larger acre broader markets.
It's not something that we just can then even though we just announced that a few weeks ago someone thats been ongoing for some time, which is actually what enables us to hit the market starting with plantings initially in 2025.
And because of that work has been underway for some time.
The opportunity set.
Now, we're kind of thinking about the next two to four years as we rollout numerous commercial varieties that incorporate that technology is focused not just on the large acre market opportunities, we've talked briefly about 40 million.
Acre soy opportunity in the poultry market I mentioned in my prepared remarks today.
That this is not a concept for.
Advancement in our pipeline that we hope might work one day. This is indeed, something that's been validated.
Very meaningful feeding studies already.
The product opportunity that's here today.
The unlocked truly.
Reducing the cost of the closed loop.
And herbicide tolerance package that will will.
Enable us to identity preserved 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 there is also a healthy GM market domestically and elsewhere.
Some of these higher value application areas human food pet food et cetera. So.
Those are also going to be focal point and that's why we've prioritized the incorporation of that technology with the ultra high principal lines first.
But you can you can imagine in 2006, seven and eight that technology layering and do all of the other stacks that we've begun to discuss including on the long term that even the dual premium.
Which is extraordinarily exciting opportunity that.
It creates multiple premium value streams from the same acres on the same theme.
Further.
Further enabled by the weather.
Our herbicide tolerance market so.
Hopefully that provides a little bit more context.
Yes that was really helpful. Matt.
That kind of leads into my follow up question on this.
Given the the dynamic that.
Typical novel, GMO, being well hub or seat in general will have.
Pretty high scale commercial launch.
Versus the.
The traditional cadence that you guys see with kind of slow and steady ramp in the early years given the.
The complexity of your of your consumer focus products can you characterize kind of the magnitude of the commercial ramp from.
That you expect from from enlist varieties in its first few years versus your traditional non GMO varieties as it can be materially greater in scale or you think it is going to track in line with what you've seen historically.
Yes, great question.
It's more of the latter I see it I see it tracking in line with what we've seen and to be Frank that there's really rate limited by seat availability.
So.
One point Youre sort of getting at here is that there is a distinct contrast between how we go to market with the new genetic variety.
Then <unk> company.
Steel company might baulk. This in a really massive may and then they are selling seat at the end of the day so they're there.
Scaling is employed unilaterally push a product to a farmer, whereas worse that we're saying with our former partner.
There is more of a bilateral.
<unk> here that we are.
We're giving you get early access to what might not be.
Hundreds of thousands of acres worth of seed, maybe it's only tens of thousands of acres in the first 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 and we'd rather not hold back innovation from the market.
Our mission is to set the pace of innovation in food and and while that might not initially result in hundreds of thousands or millions of acres worth of penetration.
There is 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 real acuity to do that.
I expect that it'll be it'll be very similar.
When we launched the form side.
Got it got it very good.
Very helpful. Thanks, a lot for taking my questions I'll get back in line.
Okay.
Thank you.
As a reminder, star followed by one to ask any questions today.
Okay.
I can confirm we have no further questions I would like to hand, it back to the management team.
Okay.
Thank you very good.
Thanks, everybody for your time and attention this morning.
We've demonstrated since the founding of the company and ability to be nimble and <unk>.
To win and we continue to believe we have the right technology products pipeline talent culture and strategy to set the pace of innovation, which really isn't a slogan, but a mission that is very much the core of what we have done some he'll do.
Today, we're at the forefront of our unique and powerful synergy.
Data plant in 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 innovation 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 launched the next generations of our products. Thanks.
Thanks again for joining us.
Thank you.
This concludes the bank CEO conference call you May now disconnect your lines.