Benson Hill Inc (BHIL) 2022 Q1 法說會逐字稿

Good morning. Thank you for attending Benson Hill's First Quarter 2020 Earnings Call. My name is Harry, and I'll be your operator today. (Operator Instructions)

I'd now like to pass the conference over to your host, Ruben Mella, Senior Director, Investor Relations of Benson Hill. Ruben, please go ahead.

Thank you, and good morning. We appreciate you joining the review of our first quarter earnings results. With me today are Matt Crisp, Benson Hill, Chief Executive Officer; and Dean Freeman, 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 Benson Hill website. Comments today from management will contain forward-looking statements, including Benson Hill's expectations of future financial and business performance, current guidance about 2022 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 scale the commercialization of our proprietary soy ingredients portfolio. Market dynamics and macro tailwinds 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 checked many of the boxes our customers are demanding with increasing frequency, especially in this supply-constrained environment.

Our recently announced partnerships with Kellogg's Morningstar Farms plant-based foods and Denofa, a leading protein producer in Northern Europe are 2 examples for how we can help customers and partners across the agri-food value chain meet their needs. In 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 season. 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 in 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 position Benson Hill to help our customers navigate these challenges.

Higher protein in the bean creates more efficient value-add opportunities for our customers. Partnership back to the farmer enhances our agility to respond to 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 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. You saw our first quarter results in the earnings release and presentation slides. I want to focus my remarks on a couple of important takeaways. As Matt mentioned, we continue to build upon the momentum achieved last year with first quarter consolidated revenues of $92 million, nearly 200% increase year-over-year, led by growth in the Ingredient segment with reported revenues of $66 million, up nearly 400%. Strength in the Ingredients segment was driven by strong operational execution and market demand for both proprietary and nonproprietary products.

We continue to benefit from broader food system supply chain constraints, coupled with the strength in demand for non-GMO food grade soy, specialty oils and aqua market meal products. Consolidated gross margins were in line with expectations when adjusting for approximately $8 million in losses related to the timing impact between mark-to-market hedge contracts and corresponding sales.

Let me explain a little bit more about that. Our hedging policy covers soybean purchase price risk as well as prices on product sales in 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 in current or later periods by higher price sales on the physical assets.

The total reported mark-to-market loss was approximately $13 million, with $5 million realized during the quarter for settlement of contracts corresponding to higher-priced sales in the quarter. The remainder are 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. Proprietary revenues in the Ingredients segment were $14 million, which increased 161% over the prior year, driven by strong sales demand for specialty meal and oil products. This is 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 in executing the closed-loop model with proprietary and nonproprietary contribution margins in line with expectations.

In the Fresh segment, we saw better-than-expected price increases and volume growth that led to strong year-over-year 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 used 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 first and fourth quarters of any given year. Our cash use also includes the impact of operating expenses and CapEx, which are 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've 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.

(Operator Instructions) And our first question is from the line of Adam Samuelson of Goldman Sachs.

So I guess, first question, just as we think about your 2022 planting. One, any update in terms of progress? I know it's been a late start to field work in the areas where your growers are located, do you see any risk of them not being able to get into the ground? And then you talked in the prepared remarks, Matt, about expanding sales of the non-oleic -- are the non-GMO high oleic, how big of an incremental acreage and potential of opportunities to 2023, would that be?

Sure. Sure. Thanks for the question. Yes, in respect to planting, I mean, everybody is probably aware that the spring has been pretty cool and wet, and that's been delaying some planting of corn beans and wheat. Planting is trailing average of last year, but it's actually underway in a lot of regions. It's a little too early for us to tell if this is going to have any impact this year. But we don't see anything right now that would signal cause for material concern.

And then you asked about the high oleic stuff. In respect to the acreage increase that we talked about in response, it was obviously a little bit late in the contracting cycle, but we did make the decision to seek out some additional acres of that product. We won't be able talk about the exact numbers, but it was meaningful, over 10,000 acres of additional high-oleic, low-linolenic oil crop. And we're obviously trying to help address a really big challenge by responding just some urgency that customers have.

Some of these customers, by the way, are prospective customers have never used soy before, never use soy oil. And Benson Hill is marketing a non-GMO project verified, high-oleic, low-linolenic soy oil, which we believe strongly is a great alternative to the sun that's going to see some really significant shortages in the latter part of this year and forward.

Got it. Okay. That's really helpful. And then just thinking about in the Ingredients business, the Creston facility. Obviously, there's noise as it relates to the mark-to-market. I'm just trying to think about soybean crush margins, which on a cash basis in the U.S. remained very, very healthy right now. And -- just trying to make sure I'm calibrated about how that would -- how that is or should be flowing through your results? I just -- it seems to be a very good time to be owning a soy crush plant in Iowa and a smaller one in Indiana.

Sure. No, I mean, you're right. I mean, in that soy crush margins are certainly healthy and they help support it. Keep in mind, however, that the Creston and Seymour facilities are not incredibly large-scale facilities. They're 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 intermediating other supplies other processing steps.

And so while some of the legacy business has certainly enjoyed 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 of the capacity of those plants with proprietary product, and 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 in a super significant way as they might for folks with much, much larger processing operations.

Our next question is from the line of Ben Theurer of Barclays.

Two questions, if I may. So first, a follow-up around the dynamics within the ingredients business and obviously, the high value here, you've just talked about. Can you give us a little more sense about what that -- where you basically got that $14 million from your proprietary bean from, so just to understand a little bit the driving dynamics here?

And how should we think about the revenue contribution throughout the year given we're just in 1 quarter, but just to understand a little bit with the recovery in some of the mark-to-market, but I mean just to understand the proprietary, how that's going to evolve or how you expect it going to evolve over the coming quarters? That would be my first question.

Yes. I mean there's multiple ways that we can realize proprietary revenue streams. I mentioned high-oleic oil. That's one of them, one that we're 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 test drives products to even just whole beans, and that may be utilized in other facilities.

So the first quarter represented revenue across the board. But as Dean mentioned in his comments, we will expect that given the sales cycles and that this is the first full commercial year that the ultra high-protein soy portfolio is online. That we'll see some pretty material pickup over the duration of the year, particularly on the protein side.

Yes. And I think just to add on to 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. And then if we look into the OpEx number that was obviously relatively high. Can you help us digest that a little more -- in a little more detail and the breakdown just what happened on the SG&A side because basically had almost doubled. And just to understand a little bit what were the different drivers behind that? I mean, you gave a little bit of an explanation within the press release to some of the pipe transaction, but if we could just better understand what the real impact was that would be much appreciated between the different segments.

Yes. I think the broad way to think about it, Ben, is Q1 prior year 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 built out general and administrative organization quite at that point. So I would say much of the year-over-year differential or increases is associated with the full build-out of the commercial teams and the administrative teams. I'd also point out that about $6.5 million of that increase is driven by noncash and onetime related items. We have tight fees in there as well as the stock compensation is the biggest driver of that particular piece.

Okay. So basically, if we adjust the fix out, that would be more of the run rate we should think about as well going in quarters to come, correct?

Sure.

And our next question is coming from the line of Kristen Owen of Oppenheimer..

Congratulations on a nice quarter. Just wanted to talk through some of the follow-up on the facilities themselves. Understand that there's a favorable backdrop for soy crush margins. But I wanted to ask specifically about what the operational improvements that you're seeing having brought those facilities in-house. I think -- at the Investor Day, you talked about running those at some of their best performance. So just wondering if you can talk a little bit about what you're doing internally to further improve the efficiency of those facilities.

Yes, 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 that are helping oversee and upgrade in some respects to 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 the margin profile on the nonproprietary side.

So we're continuing to see that. I'm really encouraged by the team's performance. as we've talked about, execution is the #1 area that we're continuing to focus on. And the single most important factor to do that is high-caliber talent that we're investing in.

And I wanted to follow up on some of your comments about the -- just the backdrop for vegetable oil demand and the tightness that we're seeing because of the geopolitical events going on. If I recall correctly, your capacity for the high linolenic oil was already largely booked throughout the remainder of this year. You mentioned in your prepared remarks, expanding your acreage. How should we be thinking about contribution to 2023? 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, thinking about the back half of the year and going into 2023?

Sure. Sure. So correct, your first comment about having booked business through the crop -- or coming from the '21 crop is accurate. And so when we talk about adding acreage for the '22 season, the earliest that we would see that moving into commercial channels would be the very late part of this year. And that's why exactly as you indicated, you're 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 a significant amount of interest in the market.

We're seeing pricing has been reflected in on [CEA] of oil increasing pretty materially due to the geopolitical events. Europe is obviously a major driver of the demand for high oleic oil and Benson Hill having a non-GMO project verified, high-oleic oil, we think positions us really well to help meet some of the challenges and some of the gaps, shortfalls that are imminent. 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 favorable as well.

Our next question is from the line of Brian Wright of ROTH Capital Partners.

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 and just all the typical kind of risk that you run during the year? Or just kind of want to think about how you're kind of thinking about things.

Well, I think what -- from an Ingredients 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. We -- when adjusting for some of the noise created by the mark-to-market activity, we met or exceeded both revenue and margin expectations I'm very pleased with how the team has executed.

I think having the market tailwinds, a confluence of market tailwinds continue 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 the team has done a really nice job of helping the customers' needs. Dean, anything you want to add.

No, I think that's exactly right. I think the big picture is the demand side of the equation continues to be strong. We continue -- I think Matt has talked a lot about just the plain execution of running those facilities and meeting the demand points that we need to, to continue to grow the business. And so I think we can say with confidence that we are exactly where we expected 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?

Thank you. We have no further questions today. So I would like to hand back to our host, Ruben for any further remarks.

Thanks, Harry. We're going to take a few minutes to go over some of the questions we received from the retail investor audience. So Matt and Dean. The first question is what is the biggest headwind for Benson Hill this year?

Well, we continue to believe that execution is our biggest challenge. It's the biggest risk. And as I mentioned in 1 of the comments earlier, you're 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, we believe in and are focused on operational excellence and taking innovations from seed to play.

So in short, execution, execution, I mean, that's the biggest headwind for us and 1 in which we're relentlessly focused.

SP1 Another question from the retail audience was how is this inflationary environment affected our business?

Yes, I'll take that one, Ruben. So look, we're not immune to the impact of the inflationary pressures, be it rising fuel costs, broader wage inflation. So far, we've been able to manage those cost pressures and at least work 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 food system right now is innovation, and we think that we're positioned to. There's a lot of challenges in the food system right now as a result of the inflationary effects. There's a number of dynamics that are driving the inflationary effects. And we think we have the opportunity to bring solutions to some of those challenges.

Another question is, what are your plans to increase revenue? And what are your plans to increase shareholder returns?

So we have the good fortune of having just come off of an Investor Day. I think there is ample amount of material that kind of suggests that we are aggressively pursuing growth. I think our first quarter results speak to that, obviously. And we guided our proprietary business on the ingredient side to $350 million by 2025. So we have aggressive plans. We have appropriately balanced plans, I think, in terms of 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.

No, I completely agree. And I mean we're pleased with the progress in the commercialization of the portfolio thus far. It continues to gain momentum, particularly, as I mentioned, the ultra-high protein-based ingredients, being commercialized now under our CleanCRUSH brand. We really expect that to drive some significant shareholder returns as we're bringing that and other innovations to market.

What's the potential for Benson Hill 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 CEA space fairly well, and we do believe that new companies like this that are focused on innovation in food and ag. Bringing their products and their innovations to bear is going to help solve some significant needs in the category, but that biology and the genetic potential of plants will play a major role in the CEA space as well. And that will be the bring sustainable, more healthy and importantly, in this space more accessible, food to market that need -- that need that food.

At Benson Hill, while we have 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 life cycle to continue to focus and namely in our proprietary soy portfolio and our yellow pea portfolio, which is coming online. We're making significant investments there. We've got tremendous opportunities in front of us. And so in the near term, our focus will remain on soy and yellow pea in the medium and long term. We'll always keep an open mind to other opportunities in adjacent spaces.

And the last question is, it's a bit related, but are there any conversations on expanding the product lineup or the crops you provided to farmers as a potential catalyst to grow the business for the long term.

Well, a similar answer here. Our current focus is really on protein-driven solutions. There's obviously a unique opportunity in the oil category that we're also helping solve for. But soy and yellow pea are the 2 focal points. And like I said, in the medium to long term, I think there will be opportunities for us to utilize the technology platform and the remarkable capabilities that our product development organization has built out in order to bring other crops online. But that's unlikely to happen in the next 2 to 3 years, we're really going to focus on the current portfolio in the near term.

So those were the top questions we got from retail investors. We appreciate the retail audience participating with technologies and getting -- and letting us hear from you, we have no further questions at this time. So Matt, I'll turn it over back to you for some final comments.

Yes. Sure, sure. I appreciate that. I'll 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're on track for a solid '22. This dynamic nature of the global agri food system is really requiring companies to be innovative and agile and Benson Hill's position as an integrated food technology company is positioning us very well to continue to deliver solutions to help our customers and our partners meet their needs. So I appreciate everybody's time and attention this morning. Have a great week.

This concludes the Benson Hill earnings call. You may now disconnect your line and exit the webcast.