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spk06: Good morning. Thank you for attending Benson Hill's first quarter 2023 earnings call. My name is Brika and I will be your moderator. All lines are on mute for the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to your host, Ruben Meyer, Senior Director, Investor Relations, Benson Hill. Ruben, please go ahead.
spk04: Thank you and good morning. We appreciate you joining us to review our first quarter 2023 financial results and outlook. With me today are Matt Crisp, Benson Hill's Chief Executive Officer, and Dean Freeman, our Chief Financial Officer. Earlier this morning, we filed our earnings release and Form 8K. These documents, as well as our investor presentation, we will reference during the prepared remarks are available in the investor section of the Benson Hill website. Comments today from management will contain forward-looking statements, including Benson Hill's expectations of future financial and business performance, industry outlook, as well as 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 will now turn the call over to Matt.
spk11: Thanks, Ruben, and good morning, everyone. We are off to a solid start in 2023 with financial results in line with expectations and indicative of a strong year ahead for Benson Hill. We are building on the momentum from last year and we are seeing demand for our proprietary soy ingredient products in line with our expectations for a 40 to 50% increase in proprietary revenues. We continue to experience market conditions that support our non-proprietary meal, ingredient and oil sales despite the current softness and underlying commodity crush margins. These market dynamics and our team's unwavering focus on execution give us confidence we can more than double our gross profit for the year. On deck is the 2023 planting season, which is now well underway. Our team has successfully secured final commitments from our farmer partners to grow a proprietary crop on approximately 50% more acres than last year, which we expect to produce a harvest this fall that enables more targeted growth from our ingredient product portfolio with a focus on profitability, as we discussed last quarter. We had the opportunity in March to engage with some of you at our headquarters in St. Louis for Investor Day. The event provided the backdrop to more insights into our strategy and demonstrated our commitment to build a company that can set the pace of innovation and the agri-food system of the future. I would like to reinforce some important takeaways from that event. The demand side for innovations remains intact. To meet nutrition security goals and global climate goals, we need innovation in the plant-based food movement, which has been building for years. We believe the secular trends underlying this broad and diverse market opportunity are durable, and it is continuing to grow and diversify. Innovation that leads to reduced processing, better flavor, and more nutrition per acre can boost the adoption of plant-based foods. And those foods significantly reduce climate impact. That's why we've chosen to bring our innovations to markets in plant-based proteins, aquaculture, and specialty oil, with plans to start and expand into new markets through our product pipeline. What makes our approach to innovation impactful is the multiplier effect we create, which demonstrates the power of using genomics as a lever for change. Through genomic innovation, we can achieve elevated protein levels, enhanced nutrition, better functionality, and other attributes, all of which then get leveraged across crops, across feed and food categories, across different geographies, into multiple ingredient streams, and into multiple food application areas. We plan to further scale the existing proprietary portfolio and introduce next-generation products. Since we unveiled our product pipeline in early 2022, we have advanced several candidates in the pipeline 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 to the 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 soy varieties for commercial planting this year, with several more expected over the next two years. In fact, by 2025, we plan to more than double our proprietary soy varieties, including a significant expansion of our ultra-high protein soy options for our farmer partners to grow. Enabled by our CropOS technology platform, these varieties have been demonstrated to deliver improved agronomic attributes, including higher yields, which can provide benefits to our farmer network and help reduce the higher premiums we have had to offer under current market conditions. Furthermore, these new commercial varieties will increase our flexibility to plant in different geographies, which will further serve to diversify planting risk, as well as reduce logistics costs. We plan to target a larger share capture in the European aqua market with our ultra high protein plus low oligosaccharide soy meal product, which is less processed, more sustainable, and responsibly sourced from U.S. farmers. AquaFeed represents an exciting growth opportunity that has far exceeded our expectations and expands the market opportunity for our domestic farmer partners. And in the years to come, we expect to introduce our soy ingredient products across multiple categories in the European plant-based food ingredient market. Between 2025 and 2028, we expect to begin scaling our first generation of ultra-high protein yellow pea varieties, initially targeting the pet food market using our already established closed-loop model in North Dakota. We also expect to begin accessing the broader animal feed market with new high-protein soy varieties that are lower in anti-nutrients and also include Corteva's Enlist E3 technology package. This innovation is expected to open an estimated 40 million acre domestic opportunity for the poultry market and allow us to offer more choice for farmers, processors, and meat producers to partner with Benson Hill and realize efficiencies and cost savings in their operations. It's notable that the value proposition for improved soy varieties has already been validated by multiple of the top five poultry producers in North America. The unlock for Benson Hill and our partners to more broadly access this market will be the inclusion of herbicide tolerance, which we will have incorporated across numerous commercial soy varieties in the field starting in 2025. In the near to medium term, Our plans also include the introduction of the industry's first CRISPR-enabled next generation soy varieties with higher protein and improved nutrition profiles. These introductions are anticipated to provide benefits beyond our current non-GMO products, as well as any GMO products currently available on the market. As we look beyond 2028, We are planning to bring to bear the full capabilities of CropOS and Crop Accelerator with several step-level changes and 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 linoleic oil. This is a complex challenge well-suited for our CropOS platform. Our goal is to grow on one acre what it currently takes two acres to produce with our highest value-added ingredient products for customers. Second, we expect to introduce future generations of seed innovation with even higher protein content and higher oil content that offer additional benefits to customers and provide us with more access to markets such as biodiesel. Finally, we expect to continue the progress made today to tackle one of the most complex technical challenges, improving flavor profiles in yellow pea and soybean. If we are successful, this has the potential to further expand our opportunities for yellow pea in the human food market and establish a proprietary soy and yellow pea platform capable of providing expanded novel ingredient options to our customers. we believe what differentiates us is that our focus in these areas is driven by the conversations we are having with customers to see around the corner to what's possible with crop os i will conclude by saying how excited we are about the outlook for this year 2023 is the year of the customer and our operations and commercial teams have a relentless focus on pulling forward our innovations to attack multiple end markets across every segment Our diverse portfolio assures that we are hitting many of the key trends that impact consumers. That's how we are winning, with great technology, best-in-class operations, and strong business execution led by an experienced team of leaders. And it's how we're setting the pace of innovation in food, with ingredients that are better from the beginning for people and for our planet. I will now turn the call over to Dean for his perspective on our first quarter results and outlook.
spk02: Thanks, Matt, and good morning, everyone. As you saw in our release, in the slide you see now, performance in the first quarter, excluding the impact of open mark-to-market timing differences, led to an 80% increase in revenues to $128 million compared to the first quarter of 2022, and gross profit increased by approximately $5 million to a positive $4.3 million. There were three factors that led to our year-over-year revenue and gross profit performance in the quarter. First, we had strong sales of our proprietary products especially in the aquaculture market, that led to an 80% revenue increase to $25 million. Second, 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 UHP soy meal shipments to the European aquaculture markets. Third, While operating costs were significantly better than the prior year, ongoing inflationary pressures and supply chain challenges were a factor in our first quarter results. Operating expenses declined by 11% to $29 million as a result of implementing a portion of the operating expense reduction expected through our liquidity improvement plan. As a result, we are reducing our 2023 operating expense to a range of $115 million to $125 million, which is a $10 million decline from our original guidance. From a CashOpX perspective, we expect the range to be $80 million to $87 million compared to $95 million in 2022. We are on track to complete the cost savings effort by the end of this year and to realize at least a $20 million annual run rate reduction by the end of 2024. The revised guidance is expected to flow through to a reduction in our loss for adjusted EBITDA and free cash flow as you see in the presentation slides. There are many elements of our liquidity plan, and the status of our efforts remain the same as we discussed on the fourth quarter call and at our investor day event a few weeks ago. We expect the second quarter to be another period of strong financial performance. As Matt mentioned, crush margins are down considerably. However, we have been able to mostly lock in 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. As Matt mentioned, we're off to a good start in 2023. We are leveraging the operating and commercial infrastructure we established last year to scale our proprietary ingredients portfolio. We're adapting to the changing macro environment with a prudent plan to enhance our cost structure, improve liquidity, and execute our strategic objectives. That concludes the prepared remarks. We'll now move on to the Q&A session.
spk06: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. We have the first question on the phone lines from Kristen Owen of Oppenheimer.
spk00: Great, thank you for taking the question and good morning everyone. Congratulations on the nice results in the quarter. I was wondering if you could talk a little bit about the cadence for the rest of the year. It seems like you have some pretty good visibility on the proprietary revenue growth. Had some one-time items that I think you called out in the quarter. Just wondering if you can give us a sense of of the inflection or trade-off between the commodity environment and the proprietary environment and how you're managing that mixed shift over the balance of the year. Thank you.
spk11: Thanks, Kristen, for the question and your comment. I'll let Dean fill in the blanks as it relates to some of the one-time 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, you know, we expect a more consistent quarter by quarter performance, you know, hence the affirmation of the $100 to $110 million proprietary guidance for 2023 in light of, you know, what was a really nice first quarter kickoff. that constituted, you know, nearly a pro-rata view of that. So, yeah, I think, you know, as it relates to the remainder of the year, you know, we're seeing some maturation of the customer relationships that we began to talk about in the last call. And we really see 2023 being the year of the customer where, you know, we've landed into a lot of accounts with a large customer base across several markets. And we're excited about expanding those relationships and continuing to build business across the portfolio. Dean, you want to comment any more on some of the moving parts on the non-proprietary?
spk03: Yeah, no, I would just say, as Matt pointed out, that on an adjusted basis, meaning excluding the effects of the mark-to-market adjustments, the $128 million does include about $23 million of this one-time 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, you know, our process utilization was in line and, in fact, you know, consistent with sort of exit run rates in 2022. So that was intact. We did have some maintenance that we had to perform at Seymour that, you know, created a little bit of headwind, but we were able to work through that. So, you know, aside from that, you know, I'll call it the one-time level loading bean shipment for the European markets. It was really the only, you know, the only items. And so I think it's consistent with what we expected. And notably, the proprietary revenue is coming in right in on one rate where we expected. So no big surprises other than the one-time item that we just talked about.
spk00: 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 you just give us an update 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.
spk11: Sure. We haven't released the co-branded line with ADM, but we do continue to anticipate that that will occur in the second quarter. The work stream as it relates to some of the pre-commercialization activities has gone quite well. I can't comment in detail, but I will just say at a high level that the feedback on the products has been positive, consistent with some of the validations that we'd seen from applications work conducted by some of our early adopter customers in 2022. And so we're really bullish on you know, on the product line that are there, the sustainability benefits that they provide, and, you know, how we think that they'll be received in the market.
spk00: Thank you. I'll pass it on.
spk06: Your next question comes from Cody Ross of UBS.
spk08: Good morning, everyone. Thank you for taking our questions. You're off to a solid start this year. Sales came in much better than expected. You noted a one-time benefit of $23 million. Was that initially planned in your original sales outlook of $390 to $430 million?
spk09: No, it was not planned. Yeah, sorry. Go ahead, Dean.
spk03: No, sorry. Short answer, it was not planned.
spk09: Okay. So that helps. Sorry, go for it. Sorry to cut you off. No, go ahead, Cody.
spk08: I was going to say that that wasn't planned, so that's a benefit that was unexpected. You held your sales guidance. I'm just kind of curious, the rest of the year, it looks like you expect sales to decline 5% to 18% based on your guidance range. I'm wondering why that would be.
spk03: well it's just it's within the guidance range i mean it wasn't a significant you know we've got it we've got a long year yet um we're pleased with how obviously q1 uh uh played out but it's i think still a little bit early days on the top line to sort of expand on a 20 million dollar um item you know obviously things play out the way we expect on the uh you know within the range um it'll be a benefit but right now it's uh i would say it's included in the range all things being equal
spk09: Okay.
spk08: And then I just want to talk about the belly of the P&L because gross profit came in slightly ahead of expectation, albeit, you know, on the sales beat 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 that you've made and how we should think about that for the remainder of the year? Thank you.
spk03: Yeah, great question. So there was virtually zero. There was, I would call it the minimus amount of contribution margin. related to the one-time bean sales um really the entire strategy was to optimize the shipment and the cost per bushel rate optimization to support the aqua markets um so in and of itself that one time had no had no margin uh contribution no significant margin contribution maybe a couple hundred thousand in terms of the operating expense you know i would say this it's broad based but focused on the execution of the value creation uh strategies and commitments that we've made so We're not sort of communicating the elements of the cost reduction that we've achieved so far. It has 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'll take incremental actions as we go throughout the year in 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.
spk09: Great, thanks. I'll pass it on. Okay.
spk06: We now have Ben Hura of Barclays.
spk01: Yeah, good morning, and thanks for taking my question. Congrats on the very strong results. One question is actually most likely technical. It's for Dean. So if we look into the adjusted EBITDA you have for the quarter, I mean, obviously there was this roughly 5 million impact from open market to market timing differences. Now, as it relates to the guidance for a year, it's a very narrow range of just about $5 million, which is just that difference. So I wanted to understand, as it relates to your guidance, is that excluding open mark-to-market timing differences, or is it including what you had on the benefit in the first quarter? That would be my first question. Very technical, I know.
spk03: Yeah, it's very technical. But let me answer it in a non-technical way. We don't, as you know, Ben, we don't guide on the mark-to-market adjustments. I mean, if we could do that, you know, we'd 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.
spk01: Okay, perfect. And then if we think about just the longer term and as you introduce and kind of work through what you currently have in your portfolio, what's in your innovation pipeline, and go forward. How should we think about the need to allocate spend as it relates to research, as it relates to CapEx? What are the medium-term needs for you guys to spend, and how does that fit within some of the cost savings we've been seeing? I 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. Yeah, great question, Ben.
spk11: Go ahead, Matt. Go ahead. Well, I'll give a qualitative view of it at a high level because from a strategic perspective, one of the core tenets of the liquidity improvement plan was to maintain both operational excellence but also the innovation excellence that we've invested in very heavily over the past many years. And so as we've evaluated our cost structure, a lot of the focus starts with G&A and we're sort of building out from that. And so think there first then. The other element is, as you've seen reported, in the neighborhood of a $40 million line item for R&D. And over time, a larger proportion of that has been on the D than the R. In other words, as we've seen our pipeline mature in the last three to five years, a 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, you know, in some respects, reinvest in those capabilities, expand those capabilities, given that, you know, numerous product opportunities that we've described in the next two to five years are coming online for which, you know, we've largely already de-risked. In other words, they've They've demonstrated the phenotypic output or the characteristics or 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. So those are the areas that we've really prioritized and, you know, put a ring fence around as it relates to maintenance. And then, you know, as it relates to some of the other areas, like I said, G&A has been an area of focus recently. some of the very longer term components, but none where we've sacrificed a core capability or technological platform that we've built over the last few years. So I just want to give you that sort of strategic thought pattern there, and then Dean can articulate some more detail.
spk03: Okay. 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.
spk01: Perfect. Thank you very much, Matt. Dean Congress again. Thank you, Ben.
spk06: Thank you. The next question comes from Brian with Ross MKM.
spk07: Thanks. Good morning. Thanks for the question. Thanks for the additional detail on the pipeline. I thought that was really helpful. Digging a little deeper on that, just to understand the scope maybe a little bit better as far as kind of is everything in the pipeline focused on soybean and 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 to give us a scope of what could be in that?
spk11: Not right now. There's a real focus on soy and yellow pea, given the quantum of market opportunity that's there. And every time we speak to new customers, we're learning more and more about other opportunities, even to enhance beyond what we've currently contemplated in the current pipeline. However, you know, it is something that we're not blind to as we've built out a really, really robust intellectual property portfolio is how the innovations that, you know, we've discovered or, you know, the inventions that, you know, have come from our R&D efforts can be translated to other crops, namely legume and pulse crops, you know, that drive a lot of the nutrition demand in the global markets. So in time, you know, I think we'll be better positioned to talk about some investments that we may make. But right now, we really, you know, as reflected in this liquidity improvement plan and other efforts, we've really tried to streamline our operations, focus on the largest, nearest term, highest margin value creation opportunities and drive towards, you know, successful commercialization of our closed loop. So that's really the focal point is around soy and yellow pea for the foreseeable future.
spk09: Makes sense. Thank you.
spk06: We now have Ben Cleave of Lake Street Cactus Markets.
spk10: Hi. Thanks for taking my question, Dom. I have a couple on the opportunity on hand with the Enlist herbicide package. First question is, you know, not that this is, you know, still young, only, I don't know, six weeks in, but can you kind of provide a bit more detail on the activities that you are undertaking now to introduce those traits into your genetics and kind of what your expectations are, you know, over the next 18 months for, you know, in this process?
spk11: Sure, sure. Thanks for the question. What I would say is that the introgression or the incorporation of the E3 influence technology, as you know, is a really meaningful potential unlock in some larger acre, broader markets. But it's not something that we just commenced, even though we just announced it a few weeks ago. It's something that's been ongoing for some time, which is actually what enables us to hit the market, starting with plantings initially in 2025. because that work has been underway for some time. The opportunity set and how we're thinking about the next two to four years as we roll out 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, you know, advancement in a pipeline that we hope might work one day. This is indeed something that's been validated in very meaningful feeding studies already. This is a product opportunity that's here today. The unlock truly is reducing the cost of the closed loop with an herbicide tolerance package that, you know, will... enable us to identity preserve 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's also a healthy GM market domestically and elsewhere in some of these higher value application areas, human food, pet food, et cetera. So those are also going to be focal points, and that's why we prioritize the incorporation of that technology with the ultra-high protein lines first. But you can imagine in 26, 7, 8, that technology layering into all of the other stacks that we've begun to discuss, including on the long term, even the dual premium beans, which is an extraordinarily exciting opportunity that, as I mentioned, creates multiple premium value streams from the same acre, from the same beans. further, you know, further enabled by the herbicide tolerance package. So hopefully that provides a little bit more context for them.
spk10: Yeah, that was really helpful, Matt. And that kind of leads into my follow-up question on this is, you know, given the dynamic that, you know, a typical, you know, novel GMO bean will have or seed in general will have, you know, a pretty high-scale commercial launch, uh versus the uh you know kind of the traditional cadence that you guys see with with you know kind of slow and steady ramp in the early years given the you know kind of complexity of your of your uh consumer focused product can you characterize kind of the magnitude of the commercial ramp from uh that you expect from from enlist varieties in its first few years versus your traditional non-GMO varieties? Is it going to be materially greater in scale, or do you think it's going to track in line with what you've seen historically?
spk11: Yeah, great question. It's more the latter. I see it tracking in line with what we've seen. And to be frank, this is really rate limited by seed availability. So one point you're sort of getting at here is that there's a distinct contrast between how we go to market with a new genetic variety than a seed company. A seed company might bulk this in a really massive way, and then they're selling seed at the end of the day. So they're scaling inventory to unilaterally push a product to a farmer. Whereas we're saying with a farmer partner, where there's more of a bilateral relationship here, that we're giving you early access to 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 seed availability is essentially how we think about making the product available. And we'd rather not hold back innovations from the market. As you know, our mission is to set the pace of innovation in food. And while that might not initially result in hundreds of thousands and billions of acres worth of penetration, there's 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 some real acuity to do that. So I expect it'll be very similar when we launch the BAM side.
spk10: Got it. Got it. Very good. Very helpful. Thanks a lot for taking my questions. I'll get back in line. Thank you.
spk06: Thank you. As a reminder, it is star-footed by one to ask any further questions today. I can confirm we have no further questions, so I'd like to hand it back to the management team.
spk11: Thank you, Greco, and thanks, everybody, for your time and attention this morning. We've demonstrated since the founding of the company an ability to be nimble and a will to win, and we continue to believe we have the right technology, products, pipeline, talent, culture, and strategy to set the pace of innovation in food, which really isn't a slogan but a mission That is at very much the core of what we at Benson Hill do. Today, we're at the forefront of a unique and powerful synergy of data, plant, and food science. And combined with the go-to-market capabilities that we have, we expect to continue to gain momentum this year and in the years to come. We're excited about our future because it's defined by our innovations being brought to bear across broad market categories today. And we believe that the best is really yet to come as we scale our proprietary products and we launch the next generations of our products. Thanks again for joining us. Have a great week.
spk05: Thank you.
spk06: This concludes the Benson Hill conference call. You may now disconnect your line and exit the webcast.
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