BHIL (2021 - Q3)

Good morning and welcome to Benson Hill's Third Quarter Earnings Call, our first as a publicly traded company. I am Ruben Mella's Senior Director of Investor Relations. We are excited to have the opportunity to share with you the progress we made this quarter to execute our strategy. Today you will hear from Matt Crisp, Benson Hill's Chief Executive Officer, and Deann Brunts, our Chief Financial Officer. The third quarter earnings press release is available on the investor section of our website. We will also post this video presentation and the live Q&A to our website later today. Before we begin, I want you to know that the prepared remarks contain forward-looking statements, including Benson Hill's expectations of future financial business performance and conditions and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and assumptions and are not guarantees of performance. We caution you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements. Such factors include those referenced in the cautionary note included in our earnings release, the 10-Q filing made this morning and our other filings with the SEC. Also during this presentation, we will be discussing certain non-GAAP financial measures, a reconciliation to GAAP can be found in our earnings release. With that, I'll turn it over to Matt. Matt Crisp:

Thanks Ruben and thank you everyone for joining us today. I want to take this opportunity to reiterate where we are, where we are going and why am I so excited about Benson Hill’s near-term and long-term prospects. Deann is then going to review our operating and financial results before we open the presentation for Q&A/ Let me start with my enthusiasm for where our business is today and the tremendous opportunity we have before us. Often, over the last few months, we have been described as a category defining company, meaning we are taking a differentiated approach to create and realize value in the food system. This is required technological innovation which is driven by CropOS as well as a business model innovation which is driven by our vertically integrated go to market approach both of which I will revisit my comments today. We believe we are doing something that few others in the world are doing by combining technology and cutting-edge science with this unique go-to-market strategy and enabling it at scale. We are building a food innovation platform that is bold and different powered by technology and driven by sustainable and more affordable food options for consumers. It is our view that the current food system is at a crossroad. When we look at how food is typically made today, we see a large-scale commodity driven system built to make cheap calories versus quality calories and trapped within its own inertia, struggling to adapt to improve climate impact and human health while maintaining production at scale. The need for change is urgent, because there is essentially no industry more fundamentally important to people and our planet than food production. This isn’t something that can be viewed as a head of its time when we nearly out of time and it signals for a change are coming loudly and from many directions. It starts with the consumer. Consumer preferences have and continue to evolve fueling the rapid growth and demand for plant-based proteins and better for you food options that are less processed with cleaner product labels and interest and purpose driven brands. Food companies are working to meet this consumer demand with innovative food choices and greater sustainability on their supply chains. But their innovation is largely limited to the same traditional commodity ingredients they've used for decades with no connection to the farm. The agricultural processors of ingredients are also working to adapt to the plant-based food movement, determining how to increase capacity that still involves water and energy intensive processes and major investments and facilities that typically take years to bring online. Meanwhile, many farmers are eager to connect with the consumer and move beyond the increasing input cost and narrow margins of the traditional commodity system. They know they play a pivotal role and successfully advancing our food system. And they also want to focus on quality, not just quantity. We firmly believe the right approach begins with a better seed. For decades, commodity seeds the most fundamental component of food production had been largely developed without the consumer in mind. The natural genetic diversity of plants leveraged through technology is our greatest untapped resource to move the food system forward. Genomics is already a proven leader for innovation. And we're focused on unlocking massive opportunities to realize its potential across the ag food system with consumers, farmers and our planet in mind. Our food innovation platform has two components. The first technology, CropOS allows us to harness the power of data, genomics and AI to reduce product development timelines and costs for seed, food and ingredients. The second component is our vertically integrated business model. Through this, we are working to apply our technology across the value chain to make and sell plant-based ingredients and food that are better from the beginning, starting with the seed. Inherent in all aspects of our business is sustainability. At scale, we believe that proprietary non-GMO soybean ingredient products we are commercializing today and the yellow pea ingredients we have in development will help companies meet real sustainability targets. In doing so we can offer identity preserve traceability of our ingredients and partner with farmers to optimize on-farm resources, climate resilience and soil health, to name a few sustainability benefits. We have a soy-based ingredient today that we believe can reduce or eliminate processing steps. And there's a multiplier effect as we anticipate that our products will allow customers to increase the sustainability of their products. This in our view is a unique differentiator. We've already demonstrated our ability to execute a closed loop supply chain. And we are building relationships with food, feed and ingredient customers which is driving our revenue growth and providing us further insight to apply to our product development. We expect this approach will allow us to leverage our innovations to gain market share, expand margins, and accelerate growth across our business. Everything we do is underpinned by data. We have a massive data library in CropOS today. And we're investing to continue to add high-quality data to expand our AI simulation and prediction capabilities. Our ability to use simulation to bring our innovations to life is core to our value proposition. We believe that the convergence of data science with plant science and food science is a major differentiator, which will drive value across both our development and our commercial pipelines, as well as help enable a significant long-term competitive advantage. Turning now to our third quarter performance, where we continue to make tremendous strides to execute and realize our vision. Adjusted revenues in the third quarter increased 35% year-over-year. In the ingredients segment adjusted revenues grew 80% year-over-year and as a reminder, adjusted revenues exclude sales from our Barley Operations we sold last year. We remain committed to deliver on strong execution. Our commercial teams are rising to the challenge meeting the needs of customers during a time of capacity constraints for yellow pea ingredients, over supply of fresh produce and challenges in the value chain that are impacting companies across many industries. Despite the current operating environment, we are in a strong position to finish the year with revenues that we expect will meet or exceed the $127 million guidance we provided in May, and which we established internally nearly a year ago. We are following a rigorous budgeting process now as we did last year to complete our detailed financial plan for 2022. Harvest is nearing completion for our 2021 soybean crop. It's been a great season, which has kicked-off by our exceeding our target for contracting acres as well as executing the first commercial plantings of our ultra-high protein beans. We're excited about the interest we see from both farmers and customers as we move into 2022 unique to our engagement with farmers as we help optimize protein expression and sustainability as well as crop agronomics. As part of that effort, for the last few weeks, our team has been in the field collecting protein measurements, as well as being composition, soil health data and non-GMO validation for nearly all of our ultra-high protein soybean acres. Contracting for our 2022 crop is well underway and many farmers who grew for us this year have already made commitments to expand Benson Hill acreage in 2022. We're attracting new farmers as well and we're pleased to share that a large portion of our ultra-high protein soy acres are already secured for the next growing season. We take our relationship with farmers seriously and we look for ways to expand our partnership with this forward-thinking group. In the third quarter, we introduced our plant for protein initiative to use regenerative agriculture and protein optimizing practices and we launched a pilot agriculture and protein optimizing practices. And we launched a pilot Carbon Credit Program as well with the Ecosystem Services Market Consortium or EMSC, which leverages the advantages of our closed loop system. Also in the third quarter, we achieved two important milestones to advance our near-term and long-term strategy. First, we opened our Crop Accelerator, a state-of-the-art technology enabled facility that will double the number of plant growth cycles per year. While the predictive power of CropOS to identify genomic targets greatly accelerates new seed development, those predictions still have to be brought to life through breeding and testing. The Crop Accelerator is enabling us to rethink the traditional product development processes and deliver innovative ingredient and food outcomes we need with increased efficiency and urgency. We anticipate a 20-fold increase in testing capacity, which will help fuel our efforts in developing the next generation soy and yellow pea seed varieties for both the plant-based protein and pet food markets. The second milestone is the startup of our recently acquired soy crush facility in Seymour, Indiana. We planned to access this capacity as part of our soy ingredient commercialization strategy, dependable and cost-effective soy crushing, while routine is an important component of our integrated business model. And we expect to continue to upgrade the facility to help address the growing demand for our soy ingredient products. We have a strong team today and bolstered it during the quarter with some key additions, including our ingredients segment which is led by Bruce Bennett. In the last few months alone we have added over 100 years of cumulative experience from companies like ADM, Bunge and IAFF. These colleagues bring expertise in grain processing and product formulation and have a keen understanding of the protein ingredients that food companies need as well as the multiple ways our products can bring them value. We believe we are well positioned to deploy our integrated business model to meet customers where they are and offer a portfolio of differentiated ingredients, beginning with protein and in particular ultra-high protein soybeans through our new TRUVAIL brand. We are also excited about the prospects of forming lasting partnerships and licensing agreements to fuel our growth in the years to come. In closing, I want to emphasize again, that we are pleased with our progress this year and we feel good about the outlook for 2022. Like I said, we believe what we're doing is truly innovative. We have built a substantial technology mode. We have strategically targeted soy and yellow pea as crops ripe for innovation. We have a robust product pipeline that we believe has huge growth potential in the exploding plant-based category but we're not going to stop there. We're in the early innings of an evolution of our food system and what we're achieving will take time. We have tremendous momentum today and an incredibly talented team focused on solving some of the most significant and most exciting challenges in food. Our core values to be bold, be inspired and be real enabled us to build Benson Hill, and these values along with our mission continue to fuel our passion to create food made better from the beginning. We are convinced this is a rare moment to take advantage of these incredible market tailwinds. We are in active conversations with customers who are moving quickly to meet this consumer led movement for better food choices. We believe our products addressed the market need whether it's higher protein content, sustainability, traceability, affordability, or domestic source of supply, we check all the boxes. We owe it to all of our stakeholders to be aggressive now, as our growth extends into the plant-based alternatives markets. This fits with our mission to leverage our food innovation platform to set the pace of innovation in food, whether you're a farmer, a customer, a consumer, or an investor. I hope you will join us on this journey to advance the food system. I'll turn it over now to Deann to discuss our financial results.

Thanks, Matt, and good morning, everyone. This is an exciting time for Benson Hill. We completed the merger with Star Peak Corp II on September 29, and began trading as BHIL, the following day. With the close of the transaction, we completed an important milestone and one of the many steps in our plan to bring better food choices to consumers and improve our planet by reducing carbon production and water usage. We're working to do this through our talented team members deployment of our technology, intellectual property and go-to-market strategy. I'm going to start with a question we believe is top of mind for many. I'm referring to the question of how does the relatively high redemption rate and the merger transaction impact Benson Hill's plans. Of course, our redemption rate of approximately 75% was a disappointment, as we've consistently communicated with full funding from the $400 million trust combined with the 225 million pipe, we expected not only to have funds to execute on our plan, but also to have dry powder to take advantage of strategic opportunities as they may arise to further accelerate the commercialization of our product portfolio. To share redemption level we experienced does not diminish our resolve to execute the plan we shared with you at the analyst meeting in June nor does it diminish our desire to accelerate the plan where possible. As you know, we brought in 320 million in gross proceeds or 274 million in net cash to our balance sheet. This is more than Benson Hill had previously raised and all its private fundraising events combined. We believe this major cash infusion represents sufficient capital to fund the organic business through 2022 and into 2023. As we planned and previously communicated, shortly after closing the transaction, we elected to pay-off some higher cost debt from our private company days. We will continue to evaluate opportunities to advance the organic plan and accelerate the commercialization of our products and to that end may consider debt financing if it makes sense to deliver shareholder value. Our operating cash usage for the nine months ended September 30 was 73.6 million. In addition, we spent 37.5 million for capital expenditures and the acquisition of the Seymour, Indiana Soy Crush Facility. Our ending cash balance at September 30 was 257 million. Let's turn to more about our Q3 results. The combination of proprietary soybean product sales and higher volume and average selling prices for yellow pea resulted in a 34% year-over-year quarterly revenue growth in the ingredients segment on a U.S. GAAP basis. And as Matt mentioned earlier an 80% growth year-over-year, when adjusted for the Barley business sold last year. As was the case last quarter the market for fresh produce continues to be impacted by higher than expected yields both domestically and imported. This is negatively impacting average selling prices and volumes. As a result, fresh segment revenues declined 19% as compared to the third quarter last year. These unusual market conditions in fresh have continued into the fourth quarter despite the impact of these macro conditions. Our overall revenue performance driven by the ingredients segment was favorable to our plan for the quarter. Consolidated gross profit for the quarter was 409,000, a decline of 898,000 as compared to the prior year. Though it was essentially flat when adjusted for 681,000 in gross profit from the sale of the non-core barley business. Cost of sales included higher costs of production from the 30,000 acres planted in the 2020 crop and approximately 847,000 in startup costs for the Seymour facility for which we anticipate additional costs in the fourth quarter. Favorable yellow pea pricing and volumes helped to offset the higher soy costs. The market dynamics in the fresh segment resulted in relatively higher cost of sales. We're not immune to the supply chain challenges in the U.S. Our costs were higher for fuel, storage and freight, which mostly impacted fresh produce. We expect the supply chain challenges will continue to persist into 2022. And we're working to mitigate any potential impact to our business plan. Lastly, I want to share some thoughts on SG&A, which was 28 million in the quarter. For the quarter expenses were unusually high as they included cost related to the merger, public company readiness and acquisition costs that totaled 13.5 million. After adjusting for these non-recurring items, SG&A costs were 14.5 million. We're investing in resources to execute our commercialization of our soy products and in addition, we experienced higher non-cash stock compensation expense, both contributing to higher human resource costs. Our investments include the product, operational and sales resources needed to achieve scale and win market share. We also are investing to continue to expand and protect our intellectual property and advance our technological capabilities, including the launch of our Crop Accelerator facility. Adjusted EBITDA was a loss of 20.1 million driven predominantly by the margins, operational, research and development and G&A expenses as we continue to invest in the execution of our strategy. Matt outlined several of the milestones we achieved so far in 2021. The fall season is a busy time with harvest processing our soybean grain and engaging with customers to sell our expanding availability of proprietary soybean ingredients and other products getting availability of proprietary soybean ingredients and other products. We are currently working through the details of our plan for fiscal 2022 with a focus on balancing opportunities and resources. We will share more about the optimism we see for 2022 on our Q4 call. I will now turn it back to Matt for his concluding comments.

Thanks, Deann. Our promise when we started Benson Hill in 2012, was to use the natural genetic diversity already in plants to create a better food system. consumer preferences are shifting as this need for change is recognized. And the demand is greater now more than ever, for nutritious food and ingredient options, especially those that are sustainably produced, traceable, and domestically sourced yet that are still great tasting and affordable. We are passionate about our mission to set the pace of innovation in food. And we recognize that we are at the right place at the right time to serve as the picks and shovels of this plant-based movement, and to offer customers in the near term, better protein ingredient choices. Thank you, all of our stakeholders for your ongoing support. We could not be doing this without you. Let's move now to the live Q&A.

Good morning, and welcome to the live Q&A session with Matt and Deann here to go through some of the questions. As a reminder, we're using Zoom webinars, so please use the raise your hand feature. Before we get to the questions from the audience, we actually participated with Say Technologies to do a Q&A form. And we received some really thoughtful questions from retail investors. So we want to go through a few of those right now. And the first question, Matt for you will be Beyond Meat and Impossible Foods have reduced revenue forecast. What does Benson Hill's plan if the demand for their ingredients flatten?

Sure. Thanks, Ruben. And thanks for the person who asked the question. So as a matter of policy, we won't comment on other companies and their financial performance. But what I will say is that in 2020, the Good Food Institute, GFI issued a report and estimated that there's about 800 companies right now developing or commercializing plant-based food alternatives. Some of these are going to be winners, and some of these are going to be losers. And the expected market growth by the end of the decade is expected to be north of $100 billion. So it's a massive opportunity in total, for plant-based protein. And in particular and especially the plant-based meat substitute market. As we've talked about, we're the thing behind the thing that the picks and shovels, so Benson Hill is really a bet on the movement. And we're able to support a wide variety of customers not any specific brand. We've already been in contact with dozens of companies about our TRUVAIL product. And its portfolio which comes from our ultra-high protein soy. The reception for TRUVAIL has been terrific. And we're really excited about the opportunity that it presents, particularly we are finding a lot of market interest across several of the value props for TRUVAIL. And as well as the other products we sell, but namely fully traceable, non-GMO, domestically sourced, more affordable and more sustainable, in large part more sustainable and affordable because we're reducing expensive water and energy intensive processing, which furthermore reduces a processing bottleneck in the supply chain. This is providing the opportunity to relieve constraints for growth that companies like Beyond and Impossible might actually face. So it's got a multi part value proposition.

The second question we got was environmentalists have requested audits of greenhouse gas emissions to rank plant-based protein GHE against conventional proteins. Has Benson Hill budget for these third-party assessments?

So to be clear, we're supplying ingredients used in food and feed. We also do grow fresh produce mostly on contract with the farmers. And yes, we have and we're continuing to engage with third-party resources to conduct independent LCAs or lifecycle analyses of our ingredients which establishes the GHE, greenhouse gas emissions, and also the water use baseline for our products compared to others that are available. Our approach to sustainability and our products really includes practices across both the farm and the processing level. Again, by reduction of water and energy intensive processing. We believe that innovations and the data that we can help supply through these independent LCAs can help farmers and the Ag food processors and food companies really realize their sustainability -- and food companies really realize their sustainability goals.

Terrific. And the third question we got was how do you think about new product development, what are your plans for 2022? And is there anywhere we can see a five-year roadmap or plan?

Right. So we invest more than $40 million a year currently in research and development activities, and we've got about 150 professionals across data science, plant science and food science, they're working really tirelessly to bring our innovation starting with the better seed to market, not just in the immediate term with products that have already been derisked, but also for product generations to come. The focus today is really on soy and yellow pea. And admittedly, we've not talked a lot about our innovation pipeline, which is not detailed in our published materials. But we believe that pipeline is going to provide significant upside to the plans that we've discussed publicly. And to start conveying that message, we plan to host an Investor Day in early April, where we'll begin sharing more information about the breadth and the value of the pipeline.

And the next question is for you, Deann, when do you expect to be profitable?

Thanks, Ruben. We're seeing just massive market potential here for our products and it seems to continue to grow. We're -- the potential that Matt has already talked about is still the opportunity that we see in our plan for addressing this market. We talked about and in the script, and I talked about the fact that we have sufficient cash to get us into 2023. And we're working hard toward capturing more share of the consumer demanded products for our products. TRUVAIL, which is already available, and you can see more about that on our website, is the portfolio, the platform portfolio that we're in discussions with numerous consumer products companies about at this time. We look forward to in our Q4 call sharing more with you, we're in a rigorous planning process for 2022, we'll also be updating our plans for the longer-term and are excited about sharing that with you in Q4.

Okay, great. And one more question for -- from our retail audience, what markets do Benson Hill consider promising outside of plant-based protein and what's the development lead times for those markets?

Sure, sure. So we believe there's tremendous opportunity. And broadly speaking the consumer-led “food is health” movement, which is really in its early days. CropOS and its capabilities can apply to a lot of crops, both large and small, as well as in emerging categories like the vertical farming space. So we're, for instance, already invested in the fresh produce market for the purpose of this broader “food is health” movement. And we're beginning to use CropOS to research and to develop food innovations there that will come to life in the future. It's a longer term value prop though. So it's really too early to talk about specifics in this area. But in the near-term, we really are focused on capturing share in the plant-based category, and particularly with the soy portfolio as mentioned and in the medium-term with innovations that are coming online in yellow pea.

So those are several of the questions that we received from the retail audience, there are others and in the essence of time, we'll move to the live audience. But we'll go and use the Reddit forum to answer some of those questions and get back to investors. And we appreciate the retail investor interest in Benson Hill and our partnership with Say Technologies gives us that opportunity to hear from them. So now we'll move over to the live Q&A session. Again, use the raise your hand feature if you'd like to ask a question. And our first question is from Ben Theurer from Barclays.

Hey, Ben.

Hey there, does it work?

Hey, there you are. How are you, Ben?

I'm very good. So, good morning, and congrats on the results. So two questions, actually one was answered and asked already by the retail audience. I'm very pleased with that, and thank you very much for the clarification on the revenue outlook and plant-based meat. And I think you're right with the consideration that there is just a lot of newcomers coming into the system, and ultimately, maybe what two companies are saying is not indicative for what an industry is trending towards. Now that put aside, and I mean, obviously we have -- there's a decline in the industry between using pea protein versus -- there's a decline in the industry between using pea protein versus soy protein. How do you feel about the growth outlook in between the two and where do you think is actually a bigger potential? Is it within soy just because of the vast majority of growth in acreage which is already available worldwide, but do you really think it's what you have to -- what you can be able to deliver on pea protein? That would be my first question.

Sure, sure. Well, both supply benefit and value. When we think about soy, it's obviously the predominant crop of choice, but in other markets, in certain other markets, it's not the crop of choice or the ingredient of choice. And so what Benson Hill is really focused on doing is investing in innovation to provide that choice to a wide stakeholder base to a large number of the food innovators and the CPGs that want multiple options. I will say from a soy versus yellow pea standpoint, the productivity of soy is quite high. On an output of protein per unit input basis, it's a very efficient producer of high quality, very healthy protein. And it's enabled in many respects, the market to really lift off in the manner that it has now. On the yellow pea side, it's the fastest growing source of alternative plant-based protein for the alternative meat substitute category. And so while it's starting from a smaller base, and certainly there's not a great deal of acreage versus a soy, as I sometimes like to say, a few acres of soy will make a lot of hamburger, and yellow pea is no exception. It doesn't require 10s of millions of acres to satiate the demands that are in this category. And I hope that that's reflected as well in the acreage that Benson Hill continues to show ramping across both of these crop areas.

Yes, perfect. Thank you very much, Matt, for that. And then Deann, you've kind of laid out during your prepared remarks some of the one-time costs you have during your forecast closing, obviously impacting here significantly. So if we think going forward for the coming quarters, a run rate somewhere plus minus $15 million in SG&A, would that be a fair assumption or is there anything else which you've talked about the accruals and the stock components that we need to consider going forward as well in the SG&A part?

Ben, I think that's in the ballpark. I think ultimately though, I would say we are building the resources we need to deliver on the commercialization of our products. And so as we're going through the planning process for 2022, we're looking at that very critically and balancing kind of the investments we need to make with the resources that we have available. So I think a little bit TBD, but I think they're probably in the ballpark.

Okay. And then one last one, if I may squeeze it in, that one is, I guess for Matt again. So when you talk about the guidance, the $127 million meet or exceed, does it come down to what the Fresh segment is ultimately going to do to help you to either exceed it or just meet it because of the current weakness and the strong supply and hence below price in the Fresh segment?

I'm actually going to ask Deann to answer. Deann?

To ask Deann back.

And you're right, I mean, Fresh is a little bit of an uncertainty right now that those macro dynamics are a challenge, where we're seeing really great results into the fourth quarter already is on the Ingredients side. And as you know, that is a big part of our focus, our major focus. With the startup of the Seymour plant, very minimal revenue from that in the third quarter, but we do see that happening in a bigger way in the fourth quarter. So we've talked about -- I'll just jump into the seasonality question, we've talked about that historically, we haven't had much in the way of seasonality, but as we grow that Ingredients revenue, we will be relooking at that and communicating more around that.

Yes, perfect. I'll leave it there. Thank you very much.

Yes.

So if anyone has any other questions, please use the raise your hand feature, right now Ben is the only one. So give the people a moment to see if they have any other questions for us.

You always got to give enough time.

Okay, no other questions.

Okay. No other questions.

So, thank you very much for participating today in our third quarter earnings call, and we'll be happy to take your questions offline, just reach out and we will communicate with you guys in the future. Thank you.

Okay.

Thanks. Have a great day.