Benson Hill (BHIL) 10-Q2023 Q3 Quarterly report

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations, assuming we will continue as a going concern.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial reporting and SEC regulations. The unaudited condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year ended December 31, 2023. A description of our significant accounting policies is included in the notes to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2022 audited consolidated financial statements and the notes thereto.

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and an Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Certain prior period balances have been reclassified to conform to the current period presentation in the unaudited condensed consolidated financial statements and the accompanying notes.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to remain an emerging growth company at least through December 31, 2023 and expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and non-public companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, we intend to rely on such exemptions, we are not required to, among other things: (a) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (b) provide all of the compensation disclosures that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2026, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant management estimates include those with respect to allowance for doubtful accounts, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill and the estimated value of our warrant liabilities and conversion option liabilities.

We consider all short-term, highly liquid investments with maturities of 90 days or less at the acquisition date to be cash equivalents. Restricted cash primarily represents cash proceeds from the sale of certain assets pursuant to the covenants with a lender. Restricted cash is classified as non-current if we expect that the cash will remain restricted for a period greater than one year. Current restricted cash is included in the prepaid expenses and other current assets on the condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets, inclusive of $158 of cash and cash equivalents reported within current assets of discontinued operations as of September 30, 2023 to the amount shown in the condensed consolidated statements of cash flows. There was no restricted cash as of September 30, 2022.

Goodwill, arising from a business combination as the excess of purchase price and related costs over the fair value of identifiable assets acquired and liabilities assumed is not amortized and is subject to an annual impairment test as of December 1, unless events indicate an interim test is required. In performing this impairment test, management will first qualitatively assess indicators of a reporting unit’s fair value. If, after completing the qualitative assessment, management believes it is likely that a reporting unit is impaired, a discounted cash flow analysis is prepared to estimate the fair value of the reporting unit.

Critical estimates in the determination of the fair value of each reporting unit include, but are not limited to, future expected cash flows based on estimates of future sales volumes, sales prices, production costs, and discount rates. These estimates

generally constitute unobservable Level 3 inputs under the fair value hierarchy. An adjustment to goodwill will be recorded for any goodwill that is determined to be impaired.

During the second quarter of 2023, we identified an indicator of impairment and determined it was no longer more likely than not that the fair value of our sole reporting unit was in excess of the carrying value. As a result, a quantitative goodwill and separately identifiable intangible asset impairment assessment was performed as of June 30, 2023, and we recorded an impairment of the carrying value of goodwill of $19,226, which represented the entire goodwill balance prior to the impairment charge. The goodwill impairment charge had an immaterial impact on the provision for income taxes.

In June 2023, we announced that our former Chief Executive Officer (CEO) agreed to resign from our Company effective June 15, 2023, and entered into a consulting agreement to provide transition support through June 15, 2024. In connection with the separation, we modified the terms of our former CEO’s outstanding stock awards to (1) continue vesting over the consulting period through June 15, 2024, if continuous service is achieved with us; (2) extend the period during which the vested stock options may be exercised for a period of 90 days following the termination of consultancy, if continuous service is achieved with us; and (3) extend the period in which performance-based vesting conditions for restricted stock units may be achieved through June 15, 2024, if continuous service is achieved with us. As a result of the stock award modifications, we recorded a $6.2 million decrease to stock-based compensation expense for the nine months ended September 30, 2023.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU 2022-06 and deferred the sunset date of the Reference Rate Reform (Topic 848) from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate

reform. We have a floating rate revolving credit facility, a term loan and an equipment loan due in 2024 and plans on phasing out LIBOR as a reference rate before December 31, 2024.

On December 30, 2021, we completed the acquisition of a food-grade white flake and soy flour manufacturing operation and related assets through the acquisition of ZFS Creston, LLC, a Delaware limited liability company (“ZFS Creston”), for aggregate cash consideration of $103,099, which included a working capital adjustment payment of $1,034 in the first quarter of 2022.

On December 29, 2022, we entered into a Stock Purchase Agreement (the “Stock Sale”) to sell J&J Produce, Inc. (“J&J”) and all of the outstanding equity securities of J&J’s subsidiaries for aggregate cash consideration of $3,000, subject to certain adjustments. In connection with the Stock Purchase Agreement, on December 29, 2022, J&J entered into a Purchase and Sale Agreement, pursuant to which J&J sold certain real and personal property comprising an agricultural production and processing facility located in Vero Beach, Florida, for an aggregate purchase price of $18,000, subject to certain adjustments. Certain property was leased back to J&J pursuant to a separate agricultural and facility lease for a short period of time. On June 30, 2023, we closed the Stock Sale. As of September 30, 2023, the carrying value of assets and liabilities in discontinued operations approximated their fair value due to their short maturities.

As of December 31, 2022, the fair value of the debt included in the liabilities from discontinued operations was $3,305. Fair values are based upon valuation models using market information, which fall into Level 3 in the fair value hierarchy. We capitalized no interest costs into property and equipment for the three and nine months ended September 30, 2023. We capitalized interest costs of $456 and $1,236, respectively, into property and equipment for the three and nine months ended September 30, 2022.

Assets and liabilities recorded at fair value on a recurring basis on the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1 — Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our financial instruments consist of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, commodity derivatives, commodity contracts, accounts payable, accrued liabilities, warrant liabilities, conversion option liabilities, and notes payable. As of September 30, 2023 and December 31, 2022, we had cash and cash equivalents of $12,041 and $25,053, respectively, which include money market funds with maturities of less than three months. As of September 30, 2023 and December 31, 2022, we had restricted cash of $20,438 and $17,912. At September 30, 2023 and December 31, 2022, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximated fair value due to their short maturities.

The following tables provide the financial instruments measured at fair value on a recurring basis based on the fair value hierarchy:

There were no transfers of financial assets or liabilities into or out of Level 1, Level 2, or Level 3 for 2023 or 2022.

The significant inputs to the valuation of Level 3 warrants and conversion option liabilities as of September 30, 2023 were as follows:

The significant inputs to the valuation of Level 3 warrants and conversion option liabilities as of December 31, 2022 were as follows:

The following table summarizes the changes in the warrants and conversion option liabilities categorized as Level 3 for the three and nine months ended September 30, 2023 and 2022:

We have invested in marketable debt securities, primarily investment-grade corporate bonds, preferred stock, and highly liquid U.S Treasury securities, which are held in the custody of a major financial institution. These securities are classified as available-for-sale and, accordingly, the unrealized gains and losses are recorded through other comprehensive income and loss.

Marketable securities classified as available-for-sale securities are summarized below:

The aggregate fair value of investments with unrealized losses that had been owned for less than a year was $17,662 and $66,296 as of September 30, 2023 and December 31, 2022, respectively. The aggregate fair value of investments with unrealized losses that had been owned for more than one year was $30,800 and $64,723 as of September 30, 2023 and December 31, 2022, respectively.

Available-for-sale investments outstanding as of September 30, 2023, classified as marketable securities in the condensed consolidated balance sheets, have maturity dates ranging from the fourth quarter of 2023 through the fourth quarter of 2026. The fair value of marketable securities as of September 30, 2023 with maturities within one year and one to five years is $28,417 and $25,107, respectively. We classify available-for-sale investments as current based on the nature of the investments and their availability to provide cash for use in current operations, if needed.

We use exchange-traded futures to manage price risk of fluctuating Chicago Board of Trade prices related to forecasted purchases and sales of soybeans and soybean related products in the normal course of business. These risk management activities are actively monitored for compliance with our risk management policies.

As of September 30, 2023, we held financial futures related to a portion of our forecasted purchases of soybeans for an aggregate notional volume of 8,870 bushels of soybeans; 6,965 bushels of the aggregate notional volume will settle in 2023 with the remaining 1,905 bushels settling in 2024. As of September 30, 2023, we held financial futures related to a portion of our forecasted sales of soybean oil for an aggregate notional volume of 403 pounds of soybean oil; 385 pounds of soybean oil will settle in 2023 with the remaining settling in 2024. As of September 30, 2023, we held financial futures related to a portion of our forecasted sales of soybean meal for an aggregate notional volume of 67 tons of soybean meal; 61 tons of soybean meal will settle in 2023 with the remaining settling in 2024.

We had a current asset representing excess cash collateral posted to a margin account of $2,336 and $2,714 as of September 30, 2023 and December 31, 2022, respectively. These amounts are not included with the derivatives presented in the table above and are included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Currently, we do not seek cash flow hedge accounting treatment for our derivative financial instruments and thus changes in fair value are reflected in current earnings.

The tables below show the amounts of pre-tax gains and losses related to our derivatives:

Our soybean positions are designed to hedge risk related to inventory purchases, therefore the gains and losses on soybean instruments are recorded in cost of sales in the condensed consolidated statements of operations. Our soybean oil and soybean meal positions are designed to hedge risk related to sales transactions therefore the gains and losses on soybean oil and soybean meal instruments are recorded in revenues in the condensed consolidated statements of operations.

We classify the cash effects of our derivatives within the “Cash Flows from Operating Activities” section of the condensed consolidated statements of cash flows.

Inventories, net consist of the following:

Work-in-process inventory consists of seed provided to contracted seed producers and growers with which we hold a purchase option for, or are required to purchase the future harvested seeds or grains. It also includes crops under production which represent the direct costs of land preparation, seed, planting, growing, and maintenance.

In April 2019, our wholly-owned subsidiary, Dakota Dry Bean, Inc. (“DDB”) entered into a Credit Agreement comprised of a $14,000 aggregate principal amount of floating rate, five-year term loan (“DDB Term Loan”), a $3,500 floating rate, five-year loan to be used for facility expansion (“DDB Equipment Loan”), and a $6,000 floating rate revolving credit facility (“DDB Revolver”), which is renewed annually (together the “Credit Agreement”). In the fourth quarter of 2022, the DDB Revolver maturity date was extended to November 2023. In the second quarter of 2023, the DDB Term Loan maturity date was extended to April 2025. As of September 30, 2023, the interest rate is U.S. prime rate plus 0.75% on the DDB Term Loan and DDB Equipment Loan, and U.S. prime rate plus 0.25% on the DDB Revolver.

The Credit Agreement is secured by substantially all of DDB’s real and personal property and is guaranteed, in part, by Benson Hill, Inc., DDB’s parent company, to a maximum of $7,000. The DDB Term Loan is payable in equal quarterly installments of $284 plus interest with the remaining balance of $4,834 due in April 2025. The DDB Equipment Loan is payable in equal quarterly installments of $175 plus interest through July 2024.

Under the Credit Agreement, DDB and us must comply with certain financial covenants based on DDB’s operations, including a minimum working capital covenant, a minimum net worth covenant, a funded debt to EBITDA ratio covenant, and a fixed charge coverage ratio covenant.

In December 2021, we entered into a financing agreement with an investment firm (the “Convertible Loan and Security Agreement”), which included a commitment by the lender to make term loans available to us in an amount of up to $100,000 with $80,000 available immediately. Under the original Convertible Loan and Security Agreement, upon our achievement of certain milestones, a second tranche of $20,000 became available on June 30, 2022 and we could elect to extend the interest-only period from 12 to 24 months and the maturity date by six months as of September 30, 2022.

We executed term notes with the lender in December 2021 in the aggregate amount of $80,000 with an initial term of 36 months payable in interest only, at the greater of (a) the prime rate of interest as published in the Wall Street Journal or (b) 3.25% per annum, plus 5.75% per annum for the first 12 months and principal and interest payments for the remaining 24 months. The term notes are secured by substantially all of our assets.

In June 2022, we amended the Convertible Loan and Security Agreement (“First Amendment”), which changed the definition of gross margin, and modified the Conversion Price and the Exercise Price. The change to the definition of gross margin removed the impact of derivative hedging gains or losses related to future periods and resulted in our achievement of the milestones required to draw on the second tranche. We drew on the full $20,000 available under the second tranche upon entering into this amendment.

In November 2022, we entered into a second amendment to the Convertible Loan and Security Agreement (“Second Amendment”), which, among other things, changed the definition of Outstanding Shares based on the updated definition of Market Cap Threshold I. Additionally, the required minimum liquidity covenant requirement was reduced from six months to four months. The Second Amendment also increased the designated interest rate by 25 basis points. Pursuant to the Second Amendment, we achieved the milestones required to extend the interest-only period from 12 to 24 months and extend the maturity date by six months. This extended the interest-free period through 2023 and the maturity date to June 2025.

In March 2023, we entered into a third amendment to the Convertible Loan and Security Agreement (“Third Amendment”), which, among other things, extended the interest-only period for six months through the second quarter of 2024 and allowed the restricted cash to be counted towards the required minimum liquidity covenant calculation. In addition, the Third Amendment increased the final balloon payment by 200 basis points and reset the prime rate floor from 5.75% to 7.75%.

As of September 30, 2023, upon maturity or other satisfaction of the term notes, a final payment (in addition to other payments of principal and interest) equal to $12,700 is payable by us to the lenders. In the event the term notes are prepaid, a prepayment fee is due, ranging from 1% to 6% of the principal amount of the term notes, based upon the time from the initial closing to the prepayment date.

At any time after six months and before 42 months from the closing date of the initial term notes, up to $20,000 of the principal amount of the term loans then outstanding may be converted (at the lender’s option) into shares of our common stock.

The conversion option is subject to: (a) the closing sales price of our common stock for each of the seven consecutive trading days immediately preceding the conversion, being greater than or equal to the conversion price; (b) the shares of our common stock issued in connection with any such conversion not exceeding 20% of the total trading volume of our common stock for the 22 consecutive trading days immediately prior to and including the effective date of the conversion; and (c) all lenders’ pro forma shares of our common stock resulting from the conversion option, when added to all lenders’ pro forma shares of our common stock resulting from the exercise of the warrants, not exceeding 2.5% of the number of shares of our common stock outstanding at the time of the conversion.

As of September 30, 2023, the lender has not yet exercised their conversion option for any portion of the outstanding principal. The fair value of the conversion option, an estimated $8,783 at issuance, was recorded as a debt discount, which is amortized over the life of the term notes using the effective interest method and recorded as interest expense.

Under the terms of the Convertible Loan and Security Agreement, we must comply with certain affirmative, negative, and financial covenants. These covenants are primarily restrictions on our activities, including restrictions on indebtedness, liens, dividends, and significant business changes. We are required to maintain, at all times, a minimum remaining months liquidity

equal to or greater than six months. We were in compliance with the financial covenants under the Convertible Loan and Security Agreement during the nine months ended September 30, 2023.

In March 2022, we entered into a sale-leaseback transaction relating to certain of our equipment. We evaluated whether the transaction qualified as a sale under ASC 606 and ultimately determined that as the leases are classified as financing leases under ASC 842, the transaction did not qualify as a sale and therefore control of the equipment was not transferred. Therefore, the proceeds from the sales of $1,160 were recorded as a financing liability in 2022. We will make monthly payments of $33 under the financing arrangement for a term of 36 months.

Our effective tax rate was 0% for the three and nine months ended September 30, 2023 and 2022. The 2023 and 2022 effective tax rates differed from the statutory rate of 21% primarily due to the fact that we recorded no income tax benefit on our pretax losses as we recorded a full valuation allowance globally. The tax benefit recorded in 2023 relates primarily to the reversal of deferred tax liabilities due to the impairment of goodwill.

Our other comprehensive income (loss) (“OCI”) consists of unrealized gains and losses on marketable debt securities classified as available for sale and foreign currency translation adjustments from our subsidiaries in Brazil and Canada.

The following table shows changes in accumulated other comprehensive income (“AOCI”) by component for the three and nine months ended September 30, 2023 and 2022:

Amounts reclassified from AOCI were reported within “Other (income) expense, net” on the condensed consolidated statements of operations. The Company’s accounting policy is to release the income tax effects (if applicable) from AOCI when the individual units of account are sold.

The following table sets forth the computation for basic and diluted net loss from continuing operations per common share: